<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
REGISTRATION NO. 333-48235
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DEL MONTE FOODS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 13-3542950
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE MARKET
SAN FRANCISCO, CALIFORNIA 94105
TELEPHONE: (415) 247-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM R. SAWYERS, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
DEL MONTE FOODS COMPANY
ONE MARKET
SAN FRANCISCO, CALIFORNIA 94105
TELEPHONE: (415) 247-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
JANET L. FISHER, ESQ. PAUL C. PRINGLE, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON BROWN & WOOD LLP
ONE LIBERTY PLAZA 555 CALIFORNIA STREET
NEW YORK, NEW YORK 10006 SAN FRANCISCO, CALIFORNIA 94104
TELEPHONE: (212) 225-2000 TELEPHONE: (415) 772-1200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value (3) (3) $373,756,900 $103,904
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2)A registration fee of $110,258 was previously paid as reflected in
Pre-Effective Amendment No. 3 to this Registration Statement, which was filed
with the Commission on June 30, 1998.
(3) Not applicable pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
DEL MONTE FOODS COMPANY
REGISTRATION STATEMENT ON FORM S-1
(Cross Reference Sheet Furnished Pursuant to Item 501(b) of Regulation S-K)
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
----------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Outside Front Cover Page of Prospectus
2. Inside Front Cover Page of Prospectus.... Inside Front Cover Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Outside Front Cover Page of Prospectus;
Underwriters
6. Dilution................................. Risk Factors; Dilution
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Outside Front Cover Page of Prospectus;
Underwriters
9. Description of Securities to be
Registered................................. Description of Capital Stock
10. Interest of Named Experts and Counsel.... Legal Matters; Experts
11. Information with Respect to the
Registrant................................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Capitalization;
Dilution; Unaudited Pro Forma Financial Data;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Corporate History;
Management; Principal Stockholders; Certain
Relationships and Related Transactions;
Description of Capital Stock; Description of
Certain Indebtedness; Shares Eligible for
Future Sale; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
EXPLANATORY NOTE
This Registration Statement contains two separate prospectuses, one to be
used in connection with an offering of common stock in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent offering of
common stock outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus will be
identical in all respects except for the front cover page.
The form of the U.S. Prospectus is included herein and the form of the
front cover page of the International Prospectus follows the back cover page of
the U.S. Prospectus.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued December 23, 1998
Shares
DEL MONTE FOODS COMPANY
COMMON STOCK
[DEL MONTE LOGO]
------------------------
DEL MONTE IS OFFERING SHARES OF COMMON STOCK INITIALLY IN THE UNITED
STATES AND CANADA AND SHARES INITIALLY OUTSIDE THE UNITED STATES AND
CANADA. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY
EXISTS FOR OUR SHARES. DEL MONTE ANTICIPATES THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $ AND $ PER SHARE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE, ON THE
NEW YORK STOCK EXCHANGE AND THE PACIFIC EXCHANGE UNDER THE SYMBOL "DLM."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------- -------------- ------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total......................................... $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Del Monte has granted the underwriters the right to purchase up to an additional
shares to cover overallotments. The underwriters expect to deliver the
shares to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS & CO.
, 1999
<PAGE> 4
[PHOTOGRAPHS DEPICTING COLLAGES OF COMPANY PRODUCTS TO BE INSERTED ON
INSIDE FRONT COVER AND INSIDE BACK COVER PAGES]
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
General Information................... 9
Risk Factors.......................... 10
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Unaudited Pro Forma Financial Data.... 18
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 40
Corporate History..................... 57
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................ 59
Principal Stockholders................ 68
Certain Relationships and Related
Transactions........................ 70
Description of Capital Stock.......... 72
Description of Certain Indebtedness... 74
Certain U.S. Tax Consequences to
Non-U.S. Holders.................... 77
Shares Eligible for Future Sale....... 78
Underwriters.......................... 79
Legal Matters......................... 82
Experts............................... 82
Index to Financial Statements......... F-1
</TABLE>
You should rely only on the information contained in this prospectus. Del Monte
has not authorized anyone to provide you with information different from that
contained in this prospectus. Del Monte and the underwriters are offering to
sell shares of common stock and seeking offers to buy shares of common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or any sale of the common
stock.
DEL MONTE AND THE UNDERWRITERS HAVE NOT TAKEN ANY ACTION TO PERMIT A PUBLIC
OFFERING OF THE SHARES OF COMMON STOCK OUTSIDE THE UNITED STATES OR TO PERMIT
THE POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS OUTSIDE THE UNITED STATES.
PERSONS OUTSIDE THE UNITED STATES WHO COME INTO POSSESSION OF THIS PROSPECTUS
MUST INFORM THEMSELVES ABOUT AND OBSERVE ANY RESTRICTIONS RELATING TO THE
OFFERING OF THE SHARES OF COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS
OUTSIDE OF THE UNITED STATES.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE SHARES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
i
<PAGE> 6
PROSPECTUS SUMMARY
The following summary highlights some of the information in this prospectus. It
is not complete and may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements. Unless the context otherwise requires, "Del Monte" means Del Monte
Foods Company, and the "Company" means Del Monte and its consolidated
subsidiaries. The Company's fiscal year ends on June 30, and its fiscal quarters
end on the last Sunday of September, December and March. The "Contadina
Acquisition" means the Company's acquisition of assets comprising Nestle USA,
Inc.'s ("Nestle") U.S. business of manufacturing and marketing certain canned
tomato products ("Contadina"). Unless this prospectus states otherwise, all
information assumes the underwriters do not exercise the overallotment option.
THE COMPANY
The Company manufactures and distributes premium quality, nutritious food
products under the Del Monte and other brand names. The Company is the largest
producer of canned vegetables and canned fruit in the United States, with pro
forma net sales of $1.4 billion in fiscal 1998. The Del Monte brand was
introduced in 1892, and management believes it is the best known brand among
canned food products in the United States. The Company believes that the wide
range of its products provides a competitive advantage in reaching retail
grocery customers.
The Company sells its products through national grocery chains and
independent grocery stores. The Company also sells to warehouse club stores and
mass merchandisers, such as Wal-Mart and Kmart, and larger merchandising outlets
that include full grocery sections, such as Wal-Mart Supercenters and Kmart's
Super Ks. The Company also sells its products to the foodservice industry, food
processors, the U.S. military and in certain export markets. The Company has 14
production facilities in California, the Midwest, Washington and Texas and six
distribution centers.
The Company was recapitalized in April 1997. In that transaction, Texas
Pacific Group, a private investment group, obtained a controlling interest in
the Company. Under a new senior management team, the Company has implemented a
new strategy to increase its sales and margins. This strategy includes (i)
increasing market share and household penetration of the Company's existing high
margin value-added products; (ii) introducing new products and new forms of
packaging such as glass and plastic; (iii) increasing penetration of high growth
distribution channels, such as supercenters, mass merchandisers and warehouse
clubs; (iv) achieving cost savings through operating efficiencies, plant
consolidations and investments in new and upgraded equipment; and (v) completing
strategic acquisitions.
COMPETITIVE STRENGTHS
Del Monte believes it has the following competitive strengths:
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte brand
name is a leading name in the food industry. The Company recently acquired the
Contadina brand name, which is also well-established nationally with a strong
reputation for quality. For the 52 weeks ended September 26, 1998, the Company
had the largest market share among producers of branded food products in
canned vegetable (20.5%), canned fruit (42.6%) and the high margin, canned
solid tomato category (16.5%).
- - TECHNICAL EXPERTISE AND LOW COST PRODUCTION ADVANTAGES -- The Company has
significant experience in developing new and innovative products and packaging
forms to generate increased sales. The Company also has significant expertise
in creating efficient food processing operations to reduce costs. The Company
can leverage each of these capabilities across many food categories. The
Company provides technical support to and benefits from its many long-term
relationships with experienced growers who work with the Company to maximize
yields on the Company's vegetable, fruit and tomato raw materials. Based on
these and other factors, the Company believes that it is one of the lowest
cost producers in its product lines in the United States.
1
<PAGE> 7
- - PREFERRED SUPPLIER STATUS -- Competitive pressures and mergers among grocery
chains are causing many retailers to prefer large suppliers that, as a single
vendor, can provide category expertise, continuity of supply, complete product
lines and popular brands. These retailers are also demanding that suppliers
have sophisticated technology, including inventory and category management
programs. The Company anticipated these trends and has developed proprietary
software tools to help its customers and promote sales of its products. Most
of the customers that have used the Company's management tools have increased
the shelf space they devote to the Company's products. The Company has strong,
well-developed relationships with all major participants in the retail grocery
industry and believes that these relationships will become increasingly
important as consolidation in the industry continues.
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company has an
extensive sales and distribution network that permits the Company to compete
efficiently with other national brands and regional competitors and to
introduce its products regionally or nationally.
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, Del
Monte's Chief Executive Officer and Chief Operating Officer, are veteran
senior managers with extensive food industry experience. Mr. Wolford has
worked 32 years in the food industry, 20 of which were with Dole. Mr. Smith
has 26 years of experience in the food industry, 23 of which were also at
Dole.
BUSINESS STRATEGY
The Company's business strategy has the following key elements:
- - LEVERAGE BRAND EQUITY TO INCREASE SALES AND MARKET SHARE OF HIGH MARGIN
PRODUCTS -- The Company plans to leverage the Del Monte and Contadina brand
names and its strong relationships with customers to increase sales of its
existing product lines, focusing specifically on high margin, value added
products, such as its specialty fruits and vegetables, diced tomatoes and its
single serve Fruit Cup snack line. These products have underdeveloped
potential due to either low market shares or low household penetration
relative to the Company's overall position in the relevant food category.
- - FOCUS ON CONSUMPTION DRIVEN MARKETING -- The Company has refocused its
marketing efforts and promotional strategy. To leverage its brand strength,
the Company has increased consumer-targeted marketing programs, primarily
through coupons, and has clearly positioned its products to emphasize their
premium quality. The Company has also implemented performance-based programs
for its trade spending with its customers. Under these programs, the Company
manages trade spending, which consists of the costs of promotional activities
with grocery chains and other customers (such as special displays, discounts
and advertisements), based on retailers' sales of the Company's products to
customers, rather than on their purchases of products from the Company.
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
emphasizing new, higher margin products and line extensions to leverage the
Company's presence in its existing product categories and to capitalize on its
food technology expertise. The Company is also developing new packaging forms
such as glass and plastic. These innovations have resulted in the successful
introduction of flavored diced tomatoes, two lines of single serve flavored
canned fruit and Orchard Select, a premium fruit product packaged in glass.
The Company has begun testing single serve fruit products packaged in plastic.
These products extend the Company's traditional product lines and appeal to
consumer demand for high quality, convenient and nutritious food products.
- - INCREASE PENETRATION OF HIGH-GROWTH DISTRIBUTION CHANNELS -- Alternative
retailers, such as warehouse clubs, mass merchandisers and supercenters, have
grown as the retail grocery industry has changed in recent years. The Company
believes that it is well-positioned to benefit from these changes because
these vendors generally seek leading brand name products that generate high
inventory turnover. These vendors are also attracted to reliable suppliers
with full product lines that have the ability to meet their stringent
inventory and shelf management requirements. Based on its internal estimates,
the Company believes it is a leading supplier to Wal-Mart's Sam's Club,
PriceCostco and Wal-Mart Supercenters.
2
<PAGE> 8
- - IMPLEMENT FURTHER COST SAVINGS -- The Company is aggressively pursuing cost
reduction opportunities, which have already made substantial contributions to
the Company's operating cash flow. The Company plans to implement capital
projects that offer rapid returns on investment and to consolidate its plants
where that would increase efficiency. The Company is also investing in new,
state-of-the-art production equipment to strengthen its position as a low cost
producer.
- - COMPLETE STRATEGIC ACQUISITIONS -- The Company continuously reviews
acquisition opportunities and will pursue acquisitions to increase margins and
profitability by leveraging the Company's key strengths in product
development, food processing, marketing, sales and distribution. The Company
seeks (i) strong brands, including those with value added product lines, that
can be expanded by leveraging the Company's technical and manufacturing
expertise and/or its sales and distribution systems; (ii) new products that
can grow faster through re-branding under one of the Company's brand names;
and (iii) economies of scale in manufacturing, distribution and capacity
utilization.
--------------------------
After the offering, TPG Partners, L.P. ("TPG Partners") and some of its
affiliates (with TPG Partners, "TPG") will own % of the common stock
( % if the underwriters exercise the overallotment option in full) and will
be able to control the Company's management and policies and matters requiring
stockholder approval. TPG is part of Texas Pacific Group. David Bonderman, James
G. Coulter and William S. Price, III founded Texas Pacific Group in 1992 to
pursue public and private investment opportunities. TPG's other investments
include Beringer Wine Estates Holdings, Inc., Ducati Motors S.p.A., Favorite
Brands International, Inc. and J. Crew Group, Inc.
Del Monte is a Delaware corporation, with its principal executive office at
One Market, San Francisco, California 94105. Its telephone number is (415)
247-3000.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered in:
United States offering................................... _______ shares
International offering................................... _______ shares
Total................................................. _______ shares
Common stock to be outstanding after the offering.......... _______ shares
Use of proceeds............................................ Del Monte intends to use the net
proceeds from the offering to repay or
redeem certain outstanding
indebtedness and preferred stock. See
"Use of Proceeds."
Proposed New York Stock Exchange and Pacific Exchange
symbol................................................... DLM
Risk factors............................................... For a discussion of certain risks that
you should consider, see "Risk
Factors." These risks include, among
others, the Company's substantial
leverage and risks relating to
competition in the processed food
industry, the implementation of the
Company's business strategy and the
effects of severe weather conditions,
as well as risks and considerations
relating to the common stock, such as
the lack of a prior trading market and
the dilution that purchasers will
experience upon completion of the
offering.
</TABLE>
3
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
In December 1997, the Company completed the Contadina Acquisition for a
total purchase price of $197 million, comprised of a base price of $177 million
and an estimated net working capital adjustment of $20 million. The
consideration was paid solely in cash. The purchase price was subject to
adjustment based on the final calculation of net working capital as of the
closing date. Nestle provided its estimate of the net working capital, which
resulted in a payment to the Company of $2 million. This in turn reduced the
purchase price to a total of $195 million. The Contadina Acquisition also
included the assumption of liabilities of approximately $5 million, consisting
primarily of liabilities in respect of reusable packaging materials, employee
benefits and product claims. The Company accounted for the Contadina Acquisition
using the purchase method of accounting.
The following table presents summary historical and pro forma financial
data of the Company. The summary historical consolidated financial data as of
June 30, 1996, 1997 and 1998 and for the years then ended were derived from the
audited consolidated financial statements of the Company. The summary historical
consolidated financial data as of September 30, 1997 and 1998 and for the three
months then ended were derived from the unaudited interim financial statements
of the Company. You should read this historical financial information in
conjunction with the consolidated financial statements of the Company. The
Company prepared the unaudited pro forma statement of operations information as
if the Contadina Acquisition and related financings had occurred as of July 1,
1997 (the results of operations of Contadina since the date of acquisition have
been included in the historical Company revenues and expenses for the year ended
June 30, 1998 and the three months ended September 30, 1998). You should read
this information in conjunction with the pro forma financial information set
forth under "Unaudited Pro Forma Financial Data." The unaudited pro forma
statement of operations information does not purport to represent what the
Company's results of operations actually would have been if the Contadina
Acquisition had occurred on the date indicated or what those results will be for
any future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------------------- ------------------------
ACTUAL PRO FORMA ACTUAL
------------------------------------ ------------- ------------------------
1996 1997 1998 1998 1997 1998
---------- ---------- ---------- ------------- ----------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................... $ 1,305 $ 1,217 $ 1,313 $ 1,405 $ 251 $ 318
Cost of products sold........................ 984 819 898(a) $ 973(a) 172 218
Selling, administrative and general
expense.................................... 239 327(b) 316 341 62 80
Special charges related to plant
consolidation(c)........................... -- -- 10 10 -- 7
Acquisition expenses......................... -- -- 7 7 -- 1
---------- ---------- ---------- ---------- ---------- ----------
Operating income............................. 82 71 82 74 17 12
Interest expense............................. 67 52 77 86 17 21
(Gain) loss on sale of divested assets(d).... (123) 5 -- -- -- --
Other (income) expense....................... 3 30(e) (1) (1) -- 2
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes, minority
interest, extraordinary item and cumulative
effect of accounting change................ 135 (16) 6 (11) -- (11)
Provision for income taxes................... 11 -- 1 1 -- --
Minority interest in earnings of
subsidiary................................. 3 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item
and cumulative effect of accounting
change..................................... 121 (16) 5 (12) -- (11)
Extraordinary loss(f)........................ 10 42 -- -- -- --
Cumulative effect of accounting change(g).... 7 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............................ 104 (58) 5 (12) -- (11)
Preferred stock dividends.................... 82 70 5 5 2 1
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to common
shares(h).................................. $ 22 $ (128) $ -- $ (17) $ (2) $ (12)
========== ========== ========== ========== ========== ==========
Net income (loss) per common share........... $ 0.29 $ (2.07) $ 0.01 $ (0.50) $ (0.06) $ (0.34)
Weighted average number of shares
outstanding................................ 75,047,353 61,703,436 31,619,642 34,812,008 26,815,880 35,495,683
</TABLE>
4
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------------ -----------------------
ACTUAL PRO FORMA ACTUAL
------------------------------------ --------- -----------------------
1996 1997 1998 1998 1997 1998
---------- ---------- ---------- --------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CERTAIN DATA AS ADJUSTED FOR THE OFFERING:(i)
Interest expense(j)............................... $62 $ 14
Net income (loss)................................. 12 (4)
Net income (loss) per common share................
Weighted average number of shares outstanding.....
OTHER DATA:
Adjusted EBITDA(k)................................ $ 92 $ 119 $ 135 $ 23 $ 30
Adjusted EBITDA margin(k)......................... 8.6% 10.2% 10.3% 9.2% 9.4%
Cash flows provided by (used in) operating
activities...................................... $ 60 $ 25 $ 97 $(153) $(153)
Cash flows provided by (used in) investing
activities...................................... 170 37 (222) (2) (37)
Cash flows provided by (used in) financing
activities...................................... (224) (63) 127 155 194
Depreciation and amortization(l).................. 26 24 29 31 6 8
Capital expenditures.............................. 16 20 32 37 2 5
SELECTED RATIOS:
Ratio of earnings to fixed charges(m)............. 2.8x -- 1.1x -- 1.0x --
Deficiency of earnings to cover fixed
charges(m)...................................... -- $ 16 -- $11 -- $ 11
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------------------- ------------------------------------
AS
ACTUAL ACTUAL ADJUSTED(I)
------------------------------- ------------------- --------------
1996 1997 1998 1997 1998 1998
---------- ---------- ----- ---------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED)
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 209 $ 118 $ 210 $ 117 $ 171 $ 180
Total assets............................................. 736 667 845 956 1,201 1,195
Total debt, including current maturities................. 373 610 709 765 904 736
Redeemable preferred stock............................... 213 32 33 32 33 --
Stockholders' deficit.................................... (288) (398) (350) (398) (361) (161)
</TABLE>
Note: Financial data under the columns marked "restated" reflect the information
from the Company's restated financial statements.
- ---------------
(a) The historical fiscal year ended June 30, 1998 and the pro forma fiscal
year ended June 30, 1998 include $3 million and $6 million of inventory
write-up as part of the purchase price allocation relating to the
Contadina Acquisition.
(b) In connection with the Company's recapitalization on April 18, 1997, the
Company incurred expenses of approximately $25 million primarily for
management incentive payments and, in part, for severance payments.
(c) In fiscal 1998, the Company recorded charges of $7 million related to
severance and benefit costs for employees to be terminated in connection
with a plant consolidation. The Company also recorded $3 million in fiscal
1998 and $4 million in the three months ended September 30, 1998
representing accelerated depreciation resulting from adjusting remaining
useful lives of assets to match the period of use prior to plant closures.
In addition, in the three-month period ended September 30, 1998, the
Company charged $3 million to earnings representing the write-down to fair
value of certain assets held for sale.
(d) In November 1995, the Company sold its pudding business for $89 million,
net of $4 million of transaction fees, and recorded a gain of $71 million.
In March 1996, the Company sold its 50.1% ownership interest in Del Monte
Pacific Resources Limited ("Del Monte Philippines") for $100 million,
5
<PAGE> 11
net of $2 million of transaction fees, and recorded a gain of $52 million.
In the fiscal quarter ended December 1996, the Company sold its Mexican,
Central American and Caribbean subsidiaries (collectively "Del Monte Latin
America"). The combined sales price of $50 million, reduced by $2 million
of transaction expenses, resulted in a loss of $5 million. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- General."
(e) In fiscal 1997, the Company incurred $22 million of expenses in
conjunction with its recapitalization, primarily for legal, investment
advisory and management fees.
(f) In December 1995 and April 1996, the Company prepaid part of its term
loan and senior secured notes. In conjunction with the early debt
retirement, the Company recorded an extraordinary loss of $10 million for
the early retirement of debt. The extraordinary loss consisted of a $5
million prepayment premium and a $5 million write-off of capitalized debt
issue costs related to the early retirement of debt. In fiscal 1997, the
Company charged to net income $42 million of expenses related to the
early retirement of debt and to the Company's recapitalization. In
September 1996, the Company repurchased outstanding debt and, in
conjunction with that repurchase, the Company wrote off capitalized debt
issue costs of $4 million, net of a discount on such debt. The Company
accounted for the write-off as an extraordinary loss. In conjunction with
the refinancing of debt that occurred at the time of the Company's
recapitalization, the Company recorded a $38 million extraordinary loss
related to the early retirement of debt. The $38 million extraordinary
loss consisted of previously capitalized debt issue costs of
approximately $19 million and a premium payment and a term loan
make-whole payment aggregating to $19 million.
(g) Effective July 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS")No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
cumulative effect of adopting this statement resulted in a charge to
fiscal 1996 net earnings of $7 million.
(h) The Company computes net income (loss) attributable to the shares of
common stock as net income (loss) reduced by the cash and in-kind
dividends for the period on redeemable preferred stock.
(i) Adjusted to give effect to the issuance by the Company of
shares in this offering assuming an initial public offering price of
$ per share and the use of the net proceeds to fund the repayment of
$197 million of long-term debt and the redemption of preferred stock and
a corresponding reduction in fixed charges at the beginning of the
relevant periods.
(j) The table below presents as adjusted interest expense, including the
respective interest rates and related fees, and as adjusted amortization
of deferred financing costs after giving effect to this offering. See
"Use of Proceeds."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1998 SEPTEMBER 30, 1998
------------------------------------ ------------------------------------
INTEREST PRINCIPAL INTEREST INTEREST PRINCIPAL INTEREST
RATE(1) BALANCE(2) EXPENSE(3) RATE(1) BALANCE(2) EXPENSE(3)
-------- ---------- ---------- -------- ---------- ----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revolving Credit Facility.............. 7.74% $ 46 $ 4 7.81% $ -- $--
Tranche A of Term Loan Facility........ 8.08 168 14 7.81 165 3
Tranche B of Term Loan Facility........ 8.63 190 17 8.56 189 4
DMC Notes.............................. 12.25 98 12 12.25 98 3
Del Monte Notes........................ 12.50 84 11 12.50 92 3
--- ---
Pro forma interest expense........... 58 13
Pro forma amortization of deferred
financing costs....................... 4 1
--- ---
Total pro forma interest expense..... $62 $14
=== ===
</TABLE>
- ---------------
(1) Average of month-end interest rates.
(2) Average of month-end principal balances.
(3) Represents product of average month-end interest rate and average
month-end principal balance for the relevant period.
(k) Adjusted EBITDA represents EBITDA (income (loss) before provision for
income taxes, minority interest, extraordinary item, cumulative effect of
accounting change and depreciation and amortization expense, plus interest
expense) before special charges and other one-time and non-cash charges,
less
6
<PAGE> 12
gains (losses) on sales of assets and the results of the Divested
Operations (as defined herein). You should not consider adjusted EBITDA in
isolation from, and it is not presented as an alternative measure of,
operating income or cash flow from operations (as determined in accordance
with GAAP). Adjusted EBITDA as presented may not be comparable to
similarly titled measures reported by other companies. Since the Company
has undergone significant structural changes during the periods presented,
management believes that this measure provides a meaningful measure of
operating cash flow (without the effects of working capital changes) for
the core and continuing business of the Company by normalizing the effects
of operations that the Company has divested and of one-time charges or
credits. For fiscal 1996, other one-time charges include $3 million for
relocation costs and $6 million of costs associated with a significant
headcount reduction. For fiscal 1997, Adjusted EBITDA excludes $47 million
of expenses incurred in connection with the recapitalization and $7
million related to the recognition of an other than temporary impairment
of a long-term equity investment. For fiscal 1998, historical and pro
forma one-time and non-cash charges consist of $7 million of severance
accruals and $3 million of stock compensation expense. Historical one-time
charges for fiscal 1998 also include $7 million of expenses incurred in
connection with the Contadina Acquisition and $3 million of inventory
write-up due to the purchase price allocation related to the Contadina
Acquisition. Historical one-time charges in three months ended September
30, 1998 include $3 million of write-off of assets related to the
Arlington plant closure (recorded as "Special charges related to plant
consolidation"), $1 million of acquisition-related expenses incurred in
connection with the South America Acquisition (as defined herein), $2
million of inventory write-up due to the purchase price allocation related
to the Contadina Acquisition and $2 million representing expenses of the
Company's public equity offering, which was cancelled. Adjusted EBITDA
margin is calculated as Adjusted EBITDA as a percentage of net sales
(excluding net sales of Divested Operations of $233 million and $48
million for the years ended June 30, 1996 and 1997). See tabular
presentation under "Selected Consolidated Financial Data."
(l) Depreciation and amortization exclude amortization of $5 million of
deferred debt issuance costs in each of fiscal 1996 and 1997 and $3
million of deferred debt issuance costs in fiscal 1998. Depreciation and
amortization exclude amortization of $1 million of deferred debt issuance
costs in both of the three-month periods ended September 30, 1997 and
1998. Pro forma depreciation and amortization exclude amortization of $5
million and $3 million of pro forma deferred debt issuance costs for
fiscal 1998 and for the three-month period ended September 30, 1998. In
addition, in fiscal 1998 and the three months ended September 30, 1998,
depreciation and amortization exclude $3 million and $4 million of
accelerated depreciation, which is recorded as "Special charges related to
plant consolidation."
(m) For purposes of determining the ratio of earnings to fixed charges and the
deficiency of earnings to cover fixed charges, earnings are defined as
income (loss) before extraordinary item, cumulative effect of accounting
change and provision for income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the interest component of rent expense.
7
<PAGE> 13
SUMMARY HISTORICAL FINANCIAL DATA OF CONTADINA
The following table presents summary historical financial data of Contadina
for purchased product lines for the year ended December 31, 1996 and the period
from January 1, 1997 through December 18, 1997 derived from the audited
financial statements for those periods.
Nestle did not operate Contadina as a separate business unit and, as such,
it did not have regularly prepared financial statements. The Company has
obtained and prepared financial information of Contadina for the year ended
December 31, 1996 and the period ended December 18, 1997.
<TABLE>
<CAPTION>
JANUARY 1, 1997
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 18, 1997
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Net sales.................................................. $160 $162
Cost of products sold(a)................................... 151 163
---- ----
Gross margin.......................................... 9 (1)
Selling, administrative
and general expense(b)................................... 20 26
---- ----
Operating loss............................................. (11) (27)
Interest expense(c)........................................ 6 6
---- ----
Net loss before taxes................................. $(17) $(33)
==== ====
OTHER DATA:
Depreciation and amortization.............................. $ 12 $ 13
Capital expenditures....................................... 10 8
</TABLE>
- ---------------
(a) Cost of products sold includes royalty expense of $5 million for both the
year ended December 31, 1996 and the period ended December 18, 1997. Under
a royalty agreement with Nestle S.A., royalties were charged for the
license of the Contadina trademarks. The Company will not incur this
expense as part of the on-going operations of Contadina. Cost of products
sold also includes an allocation by Nestle for certain fixed distribution
costs which included, without limitation, costs of utilizing outside
storage facilities and costs for utilizing centralized distribution and
storage facilities of $5 million and $7 million for the year ended December
31, 1996 and the period ended December 18, 1997. The Company believes that,
as part of on-going operations of Contadina, it will experience
distribution costs of a similar nature to those allocated by Nestle in its
cost allocation but at a significantly reduced level; however, no
assurances can be given in this regard.
(b) Selling, administrative and general expense included an allocation by
Nestle for marketing and other general expenses which include, without
limitation, all selling costs, including direct sales force and brokerage
expenses; costs for utilizing centralized distribution and storage
facilities; costs associated with marketing services; and general and
administrative costs associated with support services such as finance,
legal, human resources and information systems. For the year ended December
31, 1996 and the period ended December 18, 1997, allocated marketing
expense was $8 million and $10 million. The Company believes that it will
experience operating costs of a similar nature to those charged by Nestle
in its cost allocations, but at a significantly reduced level; however, no
assurances can be given in this regard. Other general expenses allocated by
Nestle were $4 million and $10 million for the year ended December 31, 1996
and the period ended December 18, 1997.
(c) Represents an allocation that Nestle charged to Contadina based on the
end-of-month working capital balance at an intercompany rate equal to 7%
for all periods.
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<PAGE> 14
GENERAL INFORMATION
This prospectus contains forward-looking statements, including those in the
sections captioned "Prospectus Summary," "Risk Factors," "Unaudited Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." Del Monte may also make
forward-looking statements in its periodic reports to the Securities and
Exchange Commission (the "Commission") on Forms 10-K, 10-Q, 8-K, in its annual
report to shareholders, proxy statements, offering circulars and prospectuses,
press releases and other written materials and in oral statements made by its
officers, directors or employees to third parties. Statements that are not
historical facts, including statements about Del Monte's beliefs and
expectations, are forward-looking statements. These statements are based on
plans, estimates and projections at the time Del Monte makes the statements, and
you should not place undue reliance on them. Del Monte does not undertake to
update any of these statements in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. Del Monte
cautions you that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. These
factors include, among others: general economic and business conditions; weather
conditions; crop yields; industry trends; competition; raw material costs and
availability; the loss of significant customers; changes in business strategy or
development plans; availability, terms and deployment of capital; Year 2000
compliance; changes in, or the failure or inability to comply with, governmental
regulations, including, without limitation, environmental regulations; industry
trends and capacity and other factors referenced in this prospectus. See "Risk
Factors."
------------------------
Del Monte(R) and Contadina(R) are the Company's principal registered trademarks.
The Company's other trademarks include Fruit Cup(R), FreshCut(TM), Snack
Cups(R), Fruit Naturals(R), Orchard Select(R), Can Do(R) and Del Monte Lite(R).
------------------------
Unless otherwise indicated, references herein to U.S. market share data are to
case volume sold through retail grocery stores (excluding warehouse clubs and
supercenters) with at least $2 million in sales and are based upon data provided
to the Company by A.C. Nielsen Company, an independent market research firm.
ACNielsen makes this data available to the public at prescribed rates. Market
share data for canned vegetables and solid tomato products include only those
categories in which the Company competes. The data for canned fruit include
those categories in which the Company competes other than the "specialty"
category, which has been an insignificant portion of the Company's operations.
Data for canned solid tomato products is pro forma for both the Company and
Contadina sales.
9
<PAGE> 15
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in the shares.
OUR HIGH LEVERAGE COULD ADVERSELY AFFECT OUR BUSINESS
The Company is highly leveraged. On a pro forma basis, as of September 30,
1998, after giving effect to the offering, the Company had $1.4 billion of
long-term debt (including trade payables) and a stockholders' deficit of $161
million. The Company can incur additional indebtedness to complete capital
projects or acquisitions, even though its principal credit facility imposes some
limits on the ability to do so. Because its business is seasonal, the Company's
borrowings fluctuate significantly during the year, generally peaking in
September and October.
The Company's high degree of leverage can have important adverse
consequences, such as:
- Limiting the Company's ability to obtain additional financing to fund its
growth strategy, working capital, capital expenditures, debt service
requirements or other cash requirements;
- Limiting the Company's ability to invest operating cash flow in its
business because it uses a substantial portion of these funds to pay debt
service;
- Limiting the Company's ability to compete with companies that are not as
highly leveraged and that may be better positioned to withstand economic
downturns;
- Increasing the Company's vulnerability to economic downturns and changing
market conditions; and
- Increasing the Company's vulnerability to fluctuations in market interest
rates, since certain of its debt has floating interest rates.
The Company's ability to pay its debt service depends partly on its
performance, which in turn can be affected by general economic or competitive
conditions beyond its control. The Company's financial position could also
prevent it from obtaining necessary financing at favorable rates, including at
times when it must refinance maturing debt.
If the Company cannot pay its debt service and meet its other liquidity
needs from operating cashflow, it could have substantial liquidity problems. In
those circumstances, the Company might have to sell assets, delay planned
investments, obtain additional equity capital or restructure its debt. Depending
on the circumstances at the time, the Company may not be able to accomplish any
of these actions on favorable terms or at all. The Company's principal credit
facility limits its ability to take some actions that could generate additional
cash proceeds or requires the Company to apply proceeds first to repay the
facility. The credit facility also requires the Company to meet certain
financial tests, which are measured periodically. If the Company defaults on any
of its debt, the relevant lenders could accelerate the maturity of the debt and
take other actions that could adversely affect the Company. For example, in the
event of a default under the Company's credit facility, the lenders could
foreclose on the security for the facility, which includes virtually all of the
assets of the Company.
OUR BUSINESS IS HIGHLY COMPETITIVE
Many companies compete in the domestic canned vegetable, fruit and tomato
product categories. However, only a few well-established companies operate on
both a national and a regional basis with one or several branded product lines.
The Company faces strong competition from these and other companies in all its
product lines. Important competitive considerations include the following:
- Some of the Company's competitors have greater financial resources and
operating flexibility. This may permit them to respond better to changes
in the industry or to introduce new products and packaging more quickly
and with greater marketing support.
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<PAGE> 16
- Several of the Company's product lines are sensitive to competition from
regional brands, and many of the Company's product lines compete with
imports, private label products and fresh alternatives. No single private
label competitor has greater market share than the Company in its
principal product categories. However, for the 52 weeks ended September
26, 1998, private label companies as a group had market shares of 43.8%,
39.6% and 31.0% in the canned vegetable, fruit and solid tomato
categories.
- The Company cannot predict the pricing or promotional actions of its
competitors or whether they will have a negative effect of the Company.
Also, if the Company raises its prices, it could lose market share to its
competitors.
- The canned food industry has in the past experienced processing
over-capacity and, despite some consolidation in the industry recently,
over-capacity or changes in crop supplies could create an imbalance in
supply and demand that depresses sales volumes or prices.
OUR BUSINESS STRATEGY POSES SPECIAL RISKS ASSOCIATED WITH OUR ABILITY TO REDUCE
COSTS, REACH TARGETED CUSTOMERS AND COMPLETE ACQUISITIONS SUCCESSFULLY
The success of Del Monte's business strategy depends in part on its ability
to reduce costs. The Company plans to reduce costs through consolidation of its
processing facilities and use of improved processing technologies. The Company's
performance also depends on its ability to increase sales of its higher margin
products, such as its Fruit Cup single serve fruit products, diced tomatoes,
specialty vegetables and Orchard Select jarred fruit, and to increase product
distribution through high volume warehouse clubs, such as Wal-Mart's Sam's Clubs
and PriceCostco, and mass merchandisers, such as Wal-Mart Supercenters. The
Company also plans to increase operating results through acquisitions. All of
these plans involve risks, including the following:
- The Company is consolidating tomato processing from Modesto to its
Hanford facility and is converting its Modesto facility from tomato to
fruit processing. The Company recently shut down the Modesto facility for
conversion. To assure production capacity for the 1999 tomato harvest,
the Company must complete the conversion of the Hanford facility by June
1999. If the Company does not meet this timetable to any significant
degree, tomato production could be materially reduced. This could have a
material adverse effect on the Company's results of operations, its
market share of the canned tomato market and the Company's reputation for
reliability.
- The Company may not complete capital projects on time or within budget.
- Cost saving measures can sometimes impair a company's ability to respond
rapidly to changes in the industry.
- Warehouse clubs and mass merchandisers do not enter into long-term
contracts and purchase products based on their inventory levels. They can
stop purchasing the Company's products at any time. Losing one of these
customers would reduce sales volumes and could also have a negative
effect on the Company's reputation.
- Acquisitions could require the consent of Del Monte's main bank lenders
and could involve amendments to the Company's principal credit facility
to permit the Company to comply with its financial covenants. These
lenders could also impose conditions on their consent that could
adversely affect the Company's operating flexibility.
- Del Monte may not be able to integrate successfully acquired businesses,
including personnel, operating facilities and information systems, into
its existing operations. The timing and number of acquisitions could make
these risks more difficult to address. The process of integrating
acquired businesses could distract management from other opportunities or
problems in the Company's business. The benefits of an acquisition often
take a long time to develop, and there is no guarantee that any
acquisition will in fact produce any benefits.
11
<PAGE> 17
- In pursuing acquisitions, Del Monte could incur substantial additional
debt and contingent liabilities, which could in turn restrict its ability
to pursue other important elements of its business strategy, such as
completing capital projects, or its ability to comply with its financial
covenants.
OUR ACQUISITION OF CONTADINA PRESENTS CERTAIN RISKS
Nestle did not operate Contadina as a separate business unit and, as such,
it did not have regularly prepared financial statements. Contadina's books and
records have been audited only for the fiscal year ended December 31, 1996 and
the period ended December 18, 1997. There can be no guarantee that, if it had
been operated independently, Contadina's financial results would be the same as
those presented in this prospectus.
SEVERE WEATHER CONDITIONS AND NATURAL DISASTERS CAN AFFECT CROP SUPPLIES AND
REDUCE OUR OPERATING RESULTS
Severe weather conditions and natural disasters, such as floods, droughts,
frosts, earthquakes or pestilence, may affect the supply of the Company's
products. These events can result in reduced supplies of raw materials, lower
recoveries of usable raw materials, higher costs of cold storage if harvests are
accelerated and processing capacity is unavailable or interruptions in the
Company's production schedules if harvests are delayed. Competing manufacturers
can be affected differently depending on the location of their supplies. If the
Company's supplies of raw materials are reduced, it may not be able to find
enough supplemental supply sources on favorable terms.
The Company's tomato and fruit suppliers are concentrated in the San
Joaquin Valley of California. In the winter and spring of 1997-1998, some parts
of California, including some of the Company's growing regions, experienced
heavy rainfall due to the El Nino phenomenon. The 1998 California fruit and
tomato harvests and raw product recoveries were somewhat reduced due to this
phenomenon. Although these weather-related conditions may result in slightly
higher cost of products sold in fiscal 1999, the Company believes that the
overall effects of the El Nino phenomenon will not be material to its financial
condition and results of operations.
OUR OPERATING RESULTS ARE HIGHLY SEASONAL
The Company does not manufacture the majority of its products continuously,
but instead has a production period that is limited to approximately three to
four months during the summer each year. The Company's working capital
requirements are also seasonal and are most significant in the first and second
fiscal quarters. If the Company had an unexpected plant shutdown or any other
interference with its production schedule, its operating results would be
adversely affected.
The Company's sales tend to peak in the second and third fiscal quarters
each year, mainly as a result of the holiday period in November and December and
the Easter holiday. By contrast, in the first fiscal quarter of each year, sales
generally decline, mainly due to less promotional activity and the availability
of fresh produce. The Company believes that the main trends in its operating
results are relatively predictable and that it has adequate sources of liquidity
to fund operations during periods of low sales. If these trends were to change
or be disrupted, however, the Company's operating results could be adversely
affected, and it could require additional sources of liquidity to fund our
working capital and other cash requirements.
OUR BUSINESS IS SUBJECT TO THE RISK OF ENVIRONMENTAL LIABILITY
As a result of its agricultural, food processing and canning activities,
the Company is subject to various environmental laws and regulations. Many of
these laws and regulations are becoming increasingly stringent and compliance
with them is becoming increasingly expensive. The Company has been named as a
potentially responsible party ("PRP") and may be liable for environmental
investigation and remediation costs at certain designated "Superfund Sites"
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), or under similar state laws. Based
on available information, the Company is defending itself in these actions as
appropriate, and believes that none of the matters will have a material adverse
impact on the Company's financial position or results of operations. There is no
guarantee,
12
<PAGE> 18
however, that this will be the case. The Company may in the future be named as a
PRP at other currently or previously owned or operated sites, and additional
remediation requirements could be imposed. Other properties could be identified
for investigation or proposed for listing under CERCLA or state law. Also, under
the federal Food, Drug and Cosmetic Act and the Food Quality Protection Act of
1996, the U.S. Environmental Protection Agency (the "EPA") is involved in a
series of regulatory actions relating to the evaluation and use of pesticides in
the food industry. The effect of such actions and future actions on the
availability and use of pesticides could have a material adverse impact on the
Company's financial position or results of operations.
AFTER THE OFFERING, TPG WILL CONTINUE TO CONTROL THE COMPANY
After this offering, TPG will own % ( % if the underwriters exercise the
overallotment option in full) of the common stock. TPG will likely continue to
use its significant ownership interest to influence and control the Company's
management and policies. TPG's large interest may also discourage, delay, deter
or prevent a change in control of Del Monte or discourage bids for the common
stock at a premium price. The Company also has contractual relationships with
TPG, under which TPG provides it with financial advisory and other services.
These arrangements could give rise to conflicts of interest.
OUR DEBT COVENANTS CAN RESTRICT OUR OPERATING FLEXIBILITY
The Company is subject to various financial and operating covenants under
its principal credit facility, including limitations on asset sales, the amount
of debt it can incur or repay and the amount and kind of distributions that it
and its subsidiaries may make. Certain transactions that the Company may view as
important opportunities, such as mergers and acquisitions, may also be subject
to the consent of its main bank lenders, which may be withheld or granted
subject to conditions that may make the transaction less attractive. The Company
must also meet specified financial ratios and tests, including minimum net
worth, minimum fixed charge coverage and maximum leverage ratios. These
restrictions can limit the Company's ability to fund its capital expenditures
when planned. The Company's compliance with these restrictions can also be
affected by factors beyond its control. A breach of these restrictions would
permit the acceleration of the relevant debt and could result in the termination
of the commitments of the Company's main bank lenders. If that happened, the
Company would have no credit facility available to finance its seasonal working
capital and other cash requirements. The Company has pledged substantially all
of its assets to secure its bank and other debt. If a default occurred and was
not cured, secured lenders could foreclose on this collateral.
OUR BRAND NAME COULD BE CONFUSED WITH NAMES OF OTHER COMPANIES
The Company has licensed the Del Monte brand name to various unaffiliated
companies internationally and, for some of its products, in the United States.
The common stock of one licensee, Fresh Del Monte Produce N.V., is publicly
traded in the United States. Acts or omissions by these unaffiliated companies
may adversely affect the value of the Del Monte brand name, the trading prices
for the common stock and demand for the Company's products. Third party
announcements or rumors about these licensees could also have these negative
effects.
WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE
Del Monte has not paid cash dividends in the past, and it does not expect
to pay cash dividends in the foreseeable future. Del Monte is a holding company
with no substantial business operations or assets of its own. The terms of the
Company's debt limit the ability of Del Monte's subsidiaries to distribute cash
or other assets, which could affect the Company's ability to pay dividends or
make other distributions on the common stock. Future borrowings by Del Monte's
subsidiaries will also likely contain restrictions on their ability to pay
dividends to Del Monte.
13
<PAGE> 19
POSSIBLE FUTURE SALES OF STOCK COULD DEPRESS OUR STOCK PRICE
Following this offering, Del Monte will have shares of common
stock outstanding (assuming no exercise of the underwriters' overallotment
option). Investors in the offering who are not "affiliates" of the Company will
be able to sell their shares without any restrictions. TPG and other current
stockholders of Del Monte, which will own most of the remaining
shares, will own "restricted" shares. Holders of "restricted" shares may sell
them in the public market without restrictions, so long as they meet the volume
and other limitations set out in Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). Sales of large amounts of the common stock after
this offering or the perception that these sales could occur could depress the
trading price of the common stock.
THERE IS NO TRADING MARKET FOR THE COMMON STOCK
The common stock has no established trading market or trading history.
Although Del Monte has applied to list the common stock on the New York Stock
Exchange and the Pacific Exchange, an active trading market may not develop or
be sustained. The market price could also drop below the public offering price
shown on the cover page of this prospectus. Del Monte and the underwriters will
determine by negotiation the initial public offering price of the common stock
and that price may not be indicative of the market price for the common stock
after this offering. The market price could also fluctuate substantially in
response to various factors and events, including the liquidity of the market
for the common stock, differences between the Company's actual performance and
that expected by investors and analysts, changes in analysts' recommendations or
projections, pricing and competition in the Company's industry, new statutes or
regulations and changes in general market conditions.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE DILUTION
The initial public offering price per share will exceed the net book value
per share. New investors will incur substantial and immediate dilution of $ per
share. After this offering, the deficit in net tangible book value per share
will be $ . Holders of the common stock could also experience dilution if
the Company elects to complete an acquisition using its common stock as
consideration, depending on the terms of the acquisition.
OUR ANTI-TAKEOVER DEFENSES MAY DEPRESS OUR STOCK PRICE OR DISCOURAGE
PREMIUM-GENERATING TRANSACTIONS
Anti-takeover provisions under state law and in Del Monte's certificate of
incorporation and bylaws may deter, delay or prevent hostile takeovers and other
attempts to make changes in Del Monte's Board of Directors or management. The
fact that we have these provisions may depress our stock price and could
discourage transactions in which stockholders might otherwise receive a premium
over the market value of their shares. Under these provisions:
- Members of Del Monte's Board have staggered terms, which could prevent an
acquiror from removing the entire Board at once;
- Stockholders are not entitled to cumulative voting rights;
- Only a majority of the Board, and not stockholders, may call a meeting of
stockholders;
- Certain matters must be approved by a supermajority vote of stockholders;
- Del Monte can issue preferred stock on any terms it decides without the
approval of common stockholders, which could make it more difficult or
expensive for an acquiror to obtain voting control; and
- Del Monte can implement, without stockholder approval, a "rights" or
"poison pill" plan without the approval of common stockholders, which
could also make a takeover attempt more difficult or expensive. Under
these plans, common stockholders typically receive preferred share
purchase rights that become exercisable when a third party tries to
obtain control of the Company.
14
<PAGE> 20
USE OF PROCEEDS
Assuming an initial public offering price of $ per share, Del Monte
estimates that it will receive net proceeds from its sale of common stock (after
deducting applicable underwriting discounts and commissions and estimated
offering expenses payable by Del Monte) of approximately $231 million
(approximately $ million if the underwriters exercise the overallotment
option in full). Del Monte intends to use the net proceeds of the offering as
follows: (i) approximately $67 million to repay indebtedness under its senior
secured term loan facility (the "Term Loan Facility"); (ii) $55 million to
redeem a portion of its senior subordinated notes (the "DMC Notes"), including
$3 million of accrued interest; (iii) $48 million to redeem a portion of its
senior discount notes (the "Del Monte Notes"), including $2 million of
accelerated amortization of original issue discount; (iv) $44 million to redeem
its Series A Redeemable Preferred Stock (the "Series A Preferred Stock"),
including $2 million of unamortized discount, $8 million of accreted dividends
and $1 million of redemption premium; (v) $13 million to pay certain repayment
and redemption premiums in connection with the redemption of the DMC Notes and
the Del Monte Notes; and (vi) $4 million to repay indebtedness under its
Revolving Credit Facility (as defined herein). The Term Loan Facility and the
DMC Notes mature and bear interest at the rates specified under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Financing Activities -- 1997
Activity."
DIVIDEND POLICY
Holders of the common stock are entitled to receive dividends pro rata on a
per share basis when, as and if declared by the Board of Directors of Del Monte
out of funds legally available for dividends. Del Monte has not declared or paid
any cash or other dividends on its common stock and does not expect to pay
dividends for the foreseeable future. Future dividend policy will be determined
periodically by the Board of Directors based upon conditions then existing,
including the Company's earnings and financial condition, capital requirements,
including debt service obligations, and other relevant factors.
As a holding company, the ability of Del Monte to pay dividends in the
future is dependent upon the receipt of dividends or other payments from its
subsidiaries. In addition, the terms of the Company's indebtedness limit the
ability of Del Monte's subsidiaries to pay dividends to Del Monte. See "Risk
Factors -- We Do Not Expect to Pay Dividends for the Foreseeable Future" and
"Description of Certain Indebtedness."
15
<PAGE> 21
CAPITALIZATION
The following table sets forth the actual unaudited capitalization of the
Company at September 30, 1998 and as adjusted to give effect to the sale of
shares of common stock by the Company, assuming an initial public
offering price of $ per share, and the application of the estimated net
proceeds to the Company. The following table should be read in conjunction with
"Use of Proceeds," "Unaudited Pro Forma Financial Data," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------
ACTUAL AS ADJUSTED
------ --------------
(IN MILLIONS)
<S> <C> <C>
Total debt:
Revolving Credit Facility(1).............................. $ 202 $ 198
Term Loan Facility........................................ 422 355
12 1/4% Senior Subordinated Notes of DMC(2)............... 147 96
12 1/2% Senior Discount Notes of Del Monte(3)............. 133 87
----- -----
Total debt............................................. 904 736
----- -----
Redeemable Preferred Stock(4)............................... 33 --
Stockholders' equity:
Common stock, $.01 par value; 500,000,000 shares
authorized and 35,496,944 shares issued and
outstanding, actual; and shares authorized
and shares issued and outstanding, as
adjusted(5)............................................ -- --
Paid-in capital........................................... 172 403
Retained deficit(6)....................................... (533) (564)
----- -----
Total stockholders' deficit............................ (361) (161)
----- -----
Total capitalization.............................. $ 576 $ 575
===== =====
</TABLE>
- ---------------
(1) The total capacity under the Revolving Credit Facility as of September 30,
1998 was $350 million. See "Description of Certain Indebtedness." The
amount, as adjusted, reflects $4 million of repayment of the Revolving
Credit Facility.
(2) Excludes $3 million of accrued interest payable. As adjusted reflects $1
million write-off of unamortized discount relating to the DMC Notes repaid.
(3) Excludes $2 million of accelerated amortization of original issue discount
relating to the Del Monte Notes repaid.
(4) Net of unamortized discount of $2 million and excludes accreted dividends
aggregating approximately $8 million as of September 30, 1998.
(5) Excludes shares reserved for issuance pursuant to the Company's
management share option plans. See "Management" and "Description of Capital
Stock."
(6) As adjusted reflects a $6 million write-off of a pro rata share of deferred
financing costs associated with the repayment of the Company's indebtedness,
as well as $14 million of repayment and redemption premiums, $8 million in
dividends paid and $2 million write-off of unamortized discount relating to
the preferred shares redeemed and $1 million write-off of unamortized
discount relating to the DMC Notes repaid.
16
<PAGE> 22
DILUTION
The deficit in net tangible book value of the Company at September 30, 1998
was approximately $405 million or $11.41 per share of common stock. Without
taking into account any changes in the deficit in net tangible book value
attributable to operations after September 30, 1998, after giving effect to the
sale of the shares of common stock in this offering at an assumed initial public
offering price of $ per share and the application of the estimated net
proceeds as described under "Use of Proceeds," the pro forma deficit in net
tangible book value of the Company as adjusted at September 30, 1998 would have
been $ million, or $ per share of common stock (assuming no exercise of
the underwriters' overallotment option). This represents an immediate reduction
in the deficit in net tangible book value of $ per share of common stock to
the existing stockholders, including TPG, and an immediate dilution of $ per
share to new investors in this offering. The following table illustrates such
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Deficit in net tangible book value per share of common stock
before the offering(1).................................... 11.41
Reduction in deficit in net tangible book value per share of
common stock attributable to new investors(2).............
-------
Pro forma deficit in net tangible book value per share of
common stock after this offering..........................
------
Dilution per share to new investors(3)...................... $
======
</TABLE>
- ---------------
(1) Deficit in net tangible book value per share is determined by dividing the
Company's net deficit in tangible book value (total tangible assets less
total liabilities) of approximately $405 million at September 30, 1998 by
the aggregate number of shares of common stock outstanding at September 30,
1998.
(2) After deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(3) Dilution is determined by subtracting pro forma deficit in net tangible book
value per share of common stock after the offering from the assumed initial
public offering price paid by a new investor for a share of common stock.
17
<PAGE> 23
UNAUDITED PRO FORMA FINANCIAL DATA
On December 19, 1997, the Company acquired Contadina for $177 million, plus
an estimated working capital adjustment of approximately $20 million. The
consideration was paid solely in cash. The purchase price was subject to
adjustment based on the final calculation of net working capital as of the
closing date. Nestle provided its calculation of the net working capital, which
resulted in a payment to the Company of $2 million. This in turn reduced the
purchase price to a total of $195 million. The Company prepared the following
Unaudited Pro Forma Statement of Operations as if the Contadina Acquisition and
related financings had occurred as of July 1, 1997. The Unaudited Pro Forma
Statement of Operations does not purport to represent what the Company's results
of operations actually would have been if the Contadina Acquisition had occurred
on the date indicated or what those results will be for any future periods.
The unaudited pro forma financial data are based on the historical
financial statements of the Company and the assumptions and adjustments
described in the accompanying notes. The Company believes that such assumptions
are reasonable. The unaudited pro forma financial data should be read in
conjunction with the consolidated financial statements of the Company.
Nestle did not operate Contadina as a separate business unit and, as such,
it did not have regularly prepared financial statements. The Company has
obtained and prepared financial information of Contadina for the period ended
December 18, 1997. The Unaudited Pro Forma Statement of Operations for the year
ended June 30, 1998 includes the historical revenues and expenses of Contadina
from July 1, 1997 through December 18, 1997 (the results of operations of
Contadina since the date of acquisition have been included in the historical
Company revenues and expenses for the year ended June 30, 1998). This historical
financial information includes allocations by Nestle for certain operating costs
including, without limitation, costs of utilizing outside storage facilities;
all selling costs including, without limitation, direct sales force and
brokerage expenses; costs for utilizing centralized distribution and storage
facilities; costs associated with marketing services; and general and
administrative costs associated with support services such as finance, legal,
human resources and information systems. The Company believes that it will
experience operating costs of a similar nature to those charged by Nestle in its
cost allocations but at a significantly reduced level; however, no assurances
can be given in this regard. See "Risk Factors -- Our Acquisition of Contadina
Presents Certain Risks."
18
<PAGE> 24
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
DEL MONTE CONTADINA(a) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................ $ 1,313 $ 92 $ -- $ 1,405
Cost of products sold (excluding
inventory write-up)................ 895 91 (19)(b) 967
Inventory step-up (c)................ 3 -- 3 6
Selling, administrative and general
expense............................ 316 13 12(d) 341
Special changes related to plant
consolidation...................... 10 -- -- 10
Acquisition expenses................. 7 -- -- 7
----------- ---- ---- -----------
OPERATING INCOME (LOSS).............. 82 (12) 4 74
Interest expense..................... 77 3 6(e) 86
Other income......................... (1) -- -- (1)
----------- ---- ---- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 6 (15) (2) (11)
Provision for income taxes........... 1 -- -- 1
----------- ---- ---- -----------
INCOME (LOSS)........................ 5 $(15) $ (2) (12)
==== ====
Preferred stock dividends............ 5 5
----------- -----------
Income (loss) before extraordinary
item attributable to common
shares(f).......................... $ -- $ (17)
=========== ===========
Income (loss) before extraordinary
item per common share.............. $ 0.01 $ (0.50)
Weighted average number of shares
outstanding (g).................... 31,619,642 34,812,008
OTHER DATA:
Depreciation and amortization (h).... $ 29 $ 31
Capital expenditures................. 32 37
</TABLE>
See accompanying notes.
19
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The Unaudited Pro Forma Statement of Operations reflect the adjustments for
the Contadina Acquisition and related financings as if such events had occurred
as of July 1, 1997.
On December 19, 1997, the Company acquired the Contadina canned tomato
business, including the Contadina trademark worldwide, capital assets and
inventory, from Nestle and Contadina Services, Inc. for a total purchase price
of $197 million, comprised of a base price of $177 million and an estimated net
working capital adjustment of $20 million. The consideration was paid solely in
cash. The purchase price was subject to adjustment based on the final
calculation of net working capital as of the closing date. Nestle provided its
calculation of the net working capital, which resulted in a payment to the
Company of $2 million. This in turn reduced the purchase price to a total of
$195 million. The Contadina Acquisition also included the assumption of certain
liabilities of approximately $5 million, consisting primarily of liabilities in
respect of reusable packaging materials, employee benefits and product claims.
In connection with the Contadina Acquisition, the Company incurred approximately
$7 million of acquisition-related expenses.
The Company accounted for the Contadina Acquisition using the purchase
method of accounting. The Company allocated the purchase price to the assets
acquired and liabilities assumed using estimated fair values that include values
based on independent appraisals and management estimates. Allocation of the $195
million purchase price is as follows: inventory $93 million, prepaid expenses $5
million, property, plant and equipment $85 million, intangibles $16 million and
accrued liabilities $4 million.
(a) Represents the historical revenue and expenses of Contadina from July 1,
1997 through December 18, 1997.
(b) Adjustment to cost of products sold reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1998
-------------
(IN MILLIONS)
<S> <C>
Reclassification of Contadina trade promotion costs......... $(13)
Reduction in depreciation expense arising from fair value
adjustment for property, plant and equipment acquired..... (3)
Elimination of royalties to Nestle S.A. for trademark
license................................................... (3)
----
$(19)
====
</TABLE>
Trade promotion costs for Contadina were reclassified from cost of products
sold to selling, administrative and general expense to conform with Del
Monte's classification of such costs.
The expense represented by Contadina's historical charge to cost of
products sold for royalties due to Nestle S.A. has been replaced by
amortization of trademark recorded as selling, administrative and general
expense which treatment is more representative of the continuing costs
associated with the use of the Contadina trademark.
(c) Represents the cost of products sold related to the sales of the inventory
acquired from Contadina which the Company wrote up to estimated fair value
as part of the preliminary purchase price allocation relating to the
Contadina Acquisition.
(d) Adjustment to selling, administrative and general expense reflects the
following:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1998
-------------
(IN MILLIONS)
<S> <C>
Reclassification of Contadina trade promotion costs......... $ 13
Elimination of amortization of Nestle goodwill.............. (1)
----
$ 12
====
</TABLE>
20
<PAGE> 26
(e) Represents adjustment necessary to reflect pro forma interest expense and
amortization of deferred financing expense as shown below based upon pro
forma debt levels and applicable interest rates. The table below presents
pro forma interest expense, including the respective interest rates and
related fees and pro forma amortization of deferred financing costs.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1998
-----------------------------------
INTEREST PRINCIPAL INTEREST
RATE(1) BALANCE(2) EXPENSE(3)
--------- ---------- ----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Revolving Credit Facility................................... 7.74% $ 128 $10
Tranche A of Term Loan Facility............................. 8.08 200 16
Tranche B of Term Loan Facility............................. 8.63 229 21
DMC Notes................................................... 12.25 150 18
Del Monte Notes............................................. 12.50 129 17
---
Pro forma interest expense................................ 82
Pro forma amortization of deferred financing costs.......... 4
---
Total pro forma interest expense.......................... $86
===
</TABLE>
-------------------
(1) Average of month-end interest rates.
(2) Average of month-end principal balances.
(3) Represents product of average month-end interest rate and average
month-end principal balance for the applicable period.
(f) Loss before extraordinary items attributable to common shares for the year
ended June 30, 1998, reflect the deduction for the cash and in-kind
dividends for the period on redeemable preferred stock.
(g) The weighted average number of shares outstanding reflects the
191.542-for-one stock split of the shares of common stock, which Del Monte
declared on July 22, 1998.
(h) Historical depreciation and amortization exclude amortization of $3 million
of deferred debt issue costs. Pro forma depreciation and amortization
excludes amortization of $3 million of pro forma deferred debt issue costs.
Historical and proforma depreciation and amortization exclude $3 million of
accelerated depreciation which is recorded as "Special charges related to
plant consolidation."
21
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial
information of the Company. The statement of operations data for each of the
fiscal years in the three-year period ended June 30, 1996 and the balance sheet
data as of June 30, 1994, 1995 and 1996 have been derived from consolidated
financial statements of the Company audited by Ernst & Young LLP, independent
auditors. The statement of operations data for the years ended June 30, 1997 and
1998, and the balance sheet data as of June 30, 1997 and 1998, have been derived
from consolidated financial statements of the Company audited by KPMG Peat
Marwick LLP, independent auditors. The selected consolidated financial data as
of September 30, 1997 and 1998 and the three months then ended was derived from
the unaudited interim financial statements of the Company. The financial data as
of September 30, 1997 and 1998 and the three months then ended, in the opinion
of management, reflect all adjustments, consisting of only normal, recurring
adjustments, necessary for a fair presentation of such data and which have been
prepared in accordance with the same accounting principles followed in the
presentation of the Company's audited financial statements for the fiscal year
ended June 30, 1998. Operating results for the three months ended September 30,
1998 are not necessarily indicative of results to be expected for the full
fiscal year. The table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
consolidated financial statements of the Company and other financial information
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-----------------------
FISCAL YEAR ENDED JUNE 30, ACTUAL
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $ 1,500 $ 1,527 $ 1,305 $ 1,217 $ 1,313 $ 251 $ 318
Cost of products sold................. 1,208 1,183 984 819 898 172 218
Selling, administrative and general
expense(a).......................... 225 264 239 327 316 62 80
Special charges related to plant
consolidation(b).................... -- -- -- -- 10 -- 7
Acquisition expenses.................. -- -- -- -- 7 -- 1
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)............... 67 80 82 71 82 17 12
Interest expense...................... 61 76 67 52 77 17 21
(Gain) loss on sale of divested
assets(c)........................... (13) -- (123) 5 -- -- --
Other (income) expense(d)............. 8 (11) 3 30 (1) -- 2
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes,
minority interest, extraordinary
item and cumulative effect of
accounting change................... 11 15 135 (16) 6 -- (11)
Provision for income taxes............ 3 2 11 -- 1 -- --
Minority interest in earnings of
subsidiary.......................... 5 1 3 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary
item and cumulative effect of
accounting change................... 3 12 121 (16) 5 -- (11)
Extraordinary loss(e)................. -- 7 10 42 -- -- --
Cumulative effect of accounting
change(f)........................... -- -- 7 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)..................... 3 5 104 (58) 5 -- (11)
Preferred stock dividends............. 61 71 82 70 5 2 1
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to
common shares(g).................... $ (58) $ (66) $ 22 $ (128) $ -- $ (2) $ (12)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common share.... $ (0.75) $ (0.85) $ 0.29 $ (2.07) $ 0.01 $ (0.06) $ (0.34)
Weighted average number of shares
outstanding(h)...................... 77,915,263 76,671,294 75,047,353 61,703,436 31,619,642 26,815,880 35,495,683
</TABLE>
22
<PAGE> 28
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- ---------- ---------- --------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Adjusted EBITDA:(i)
EBIT.................................... $ 72 $ 91 $ 202 $ 36 $ 83 $ 17 $ 10
Depreciation and amortization(j)........ 35 35 26 24 29 6 8
EBITDA of Divested Operations........... (39) (35) (22) -- -- -- --
Asset write-down/impairment(k).......... 1 -- -- 7 -- -- --
(Gain) loss on sale of Divested
Operations(c)......................... (13) -- (123) 5 -- -- --
Terminated transactions(l).............. 1 (22) -- -- -- -- --
Benefit costs(m)........................ 6 7 -- -- 3 -- --
Headcount reduction and relocation(n)... -- -- 9 -- -- -- --
Recapitalization expenses(a)(d)......... -- -- -- 47 -- -- --
Special charges related to plant
consolidation (b)..................... -- -- -- -- 10 -- 7
Expenses of acquisitions(o)............. -- -- -- -- 7 -- 1
Inventory write-up(p)................... -- -- -- -- 3 -- 2
IPO costs(q)............................ -- -- -- -- -- -- 2
--------- --------- --------- --------- --------- -------- ----------
Adjusted EBITDA....................... $ 63 $ 76 $ 92 $ 119 $ 135 $ 23 $ 30
========= ========= ========= ========= ========= ======== ==========
Adjusted EBITDA margin(i)................. 5.7% 6.9% 8.6% 10.2% 10.3% 9.2% 9.4%
Cash flows provided by operating
activities.............................. $ 28 $ 63 $ 60 $ 25 $ 97 $ (153) $ (153)
Cash flows provided by (used in) investing
activities.............................. 55 (21) 170 37 (222) (2) (37)
Cash flows provided by (used in) financing
activities.............................. (83) (44) (224) (63) 127 155 194
Capital expenditures...................... 36 24 16 20 32 2 5
SELECTED RATIOS:
Ratio of earnings to fixed charges(r)..... 1.2x 1.2x 2.8x -- 1.1x 1.0x --
Deficiency of earnings to cover fixed
charges(r).............................. -- -- -- $ 16 -- -- $ 11
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
-------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1997 1998
------ ------ ---------- ---------- ------ ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 88 $ 99 $ 209 $ 118 $ 210 $ 117 $ 171
Total assets.................................. 936 960 736 667 845 956 1,201
Total debt, including current maturities...... 569 576 373 610 709 765 904
Redeemable preferred stock.................... 215 215 213 32 33 32 33
Stockholders' deficit......................... (384) (393) (288) (398) (350) (398) (361)
</TABLE>
Note: Financial data under the columns marked "restated" reflect the information
from the Company's restated financial statements.
- ---------------
(a) In connection with the Company's recapitalization on April 18, 1997, the
Company incurred expenses of approximately $25 million primarily for
management incentive payments and, in part, for severance payments.
(b) In fiscal 1998, the Company recorded charges of $7 million related to
severance and benefit costs for employees to be terminated in connection
with a plant consolidation. The Company also recorded $3 million in fiscal
1998 and $4 million in the three months ended September 30, 1998
representing accelerated depreciation resulting from adjusting remaining
useful lives of assets to match the period of use prior to plant closures.
In addition, in the three-month period ended September 30, 1998, the
Company charged $3 million to earnings representing the write-down to fair
value of certain assets held for sale.
(c) The Company sold its can manufacturing operations in the fiscal quarter
ended December 31, 1993 and recognized a $13 million gain. In November
1995, the Company sold its pudding business for $89 million, net of $4
million of transaction fees. The sale resulted in a gain of $71 million. In
March
23
<PAGE> 29
1996, the Company sold its 50.1% ownership interest in Del Monte
Philippines for $100 million, net of $2 million of transaction fees. The
sale resulted in a gain of $52 million. In the fiscal quarter ended
December 1996, the Company sold Del Monte Latin America. The combined sales
price of $50 million, reduced by $2 million of transaction expenses,
resulted in a loss of $5 million.
(d) In fiscal 1995, other income includes the Company's receipt of proceeds of
a $30 million letter of credit, reduced by $4 million of transaction
expenses, as a result of the termination of a merger agreement with Grupo
Empacador de Mexico, S.A. de C.V. In fiscal 1997, the Company incurred $22
million of expenses in conjunction with its recapitalization, primarily for
legal, investment advisory and management fees.
(e) In June 1995, the Company refinanced its then-outstanding revolving credit
facility, term loan and senior secured floating rate notes. In conjunction
with this debt retirement, the Company wrote off capitalized debt issue
costs of $7 million and accounted for that write-off as an extraordinary
loss. In December 1995 and April 1996, the Company prepaid part of its term
loan and senior secured notes. In conjunction with the early debt
retirement, the Company recorded an extraordinary loss of $10 million for
the early retirement of debt. The extraordinary loss consisted of a $5
million prepayment premium and a $5 million write-off of capitalized debt
issue costs related to the early retirement of debt. In fiscal 1997, the
Company charged to net income $42 million of expenses related to the early
retirement of debt and to the Company's recapitalization. In September
1996, the Company repurchased outstanding debt, in conjunction with which
it wrote off and accounted for as an extraordinary loss capitalized debt
issue costs of $4 million, net of a discount on such debt. In conjunction
with the refinancing of debt that occurred at the time of the
recapitalization, the Company recorded a $38 million extraordinary loss
related to the early retirement of debt. The $38 million extraordinary loss
consisted of previously capitalized debt issue costs of approximately $19
million and a premium payment and a term loan make-whole payment
aggregating $19 million.
(f) Effective July 1, 1995, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The cumulative effect of adopting this statement resulted in
a charge to fiscal 1996 net earnings of $7 million.
(g) Net income (loss) attributable to the shares of common stock is computed as
net income (loss) reduced by the cash and in-kind dividends for the period
on redeemable preferred stock.
(h) For each period, the weighted average number of shares outstanding reflects
the 191.542-for-one stock split, which Del Monte declared on July 22, 1998.
(i) Adjusted EBITDA represents EBITDA (income (loss) before provision for
income taxes, minority interest, extraordinary item, cumulative effect of
accounting change and depreciation and amortization expense, plus interest
expense) before special charges and other one-time and non-cash charges,
less gains (losses) on sales of assets and the results of the Divested
Operations. You should not consider adjusted EBITDA in isolation from, and
it is not presented as an alternative measure of, operating income or cash
flow from operations (as determined in accordance with GAAP). Adjusted
EBITDA as presented may not be comparable to similarly titled measures
reported by other companies. Since the Company has undergone significant
structural changes during the periods presented, management believes that
this measure provides a meaningful measure of operating cash flow (without
the effects of working capital changes) for the core and continuing
business of the Company by normalizing the effects of operations that have
been divested and one-time charges or credits. Adjusted EBITDA margin is
calculated as Adjusted EBITDA as a percentage of net sales (excluding net
sales of Divested Operations of $399 million, $417 million, $233 million
and $48 million for the years ended June 30, 1994, 1995, 1996 and 1997).
(j) Depreciation and amortization exclude amortization of $5 million, $5
million, $5 million, $5 million and $3 million of deferred debt issuance
costs for fiscal 1994, 1995, 1996, 1997 and 1998. Depreciation and
amortization exclude amortization of $1 million of deferred debt issuance
costs in both of the three-month periods ended September 30, 1997 and 1998.
(k) In fiscal 1994 and fiscal 1997, non-cash charges include $1 million related
to write-offs of labels due to new labeling laws and $7 million related to
the recognition of an other than temporary impairment of a long-term equity
investment.
24
<PAGE> 30
(l) In fiscal 1994, one-time charges of $1 million relate to a terminated
transaction. In fiscal 1995, one-time charges and credits include $26
million received in connection with a terminated transaction and $4 million
paid by the Company to terminate its alliance with Pacific Coast Producers.
(m) In fiscal 1994 and 1995, one-time and non-cash charges include $6 million
of benefit plan charges and $7 million related to the termination of a
management equity plan, respectively. In fiscal 1998, one-time and non-cash
charges include $3 million of stock compensation and related benefit
expense.
(n) In fiscal 1996, other one-time charges include $3 million for relocation
costs and $6 million of costs associated with a significant headcount
reduction.
(o) In fiscal 1998, one-time charges include of $7 million of
acquisition-related expenses incurred in connection with the Contadina
Acquisition. In the three months ended September 30, 1998, one-time charges
include $1 million of acquisition-related expenses incurred in connection
with the South America Acquisition.
(p) In fiscal 1998, one-time charges include $3 million of inventory write-up
due to the purchase price allocation related to the Contadina Acquisition.
In the three months ended September 30, 1998, one-time charges include $2
million of inventory write-up due to the Contadina Acquisition.
(q) In the three months ended September 30, 1998, one-time charges include $2
million representing expenses of the Company's public equity offering,
which was cancelled.
(r) For purposes of determining the ratio of earnings to fixed charges and the
deficiency of earnings to cover fixed charges, earnings are defined as
income (loss) before extraordinary item, cumulative effect of accounting
change and provision for income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the interest component of rent expense.
25
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity of the Company
during the three-month periods ended September 30, 1997 and 1998, and the
three-year period ended June 30, 1998. This discussion should be read in
conjunction with the unaudited consolidated financial statements for the
three-month period ended September 30, 1998 and the audited consolidated
financial statements of the Company for the three-year period ended June 30,
1998, appearing elsewhere in this prospectus.
GENERAL
The Company reports its financial results on a July 1 to June 30 fiscal
year basis to coincide with its inventory production cycle, which is highly
seasonal. Raw product is harvested and packed primarily in the months of June
through October, during which time inventories rise to their highest levels. At
the same time, consumption of canned products drops, reflecting, in part, the
availability of fresh alternatives. This situation affects operating results as
sales volumes, revenues and profitability decline during this period. Results
over the remainder of the fiscal year are affected by many factors including
industry supply and the Company's share of that supply. See "-- Seasonality."
Consistent with the Company's strategy to generate growth through
acquisitions, the Company consummated the Contadina Acquisition in December
1997. The Contadina Acquisition contributes another established brand and
positions the Company as the branded market leader in the high margin, canned
solid tomato category. The Contadina Acquisition also establishes a strong
presence for the Company in the branded paste-based tomato products category,
which includes tomato paste, tomato sauce and pizza sauce. The Company believes
that Contadina's strong brand recognition, particularly in paste-based tomato
products, complements the Company's brand leadership in canned solid tomato
products and will enhance the Company's market share and household penetration.
The Company also reacquired the rights to the Del Monte brand in South America
in August 1998 ("South America Acquisition"). This acquisition has opened a new
geographic market for the Company. See "Prospectus Summary -- Summary Historical
Financial Data of Contadina" and "Unaudited Pro Forma Financial Data."
In addition to diversifying further the Company's revenue base, the
Contadina Acquisition has expanded the Company's processing scale, which has
resulted in production cost efficiencies. Moreover, among the facilities
acquired by the Company is a state-of-the-art manufacturing facility at Hanford,
California. In the third quarter of fiscal 1998, the Company committed to a plan
to consolidate processing operations over a three-year period. As part of these
efforts, the Company began transferring tomato production at its Modesto,
California facility to Hanford following the summer 1998 pack. The Company is
converting its Modesto facility to a fruit processing facility that will assume
the production currently conducted at the Company's San Jose and Stockton
facilities in California. The Company expects to close its San Jose facility
after the production season in 1999 and its Stockton facility after the
production season in 2000. The Company anticipates that these properties will be
sold in the year following closure. In connection with these actions, the
Company recorded charges of $7 million in the third quarter of fiscal 1998,
principally relating to severance. The Company anticipates that it will incur
material additional charges as a result of these plant closures, including the
effects of adjusting the assets' remaining useful lives to accelerate the
depreciation thereof (a $3 million accelerated depreciation charge was taken in
the fourth quarter of fiscal 1998 and a $4 million accelerated depreciation
charge was taken in the first quarter of fiscal 1999), the costs to remove and
dispose of those assets and ongoing fixed costs to be incurred during the
Modesto plant reconfiguration and until the sale of the San Jose and Stockton
properties. See Note P to the consolidated financial statements for the year
ended June 30, 1998. In addition, in August 1998, management announced its
intention to close the Company's vegetable processing plant located in
Arlington, Wisconsin after the summer 1998 pack. Total costs to be incurred in
connection with this closure are approximately $3 million primarily relating to
asset write-offs. The Company recorded this expense in the first quarter of
fiscal 1999.
26
<PAGE> 32
Commencing in 1996, the Company has sought to leverage its brand and price
leadership to improve sales and operating margins and, to that end, increased
prices for many of its fruit and vegetable products in that year. As a result,
the Company experienced an anticipated volume loss and market share decline. In
the case of its fruit operations, the Company lost 3.3 percentage points of
market share during fiscal 1996. However, the Company's significantly improved
margins generally offset the effects of the lower volume, and the Company's
market share recovered by year-end 1997 to achieve an increase of 5.0 percentage
points of market share during 1997 and an additional increase during 1998 of 1.7
percentage points, a level higher than that experienced prior to the price
increases. In the case of its vegetable operations, the Company lost 3.8
percentage points of market share during fiscal 1996, 0.1 of a percentage point
of market share during fiscal 1997 and 0.6 of a percentage point during fiscal
1998. The Company coupled these price increases with a new marketing strategy
that emphasizes consumption-driven trade promotion programs, as well as
consumer-targeted promotions such as advertising and coupons, to encourage
retailers to use store advertisements, displays and consumer-targeted
promotions, rather than periodic price-only promotions. In 1997, in connection
with the recapitalization, the Company began implementing a new business
strategy designed to improve sales and operating margins by: (i) increasing
market share and household penetration of high margin value-added products; (ii)
introducing new products and packaging; (iii) increasing penetration of high
growth distribution channels, such as supercenters and warehouse clubs; (iv)
achieving cost savings through operating efficiencies, plant consolidations and
investments in new and upgraded equipment; and (v) completing strategic
acquisitions.
In fiscal 1995, Del Monte terminated an exclusive supply agreement with
Pacific Coast Producers, an unaffiliated grower co-operative ("PCP"), to
purchase substantially all of PCP's tomato and fruit production. Since
terminating its agreement with PCP, the Company on occasion buys from and sells
to PCP a limited amount of product on a spot basis. During fiscal 1996 and the
first half of fiscal 1997, the Company sold its pudding business, its 50.1%
interest in Del Monte Philippines and all of its interest in Del Monte Latin
America. At the end of fiscal 1997, a distribution agreement expired under which
Del Monte sold certain products for Premier Valley Foods, Inc. (formerly
Yorkshire Dried Fruits and Nuts, Inc.) at cost. These events are collectively
referred to as the "Divested Operations."
The following table sets forth the net proceeds received by the Company in
connection with the sale of the Divested Operations and, for the periods
indicated, the net sales generated by the Divested Operations prior to
disposition by the Company:
<TABLE>
<CAPTION>
NET PROCEEDS NET SALES FROM DIVESTED
FISCAL YEAR FROM DISPOSITION/ OPERATIONS PRIOR TO
DIVESTED OPERATION ENDED JUNE 30, TERMINATION DISPOSITION/TERMINATION
------------------ -------------- ----------------- -----------------------
(IN MILLIONS)
<S> <C> <C> <C>
Del Monte pudding business............. 1996 $ 89(a) $ 15(a)
Del Monte Philippines ................. 1996 100(b) 102(b)
Del Monte Latin America................ 1997 48(c) 17(c)
1996 -- 55
PCP.................................... 1996 -- 26(d)
Premier Valley Foods................... 1997 --(e) 31(e)
1996 -- 35
</TABLE>
- ---------------
(a) The Company divested its pudding business in November 1995.
(b) In connection with the sale, which was consummated in March 1996, the
Company entered into an eight-year supply agreement with the acquiror.
(c) The Company divested its Latin American operations in the second quarter of
fiscal 1997.
(d) The Company entered into a consent decree with the U.S. Federal Trade
Commission pursuant to which the Company agreed to terminate its supply
agreement with PCP. The Company terminated that supply agreement in June
1995. The Company sold the remaining inventory during fiscal 1996.
(e) The Company's distribution agreement with Premier Valley Foods expired in
June 1997.
27
<PAGE> 33
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of operations, expressed as
percentages of the Company's net sales for such periods:
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED JUNE 30, ENDED SEPTEMBER 30,
---------------------------------- --------------------
1996 1997 1998 1997 1998
---------- ---------- ------ ---------- ------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Net sales........................ 100% 100% 100% 100% 100%
Cost of products sold............ 76 67 69 68 69
Selling, administrative and
general expense and other
expense........................ 18 27 24 25 25
Special charges related to plant
consolidation.................. -- -- 1 -- 2
----- ----- --- ----- ---
Operating income................. 6% 6% 6% 7% 4%
===== ===== === ==== ===
Interest expense................. 5% 4% 6% 7% 7%
===== ===== === ==== ===
</TABLE>
The following tables set forth, for the periods indicated, the Company's
net sales by product category, expressed in dollar amounts and as percentages of
the Company's total net sales for such periods:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
-------------------------- --------------
1996 1997 1998 1997 1998
------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Canned vegetables(a)................... $ 402 $ 437 $ 466 $ 89 $104
Canned fruit(a)........................ 367 431 456 96 111
Tomato products(a)..................... 217 229 313 50 85
Canned pineapple(a).................... 72 65 70 14 16
Other(b)............................... 89 41 8 2 2
------ ------ ------ ---- ----
Subtotal domestic............ 1,147 1,203 1,313 251 318
Latin America.......................... 55 17 -- -- --
Philippines............................ 142 -- -- -- --
Intercompany sales..................... (39) (3) -- -- --
------ ------ ------ ---- ----
Total net sales.............. $1,305 $1,217 $1,313 $251 $318
====== ====== ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
-------------------------- --------------
1996 1997 1998 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Canned vegetables(a)................... 31% 36% 35% 35% 33%
Canned fruit(a)........................ 28 35 35 38 35
Tomato products(a)..................... 16 19 24 20 27
Canned pineapple(a).................... 6 5 5 6 5
Other(b)............................... 7 4 1 1 --
--- --- --- ---- ----
Subtotal domestic............ 88 99 100 100 100
Latin America.......................... 4 1 -- -- --
Philippines............................ 11 -- -- -- --
Intercompany sales..................... (3) -- -- -- --
--- --- --- ---- ----
Total........................ 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
28
<PAGE> 34
- ---------------
(a) Includes sales of the entire product line across each channel of
distribution, including sales to grocery chains, warehouse clubs,
supercenters, mass merchandisers and other grocery retailers, as well as the
Company's foodservice, food ingredients, export and vegetable private label
businesses and military sales.
(b) Includes dried fruit, gel and pudding cups and certain other retail
products, as well as the Company's private label fruit and tomato
businesses, which were discontinued in fiscal 1995 with the termination of
the alliance with PCP.
SEASONALITY
The Company's quarterly operating results have varied in the past and are
likely to vary in the future based upon a number of factors. The Company's
historical net sales have exhibited seasonality, with the second and third
fiscal quarters having the highest net sales. These two quarters reflect
increased sales of the Company's products during the holiday period in the
United States extending from late November through December, as well as sales
associated with the Easter holiday. Lower levels of promotional activity, the
availability of fresh produce and other factors have historically affected net
sales in the first fiscal quarter. Quarterly gross profit primarily reflects
fluctuations in sales volumes and is also affected by the overall product mix.
The Company's fruit operations have a greater percentage of annual sales and
cost of sales in the first fiscal quarter, as compared to its vegetable and
tomato operations, due principally to increased sales of fruit cups during the
"back to school" period. The Company's vegetable and fruit operations have a
greater percentage of annual sales and cost of sales in the second and third
fiscal quarters, principally due to the year-end holiday season in the United
States, and sales of ketchup and related cost of sales typically increase in the
fourth fiscal quarter. Selling, advertising, general and administrative expenses
tend to be greater in the first half of the fiscal year, reflecting promotional
expenses relating to the "back to school" period and the year-end holiday
season, while Easter is the only major holiday in the second half of the fiscal
year.
The summer 1995 pack was below average for both vegetables and fruit due to
flooding in the Midwest and heavy rains in California during the winter and
spring of 1995. As a result, inventory levels during fiscal 1996 were lower than
in previous years, leaving industry supply for vegetables and fruit in a
balanced-to-tight position. The summer 1996 pack was slightly below average for
fruit, while tomato production was slightly higher than expected. Vegetable
production during the summer of 1996 was above average. This, coupled with an
industry decrease in sales, resulted in higher than expected carry-in
inventories (inventories on hand at the start of a packing season) of
vegetables. In response, planned vegetable plantings were decreased for summer
1997, which resulted in higher vegetable costs. In addition, cooler weather than
normal resulted in late plantings for some vegetables causing lower recoveries,
while smaller fruit size lowered raw product fruit recoveries. The high levels
of carry-in inventories at the beginning of fiscal 1998, together with the 1997
pack inventory, resulted in adequate product available for sale. The 1998
harvest was in a balanced position overall.
The weather conditions which existed during the summer of 1995 resulted in
reduced acreage yields and production recoveries of fruits and vegetables which
negatively impacted the Company's production costs in fiscal 1996. During fiscal
1996, the Company's management developed a strategy to increase prices. These
price increases resulted in volume and market share decreases for the Company
during fiscal 1996 as competitors sold greater volume because their prices
remained below the Company's. Despite the reduced market share, the Company's
profitability was significantly higher in the fourth quarter of fiscal 1996 as a
result of higher net selling prices. These price increases were applied to all
product lines in fiscal 1997. Although the Company's aggregate volumes decreased
in fiscal 1997 as compared to fiscal 1996, the Company regained and exceeded
prior year fruit market share while vegetable market share was maintained and
profitability growth continued due to these higher net selling prices.
Profitability growth and market share may be unfavorably affected in the future
due to the market dynamics of available supply and competitors' pricing.
In the winter and spring of 1997-98, certain areas in California, one of
the Company's principal growing regions for tomatoes and fruit, experienced
substantial rainfall as a result of the "El Nino" phenomenon. The 1998
California fruit and tomato harvests and raw product recoveries were somewhat
reduced due to the El Nino phenomenon. Although these weather-related conditions
may result in slightly higher cost of products
29
<PAGE> 35
sold in fiscal 1999, the Company believes that the overall effects of the El
Nino phenomenon will not be material to its financial condition and results of
operations.
THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER 30, 1997
South America Acquisition
On July 10, 1998, the Company entered into an agreement with Nabisco, Inc.
("Nabisco") to reacquire rights to the Del Monte brand in South America and to
purchase Nabisco's canned fruit and vegetable business in Venezuela, including a
food processing plant in Venezuela. The transaction closed on August 28, 1998
for a cash purchase price of $32 million. In connection with the South America
Acquisition, the Company incurred approximately $1 million of expenses. RJR
Nabisco had retained ownership of the Del Monte brand in South America and the
Venezuela Del Monte business when it sold other Del Monte businesses in 1990.
The purchase price is subject to adjustment based on the final calculation of
the closing inventory amount. The Company does not expect the adjustment to be
material to its financial statements taken as a whole. This transaction was
accounted for as a purchase. The purchase price has been allocated preliminarily
as $3 million to inventory and $29 million representing intangible assets.
Net Sales
Consolidated net sales for the first quarter of fiscal 1999 increased by
$67 million as compared to the prior year period, primarily due to higher
volumes in the vegetable and fruit businesses and the purchase of Contadina,
which accounted for $35 million of the increase. The vegetable and fruit
businesses experienced an increase in sales volumes, and corresponding increases
in net sales of 17% and 14%, respectively, compared to prior year period. For
the 13 weeks ended September 26, 1998 as compared to the comparable prior year
period, the Company's vegetable market share, based on case volume, increased
from 16.8% to 20.9%. Vegetable product sales increased in the first quarter of
fiscal 1999 due to increased promotional effectiveness. Fruit product sales
increased in the first quarter of fiscal 1999 as compared to the prior year
period, due to the introduction of new products (FruitRageous, Fruit Pleasures
and Orchard Select) that began national distribution during the first quarter of
fiscal 1999. The Company's market share in the fruit category increased from
40.2% for the 13 weeks ended September 26, 1997, to 42.2% in the current period.
Cost of Products Sold
Cost of products sold as a percent of net sales was 68.5% for the first
quarter of both fiscal 1998 and 1999. Manufacturing costs decreased in the
fiscal 1999 period due to cost savings from capital spending initiatives and
increased production levels. Prior year manufacturing costs were adversely
impacted by lower yields and recoveries, as well as lower production volume
affecting cost absorption. The decrease in manufacturing costs has been offset
by amortization of $2 million of inventory write-up attributable to the purchase
price allocation related to the Contadina Acquisition.
Selling, Administrative and General Expenses
Selling, administrative and general expenses for the first quarter of
fiscal 1999 increased by $18 million as compared to the prior year period. This
higher spending was due to a combination of promotional costs associated with
higher volumes of product sold (including an increase due to the Contadina
Acquisition) and costs associated with the introduction of new products.
Special Charges Related to Plant Consolidation
Charges of $4 million in the first quarter of fiscal 1999 resulted from
accelerated depreciation of buildings and machinery and equipment that the
Company will no longer need following the consolidation of the operations of two
fruit processing plants and two tomato processing plants. Special charges for
that quarter also included $3 million for the write-down to fair value of the
assets held for sale related to the closure of the Arlington, Wisconsin plant.
30
<PAGE> 36
Interest Expense
Interest expense increased by $4 million in the first quarter of fiscal
1999 as compared to the prior year period, primarily due to debt incurred to
fund the Contadina Acquisition.
Other Expense
Other expense for the first quarter of fiscal 1999 represents expenses of
the Company's proposed public equity offering. The expenses were charged to
earnings during the quarter upon the cancellation of the offering.
Net Income (Loss)
Net loss for the first quarter of fiscal 1999 was $11 million as compared
to no earnings in the prior year period. Although net sales increased as
compared to the prior year period, the net loss in the current quarter resulted
from higher interest expense, special charges related to the plant consolidation
plan, inventory write-up related to the Contadina Acquisition and costs of the
public equity offering, which was cancelled.
FISCAL 1997 VS. FISCAL 1998
Contadina Acquisition
On December 19, 1997, the Company completed the Contadina Acquisition for a
total purchase price of $197 million, comprised of a base price of $177 million
and an estimated net working capital adjustment of $20 million. The
consideration was paid solely in cash. The purchase price was subject to
adjustment based on the final calculation of net working capital as of the
closing date. Nestle provided its calculation of the net working capital which
resulted in a payment to the Company of $2 million. This in turn reduced the
purchase price to a total of $195 million. The Contadina Acquisition also
included the assumption of liabilities of approximately $5 million, primarily
consisting of liabilities in respect of reusable packaging materials, employee
benefits and product claims. In conjunction with the Contadina Acquisition,
approximately $7 million of expenses were incurred. The Company accounted for
the Contadina Acquisition using the purchase method of accounting. In
conjunction with the purchase price allocation relating to the Contadina
Acquisition, the Company wrote up, to estimated fair value, the purchased
inventory by approximately $6 million.
Plant Consolidation
The Company recorded charges of $7 million in fiscal 1998 in connection
with its plan to consolidate processing operations. These costs related to
severance and benefit costs for 433 employees to be terminated. Management
believes that because of the sequenced activities of its consolidation plan
described above, it is not likely that there will be any significant changes to
the timetable for its implementation. In addition, due to historically low
turnover at the affected plants, the Company can reasonably estimate the number
of employees to be terminated and, due to the existence of union contracts, the
Company can reasonably estimate any related benefit exposure.
The Company anticipates that it will incur total charges of approximately
$36 million as a result of these plant closures. These expenses include costs of
$16 million representing accelerated depreciation resulting from the effects of
adjusting the assets' remaining useful lives to match the period of use prior to
the plant closure and $7 million in severance costs (as described above). The
Company also expects to incur various other costs totaling $13 million, such as
costs to remove and dispose of those assets and ongoing fixed costs to be
incurred during the Modesto plant reconfiguration and until the sale of the San
Jose and Stockton facilities. The Company recorded total charges relating to
plant closures in fiscal 1998 of $10 million (including depreciation expense of
$3 million recorded in the fourth quarter of fiscal 1998). The Company expects
these charges to affect its results over the next four-year period as follows:
$13 million in fiscal 1999 (including depreciation expense of $9 million), $9
million in fiscal 2000 (including depreciation expense of $4 million), $3
million in fiscal 2001 and $1 million in fiscal 2002. This accelerated
depreciation is included in "Special charges related to plant consolidation."
31
<PAGE> 37
Net Sales
Consolidated net sales for fiscal 1998 increased by $96 million or 7.9%
from fiscal 1997. This increase was attributable to higher sales across all
businesses and the Contadina Acquisition offset by the absence of the Divested
Operations of dried fruit and Latin America. Net sales were $1,237 million for
fiscal 1998 before acquisitions as compared to net sales of $1,169 million for
fiscal 1997 absent the Divested Operations. This represented an increase of $68
million or 5.8% for fiscal 1998 versus fiscal 1997 on a comparable basis. Fruit
volume and net sales increased for the year ended June 30, 1998 as compared to
the year ended June 30, 1997, primarily due to an increase in retail fruit cup
sales and sales of flavored fruits, which were introduced in 1997. Due to
competitive pricing pressures in the fruit foodservice market, the gains in
retail fruit sales were partially offset by volume and sales declines in the
foodservice business. Vegetable volume and net sales increased for the year
ended June 30, 1998 as compared to the year ended June 30, 1997. Although
competitive pricing pressures were experienced in the vegetable market as well,
an effective mix of targeted trade and consumer promotions resulted in increased
volumes leading to an overall increase in net sales. In fiscal 1998, the
Company's market share for Del Monte branded vegetables, based on case volume,
was 19.7% versus 20.3% in the previous year, while the Company's market share
for Del Monte branded fruit products was 42.3% compared to 40.6% for the
previous year.
Cost of Products Sold
Costs increased for fiscal 1998 as compared to fiscal 1997 by $79 million
(which includes $3 million of inventory write-up resulting from the purchase
price allocation related to the Contadina Acquisition). Cost of products sold
expressed as a percentage of net sales was 67.3% in fiscal 1997 and 68.4% in
fiscal 1998. Cost of products sold for fiscal 1998 before acquisitions was $835
million versus $774 million in fiscal 1997 absent Divested Operations or,
expressed as a percentage of net sales, 67.5% for fiscal 1998 compared to 66.2%
for fiscal 1997. The increased costs in fiscal 1998 were offset in part by a
favorable sales mix of higher margin products. Increased costs for the year
ended June 30, 1998 reflect primarily an increase in processing costs caused by
a compressed harvesting season for fruit. These conditions resulted in increased
use of cold storage until processing capacity became available. Reduced
plantings for some vegetables and lower fruit raw product recoveries due to
adverse weather conditions also affected costs.
Selling, Administrative and General Expenses
Selling, administrative and general expense as a percentage of net sales
was 26.9% and 25.1% in fiscal 1997 and 1998, respectively. Selling,
administrative and general expense for fiscal 1997 was higher due to management
incentive payments and, in part, severance payments related to the Company's
recapitalization in 1997 of approximately $25 million.
Included in general and administrative expenses are research and
development costs of $5 million in each of fiscal 1997 and 1998. Research and
development spending remained focused on strategic spending to maintain and
enhance the existing business and to develop product line extensions.
Acquisition Expense
In connection with the Contadina Acquisition, the Company incurred
approximately $7 million of expenses.
Interest Expense
Interest expense increased 48% in fiscal 1998 as compared to fiscal 1997.
This increase was due to the lower outstanding debt balances during the first
nine months of fiscal 1997 (before the recapitalization) and additional debt in
fiscal 1998 due to the Contadina Acquisition.
32
<PAGE> 38
Other (Income) Expense
Other expense for fiscal 1998 decreased as compared to fiscal 1997 due to
the inclusion in 1997 of Recapitalization expenses and the write-down of an
investment. Other expense for fiscal 1997 represented $22 million of expenses
incurred in connection with the recapitalization (primarily legal, investment
advisory and management fees). Other expense in fiscal 1997 also included $7
million relating to the recognition of an other than temporary impairment of a
long-term equity investment.
Provision for Income Taxes
As of June 30, 1998, the Company had $77 million in net operating loss
carryforwards for tax purposes, which will expire between 2008 and 2012.
Net Income
Net income for fiscal 1998 increased by $63 million as compared to the
prior year. The increase in net income was primarily due to expenses related to
the recapitalization and extraordinary losses due to early debt retirement
included in the fiscal 1997 net loss. These items were offset in part by the
plant consolidation severance accrual and accelerated depreciation cost in
fiscal 1998, as well as expenses of the Contadina Acquisition and an increase in
interest expense.
FISCAL 1996 VS. FISCAL 1997
Net Sales
Consolidated net sales for fiscal 1997 decreased by $88 million or 7% from
fiscal 1996. This decrease was attributable to the absence of the Divested
Operations. Net sales for the domestic operations, after adjusting for the
effect of Divested Operations, increased by $97 million from $1,072 million in
fiscal 1996 to $1,169 million in fiscal 1997 due to higher prices across all
product lines. The retail vegetable and fruit businesses increased prices in the
second half of fiscal 1996. The export and foodservice businesses each increased
fruit prices at the beginning of fiscal 1997. Generally balanced industry
supplies of fruit and the Company's emphasis on consumer promotions were
contributing factors towards realizing the higher prices. Volume increases in
the fruit business were more than offset by volume decreases in the vegetable
and tomato businesses. The volume decrease in the Company's vegetable business
reflects, in part, an overall decline in canned vegetable consumption. In fiscal
1997, the Company's market share for Del Monte branded vegetables, based on case
volume, was 20.3% versus 20.4% in the previous year, while the Company's market
share for Del Monte branded fruit was 40.6% compared to 35.6% for the prior
year.
Del Monte Philippines' net sales for the first nine months of fiscal 1996,
until the Company's sale of its interest in this joint venture, accounted for 8%
of consolidated net sales for the year ended June 30, 1996. Del Monte Latin
America's net sales for fiscal 1996 (4% of consolidated sales in fiscal 1996)
decreased $10 million or 15% even though volumes were at approximately the same
level as the prior year. This decrease was primarily due to the significant
Mexican peso devaluation.
Cost of Products Sold
Cost of products sold decreased by $165 million in fiscal 1997 as compared
to fiscal 1996. Cost of products sold (absent Divested Operations in both years)
decreased by $15 million from $789 million in fiscal 1996 to $774 million in
fiscal 1997. Cost of products sold expressed as a percentage of net sales was
73.7% in fiscal 1996 and 66.2% in fiscal 1997. The decrease in costs as a
percent of net sales in fiscal 1997 was primarily due to higher net sales
resulting from higher selling prices across all product lines.
Selling, Administrative and General Expense
Selling, administrative and general expense as a percentage of net sales
(excluding the Divested Operations) was 19.8% and 27.5% in fiscal 1996 and 1997.
Selling, administrative and general expense for fiscal 1997 increased
significantly due to the Recapitalization and the change in marketing strategy.
The
33
<PAGE> 39
Company incurred expenses primarily for management incentive payments and, in
part, for severance payments related to the Recapitalization of approximately
$25 million. Marketing spending increased as the Company placed more emphasis on
consumer promotion programs versus discounts from retailers' list prices than in
the prior year.
Included in general and administrative expenses are research and
development costs of $6 million and $5 million for fiscal 1996 and 1997.
Research and development spending in fiscal 1996 and 1997 remained focused on
strategic spending to maintain the existing business and to develop product line
extensions.
Interest Expense
Interest expense decreased 22% in fiscal 1997 as compared to fiscal 1996.
This decrease was due to lower outstanding debt balances during the first nine
months of fiscal 1997 (before the recapitalization).
Other (Income) Expense
Other expense for fiscal 1997 increased due to $22 million of expenses
incurred in connection with the recapitalization (primarily legal, investment
advisory and management fees). Also included in fiscal 1997 other expense was $7
million relating to the recognition of an other than temporary impairment of a
long-term investment.
Provision for Income Taxes
There was no tax provision in fiscal 1997 as compared to a provision of $11
million in fiscal 1996. This decrease was primarily due to the expenses of the
recapitalization.
Extraordinary Loss
In conjunction with the 1996 Exchange Offer (as defined herein), the
Company charged capitalized debt issue costs of approximately $4 million, net of
a discount on the PIK ("pay-in-kind") Notes, to net income in fiscal 1997 and
accounted for these costs as an extraordinary loss. In conjunction with the
refinancing of debt that occurred at the time of the Recapitalization, the
Company charged previously capitalized debt issue costs of approximately $19
million and a 1996 PIK Note premium and a term loan make-whole aggregating $19
million to fiscal 1997 net income and accounted for these items as an
extraordinary loss. The Company used the net proceeds of the sale of its pudding
business and proceeds of the sale of Del Monte Philippines for the early
retirement of debt. In conjunction with this early debt retirement, in the
second and fourth quarters of fiscal 1996, the Company wrote-off $5 million in
capitalized debt issue costs and charged to income $5 million primarily related
to a prepayment premium. The Company accounted for both of these items as an
extraordinary loss.
Cumulative Effect of Accounting Change
Effective July 1, 1995, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The cumulative effect of adopting SFAS No. 121 resulted in a charge to
fiscal 1996 net earnings of $7 million.
Net Income
Net income for fiscal 1997 decreased by $162 million compared to fiscal
1996 net income. The decrease in net income was primarily due to expenses
associated with the Recapitalization as of April 18, 1997 and the loss on the
sale of Del Monte Latin America of $5 million in fiscal 1997 as compared to a
gain of $123 million from the sale of the pudding business and Del Monte
Philippines in fiscal 1996.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the AICPA Accounting Standards Executive Committee issued,
Statement of Position ("SOP") No. 98-1 "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use."
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<PAGE> 40
This SOP provides guidance with respect to the recognition, measurement and
disclosure of costs of computer software developed or obtained for internal use.
SOP 98-1 is required to be adopted for fiscal years beginning after December 15,
1998. The Company will adopt this statement in fiscal 2000 and is evaluating the
impact of adoption on its financial statements.
The Company will adopt SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for its 1999 fiscal year. This statement
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas,
and major customers. The Company is not required to disclose segment information
in accordance with SFAS No. 131 until its fiscal 1999 year-end and then for
subsequent interim periods in fiscal 2000 with comparative fiscal 1999 interim
disclosures. Adoption will not impact the Company's consolidated financial
position, results of operations or cash flows, and any effect will be limited to
the form and content of the disclosures.
Effective July 1, 1998, the Company adopted SFAS No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 must
be adopted for fiscal years beginning after December 15, 1997 and amends only
the disclosure requirements with respect to pensions and other postretirement
benefits. Adoption of this statement will not impact the Company's consolidated
financial position, results of operations or cash flows, and any effect will be
limited to the form and content of the disclosures.
In fiscal 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 must be adopted for all fiscal quarters and fiscal years beginning
after June 15, 1999 and relates to accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. The
Company is reviewing the effect of adoption of this statement on its financial
statements.
YEAR 2000
In the first quarter of fiscal 1998, the Company contracted with its
information services outsourcing provider, Electronic Data Systems Corporation
("EDS"), to assist the Company in implementation of the Company's Year 2000
compliance project. The Company's Year 2000 compliance project was initiated to
address the issue of computer hardware and software that are time-sensitive or
define dates using two digits rather than four. EDS maintains and operates most
of the Company's software applications and also owns and operates a significant
portion of the related hardware. The Company's compliance project includes both
information technology ("IT") systems and non-IT systems that could be affected
by Year 2000 issues.
The Company's expects to complete its project to evaluate, modify, test
and/or implement Year 2000 compliant systems (including customer and supplier
assessments) by June 1999. Overall, the project is proceeding as scheduled and
was estimated to be 80% complete as of November 30, 1998, with testing ongoing
as each system is modified.
The Company is in the process of obtaining statements from vendors of
non-IT equipment describing their products Year 2000 compliance. The Company
will perform additional testing activities through the early part of calendar
2000 primarily on non-IT equipment containing embedded chips which may be date
sensitive.
Total cost of the project is not material to the Company's financial
position. The Company expects that costs incremental to the base service
contract between EDS and the Company to total under $2 million. The Company is
funding these costs through operating cash flow. Approximately $1 million of
this $2 million estimate had been incurred as of September 30, 1998. The Company
is expensing all costs associated with these system changes as the costs are
incurred.
The Company is continuing to conduct inquiries regarding the Year 2000
compliance programs of its key suppliers and customers and will continue to
update its understanding of the current status of their Year 2000 programs
throughout calendar 1999. No assurance can be given that the Company's suppliers
and customers will all be Year 2000 compliant. The failure of the Company's
suppliers and customers to address the
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<PAGE> 41
Year 2000 issue adequately, or the failure of any material aspect of the
Company's Year 2000 compliance project with respect to its own systems, could
result in disruption to the Company's operations and have a significant adverse
impact on its results of operations, the extent of which the Company cannot yet
determine.
The Company has begun developing contingency plans to address both internal
system failures, as well as external supplier and customer failures that may
result from Year 2000 issues. The Company will continue to update these
contingency plans through calendar 1999 as new information becomes known. These
contingency plans will identify alternatives for the Company's business
operations it believes may be affected, principally communications with key
suppliers and customers and distribution of finished goods to distribution
centers and customer locations, so the Company will be able to continue to
conduct business in the event of material internal or external Year 2000 system
failures. The contingency plans include the development of risk avoidance action
items, such as increasing the Company's finished goods and materials inventory
position before year 2000 to provide additional supply to carry the Company
through any brief period of disruption that may occur due to either internal or
external Year 2000 system failures. The Company believes that with completion of
the project as scheduled and ongoing monitoring any significant disruptions of
core operations should be reduced.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are to fund debt service, finance
seasonal working capital needs and make capital expenditures. Internally
generated funds and amounts available under the Revolving Credit Facility are
the Company's primary sources of liquidity. In connection with this offering,
the Company plans to amend and restate the terms of the Bank Financing (as
defined herein), including the Revolving Credit Facility, as described under
"Description of Certain Indebtedness."
Management believes that cash flow from operations and availability under
the Revolving Credit Facility will provide adequate funds for the Company's
working capital needs, planned capital expenditures and debt service obligations
for at least the next 12 months. The Revolving Credit Facility is the Company's
only revolving credit facility. See "-- Financing Activities -- 1997
Activity -- Bank Financing" and "Description of Certain Indebtedness."
The Company's ability to fund its cash requirements and to remain in
compliance with all of the financial covenants under its debt agreements depends
on its future operating performance and cash flow. These are in turn subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond the Company's control. The Company actively considers
various means of reducing inventory levels to improve cash flow.
As part of its business strategy, the Company continuously reviews
acquisition opportunities. The Company believes that any acquisition would
likely require the incurrence of additional debt, which could exceed amounts
available under the Bank Financing. As a result, completion of any acquisition
could require the consent of the lenders under the Bank Financing and the
amendment and restatement of its terms, including to permit the Company's
compliance with its covenants. The Company cannot predict whether, or the terms
on which, the lenders under the Bank Financing would grant their consent.
Funding requirements for the South America Acquisition were satisfied
through borrowings under the Revolving Credit Facility.
Operating Activities
The working capital position of the Company is seasonally affected by the
growing cycle of the vegetables, fruit and tomatoes it processes. Substantially
all inventories are produced during the harvesting and packing months of June
through October and depleted through the remaining seven months. Accordingly,
working capital requirements fluctuate significantly. The Company uses funds
from its Revolving Credit Facility, which currently provides for a $350 million
line of credit, to finance the seasonal working capital needs of its operations.
See "Description of Certain Indebtedness -- Bank Financing."
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<PAGE> 42
Cash used in operating activities was $153 million in both of the
three-month periods ended September 30, 1997 and 1998. The increase in
inventories at September 30, 1998 from June 30, 1998 reflects the seasonal
inventory buildup. The increase in accounts payable and accrued expenses from
June 30, 1998 to September 30, 1998 primarily reflects accrued expenses
resulting from the peak production period.
In fiscal 1998, cash provided by operations increased by $72 million
primarily due to a decrease in inventories. In fiscal 1997, cash provided by
operations decreased by $35 million over fiscal 1996 primarily due to various
expenses associated with the Company's recapitalization in April 1997, as well
as an increase in inventories due to lower than anticipated sales volume during
the year.
Investing Activities
In fiscal 1998, cash used in investing increased by $259 million due to the
Contadina Acquisition and increased capital expenditures. The decrease of $133
million in cash provided by investing activities in fiscal 1997 versus fiscal
1996 was principally due to net cash proceeds from the sale of the Company's
pudding business ($85 million) and the sale of the Company's interest in Del
Monte Philippines ($98 million) in fiscal 1996. The effect of the fiscal 1996
divested asset sales was partially offset in fiscal 1997 by proceeds from the
sale of the Company's Latin America subsidiaries ($48 million).
Capital expenditures for fiscal 1998 were $32 million, including
approximately $1 million for environmental compliance as the Company continued
its implementation of a program which is intended to generate cost savings by
introducing new equipment that would result in general production efficiencies.
The Company also plans an aggregate of approximately $136 million of additional
capital expenditures through 2001, of which $57 million, $45 million and $34
million is expected to be spent in fiscal 1999, 2000 and 2001. In fiscal 1999,
the Company intends to spend approximately $21 million in connection with its
plans to consolidate processing operations and $6 million for general
manufacturing improvements. Of the anticipated capital expenditures for fiscal
2000, the Company plans to spend approximately $18 million in connection with
its plans to consolidate processing operations. In addition to the foregoing,
the Company budgets certain amounts for ordinary repairs and maintenance. The
amounts discussed above do not include capital expenditures relating to the
adoption of SOP 98-1 "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use." The Company is in the process of evaluating the
impact of adopting SOP 98-1 which may increase its capital expenditures. The
Company plans to adopt SOP 98-1 on July 1, 1999. The Company continually
evaluates its capital expenditure requirements, and such plans are subject to
change depending on market conditions, the Company's cash position, the
availability of alternate means of financing and other factors. The Company
expects to fund capital expenditures from internally generated cash flows and by
borrowing from available financing sources.
Financing Activities -- 1999 Activity
Bank Financing. The Company has engaged Bank of America, NT & SA as
Arranger in connection with a proposed $38 million lease to finance the
construction of four warehouse facilities (totaling approximately 1.4 million
square feet) adjacent to the Company's Hanford, Kingsburg and Modesto,
California, and Plymouth, Indiana, production plants. While the syndication of
this financing is not yet complete, land acquisition and construction have begun
at the Hanford and Kingsburg, California sites, under funding provided by Bank
of America. The Company expects the terms of the fully-syndicated financing to
reflect, in addition to customary lease terms and conditions, a floating
interest rate based on a blended spread of approximately 325 basis points over
three-month LIBOR (which is currently at approximately 5.2%). The lease will
have an initial term of five years and may be renewed under certain
circumstances for up to five years. At the expiration of the lease, the Company
will have the option to purchase the leased facilities for amounts specified in
the lease or to sell them on behalf of the lessor.
Financing Activities -- 1998 Activity
Contadina Acquisition. In connection with the $195 million Contadina
Acquisition, Del Monte issued the Del Monte Notes with an aggregate principal
amount at maturity of $230 million and received gross
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proceeds of approximately $126 million. The Del Monte Notes accrue interest at
12.50% payable on each June 15 and December 15, which will be accreted through
December 15, 2002, after which time interest is required to be paid in cash
until maturity. The Del Monte Notes mature on December 15, 2007.
In connection with the Contadina Acquisition, the Company also amended the
Bank Financing and certain related debt covenants to permit additional funding
under the existing Term B loan in an amount of $50 million, thus increasing the
aggregate amount outstanding under the Term Loan Facility to $430 million.
Amortization of such additional Term B loan amount is incremental to the
scheduled amortization of the previously existing Term B loan. The additional
amortization began on a quarterly basis in the second quarter of fiscal 1999 in
the amount of $0.5 million on an annual basis with such amortization increasing
in the fourth quarter of fiscal 2004, through the third quarter of fiscal 2005,
to approximately $12 million per quarter.
Financing Activities -- 1997 Activity
The Recapitalization. On February 21, 1997, Del Monte entered into a merger
agreement (the "Merger Agreement"), which was amended and restated as of April
14, 1997, with TPG and a newly created merger vehicle ("Shield"). On April 18,
1997, Del Monte was recapitalized through the merger of Shield with and into Del
Monte. Del Monte was the surviving corporation. By virtue of the
recapitalization, shares of Del Monte's preferred stock having an implied value
of approximately $14 million held by certain of Del Monte's stockholders who
remained investors were cancelled and were converted into the right to receive
new Del Monte common stock. All other shares of Del Monte stock were cancelled
and were converted into the right to receive cash consideration. In connection
with the recapitalization, the Company repaid substantially all of its funded
debt obligations existing immediately before the recapitalization. In the
recapitalization, the common stock and preferred stock of Shield was converted
into new shares of common stock and preferred stock, respectively, of Del Monte.
Cash funding requirements for the recapitalization totaled $809 million and
included repayment of $158 million of then outstanding notes, $113 million of
the then-existing term loan, and $30 million of the then-existing revolving
credit facility. In addition, $422 million was paid to former shareholders as
cash consideration for their shares and approximately $86 million was paid in
other fees and expenses. These cash funding requirements were satisfied through
the following: (i) a cash equity investment by TPG and other investors of $126
million in common stock; (ii) a cash equity investment by TPG and other
investors of $35 million in shares of redeemable preferred stock and warrants to
purchase common stock; (iii) $380 million of borrowings under the Term Loan
Facility; (iv) $119 million of borrowings under the revolving credit facility
(the "Revolving Credit Facility" and, together with the Term Loan Facility, the
"Bank Financing"); (v) $147 million from the net proceeds of the offering of the
DMC Notes; and (vi) $2 million of proceeds from the sale of a surplus property.
Bank Financing. Concurrent with the recapitalization, the Company entered
into the Bank Financing. The Term Loan Facility provides for term loans in the
aggregate amount of $380 million, consisting of Term Loan A of $200 million and
Term Loan B of $180 million. The Revolving Credit Facility provides for
revolving loans in an aggregate amount of $350 million, including a $70 million
Letter of Credit subfacility. The Revolving Credit Facility terminates in fiscal
2003, the Term Loan A will mature in fiscal 2003, and the Term Loan B will
mature in fiscal 2005. Scheduled principal payments (which are subject to
reductions from application of annual excess cash flow mandatory prepayment
requirements) on the Term Loan A begin in the first quarter of fiscal 1999 and
continue quarterly through maturity. Initial quarterly amortization is
approximately $8 million per quarter, rising periodically at approximately $1
million per quarter to a final quarterly amortization, beginning in the first
quarter of fiscal 2003, of approximately $17 million through maturity. Scheduled
principal payments (which are subject to reductions from application of annual
excess cash flow mandatory prepayment requirements) on the Term Loan B begin in
the third quarter of fiscal 1998 and continue quarterly through maturity.
Initial quarterly amortization amounts to approximately $2 million per year.
Substantial amortization begins in the fourth quarter of fiscal 2004, with
quarterly amortization of approximately $42 million. At June 30, 1997, the
interest rates (which are subject to adjustment) applicable to amounts
outstanding under the Term Loan A and the Revolving Credit Facility were, at the
Company's option, either (i) the base rate (the higher of .50% above the Federal
Funds Rate and the bank's reference
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rate) plus 1.25%; or (ii) the reserve adjusted offshore rate plus 2.25%.
Interest rates on Term Loan B are, at the Company's option, either (i) the base
rate plus 2.00%; or (ii) the offshore rate plus 3.00%. The Bank Financing is the
Company's only syndicated bank loan.
Senior Subordinated Notes. In connection with the Company's
recapitalization, on April 18, 1997, Del Monte Corporation, a wholly owned
subsidiary of Del Monte ("DMC"), issued the DMC Notes with an aggregate
principal amount of $150 million and received gross proceeds of $147 million.
The DMC Notes accrue interest at 12.25% per year, payable semiannually in cash
on each April 15 and October 15. The DMC Notes are guaranteed by Del Monte and
mature on April 15, 2007. Del Monte's guarantee is secured by a pledge of the
stock of DMC.
The terms of the Company's indebtedness contain restrictive covenants. See
"Description of Certain Indebtedness." The Company is in compliance with all of
these covenants.
PENSION FUNDING
As described more fully in Note I to the audited consolidated financial
statements of the Company as of and for the year ended June 30, 1998, the
Company's defined benefit pension plans were determined to be underfunded. It
had been the Company's policy to fund the Company's retirement plans in an
amount consistent with the funding requirements of federal law and regulations
and not to exceed an amount that would be deductible for federal income tax
purposes. In connection with the Company's recapitalization, the Company entered
into an agreement with the U.S. Pension Benefit Guaranty Corporation dated April
7, 1997 whereby the Company contributed $15 million within 30 days after the
consummation of the Recapitalization to its defined benefit pension plans. The
Company contributed $15 million in calendar 1998. The Company will also
contribute a minimum of $9 million in calendar 1999, $8 million in calendar 2000
and $8 million in calendar 2001. The contributions required to be made in 1999,
2000 and 2001 are secured by a $20 million letter of credit.
TAX NET OPERATING LOSS CARRYFORWARDS
As of June 30, 1998, the Company had $77 million in net operating loss
carryforwards for tax purposes, which will expire between 2008 and 2012. The
Company's use of these net operating loss carryforwards in any year may be
limited by applicable law.
INFLATION
The Company's costs are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. However, the Company has
historically mitigated the inflationary impact of increases in its costs by
controlling its overall cost structure.
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BUSINESS
GENERAL
The Company was originally incorporated in 1916 and remained a publicly
traded company until its acquisition in 1979 by the predecessor of RJR Nabisco.
In December 1989, RJR Nabisco sold the Company's fresh produce operations
("Fresh Del Monte") to Polly Peck International PLC. In January 1990, an
investor group led by Merrill Lynch & Co. purchased the Company and some of its
subsidiaries from RJR Nabisco for $1.5 billion (the "RJR Nabisco Sale").
Following this sale, the Company divested several of its non-core businesses and
all of its foreign operations.
The Company manufactures and distributes premium quality, nutritious food
products under the Del Monte and other brand names. The Company is the largest
producer and distributor of canned vegetables and canned fruit in the United
States, with pro forma net sales of $1.4 billion in fiscal 1998. The Del Monte
brand was introduced in 1892, and management believes that it is the best known
brand among canned food products in the United States. Del Monte brand products
are found in most national grocery chains and independent grocery stores
throughout the United States. As the brand leader in three major processed food
categories (canned vegetables, fruit and solid tomato products), the Company has
a full-line multi-category presence that management believes provides it with a
substantial competitive advantage in selling to the retail grocery industry. The
Contadina Acquisition contributes another established brand and positions the
Company as the branded market leader in the high margin canned solid tomato
category and establishes a strong presence for the Company in the branded
paste-based tomato products category.
The Company sells its products through national grocery chains and
independent grocery stores nationwide. The Company also sells to warehouse club
stores and mass merchandisers, such as Wal-Mart and Kmart, and larger mass
merchandising outlets that include full grocery sections, such as Wal-Mart
Supercenters and Kmart's SuperKs. In addition, the Company sells its products to
the foodservice industry, food processors and the U.S. military through
different independent food brokers. The Company also exports a small percentage
of its products to certain foreign countries directly and through independent
exporters based in the United States.
The Company operates 14 production facilities in California, the Midwest,
Washington and Texas, as well as six strategically located distribution centers.
The Company has over 2,500 contracts to purchase vegetables and fruit from
individual growers and cooperatives located in various geographic regions of the
United States, principally California, the Midwest, the Northwest and Texas.
This diversity of sourcing helps insulate the Company from localized disruptions
during the growing season, such as weather conditions, that can affect the price
and supply of vegetables, fruit and tomatoes.
The Company owns a number of registered and unregistered trademarks that it
uses in conjunction with its business, including the trademarks Del Monte,
Contadina, Fruit Cup, FreshCut, Snack Cups, Fruit Naturals, Orchard Select, Can
Do and Del Monte Lite. In connection with and subsequent to the RJR Nabisco
Sale, the Company granted various perpetual, exclusive royalty-free licenses for
the use of the Del Monte name and trademark, as well as the use of certain
copyrights, patents, and trade secrets, generally outside of the United States.
The licensees include Fresh Del Monte and its affiliates (which succeeded to
Polly Peck as the owner of the Company's former fresh produce operations), Del
Monte International, Kikkoman Corporation, an affiliate of RJR Nabisco and
Premier Valley Foods. None of the licensees is an affiliate of the Company,
other than Premier Valley Foods with respect to which the Company owns 20% of
the common stock.
The Company was recapitalized in April 1997. In that transaction Texas
Pacific Group, a private investment group, obtained a controlling interest in
the Company. Under a new senior management team, the Company has implemented a
new strategy to increase its sales and margins. This strategy includes (i)
increasing market share and household penetration of the Company's existing high
margin value-added products; (ii) introducing new products and new forms of
packaging such as glass and plastic; (iii) increasing penetration of high growth
distribution channels, such as supercenters, mass merchandisers and warehouse
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clubs; (iv) achieving cost savings through operating efficiencies plant
consolidations and investments in new and upgraded equipment; and (v) completing
strategic acquisitions.
COMPETITIVE STRENGTHS
The Company believes it has the following competitive strengths that
contribute to its position as a leading branded producer, marketer and
distributor of canned vegetables, fruit and tomato products in the United States
and provide a solid foundation for the its business strategy.
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte
brand name, which has been in existence since 1892, is a leading brand name
in the food industry. Based on the ability of consumers to name the Del Monte
brand when asked to identify companies that manufacture canned foods,
management believes that the Del Monte brand has the highest unaided brand
awareness of any canned food brand in the United States. The Company recently
acquired the Contadina brand name, which is also well-established nationally
with a strong reputation for quality. For the 52 weeks ended September 26,
1998, the Company's 20.5% market share of canned vegetables was larger than
the combined market shares of the Company's two largest branded competitors.
The Company's 42.6% market share of canned fruit was larger than the combined
market shares of all other branded competitors. The Company, including its
Contadina business, had a pro forma 16.5% market share in the high margin
solid segment of the canned tomato market for the 52 weeks ended September
26, 1998.
<TABLE>
<CAPTION>
MARKET SHARE FOR 52 WEEKS ENDED
SEPTEMBER 26, 1998
------------------------------------------------------
MARKET NEXT LEADING BRANDED
CATEGORY POSITION(a) PERCENTAGE COMPETITOR'S PERCENTAGE(a)
-------- ----------- ---------- --------------------------
<S> <C> <C> <C>
Canned vegetables..................... #1 20.5% 12.1% (Green Giant)
Canned fruit.......................... #1 42.6% 10.4% (Libby's)
Canned solid tomato products(b)....... #1 16.5% 11.4% (Hunt's)
</TABLE>
- ---------------
(a) Excludes private label.
(b) Pro forma to include Contadina sales.
- - TECHNICAL EXPERTISE AND LOW COST PRODUCTION ADVANTAGES -- The Company has
significant experience in developing new and innovative products and
packaging forms to generate increased sales. The Company also has significant
expertise in creating efficient food processing operations to reduce costs.
The Company can leverage each of these capabilities across many food
categories. The Company has developed proprietary vegetable seed varieties,
which increase harvest and cannery recoveries and improve flavor and quality.
The Company also provides technical support to and benefits from its many
long-term relationships with experienced, geographically diverse growers who
work with the Company to maximize yields on the Company's vegetable, fruit
and tomato raw materials. These relationships also help to ensure a
consistent supply of raw product. As a result of its technical expertise,
proprietary seed varieties and raw product sourcing diversity, as well as its
modern processing equipment and labeling, packaging, warehousing and
distribution efficiencies, the Company believes that it is one of the lowest
cost producers of canned vegetables, fruit and tomatoes in the United States.
- - PREFERRED SUPPLIER STATUS -- Competitive pressures and mergers among grocery
chains are causing many retailers to prefer large suppliers that, as a single
vendor, can provide category expertise, continuity of supply, complete
product lines and popular brands. These retailers are also demanding that
suppliers have sophisticated technology, including inventory and category
management programs. The Company anticipated these trends and has developed
proprietary software tools to help its customers and promote sales of its
products. The Company's proprietary category management system is designed to
address retailers' efforts to maximize profitability of shelf space dedicated
to canned food categories. Most of the Company's customers that have used the
Company's management tools have increased the shelf space they devote to the
Company's products. The Company's proprietary vendor-managed inventory
software allows the Company to manage directly its customers' inventories of
the Company's products. This inventory management software helps to reduce
customers' overhead costs and enables them to achieve lower
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<PAGE> 47
average inventory levels while enhancing the Company's opportunities to sell
its products. Retailers also rely on the Company's in-depth knowledge as the
leading branded marketer in the canned fruit, vegetable and tomato
categories, and they seek the Company's advice on marketing and promoting
these categories. Finally, the Company has strong, well-developed
relationships with all major participants in the retail grocery industry and
believes that these relationships will become increasingly important as
consolidation in the industry continues. The Company using its category
knowledge, customer relationships and software tools, along with its
multi-category product line that can readily be ordered and shipped on a full
truck-load basis, to become the preferred supplier in its product categories.
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company has an
extensive sales and distribution network that permits the Company to compete
efficiently with other national brands and regional competitors and to
introduce its products regionally or nationally. Certain of the Company's
products are distributed in virtually every major U.S. retail grocery store.
The Company operates six strategically located distribution centers offering
customers a variety of services, including electronic data interchange and
direct store shipments. The Company's distribution system is an important
part of the Company's success and provides the Company with a competitive
advantage over regional and private label competitors.
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, the
Company's Chief Executive Officer and Chief Operating Officer are veteran
managers with extensive food industry experience. Mr. Wolford has 32 years of
experience in the food industry, 20 of which were with Dole. He was president
of Dole Packaged Foods from 1982 to 1987, and during Mr. Wolford's tenure at
Dole, Dole experienced increased profitability, sales volume and market
share. Mr. Wolford played a key role in redefining the Dole brand and
expanding the range of products sold under the brand. From 1988 to 1996, he
was Chief Executive Officer of HK Acquisition Corp. where he developed food
industry investments with venture capital investors and managed the
investor-owned companies. Mr. Smith has 26 years of experience, 23 of which
were also at Dole, where he oversaw the building of Dole's domestic fresh
pineapple business and the restructuring of Dole's sizable Hawaiian
operations. In addition, Mr. Smith was responsible for establishing Dole's
juice business at Dole with minimal capital investment.
BUSINESS STRATEGY
Following the Recapitalization in 1997, the Company implemented a new
business strategy to increase its sales and margins. This new business strategy
has the following key elements.
- - LEVERAGE BRAND EQUITY TO INCREASE SALES AND MARKET SHARE OF HIGH MARGIN
PRODUCTS -- The Company plans to leverage the Del Monte and Contadina brand
names and its strong relationships with customers to increase sales of its
existing product lines, focusing specifically on high margin, value added
products, such as its specialty fruits and vegetables, diced tomatoes and its
single serve Fruit Cup snack line. These products have underdeveloped
potential due to either low market shares or low household penetration
relative to the Company's overall position in the relevant food category.
- - FOCUS ON CONSUMPTION-DRIVEN MARKETING STRATEGY -- The Company has refocused
its marketing efforts and promotional strategy. To leverage its brand
strength, the Company has increased consumer-targeted marketing programs,
primarily through coupons, and has clearly positioned its products to
emphasize their premium quality. The Company increased spending on consumer
promotions from $12 million in fiscal 1996 to $45 million in fiscal 1998 and
anticipates that its consumer spending in fiscal 1999 and 2000 will be
generally consistent with levels of consumer spending in fiscal 1998. The
Company has also improved the effectiveness of its trade promotion strategy.
The Company has implemented performance-based programs for its trade spending
with its customers. Under these programs, the Company manages trade spending,
which consists of the costs of promotional activities with grocery chains and
other customers (such as special displays, discounts and advertisements),
based on retailers' sales of the Company's products to consumers, rather than
on their purchases of products from the Company. The Company believes that
this performance-based strategy, coupled with the Company's category
management capabilities, will continue to increase sales and reduce costs.
42
<PAGE> 48
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
emphasizing new, higher margin products and line extensions to leverage the
Company's presence in its existing product categories and to capitalize on
its food technology expertise. The Company is also developing new packaging
forms such as glass and plastic. These innovations have resulted in the
successful introduction of flavored diced tomatoes, two lines of single serve
flavored canned fruit and Orchard Select, a premium fruit product packaged in
glass. The Company has begun testing single serve fruit products packaged in
plastic. These products extend the Company's traditional product lines and
appeal to consumer demand for high quality, convenient and nutritious food
products. The Company is evaluating introductions of other new products
packaged in glass and plastic to further expand its presence in the market
beyond the processed food aisle.
- - INCREASE PENETRATION OF HIGH-GROWTH DISTRIBUTION CHANNELS -- Alternative
retailers, such as warehouse clubs, mass merchandisers and supercenters, have
grown in importance as the retail grocery industry has changed in recent
years. The Company believes it is well-positioned to benefit from these
changes because these vendors generally seek leading brand name products that
generate high inventory turnover. These vendors are also attracted to
reliable, technologically sophisticated suppliers with full product lines
that have the ability to meet their stringent inventory and shelf management
requirements. Based on its internal estimates and the broad range of products
supplied by the Company to these retailers, the Company believes it is a
leading supplier to Wal-Mart's Sam's Club, PriceCostco and Wal-Mart
Supercenters.
- - IMPLEMENT FURTHER COST SAVINGS -- The Company is aggressively pursuing cost
reduction opportunities, which have already contributed to an increase in
Adjusted EBITDA margins (excluding the results of Divested Operations) from
6.9% in 1995 to 10.3% in 1998 and 9.4% in the first quarter of fiscal 1999.
The Company plans to implement capital projects that offer rapid returns on
investment, and consolidate its plants where that would increase efficiency.
The Company plans to consolidate, over the next three fiscal years, six
existing fruit and tomato operations in California into four facilities,
including one large state-of-the-art facility acquired as part of the
Contadina Acquisition. Also, in August 1998, management announced its
intention to close the Company's vegetable processing plant located in
Arlington, Wisconsin after the summer 1998 pack. In addition, the Company is
investing in new, state-of-the-art production equipment to increase
production efficiencies and strengthen its position as a low cost producer.
For example, such equipment includes high-speed, high-resolution vision
sorting technology. This technology allows the rapid detection of defects in
raw product, as well as high-speed, volumetric filling and continuous cooking
equipment, which ensures accurate fill weights and uniform product quality.
- - COMPLETE STRATEGIC ACQUISITIONS -- The Company will pursue strategic
acquisitions when there are opportunities to increase margins and
profitability by leveraging the Company's key strengths in product
development, food processing, marketing, sales and distribution. In
evaluating potential acquisition candidates, the Company seeks, among other
things: (i) strong brands, including those with value added product lines,
that can be expanded by leveraging the Company's technical and manufacturing
expertise and/or its sales and distribution systems; (ii) new products that
can achieve growth through re-branding; and (iii) economies of scale in
manufacturing, distribution and capacity utilization. The Contadina
Acquisition, for example, adds a leading national brand which strengthens the
Company's market share in key tomato segments and allows the Company to
realize cost savings through plant consolidations. The Contadina Acquisition
also allows the Company to introduce new branded retail products and to
increase sales to the branded foodservice market. The Company has reacquired
rights to the Del Monte brand in South America from Nabisco and to purchase
Nabisco's canned fruits and vegetables business in Venezuela. The Company
continuously reviews acquisition opportunities and at any time may be engaged
in discussions with respect to an acquisition that may be material to its
operations. No agreement, understanding or arrangement has been reached,
however, with respect to any such acquisition. The Company believes that any
acquisition would likely require the incurrence of additional debt, which
could exceed amounts available under the Bank Financing. As a result,
completion of an acquisition could require the consent of the lenders under
the Bank Financing and the amendment of the terms thereof, including for
purposes of permitting the Company's compliance with its covenants
thereunder.
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<PAGE> 49
THE INDUSTRY
The Company believes that the domestic canned food industry is generally
characterized by relatively stable growth based on modest price and population
increases. Within the industry, however, the Company believes that certain
categories have been experiencing substantial growth by responding to changing
consumer needs. Over the last ten years, the industry has experienced
rationalization as competitors have disposed of non-core business lines and made
strategic acquisitions to complement category positions, maximize economies of
scale in raw material sourcing and production and expand retail distribution.
The Company also believes that sustaining strong relationships with retailers
has become a critical success factor for food companies and is driving
initiatives such as category management. Food companies with branded category
leadership positions and strong retail relationships appear to have increasingly
benefited from these initiatives as a way to maintain and increase shelf space
and maximize distribution efficiencies.
Branded food manufacturers typically lead pricing and innovation in the
canned food segments in which the Company competes. A majority of market share
in these categories is, however, attributable to private label manufacturers
based on statistical information compiled by ACNielsen. The aggregate market
share of these manufacturers has remained relatively stable over the past
several years in each of the Company's principal product categories. For the 52
weeks ended September 26, 1998, private label manufacturers as a group
represented 43.8%, 39.6% and 31.0% of canned vegetable, fruit and solid tomato
product sales, respectively. The Company believes that the private label segment
has historically been highly fragmented among regional producers seeking to
compete principally based on price. Recently, some consolidation has occurred
among private label manufacturers in the canned vegetable category. The Company
believes that this consolidation may result in increasing rationalization of
production capacity in the industry. This may in turn result in higher price
positioning by private label manufacturers of canned vegetable products.
The Company increased vegetable and fruit prices in fiscal 1996 to improve
margins. Higher prices put the Company at a significant price disadvantage in
the marketplace for most of the year as competition did not raise prices until
late in the fiscal year. As anticipated, the Company experienced a volume loss
and market share decline. In the case of its vegetable operations, the Company's
margins have increased while its market share has stabilized at a level lower
than its share prior to the price increases. In the case of its fruit
operations, the Company's significantly improved margins generally offset the
effects of the lower volume. The Company's fruit market share recovered by
year-end 1997 to achieve a higher level than that experienced prior to the price
increases. See "Risk Factors -- Our Business Is Highly Competitive" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPANY PRODUCTS
The Company has a full-line, multi-category presence with products in four
major processed food categories: canned vegetable, fruit, tomato and pineapple
products.
The following table sets forth, for the periods indicated, the Company's
net sales by canned product category, expressed in dollar amounts and as a
percentage of the Company's total pro forma net sales for such period:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED JUNE 30,
1998
---------------
(IN MILLIONS)
<S> <C> <C>
Vegetables(a).............................................. $ 466 33%
Fruit(a)................................................... 456 32
Tomato products(a)(b)...................................... 405 29
Pineapple(a)............................................... 70 5
Other(c)................................................... 8 1
------ ---
Total(b)......................................... $1,405 100%
====== ===
</TABLE>
44
<PAGE> 50
- ---------------
(a) Includes sales of the entire product line across each channel of
distribution, including sales to grocery chains, warehouse clubs,
supercenters, mass merchandisers and other grocery retailers, as well as the
Company's foodservice, food ingredients, export and vegetable private label
business and military sales.
(b) Includes $92 million of sales of tomato products by Contadina, on a pro
forma basis, for the fiscal year ended June 30, 1998.
(c) Includes pickles, dried fruit and certain other retail products.
Vegetables
Based on internal estimates using data compiled by ACNielsen from various
industry and other sources, the Company believes that the canned vegetable
industry in the United States generated more than $3 billion in sales in fiscal
1998. The Company believes that the domestic canned vegetable industry is a
mature segment characterized by high household penetration.
The Company views the retail canned vegetable market as consisting of three
distinct segments: major, flanker and specialty products. The Company competes
in each of these segments. The major segment consists of corn, green beans and
peas and represents the largest volume segment, accounting for $775 million or
approximately 66% of fiscal 1998 canned vegetable supermarket case sales
(excluding pickles and tomato products). The Company's entries in the major
segment include cut green beans and French-style green beans, as well as whole
kernel and cream-style corn. The flanker segment, which includes mixed
vegetables, spinach, beets, carrots, potatoes and sauerkraut, accounted for $234
million or approximately 17% of fiscal 1998 canned vegetable supermarket case
sales. The specialty segment, comprised of asparagus, zucchini, baby beets and a
variety of corn and bean offerings, represents $287 million or approximately 12%
of fiscal 1998 canned vegetable supermarket case sales. Many of the Company's
specialty vegetable products are enhanced with flavors and seasonings, such as
the Company's zucchini in tomato sauce and its Fiesta corn, which is made with
green peppers and seasonings. The Company's specialty vegetables are priced at a
premium to its other vegetable products and carry higher margins. All of the
Company's vegetable products are offered to the retail market principally in
14-15 oz. sizes and to the foodservice market primarily in a larger commercial
size can. The Company produces six or eight can multi-packs primarily for its
club store customers. A cross-segment, buffet products, includes all of the
above varieties in smaller can sizes. The Company also offers a no-salt product
line across most of its core varieties. Within these segments, the Del Monte
brand accounted for $349 million in retail sales in fiscal 1998. During the 52
weeks ended September 26, 1998, Del Monte brand vegetable products enjoyed an
average premium of 19c (40%) per item over private label products and the
Company held a 20.5% share of the canned vegetable market for that period.
The canned vegetable market is concentrated among a small number of branded
manufacturers and a large, fragmented pool of private label competitors. In the
major vegetable market, the Company is the branded market share leader and for
the 52 weeks ended September 26, 1998, held a 24.4% market share in green beans,
a 19.9% market share in corn and a 17.4% market share in peas. The Company's
major vegetable products are distributed in substantially all grocery outlets.
The Company also is the branded market share leader in the flanker segment and
is the overall market share leader in the buffet segment. Private label products
taken as a whole command the largest share of the canned vegetable market, but
their market share has remained relatively stable over the past decade. The
Company's primary branded competitors in the
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<PAGE> 51
market include Green Giant nationally, and regional brands such as Freshlike,
Stokely and Libby's, in addition to private label producers.
VEGETABLE MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 20.5%
Green Giant (Pillsbury)..................................... 12.1%
Libby's (Seneca)............................................ 3.3%
Stokely (Chiquita).......................................... 2.2%
Freshlike (Agrilink)........................................ 2.3%
All private label combined.................................. 43.8%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended September 26, 1998 (based on
equivalent cases).
The Company has relationships with approximately 900 vegetable growers
located primarily in Wisconsin, Illinois, Minnesota, Washington and Texas.
Fruit
Based on internal estimates using data compiled by ACNielsen from various
industry and other sources, the Company believes that the processed canned fruit
industry in the United States generated more than $2 billion in sales in fiscal
1998. The Company believes that the domestic canned fruit industry is a mature
segment characterized by high household penetration.
The Company is the largest processor of branded canned fruit in the United
States. The Company competes in three distinct segments of the canned fruit
industry: major, specialty and pineapple products. These segments together
account for approximately 60% of the canned fruit industry's total sales. The
major segment consists of cling peaches, pears and fruit cocktail/mixed fruit
and fruit cups. The specialty segment includes apricots, freestone and spiced
peaches, mandarin oranges and cherries. The Company believes that the major
fruit and specialty fruit segments of the canned fruit market together accounted
for more than $1 billion of total canned fruit industry sales in fiscal 1998.
The pineapple segment is discussed separately below.
Major fruit accounted for sales by retailers of $640 million in fiscal
1998. Sales by retailers of Del Monte brand major fruit products totaled $316
million in fiscal 1997. For the 52 weeks ended September 26, 1998, the Company
was the branded share leader with a 42.6% market share. The Company is also the
share leader in every major sub-segment of the major category. In single serve
sizes, the Company has over a 68% market share. The Company's major fruit and
fruit cup products are distributed in substantially all grocery outlets.
The Company is the branded leader in the specialty category as a whole and
the market leader in apricots and freestone and spiced peaches. Specialty fruits
are higher margin, lower volume "niche" items, which benefit from the Company's
brand recognition. Del Monte apricots and freestone peaches are distributed in
over 73% and 62% of grocery outlets, respectively. Mandarin oranges and cherries
are distributed in 43% and 8% of grocery outlets, respectively.
The Company believes that it has substantial opportunities to leverage the
Del Monte brand name to increase sales of its existing high margin specialty
products, such as its Fruit Cup line. The Company has also been developing new
high margin products designed to leverage the Company's presence in existing
categories, to capitalize on its existing manufacturing capabilities and to
expand the Company's presence in the market beyond the canned food aisle. For
example, following initial success in test markets, the Company is completing
national distribution of its Orchard Select, a premium fruit product packaged in
glass. In September 1998, the Company also began national introduction of Fruit
Pleasures and FruitRageous, two new single serve fruit product lines. Fruit
Pleasures is targeted at the adult snack market and FruitRageous is a fruit
snack for children. An important focus of the Company's new product development
efforts is the production of high quality, convenient and nutritious products,
particularly snack-type products.
46
<PAGE> 52
The Company competes in the canned fruit business on the basis of product
quality and category support to both the trade and consumers. On the industry's
highest volume can size (15-16 oz.), the Del Monte brand commanded an average 9c
(10%) per item premium. The Company faces competition in the canned fruit
segment primarily from Tri-Valley Growers and PCP, both of which are grower
co-operatives that produce private label products. Tri-Valley Growers also packs
fruit under the Libby's and S&W brands.
MAJOR FRUIT MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 42.6%
Libby's (Tri-Valley Growers)................................ 10.4%
All private label combined.................................. 39.6%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended September 26, 1998 (based on
equivalent cases).
The Company has relationships with approximately 600 fruit growers located
primarily in California, Oregon and Washington.
Tomato Products
Based on internal estimates using data compiled by ACNielsen from various
industry and other sources, the Company believes that processed tomato products
generated fiscal 1998 industry-wide sales in the United States of more than $5
billion. While total sales of tomato products have grown steadily in recent
years, the Company believes that the diced segment of the retail canned solid
tomato segment (which also includes chunky tomatoes and tomato wedges) has been
growing at a substantially greater rate than the category as a whole, as
consumer preferences have trended toward more convenient cut and seasoned tomato
products.
The processed tomato category can be separated into more than ten distinct
product segments which differ widely in terms of profitability, price
sensitivity and growth potential. Consumers use tomato products for a variety of
purposes ranging from ingredients to condiments, beverages and main dishes.
The Company's tomato product offerings consist of two major segments: solid
tomato products, which are differentiated primarily by cut style, with varieties
including stewed, crushed, diced, chunky and wedges, and paste-based tomato
products, such as ketchup, tomato sauce and tomato paste and value-added
products, including spaghetti, pasta and sloppy joe sauces.
The Company is the leading producer of branded canned solid tomato
products. These products generally have higher margins than paste-based tomato
products, and this is the fastest growing segment of the Company's tomato
products. As a result of the Contadina Acquisition, the Company extended its
presence in this segment through the addition of Contadina's share of the market
for crushed tomato products. The canned solid tomato segment has evolved to
include additional value-added items, such as flavored diced tomato products.
The Company believes that there is substantial opportunity to increase sales of
solid tomato products, including particularly crushed tomato products, through
similar line extensions that capitalize on the Company's manufacturing and
marketing expertise.
SOLID TOMATO PRODUCTS MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE/CONTADINA......................................... 16.5%
Hunt's (ConAgra)............................................ 11.4%
S&W (Tri Valley Growers).................................... 4.9%
All private label combined.................................. 31.0%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended September 26, 1998 (based on
equivalent cases).
With the Contadina Acquisition, the Company strengthened its position in
the branded paste-based tomato products categories in which it competes. The
Company markets its spaghetti and sloppy joe sauces, as well as its ketchup
products, under the Del Monte brand name using a "niche" marketing strategy
targeted toward value-conscious consumers seeking a branded, high quality
product. The Company's tomato paste
47
<PAGE> 53
products are marketed under the Contadina brand name, which is an established
national brand for Italian-style food products. Contadina also targets the
branded food service tomato market, including small restaurants that use
Contadina brand products, such as finished spaghetti and pasta sauces. The
Company plans to use this presence as a platform to expand its branded
foodservice business, including sales of Del Monte brand products to new and
existing Contadina foodservice customers.
The Company faces competition in the tomato product market from brand name
competitors including S&W and Hunt's in the solid tomato category; Heinz and
Hunt's in the ketchup category; and Hunt's, Campbell Soup's Prego and Unilever's
Ragu in the spaghetti sauce category. Hunt's is the Company's chief competitor
in the tomato paste segment. In addition, the Company faces competition from
private label products in all major categories. While the Company has a small
share of the overall tomato product market (with market shares for the 52 weeks
ended September 26, 1998 of 4.9% in spaghetti sauce and 15.3% in tomato sauce),
it is the largest branded competitor in the solid tomato segment with a market
share of 16.5% for the 52 weeks ended September 26, 1998. Hunt's, the next
largest branded processor, possessed a 11.4% share of the solid tomato segment
for this period. In other key categories, for the 52 weeks ended September 26,
1998, Heinz was the market leader in ketchup with a 45.2% market share, and
Hunt's was the leader in tomato sauce with a 36.4% market share.
The Company has relationships with approximately 40 tomato growers located
primarily in California, where approximately 95% of domestic tomatoes are
produced. See "Risk Factors -- Severe Weather Conditions and Natural Disasters
Can Affect Crop Supplies and Reduce Our Operating Results."
Pineapple
Based on internal estimates using data compiled by ACNielsen from various
industry and other sources, the Company believes that the canned pineapple
industry in the United States generated more than $300 million in sales in
fiscal 1998. The Company believes that the domestic canned pineapple industry is
a mature segment of the canned fruit industry that has generated stable sales.
Individual pineapple items are differentiated by cut style, with varieties
including sliced, chunk, tidbits and crushed. Currently, approximately 83% of
pineapple product sold is packed in juice. The remaining 17% is packed in heavy
syrup. Size offerings include the 20 oz. size, which accounts for 77% of
category sales. Other sizes include the 8 oz. and 15 oz. varieties.
The Company's retail pineapple line consists of sliced, chunk, tidbits,
crushed and juice products in a variety of container sizes. In addition to sales
by retailers, which totaled $33 million in fiscal 1998, the Company sells a
significant amount of juice concentrate and crushed pineapple through the food
ingredients channel. The Company also sells pineapple solids and juice products
to foodservice customers.
The Company is the second leading brand of canned pineapple, with a 14.2%
market share for the 52 weeks ended September 26, 1998. Dole is the industry
leader with a market share of 45.9%. Private label and foreign pack brands
comprise the low-price segment of this category and hold market shares of 28.3%
and 10.6%, respectively. The five major foreign pack brands, Geisha, Libby's,
Liberty Gold, Empress and 3-Diamond, have regional distribution and are supplied
by Thai and Indonesian packers. Certain foreign brands grew through 1995 by
"dumping" product in the United States at below cost prices, which depressed
category pricing. In 1995, the U.S. Government imposed anti-dumping tariffs on
Thai packers, which allowed the domestic industry to recover some of its margins
and volume.
PINEAPPLE MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 14.2%
Dole........................................................ 45.9%
Foreign pack................................................ 10.6%
All private label combined.................................. 28.3%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended September 26, 1998 (based on
equivalent cases).
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<PAGE> 54
The Company sources virtually all of its pineapple requirements from its
former subsidiary, Del Monte Philippines, under a long-term supply agreement.
The agreement provides for pricing based on fixed retail and foodservice
margins.
SUPPLY AND PRODUCTION
The Company owns virtually no agricultural land. Each year, the Company
buys over one million tons of fresh vegetables, fruit and tomatoes pursuant to
over 2,500 contracts with individual growers and cooperatives located primarily
in the United States. Many of these are long-term relationships. No supplier
accounts for more than 5% of the Company's raw product requirements, and the
Company does not consider its relationship with any particular supplier to be
material to its operations. The Company is exploring ways in which to extend its
growing season. For example, it has been planting green bean crops in Texas,
which has a longer growing season than the Company's other bean growing
locations in the Midwest region. Like other processed vegetable, fruit and
tomato product manufacturers, the Company is subject to market-wide price
fluctuations resulting from seasonal or other factors. The Company's long-term
relationships with growers help to ensure a consistent supply of raw product.
The Company's vegetable growers are located in Wisconsin, Illinois,
Minnesota, Washington, Texas and Arizona. The Company provides the growers with
planting schedules, seeds, insecticide management and hauling capabilities and
actively participates in agricultural management and quality control with
respect to all sources of supply. The Company's vegetable supply contracts are
generally for a one-year term and require delivery of a specified quantity.
Prices are renegotiated each year. The Company believes that one of its
competitive advantages in the canned vegetable category derives from its
proprietary seed varieties. For example, the Company believes that its "Del
Monte Blue Lake Green Bean" variety is higher yielding than green bean varieties
used by the Company's competitors. In addition, the Company's green bean
production is primarily on irrigated fields, which facilitates production of
high quality, uniformly-sized beans.
The Company's fruit and tomato growers are located primarily in California.
Pear growers are also located in Oregon and Washington. The Company's fruit
supply contracts range from one to ten years. See Note K to the Company's
consolidated financial statements for the year ended June 30, 1998. Prices are
generally negotiated with grower associations and are reset each year. Contracts
to purchase yellow cling peaches generally require the Company to purchase all
of the fruit produced by a particular orchard or block of trees. Contracts for
other fruits require delivery of specified quantities each year. The Company
actively participates in agricultural management and quality control and
provides insecticide management and hauling capabilities. Where appropriate, the
Company manages the growers' agricultural practices.
Fourteen Company-owned plants, located throughout the United States,
process the Company's products. The Company produces the majority of its
products between June and October. Most of the Company's seasonal plants operate
at close to full capacity during the packing season.
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<PAGE> 55
The following table lists the Company's production facilities:
<TABLE>
<CAPTION>
LOCATION PRIMARY PRODUCT LINE SQUARE FOOTAGE*
-------- -------------------- ---------------
<S> <C> <C>
Hanford, CA....................... Solid and Paste-Based Tomato Products 651,000
Kingsburg, CA..................... Peaches, Zucchini and Corn 229,000
Modesto, CA....................... Solid and Paste-Based Tomato Products and 220,000
Snap-E-Tom
San Jose, CA...................... Apricots, Fruit Cups, Fruit Cocktail, 458,000
Chunky Fruit and Diced Pears
Stockton, CA...................... Peaches, Cocktail Cherries, Fruit Cocktail 446,000
and Fruit Concentrate
Woodland, CA...................... Bulk Paste and Bulk Diced Tomatoes 465,000
Mendota, IL....................... Peas, Corn, Lima Beans, Mixed Vegetables, 246,000
Carrots and Peas & Carrots
Plymouth, IN...................... Paste-Based Tomato Products, Snap-E-Tom 156,000
and Pineapple Juice
Sleepy Eye, MN.................... Peas and Corn 230,000
Crystal City, TX.................. Green Beans, Spinach, Carrots, Beets and 362,000
Potatoes
Toppenish, WA..................... Asparagus, Corn, Lima Beans and Peas 228,000
Yakima, WA........................ Cherries and Pears 214,000
Markesan, WI...................... Green Beans, Wax Beans and Italian Beans 299,000
Plover, WI........................ Beans, Carrots, Beets and Potatoes 298,000
</TABLE>
- ---------------
* Includes owned manufacturing and on-site warehouse and storage capacity.
In the third quarter of fiscal 1998, the Company committed to a three-year
plan to consolidate its California production facilities in order to enhance the
efficiency of its fruit and tomato processing operations and to better meet the
competitive challenges of the market. The plan involves suspending operations at
the Modesto facility for a year while the Company reconfigures that facility to
accommodate fruit processing that now takes place at the San Jose and Stockton
facilities. The Company began transferring its tomato processing operations at
its Modesto facility to the Company's newly acquired state-of-the-art Hanford
facility. The Company expects to close its San Jose facility after the
production season in 1999 and its Stockton facility after the production season
in 2000. Considerations of plant age and location were primary factors in the
decision to close the 80-year-old San Jose plant and the 70-year-old Stockton
plant and transfer production closer to growing areas. In August 1998,
management also announced its intention to close the Company's vegetable
processing plant located in Arlington, Wisconsin after the summer 1998 pack. The
Company plans an aggregate of approximately $136 million of capital spending
through 2001 to increase production efficiency and reduce costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "-- Liquidity and Capital Resources -- Investing
Activities."
Co-packers are used for pickles and certain other non-core products and to
supplement supplies of certain canned vegetables, fruit and tomato products.
Prior to December 1993, the Company produced almost all of the cans used to
package its products in the United States at its nine can manufacturing
facilities located throughout the United States. In December 1993, the Company
sold substantially all the assets (and certain related liabilities) of the
Company's can manufacturing business to Silgan Container Corporation ("Silgan").
The transaction included the sale or lease of the Company's nine can
manufacturing facilities. In connection with this agreement, Silgan and the
Company entered into a ten-year supply agreement, with optional successive
five-year extensions by either party. Under the Agreement, the Company must
purchase all of its requirements for metal food and beverage containers in the
United States from Silgan. If Silgan is unable to supply all of these
requirements for any reason, the Company is entitled to purchase the excess from
another supplier. In addition, the Company is entitled to seek a competitive bid
for up to 50% of its requirements. Price levels were originally set based on
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<PAGE> 56
the Company's costs of self-manufactured containers. Price changes under the
contract reflect changes in the manufacturer's costs. The agreement may be
terminated by either party, without penalty, on notice given 12 months prior to
the end of the term of the agreement (currently, December 21, 2006). The
Company's total annual can usage is approximately two billion cans.
SALES, MARKETING AND DISTRIBUTION
Sales and Marketing
The Company's sales organization for retail products is divided into three
groups: (i) a retail broker network (which consists of 100% independent broker
representation at the market level, managed by Company sales managers); (ii) an
in-house sales force with responsibility for warehouse clubs, mass merchandisers
and supercenters; and (iii) an in-house team responsible for trade promotion.
Retail brokers are independent, commissioned sales organizations that represent
multiple manufacturers and, during fiscal 1998, accounted for 67% of the
Company's total net sales. The Company retains its brokers through a
standardized retail grocery brokerage agreement. Brokers are typically paid at a
percentage of collected sales, generally 2.5%, which may be increased up to 3.0%
based on the broker's accomplishment of specified sales objectives. Such
agreements may be terminated on 30 days' prior notice by either party. The
Company's broker network represents the Company to a broad range of grocery
retailers. The Company's warehouse club, mass merchandiser and supercenter group
calls on these customers directly (non-brokered) and is responsible for the
development and implementation of sales programs for non-grocery channels of
distribution that include Wal-Mart, PriceCostco, Kmart and Target. During fiscal
1998, this group accounted for 12% of the Company's total net sales. The Company
makes foodservice, food ingredients, private label and military and other sales
through both direct sales and brokers. During fiscal 1998, these sales accounted
for 21% of the Company's total net sales.
The Company's marketing group directs product development, pricing
strategy, consumer promotion, advertising, publicity and package design. The
Company uses consumer advertising and promotion support, together with trade
spending, to support awareness of new items and initial trial by consumers and
to build recognition of the Del Monte and Contadina brand names.
The Company has been enhancing its sales and marketing efforts with
proprietary software applications, principally its Trade Wizard application and
applications designed to assist customers in managing product categories. The
Trade Wizard application assists the Company in implementing and managing the
timing and scope of its trade and consumer promotions. Customers using the
Company's category management software tools are able to more rapidly identify
sales levels for various product categories so as to achieve an optimal product
mix. Use of these category management tools has resulted in increased shelf
presence for the Company's products, particularly fruit products, relative to
those of the Company's competitors. The Company also has proprietary tools that
allow it to manage its customers' inventory requirements for its products,
thereby reducing customers' inventory levels while enhancing the Company's
opportunities to sell its products.
Distribution
The Company's distribution organization is responsible for the distribution
of finished goods to over 2,400 customer destinations. Customers can order
products to be delivered via third party trucking, rail or on a customer pickup
basis. The Company's distribution centers provide, among other services, casing,
labeling, special packaging, cold storing and fleet trucking services. Other
services the Company provides to customers include One Purchase Order/One
Shipment, in which the Company's most popular products are listed on a
consolidated invoicing service; the UCS Electronic Data Interchange, a paperless
system of purchase orders and invoices; and the Store Order Load Option (SOLO),
in which products are shipped directly to stores.
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<PAGE> 57
The following table lists the Company's distribution centers:
<TABLE>
<CAPTION>
LOCATION OWNED/LEASED SQUARE FOOTAGE
-------- ------------ --------------
<S> <C> <C>
Birmingham, AL................... Leased 292,000
Clearfield, UT................... Leased 80,000
Dallas, TX....................... Leased 175,000
Rochelle, IL..................... Owned 425,000
Stockton, CA..................... Leased 512,000
Swedesboro, NJ................... Owned 267,000
</TABLE>
CUSTOMERS
The Company's customer base is broad and diverse. No single customer
accounted for more than 10% of fiscal 1998 sales. The Company's 15 largest
customers during fiscal 1998 represented approximately 44.2% of the Company's
sales. These companies have all been Del Monte customers for at least ten years
and, in some cases, for 20 years or more. The Company has sought to establish
and strengthen its alliances with key customers by offering sophisticated
proprietary software applications to assist customers in managing inventories.
The Company plans to expand its promotion of these applications with its
customers.
COMPETITION
The Company faces substantial competition throughout its product lines from
numerous well-established businesses operating nationally or regionally with
single or multiple branded product lines, as well as with private label
manufacturers. In general, the Company competes on the basis of quality, breadth
of product line and price. See "Risk Factors -- Our Business Is Highly
Competitive" and "-- Company Products."
INFORMATION SERVICES
In November 1992, the Company entered into an agreement with EDS to provide
services and administration to the Company in support of its information
services functions. Payments under the terms of the agreement are based on
scheduled monthly base charges subject to various adjustments based on such
factors as production levels and inflation. The agreement expires in November
2002 with optional successive one-year extensions. The Company periodically
reviews its general information system needs, including Year 2000 compliance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
RESEARCH AND DEVELOPMENT
The Company's research and development organization provides product,
packaging and process development and analytical and microbiological services,
as well as agricultural research and seed production. In fiscal 1996, 1997, and
1998 R&D expenditures (net of revenue for services to third parties) were $6
million, $5 million and $5 million, respectively. The Company maintains an R&D
facility in Walnut Creek, California where it conducts research in a number of
areas related to its business including seed production, packaging, pest
management, food and nutrition science and plant breeding.
EMPLOYEES
At September 30, 1998 the Company had approximately 2,660 full-time
employees. In addition, approximately 10,600 individuals are hired on a
temporary basis during the pack season. The Company considers its relations with
its employees to be good. In the past several years, the Company has not
experienced any work stoppages or strikes.
The Company has ten collective bargaining agreements with seven union
locals covering approximately 10,600 of its hourly and seasonal employees. Two
collective bargaining agreement expire in calendar 1999. The remaining
agreements expire in calendar 2000, 2001 and 2002.
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<PAGE> 58
INTELLECTUAL PROPERTY
The Company owns a number of registered and unregistered trademarks for use
in connection with various food products, including the marks Del Monte,
Contadina, Snack Cups, Fruit Cup, FreshCut, Fruit Naturals, Orchard Select, Can
Do and Del Monte Lite. These trademarks are important to the Company because
brand name recognition is a key factor in the success of the Company's products.
The registrations of these trademarks in the United States and foreign countries
are effective for varying periods of time, and may be renewed periodically,
provided that the Company, as the registered owner, or its licensees, where
applicable, comply with all applicable renewal requirements including, where
necessary, the continued use of the marks in connection with similar goods. The
Company is not aware of any material challenge to the ownership by the Company
of its major trademarks.
DMC owns eight issued U.S. patents covering machines used in filling,
cleaning and sealing cans, food preservation methods, extracts and colors, and
peeling and coring devices. The patents expire between 2005 and 2014 and cannot
be renewed. Patents are generally not material to the Company's business.
The Company claims copyright protection in its proprietary category
management software and vendor-managed inventory software. The Company's
customers receive reports generated by these software programs and provide data
to the Company for use in connection with the programs. The software itself,
however, is not licensed to the Company's customers. The copyrights are not
registered.
The Company has developed a number of proprietary vegetable seed varieties
which it protects against disclosure by restricting access and/or by the use of
non-disclosure agreements. There is no guarantee that these means will be
sufficient to protect the secrecy of these seed varieties. Others may also
independently develop similar technology. The Company has obtained U.S. plant
variety protection certificates under the Plant Variety Protection Act on some
of its proprietary seed varieties. Under a protection certificate, the breeder
has the right, among other rights, to exclude others from offering or selling
the variety or reproducing it in the United States. The protection afforded by a
protection certificate generally runs for 20 years from its issuance.
In connection with the RJR Nabisco Sale, and the divestitures of the
Company's non-core and foreign operations subsequent to that sale, the Company
granted various perpetual, exclusive, royalty-free licenses for use of the Del
Monte name and mark along with certain other trademarks, patents, copyrights and
trade secrets to the acquiring companies or their affiliates. Under these
licenses, the Company is generally entitled to reimbursement from the licensees
of certain of its expenses in maintaining trademark registrations. In
particular, with respect to all food and beverage products other than fresh
fruits, vegetables and produce, an affiliate of RJR Nabisco hold the rights to
use Del Monte trademarks in Canada; Kikkoman holds the rights to use Del Monte
trademarks in the Far East and Pacific Rim (excluding the Philippines); Del
Monte International holds the rights in Europe, Africa, the Middle East and the
Indian Subcontinent. Fresh Del Monte holds the rights to use the Del Monte name
and trademark with respect to fresh fruit, vegetables, and produce and certain
chilled and frozen products related thereto throughout the world. With respect
to dried fruit, nut and snack products, Premier Valley Foods holds the rights to
use Del Monte trademarks in the United States, Mexico, Central America and the
Caribbean. In connection with agreements to sell Del Monte Latin America, an
affiliate of Hicks, Muse, Tate & Furst acquired the right to use the Del Monte
trademarks with respect to all food and beverage products other than fresh
fruits, vegetables and produce in Mexico and Capital Universal Ltd. (an
affiliate of Donald W. Dickerson, Inc.) acquired similar rights in Central
America and the Caribbean. Dewey Limited (an affiliate of Del Monte
International) owns the rights in the Philippines to the Del Monte brand name.
With the South America Acquisition, the Company reacquired the rights to the Del
Monte brand in South America. See "Risk Factors -- Our Brand Name Could Be
Confused with Names of Other Companies."
The Company retains the right to review the quality of the licensee's
products under each of its license agreements. The Company generally may inspect
the licensees' facilities and the licensees must periodically submit samples to
the Company for inspection. Licensees may grant sublicenses but all sublicensees
are bound by these quality control standards and other terms of the license.
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<PAGE> 59
The Company has also granted various security and tangible interests in its
trademarks and related trade names, copyrights, patents, trade secrets and other
intellectual property to its creditors, in connection with the Bank Financing,
and to its licensees, to secure certain of the Company's obligations under the
license agreements.
GOVERNMENTAL REGULATION
As a manufacturer and marketer of food products, the Company's operations
are subject to extensive regulation by various federal government agencies,
including the Food and Drug Administration, the United States Department of
Agriculture and the FTC, as well as state and local agencies, with respect to
production processes, product attributes, packaging, labeling, storage and
distribution. Under various statutes and regulations, such agencies prescribe
requirements and establish standards for safety, purity and labeling. In
addition, advertising of the Company's products is subject to regulation by the
FTC, and the Company's operations are subject to certain health and safety
regulations, including those issued under the Occupational Safety and Health
Act. The Company's manufacturing facilities and products are subject to periodic
inspection by federal, state and local authorities. The Company seeks to comply
at all times with all such laws and regulations and is not aware of any
instances of material non-compliance. The Company maintains all permits and
licenses relating to its operations. The Company believes its facilities and
practices are sufficient to maintain compliance with applicable governmental
laws and regulations. Nevertheless, there is no guarantee that the Company will
be able to comply with any future laws and regulations. Failure by the Company
to comply with applicable laws and regulations could subject the Company to
civil remedies including fines, injunctions, recalls or seizures as well as
potential criminal sanctions.
LEGAL PROCEEDINGS
The Company is involved from time to time in various legal proceedings
incidental to its business, including claims with respect to product liability,
worker's compensation and other employee claims, tort and other general
liability, for which the Company carries insurance or is self-insured, as well
as trademark, copyright and related litigation. The Company believes that no
such legal proceedings will have a material adverse effect on the results of
operations, cash flow, liquidity or financial condition of the Company. See
"-- Environmental Compliance" for a description of certain environmental matters
in which the Company is involved.
ENVIRONMENTAL COMPLIANCE
As a result of its agricultural, food processing and canning activities,
the Company is subject to numerous environmental laws and regulations. Many of
these laws and regulations are becoming increasingly stringent and compliance
with them is becoming increasingly expensive. The Company seeks to comply at all
times with all of these laws and regulations and is not aware of any instances
of material non-compliance. The Company cannot predict the extent to which any
environmental law or regulation that may be enacted or enforced in the future
may affect its operations. The Company is engaged in a continuing program to
maintain its compliance with existing laws and regulations and to establish
compliance with anticipated future laws and regulations.
In connection with the sale of one of its facilities, the Company is
remediating conditions resulting from the release of petroleum from underground
storage tanks. The Company is also conducting a groundwater investigation at one
currently owned property for hydrocarbon contamination that it believes resulted
from the operations of an unaffiliated prior owner of the property. At the
present time, the Company is unable to predict the total cost for the
remediation or the extent to which it may obtain contribution from the prior
owner. Further, investigation and remediation of environmental conditions may in
the future be required at other properties currently or formerly owned or
operated by the Company. Nonetheless, the Company does not expect that these and
other such remediation costs will have a material adverse effect on its
financial condition or results of operations.
Governmental authorities and private claimants have notified the Company
that it is a PRP or may otherwise be potentially responsible for environmental
investigation and remediation costs at certain contami-
54
<PAGE> 60
nated sites under CERCLA or under similar state laws. With the exception of one
previously owned site, the Company has potential liability at each site because
it allegedly sent certain wastes from its operations to these sites for disposal
or recycling. These wastes consisted primarily of empty metal drums (which
previously held raw materials), used oils and solvents, solder dross and paint
waste.
The Company is indemnified for any liability at two of these sites,
including the previously owned site. With respect to a majority of the sites at
which the Company has been identified as a PRP and is not indemnified by another
party, the Company has settled its liability with the responsible regulatory
agency. The Company believes that it has no liability for the remaining sites,
except with respect to one site at which it is a member of the PRP group. The
PRP group is conducting a Remedial Investigation and Feasibility Study to
analyze the nature and extent of the contamination and to evaluate remedial
alternatives for the site. Based upon the information currently available, the
Company does not expect that its liability for this site will be material. The
Company may be identified as a PRP at additional sites in the future.
The Company spent approximately $5 million on domestic environmental
capital projects and expenditures from fiscal 1996 through fiscal 1998,
primarily related to UST remediation activities and upgrades to boilers and
wastewater treatment systems. The Company projects that it will spend an
aggregate of approximately $4 million in fiscal 1999 and 2000 on capital
projects and other expenditures in connection with environmental compliance,
primarily for boiler upgrades, compliance costs related to the consolidation of
its fruit and tomato processing operations and continued UST remediation
activities. The Company believes that its CERCLA and other environmental
liabilities will not have a material adverse effect on its financial position or
results of operations.
PROPERTIES
As of September 30, 1998, the Company operated 14 production facilities and
six distribution centers. See "-- Supply and Production" and "-- Sales,
Marketing and Distribution." The Company's production facilities are owned
properties, while its distribution centers are owned or leased. The Company has
various warehousing and storage facilities, which are primarily leased
facilities. The Company's leases are generally long-term. Virtually all of the
Company's properties, whether owned or leased, are subject to liens or security
interests.
The Company's principal administrative headquarters are located in leased
office space in San Francisco, California. The Company owns its primary research
and development facility in Walnut Creek, California.
The Company holds certain excess properties for sale and periodically
disposes of excess land and facilities through sales.
Management considers its facilities to be suitable and adequate for its
business and to have sufficient production capacity for the purposes for which
they are currently intended.
WHERE TO FIND MORE INFORMATION
Del Monte is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and files reports, proxy
statements and other information with the Commission. Del Monte has filed with
the Commission a registration statement on Form S-1 (including amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act and the
rules and regulations promulgated thereunder, covering the shares of common
stock Del Monte is offering. This prospectus does not contain all the
information set forth in the registration statement. For further information
with respect to Del Monte and this offering, reference is made to the
registration statement. Statements made in this prospectus as to the contents of
any contract, agreement or other document referred to herein are not necessarily
complete. With respect to each contract, agreement or other document filed as an
exhibit to the registration statement, you should refer to the exhibit for a
more complete description of the document or matter involved, and each such
statement is qualified in its entirety by the complete documents. The
registration statement and the reports, proxy statements and other information
that Del Monte files with the Commission can be inspected and copied at the
public reference facilities of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, at the Regional Offices of the Commission at 7
World Trade
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Center, 14th Floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
Del Monte will furnish its stockholders with annual reports that include a
description of operations and annual audited consolidated financial statements
prepared in accordance with U.S. generally accepted accounting principles. The
financial statements included in the annual reports will be examined and
reported upon, with an opinion expressed, by Del Monte's independent auditors.
Del Monte will also furnish quarterly reports for the first three quarters of
each fiscal year containing unaudited consolidated financial statements prepared
in accordance with GAAP.
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<PAGE> 62
CORPORATE HISTORY
The predecessor of RJR Nabisco acquired DMC in 1979. In 1990, DMC and
certain of its subsidiaries and affiliates were sold in the RJR Nabisco Sale for
$1.5 billion to Del Monte and DMPF Corp., a Delaware corporation, which were
organized by Merrill Lynch & Co. and capitalized by Merrill Lynch and certain
other investors including Court Square Capital, L.P., an affiliate of Citibank,
N.A., Kikkoman, Polly Peck, W.R. Huff Asset Management Co., Charterhouse Equity
Partners, L.P. and certain present and former members of management of the
Company. The RJR Nabisco Sale excluded certain businesses that RJR Nabisco
retained, such as the Del Monte processed foods operations in Canada and South
America. Certain other Del Monte businesses were not acquired, including the Del
Monte fresh produce business, which was sold by RJR Nabisco to Polly Peck. Polly
Peck in turn, sold it to Fresh Del Monte. In connection with the RJR Nabisco
Sale and, subsequently, in connection with the sale of the Company's foreign
operations, as described below, the Company granted various perpetual, exclusive
royalty-free licenses for the use of the Del Monte name and trademark. The
licensees of the Del Monte name and trademark include Del Monte International,
Kikkoman, Fresh Del Monte and Yorkshire. None of the licensees is affiliated
with the Company except for Yorkshire, of which the Company owns 20% of the
common stock. See "Risk Factors -- Our Brand Name Could Be Confused with the
Names of Other Companies" and "Business -- Intellectual Property."
Following the RJR Nabisco Sale, the Company sold certain of its properties,
including the Company's processed foods operations in the Far East (other than
the Philippines) to Kikkoman for approximately $104 million; the Hawaiian Punch
business to Procter & Gamble for approximately $147 million; and Del Monte
International to Gravelgrove Limited for approximately $360 million. The Company
applied substantially all of the proceeds from these sales to the partial
repayment of the bank financing used to finance the RJR Nabisco Sale. In
connection with the sale of Del Monte International, the Company acquired an
8.35% equity investment in Del Monte International. Subsequently, in the fiscal
quarter ended March 31, 1993, the Company sold this equity investment for
approximately $23 million.
In January 1991, the Company completed the sale of a 49.9% interest in Del
Monte Philippines. As a result of this transaction, the Company received $16.7
million in cash, $17.9 million in notes (which were subsequently repaid), $8.7
million in a future purchase price adjustment (all of which has been paid) and
$1.3 million of preferred stock of a subsidiary of Del Monte Philippines (20% of
which was redeemed in May 1994 and 20% redeemed in May 1995). The Company
retained a 50.1% interest in Del Monte Philippines. In March 1996, the Company
sold its 50.1% interest in Del Monte Philippines and the remaining preferred
stock to a joint venture affiliated with Del Monte International for $100
million. In connection with the sale of its interest in Del Monte Philippines,
the Company signed an eight-year supply agreement under which the Company must
source substantially all of its pineapple requirements from Del Monte
Philippines over the term of the agreement.
In August 1993, the Company sold its dried fruit and snack operation to
Premier Valley Foods for cash and stock totaling $22.6 million. As part of the
asset sale transaction, the Company acquired 20% of the outstanding common stock
and 1,000 shares of 7% preferred stock of Premier Valley Foods.
In December 1993, the Company sold substantially all of the assets and
certain related liabilities of its can manufacturing operations in the United
States to Silgan for $72 million. At the same time, the Company entered into a
ten-year supply agreement under which Silgan would, effective immediately after
the sale, provide the Company with substantially all of its domestic can
requirements. The supply agreement provides the Company with a long-term supply
of cans at prices that adjust over time for normal manufacturing cost increases
or decreases. See "Business -- Supply and Production."
On June 27, 1994, Del Monte entered into an Agreement and Plan of Merger
(the "1994 Merger Agreement") with Grupo Empacador de Mexico, S.A. de C.V. and
CCP Acquisition Company of Maryland, Inc., which were formed by an investor
group led by Mr. Carlos Cabal Peniche for the purpose of effecting an
acquisition (the "Proposed Acquisition") of the Company. The Merger Agreement
provided that Del Monte was entitled to terminate the 1994 Merger Agreement if
the effective date of the Proposed Acquisition failed to occur on or prior to
September 19, 1994. The effective date of the Proposed Acquisition did not occur
on or prior to such date and, on September 21, 1994, Del Monte terminated the
1994 Merger Agreement in
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accordance with its terms. Pursuant to the 1994 Merger Agreement, because the
Proposed Acquisition failed to occur by September 19, 1994, Del Monte drew $30
million under a letter of credit issued by Banco Union, S.A., a bank affiliated
with Mr. Cabal. This amount was applied to the repayment of indebtedness then-
outstanding under the Company's then-existing revolving credit agreement.
In November 1995, the Company sold its pudding business to Kraft for $89
million.
In October 1996, the Company sold its Mexican subsidiary for $38 million,
and, in November 1996, sold its Central American and Caribbean operations for
$12 million.
On April 18, 1997, Del Monte was recapitalized through the merger of Shield
with and into Del Monte. Del Monte was the surviving corporation. By virtue of
the Company's recapitalization, shares of Del Monte's preferred stock having an
implied value of approximately $14 million held by certain of Del Monte's
stockholders who remained investors were cancelled and were converted into the
right to receive new Del Monte common stock. All other shares of Del Monte
capital stock were cancelled and were converted into the right to receive cash
consideration. In connection with the recapitalization, the Company repaid
substantially all of its funded debt obligations existing immediately before the
recapitalization. In the recapitalization, the common stock and preferred stock
of Shield was converted into new shares of common stock and preferred stock,
respectively, of Del Monte.
On December 19, 1997, the Company acquired the Contadina business for $177
million in cash, plus an estimated working capital adjustment of approximately
$20 million. The purchase price was subject to adjustment based on the final
calculation of net working capital as of the closing date. Nestle provided its
calculation of the net working capital, which resulted in a payment to the
Company of approximately $2 million, and therefore a reduction in the purchase
price to $195 million. The Contadina Acquisition also included the assumption of
certain liabilities of approximately $5 million, consisting primarily of
liabilities in respect of reusable packaging materials, employee benefits and
product claims.
On May 1, 1998, Del Monte merged with and into a newly created,
wholly-owned subsidiary incorporated under the laws of the State of Delaware to
change Del Monte's state of incorporation from Maryland to Delaware.
In August 1998, the Company reacquired the rights to the Del Monte brand in
South America from Nabisco.
Following the offering, TPG will own approximately % of the common
stock (approximately % if the underwriters' overallotment option is
exercised in full) and will continue to have the power to control the management
and policies of the Company and matters requiring stockholder approval. TPG is
part of Texas Pacific Group. David Bonderman, James G. Coulter and William S.
Price, III founded Texas Pacific Group in 1992 to pursue public and private
investment opportunities. Texas Pacific Group's other investments include such
branded consumer products companies as Beringer Wine Estates Holdings, Inc.,
Ducati Motors S.p.A., Favorite Brands International, Inc. and J. Crew Group,
Inc.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of individuals
who are serving as directors and executive officers of Del Monte. These
individuals hold the same positions with DMC. Officers are elected by the Board
of Directors and serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Richard W. Boyce....................... 44 Chairman of the Board; Director
Richard G. Wolford..................... 54 Chief Executive Officer; Director
Wesley J. Smith........................ 51 Chief Operating Officer; Director
Timothy G. Bruer....................... 41 Director
Al Carey............................... 47 Director
Patrick Foley.......................... 66 Director
Brian E. Haycox........................ 56 Director
Denise M. O'Leary...................... 41 Director
William S. Price, III.................. 42 Director
Jeffrey A. Shaw........................ 34 Director
David L. Meyers........................ 53 Executive Vice President,
Administration and Chief Financial
Officer
Glynn M. Phillips...................... 61 Executive Vice President, Sales
Brent D. Bailey........................ 46 Executive Vice President, Marketing
John Alfieri........................... 49 Senior Vice President, National Sales
Manager
Richard L. French...................... 41 Senior Vice President and Chief
Accounting Officer
Thomas E. Gibbons...................... 51 Senior Vice President and Treasurer
Irvin R. Holmes........................ 46 Senior Vice President, Marketing
William J. Spain....................... 56 Senior Vice President, Technology
William R. Sawyers..................... 36 Vice President, General Counsel and
Secretary
</TABLE>
Richard W. Boyce, Chairman of the Board; Director. Mr. Boyce became
Chairman of the Board and a director of Del Monte in August 1997. Mr. Boyce has
been President of SRB, Inc., which provides management services to TPG and its
affiliated companies, since 1997. He currently serves as Chairman of Favorite
Brands International, Inc. He was employed by PepsiCo from 1992 to 1997, most
recently as Senior Vice President of Operations for Pepsi-Cola North America.
From 1980 to 1992, Mr. Boyce was employed by Bain & Co. He is also a director of
J. Crew Group, Inc.
Richard G. Wolford, Chief Executive Officer; Director. Mr. Wolford joined
Del Monte as Chief Executive Officer and a director in April 1997 upon
consummation of the Company's recapitalization. From 1967 to 1987, he held a
variety of positions at Dole Foods, including President of Dole Packaged Foods
from 1982 to 1987. From 1988 to 1996, he was Chief Executive Officer of HK
Acquisition Corp. where he developed food industry investments with venture
capital investors.
Wesley J. Smith, Chief Operating Officer; Director. Mr. Smith joined Del
Monte as Chief Operating Officer and a director in April 1997 upon consummation
of the Company's recapitalization. From 1972 to 1995, he was employed by Dole
Foods in a variety of positions, including senior positions in finance,
marketing, operations and general management in California, Hawaii and Honduras.
Timothy G. Bruer, Director. Mr. Bruer became a director of Del Monte in
August 1997. Mr. Bruer has been President and Chief Executive Officer and a
director of Silverado Foods, Inc. since March 1997. From 1993 until that time,
he was Vice President and General Manager of the Culinary Division of Nestle. He
is also a director of Authentic Specialty Foods Inc.
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Al Carey, Director. Mr. Carey became a director of Del Monte in November
1997. He is Senior Vice President of Sales and Retailer Strategies of PepsiCo,
Inc., and has been employed in various capacities with that company since 1981.
Patrick Foley, Director. Mr. Foley became a director of Del Monte in August
1997. Mr. Foley is Chairman, President and Chief Executive Officer of DHL
Corporation, Inc. and its major subsidiary, DHL Airways, Inc. He joined DHL in
September 1988, with more than 30 years experience in hotel and airline
industries. He was formerly Chairman and President of Hyatt Hotel Corporation.
Mr. Foley serves on the Boards of Directors of Continental Airlines, Inc., DHL
International, Flextronics International, Foundation Health Systems, Inc. and
Glenborough Realty Trust, Inc.
Brian E. Haycox, Director. Mr. Haycox was elected to the Board of Directors
of Del Monte in June 1995. He was elected as Co-Chairman and Co-Chief Executive
Officer of Del Monte in December 1995, and he served in those capacities until
the consummation of the Company's recapitalization. Mr. Haycox served as
President and Chief Executive Officer of Del Monte Tropical Fruit Company from
1988 until 1993. Prior to that time Mr. Haycox served in a variety of management
positions within the Del Monte organization.
Denise M. O'Leary, Director. Ms. O'Leary became a director of Del Monte in
August 1997. Ms. O'Leary has been a Special Limited Partner of Menlo Ventures
since 1996. From 1983 to 1996, she was a General Partner of Menlo Ventures. Ms.
O'Leary serves on the Boards of Directors of various private companies as well
as on the Board of ALZA Corporation. She is a member of the Board of Trustees of
Stanford University and a director of UCSF Stanford Health Care.
William S. Price, III, Director. Mr. Price became a director of Del Monte
in August 1997. Mr. Price was a founding partner of TPG in 1992. Prior to
forming TPG, he was Vice President of Strategic Planning and Business
Development for G. E. Capital, and from 1985 to 1991, he was employed by Bain &
Company, where he was a partner and co-head of the Financial Services Practice.
Mr. Price serves on the Boards of Directors of AerFi Group plc, Belden & Blake
Corporation, Beringer Wine Estates Holdings, Inc., Continental Airlines, Inc.,
Denbury Resources, Inc., Favorite Brands International, Inc., Vivra Specialty
Partners, Inc. and Zilog, Inc.
Jeffrey A. Shaw, Director. Mr. Shaw became a director of Del Monte in May
1997. Mr. Shaw is a partner of TPG and has been an executive of TPG since 1992.
Prior to joining TPG, Mr. Shaw was a principal of Oak Hill Partners, L.P. and
Acadia Partners, L.P., investment partnerships affiliated with the Robert M.
Bass Group, for three years. Mr. Shaw serves as a director of Ducati Motors
S.p.A., Ducati North America, Inc., Favorite Brands International, Inc. and
Ryanair PLC.
David L. Meyers, Executive Vice President, Administration and Chief
Financial Officer. Mr. Meyers joined the Company in 1989. He was elected Chief
Financial Officer of Del Monte in December 1992 and served as a member of the
Board of Directors of Del Monte from January 1994 until consummation of the
Company's recapitalization. Prior to joining the Company, Mr. Meyers held a
variety of financial and accounting positions with RJR Nabisco (1987 to 1989),
Nabisco Brands USA (1983 to 1987) and Standard Brands, Inc. (1973 to 1983).
Glynn M. Phillips, Executive Vice President, Sales. Mr. Phillips joined Del
Monte in October 1994. Prior to joining the Company, Mr. Phillips was Vice
President, Sales of The Clorox Company where he also held various sales and
marketing positions from 1973 to 1994.
Brent D. Bailey, Executive Vice President, Marketing. Mr. Bailey joined Del
Monte in his current position in January 1998. Prior to that he was with The
Dial Corporation since 1992 as Senior Vice President and General
Manager -- Household Division, and Senior Vice President -- Portfolio Group.
From 1974 to 1992, Mr. Bailey held marketing management positions with Procter &
Gamble, Frito-Lay and Pillsbury.
John Alfieri, Senior Vice President, National Sales Manager. Mr. Alfieri
joined Del Monte in February 1995 and was elected to his current position in
June 1997. Prior to joining the Company, he was with Correy, Ahrens & Raynsford
since 1993 as Vice President, Finance and Operations. From 1973 to 1993 Mr.
Alfieri held sales positions with The Clorox Company and Proctor & Gamble.
60
<PAGE> 66
Richard L. French, Senior Vice President and Chief Accounting Officer. Mr.
French joined Del Monte in 1980 and was elected to his current position in May
1998. Mr. French was Vice President and Chief Accounting Officer of Del Monte
from August 1993 through May 1998 and has held a variety of positions within the
Company's financial organization.
Thomas E. Gibbons, Senior Vice President and Treasurer. Mr. Gibbons joined
Del Monte in 1969 and was elected to his current position in February 1995. He
was elected Vice President and Treasurer of Del Monte in January 1990. Mr.
Gibbons' prior experience also includes a variety of positions within the
Company's and RJR Nabisco's tax and financial organizations.
Irvin R. Holmes, Senior Vice President, Marketing. Mr. Holmes joined Del
Monte in November 1990 and was elected to his current position in May 1998.
Prior to that he was with Dole Foods since 1987 where he held a variety of sales
and marketing positions. From 1977 to 1987, Mr. Holmes held marketing positions
with James River/Crown Zellerbach, AMF Ben Hogan Company, and Brown & Williamson
Tobacco.
William J. Spain, Senior Vice President, Technology. Mr. Spain joined Del
Monte in 1966 and was elected to his current position in February 1995.
Previously, he was Vice President, Research, Government and Industry Relations
of Del Monte. Mr. Spain has also held various positions within Del Monte in
corporate affairs, production management, quality assurance, environmental and
energy management, and consumer services.
William R. Sawyers, Vice President, General Counsel and Secretary. Mr.
Sawyers joined Del Monte in November 1993 and was elected to his current
position in 1995. Prior to joining the Company, Mr. Sawyers was an associate
with the law firm of Shearman & Sterling from 1987 to 1993.
COMMITTEES OF THE BOARD OF DIRECTORS; TERM
Del Monte's Board of Directors has the committees described below.
The Nominating and Compensation Committee has authority to determine
executive compensation and will approve the terms of stock options and stock
purchase rights pursuant to the Company's plans and arrangements (as described
below). This committee's current members are Messrs. Price and Shaw and Ms.
O'Leary.
The Audit Committee is responsible for reviewing the activities of the
Company's independent accountants and internal audit department. The Audit
Committee's members are Messrs. Bruer, Foley and Haycox. These directors are not
affiliated with the Company or TPG, in accordance with applicable New York Stock
Exchange requirements.
The Board of Directors of Del Monte is divided into three classes, as
nearly equal in number as possible, with each director serving a three year term
and one class being elected at each year's annual meeting of stockholders.
Messrs. Bruer, Haycox and Price are in the class of directors whose term expires
at the 1999 annual meeting of Del Monte's stockholders. Messrs. Foley, Shaw and
Smith are in the class of directors whose term expires at the annual meeting of
Del Monte's stockholders to be held in the year 2000. Messrs. Boyce, Carey and
Wolford and Ms. O'Leary are in the class of directors whose term expires at the
2001 annual meeting of Del Monte's stockholders. At each annual meeting of Del
Monte's stockholders, successors to the class of directors whose term expires at
such meeting will be elected to serve for three year terms and until their
successors are elected and qualified.
61
<PAGE> 67
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company for fiscal
years 1996, 1997 and 1998 to each individual serving as its Chief Executive
Officer during fiscal 1998 and to each of the four other most highly compensated
executive officers of the Company as of the end of fiscal 1998.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------------------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITIONS FISCAL YEAR SALARY(1) BONUS COMP.(2) OPTION AWARDS PAYOUTS(3) COMP.(4)
- ---------------------------- ----------- --------- -------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard G. Wolford(5)..... 1998 $500,000 $250,000 $ -- $569,071 $ -- $ 7,995
Chief Executive Officer 1997 100,641 -- -- -- -- 251,196
Wesley J. Smith(6)........ 1998 400,000 200,000 -- 569,071 -- 6,896
Chief Operating Officer 1997 80,513 -- -- -- -- 251,145
David L. Meyers........... 1998 298,000 149,000 151,701 -- -- 12,206
Executive Vice President, 1997 286,000 159,400 -- -- 421,000 2,959,771
Administration & CFO 1996 273,000 143,000 55,386 -- 421,000 11,242
Glynn M. Phillips......... 1998 238,795 118,300 -- 29,497 -- 11,838
Executive Vice President, 1997 239,118 118,300 -- -- 280,000 1,974,454
Sales 1996 225,750 118,250 -- -- 280,000 9,206
Thomas E. Gibbons......... 1998 191,467 57,200 -- 12,067 -- 4,800
Senior Vice President 1997 183,458 59,900 -- -- 210,000 115,829
and Treasurer 1996 175,600 63,900 -- -- 54,600 4,717
</TABLE>
- ---------------
(1) Reflects actual base earnings for the fiscal year specified.
(2) Fiscal 1996 reflects certain perquisites, including moving expenses for Mr.
Meyers ($33,091) and company car ($15,500).
(3) Reflects payments under the Company's Old Management Equity Plan and Long
Term Incentive Plan.
(4) For fiscal 1996: Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Meyers $4,500; Mr. Phillips $4,500; Mr. Gibbons $4,500; Company
paid term life premiums -- Mr. Meyers $3,407; Mr. Phillips $4,706; Mr.
Gibbons $217; amount paid under the nonqualified Additional Benefits
Plan -- Mr. Meyers $3,335.
For fiscal 1997; Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Meyers $4,500; Mr. Phillips $4,500; Mr. Gibbons $4,500; Company
paid term life premiums -- Mr. Wolford $1,196; Mr. Smith $1,145; Mr. Meyers
$4,198; Mr. Phillips $5,325; Mr. Gibbons $217; amount paid under the
nonqualified Additional Benefits Plan -- Mr. Meyers $4,130; amounts under
the New MEP (as defined below) paid April 1997 -- Mr. Meyers, $2,946,943;
Mr. Phillips $1,964,629; Mr. Gibbons $111,112. For Messrs. Wolford and
Smith, the fiscal 1997 amount includes a consulting fee of $250,000 each
paid in December 1997 for the period prior to April 18, 1997.
For fiscal 1998; Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Wolford $1,875; Mr. Smith $2,000; Mr. Meyers $4,800; Mr.
Phillips $4,800; Mr. Gibbons $4,800, Company paid term life premiums -- Mr.
Wolford $6,120; Mr. Smith $4,896; Mr. Meyers $3,585; Mr. Phillips $7,038;
amount paid under the nonqualified Additional Benefits Plan -- Mr. Meyers
$3,821.
(5) Mr. Wolford became Chief Executive Officer as of April 18, 1997.
(6) Mr. Smith became Chief Operating Officer as of April 18, 1997.
62
<PAGE> 68
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR OPTION TERM
NUMBER OF SECURITIES GRANTED TO EXERCISE ---------------------------------------
UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR (PER SHARE) DATE 5% 10%
---- -------------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Wolford..... 569,071 32.8% $5.22 4/18/07 $1,866,553 $4,734,671
Wesley J. Smith........ 569,071 32.8 5.22 4/18/07 1,866,553 4,734,671
David L. Meyers........ 151,701 8.7 5.22 4/18/07 497,579 1,262,152
Glynn M. Phillips...... 29,497 1.7 5.22 4/18/07 96,750 245,415
Thomas E. Gibbons...... 12,067 0.7 5.22 4/18/07 39,580 100,397
</TABLE>
- ---------------
(1) Messrs. Wolford and Smith vest monthly on a proportionate basis over a four
(4) year period; Messrs. Meyers, Phillips and Gibbons vest annually on a
proportionate basis over a five (5) year period.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
JUNE 30, 1998 AT JUNE 30, 1998(1)
SHARES ---------------------- --------------------
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Richard G. Wolford.............. -- -- 166,777/402,294 --
Wesley J. Smith................. -- -- 166,777/402,294 --
David L. Meyers................. -- -- 29,881/121,820 --
Glynn M. Phillips............... -- -- 5,749/23,748 --
Thomas E. Gibbons............... -- -- 2,107/9,960 --
</TABLE>
- ---------------
(1) As of the end of fiscal 1998, there was no public market for the Company's
common stock. Under a stockholder's agreement between the Company and each
optionee, the Company has certain rights to acquire any common stock
issuable upon the exercise of an option. Such acquisition would be at a
price set by a formula which, as of the end of fiscal 1998, equaled $5.22
per share.
EMPLOYMENT AND OTHER ARRANGEMENTS
The Management Equity Plan
Established beginning in fiscal 1995 and modified in March 1996, the
Company's Management Equity Plan ("New MEP") provided awards to certain key
executives upon the sale of the Company or upon the public offering of the
Company's common stock. Under the terms of the New MEP, the "Base Value" of the
Company's preferred and common stock was established at $125 million. To the
extent that proceeds from the sale of the Company to preferred and common
stockholders (after repayment of debt but without reduction for payment to
executives under the New MEP) exceeded the $125 million Base Value, an award
pool of 6% of such excess was set aside for payment to the Company's executive
officers. The New MEP was terminated concurrent with the Company's
recapitalization.
63
<PAGE> 69
In connection with the Company's recapitalization, the Company made
payments aggregating approximately $19.7 million pursuant to the New MEP. This
amount was allocated as follows:
<TABLE>
<S> <C>
Mr. Haycox(1)............................................ $4,911,572
Mr. Mullan(1)............................................ 4,911,572
Mr. Little(2)............................................ 2,946,943
Mr. Meyers............................................... 2,946,943
Mr. Phillips............................................. 1,964,629
Other officers(3)........................................ 2,000,016
</TABLE>
- ---------------
(1) Messrs. Haycox's and Mullan's employment as Co-Chairman/Co-CEO terminated as
of April 18, 1997.
(2) Mr. Little's employment as Executive Vice President, Worldwide Operations
terminated as of April 30, 1997.
(3) Other officers includes Mr. Gibbons and 17 other senior officers.
Messrs. Meyers and Phillips were participants in the MEP prior to its
modification in March 1996 (the "Old MEP"), and as such became eligible for
awards for fiscal 1995 based on the annual equity growth formula in effect under
the Old MEP for such year. Messrs. Meyers and Phillips were paid installment
payments of the Old MEP awards in the amounts of $421,000 and $280,000,
respectively, in June 1996 and remained eligible for installment payment of the
Old MEP awards in the amounts of $421,000 and $280,000, respectively, for fiscal
1997. The Company was obligated to pay these fiscal 1997 awards at the time of
the recapitalization.
Long Term Incentive Plan
Established on July 1, 1990, amended and restated on July 1, 1995, the Long
Term Incentive Plan ("LTIP") provided certain key management employees with a
long-term incentive program based on Company performance. The LTIP had a
performance cycle of three fiscal years with interim award payments at the end
of each fiscal year based on the employee's target award. The three-year target
award was determined by multiplying (i) the executive's base pay by (ii) a
percentage based on salary grade level, and multiplying the result by (iii)
three (for each fiscal year in the performance cycle). Interim awards were
determined by comparing actual financial performance compared to target goals
and subject to a percentage payout schedule. Mr. Gibbons received fiscal 1996
award of $54,600. Mr. Gibbons received the final fiscal 1997 award in the amount
of $210,000 at the time of the Company's recapitalization. This plan was
terminated following the recapitalization.
The Annual Incentive Award Plan
The Annual Incentive Award Plan ("AIAP") provides annual cash bonuses to
certain management employees, including certain of the named senior executives.
The target bonus for each eligible employee is based on a percentage of base
salary. Actual payment amounts are based on the Company's achievement of annual
earnings objectives and individual performance objectives at fiscal year-end.
The targeted percentage of base salary is as follows: Mr. Wolford -- 50%; Mr.
Smith -- 50%; Mr. Meyers -- 50%; Mr. Phillips -- 50%; and Mr. Gibbons -- 30%.
Messrs. Wolford and Smith were not eligible for the AIAP for fiscal 1997.
Stock Purchase Plan
The Del Monte Foods Company Employee Stock Purchase Plan was approved on
August 4, 1997 and amended on November 4, 1997. Under the Plan, key employees
are allowed to purchase up to $5 million in common stock. To date, 454,146
shares of the Company's common stock have been purchased by and issued to
eligible employees.
64
<PAGE> 70
Stock Incentive Plans
The Del Monte Foods Company 1997 Stock Incentive Plan was approved on
August 4, 1997 and amended on November 4, 1997. Under the 1997 Stock Incentive
Plan, grants of incentive stock options and nonqualified stock options
representing 1,784,980 shares of common stock may be made to key employees. With
the exception of options for 151,701 shares issued to Mr. Bailey on January 19,
1998, the options were granted at an exercise price equal to the fair market
value of the shares at the time of such grant and have a ten-year term. Two
different vesting schedules have been approved under the 1997 Stock Incentive
Plan. The first provides for annual vesting on a proportionate basis over five
years and the second provide for monthly vesting on a proportionate basis over
four years. As of November 30, 1998, options for 1,690,162 shares of common
stock are held by eligible employees. It is not anticipated that any additional
options will be granted pursuant to this plan.
The Del Monte Foods Company 1998 Stock Incentive Plan (the "1998 Stock
Incentive Plan") was adopted initially as the Del Monte Foods Company 1998 Stock
Option Plan by the Board of Directors on April 24, 1998 and was modified by the
Board of Directors on September 23, 1998. Under the 1998 Stock Incentive Plan,
grants of incentive and nonqualified stock options ("Options"), stock
appreciation rights ("SARs") and stock bonuses (together with Options and SARs,
"Awards") representing 3,195,687 shares of common stock may be made to employees
of the Company. Subject to certain limitations, the Compensation Committee has
authority to grant Awards under the 1998 Stock Incentive Plan and to set the
terms of any Awards. The Chief Executive Officer also has limited authority to
grant Awards. As of December 4, 1998, Options for 1,824,433 shares have been
granted under the 1998 Stock Incentive Plan.
The Del Monte Retirement Plan for Salaried Employees
The Del Monte Corporation Retirement Plan for Salaried Employees (the "Del
Monte Corporation Retirement Plan"), which became effective as of January 1,
1990, is a non-contributory defined benefit retirement plan covering salaried
employees of the Company. Credits are made monthly to each participant's
personal retirement account ("PRA") consisting of a percentage of that month's
eligible compensation, plus interest on his or her account balance. A
participant is fully vested upon completion of five years of service.
The percentage of monthly compensation credited varies according to age as
follows:
<TABLE>
<CAPTION>
ALL MONTHLY MONTHLY COMPENSATION
PARTICIPANT AGE COMPENSATION ABOVE SOCIAL SECURITY BASE
--------------- ------------ --------------------------
<S> <C> <C>
Below 35................................... 4.0% 3.0%
35 but below 45............................ 5.0 3.0
45 but below 55............................ 6.0 3.0
55 and over................................ 7.0 3.0
</TABLE>
The Del Monte Corporation Retirement Plan was amended effective January 1,
1998 to change the interest credit from 110% of the U.S. Pension Benefit
Guaranty Corporation ("PBGC") rate to the yield on the 12-month Treasury Bill
rate plus 1.5%. In addition, the factors for annuity conversions were changed
from specific Company factors to factors based on 30-year Treasury Bond yields
and an Internal Revenue Service ("IRS") specified mortality table. A
participant's annual age 65 annuity benefit will be the greater of an annuity
based on (i) the credit balance as of December 31, 1997 increased by interest
credits (and not compensation credits) of 110% of the December 31, 1997 PBGC
rate divided by 8.2; or (ii) the credit balance at the time of retirement using
an annuity factor based on 30-year Treasury Bond yields and an IRS specified
mortality table. Alternatively, a participant at retirement or other termination
of employment may elect a lump sum distribution of his or her account balance.
Participants who, as of January 1, 1988, were at least age 40 with ten or
more years' service, or at least age 55 with five or more years' service, are
eligible to receive an alternative retirement benefit that is based on the terms
of the prior Del Monte Corporation Retirement Plan. For credited service after
December 31, 1981, such participants have accrued an annual benefit of 1.75% of
average final compensation multiplied by years of credited service. Average
final compensation is the participant's highest five years' average compensation
65
<PAGE> 71
during his or her last ten years of credited service. Compensation generally
includes base salary and awards under the AIAP but not other forms of incentive
compensation. The amount determined by this alternative benefit formula is
reduced by 0.75% of the participant's Social Security benefit, multiplied by
years of credited service. For credited service prior to January 1, 1982, a
similar benefit formula is applied.
The Del Monte Corporation Retirement Plan was amended effective April 30,
1992 to cease recognition of any future credited service or average final
compensation under the alternative retirement benefit. At retirement, a
participant who was eligible for the alternative retirement benefit will receive
an annual retirement benefit equal to the greater of the retirement benefit
determined by his or her PRA, or his or her alternative retirement benefit based
on compensation and credited service to April 30, 1992. Alternatively, a
participant may elect the greater of a lump sum distribution of his or her PRA
account balance or the actuarial equivalent lump sum of the age 65 alternative
benefit.
Nonqualified Retirement Plans. Effective January 1, 1990, the Company
established the Del Monte Corporation Additional Benefits Plan and the Del Monte
Corporation Supplemental Benefits Plan (the "Nonqualified Retirement Plans").
The Nonqualified Retirement Plans are "top hat" and "excess" benefit plans
designed to provide benefits in excess of those otherwise permitted under the
Del Monte Corporation Retirement Plan and the Del Monte Corporation Savings Plan
(which is qualified under Section 401(k) of the Internal Revenue Code) by
Sections 401(a)(17) and 415 of the Internal Revenue Code. The Nonqualified
Retirement Plans also provide benefits in respect of certain amounts of
severance not taken into account under the Del Monte Corporation Retirement Plan
or the Del Monte Corporation Savings Plan. Employees who participate in the Del
Monte Corporation Retirement Plan or the Del Monte Corporation Savings Plan are
generally eligible to participate in the Nonqualified Retirement Plans. Benefits
under the Nonqualified Retirement Plans are unfunded and paid from the general
assets of the Company.
Set forth below are the estimated annual benefits payable at age 65
(assuming lump sum payments are not elected) under the Del Monte Corporation
Retirement Plan and the Nonqualified Retirement Plans:
<TABLE>
<CAPTION>
YEAR ATTAINING ESTIMATED ANNUAL
PARTICIPANT AGE 65 RETIREMENT BENEFIT(A)
----------- -------------- ---------------------
<S> <C> <C>
Mr. Wolford................................... 2009 $125,819
Mr. Smith..................................... 2012 127,143
Mr. Phillips.................................. 2002 28,260
Mr. Meyers.................................... 2010 186,356
Mr. Gibbons................................... 2012 178,762
</TABLE>
- ---------------
(a) The estimated annual retirement benefits shown assumes no increase in
compensation or AIAP and interest credits of 6.68%.
Employment Arrangements. During fiscal 1998, the Company had employment
agreements with each of Messrs. Wolford, Smith, Meyers, Phillips and Gibbons.
The following summaries of the material provisions of the employment agreements
with Mr. Wolford and Mr. Smith (the "Wolford/Smith Employment Agreements"), the
employment agreement with Mr. Meyers (the "EVP Employment Agreement") and the
employment agreement with Mr. Phillips (the "Phillips Employment Agreement") do
not purport to be complete and are qualified in their entirety by reference to
such agreements. The Company has filed employment agreements of Messrs. Wolford,
Smith, Meyers, Phillips and Gibbons as exhibits to the registration statement
for this offering.
On March 16, 1998, Del Monte entered into employment agreements with Mr.
Wolford and Mr. Smith as Chief Executive Officer and Chief Operating Officer,
respectively. The Wolford/Smith Employment Agreements are for an indefinite
term. Under the terms of the Wolford/Smith Employments Agreements, if the
employment of Mr. Wolford or Mr. Smith is terminated by Del Monte for any reason
other than for cause or by such executive for any reason, he would be entitled
to continue to receive his base salary and target award under the AIAP (50% of
base salary) and to participate in certain employee welfare benefit plans and
programs of the Company for up to two years after the date of such termination
of employment, subject to his not competing with the Company, not soliciting
employees of the Company and not disclosing proprietary or
66
<PAGE> 72
confidential information of the Company and subject to his signing a general
release and waiver with respect to certain claims he may have against the
Company.
The EVP Employment Agreement is for an indefinite term. Specifically, the
EVP Employment Agreement provides that if the executive's employment terminates
for any reason other than for Cause (as defined) or if the executive resigns for
Good Reason (as defined), such executive would receive as severance, subject to
the executive's not competing with the Company or disclosing confidential
information or trade secrets of the Company, severance payments over a
three-year period commencing on the date of such termination or resignation. The
aggregate amount of the severance payable to the executive over such three-year
period would equal two times the sum of (i) the executive's highest annual base
salary in effect during the 12-month period prior to such termination or
resignation and (ii) the target award (50% of annual base salary) under the AIAP
(or successor thereto) for the year in which such termination or resignation
occurs (or, if greater, the amount of the award for the next preceding year). In
addition, the executive would receive a pro rata annual bonus under the AIAP for
the year in which such termination or resignation occurs and would be entitled
to participate in the employee benefit plans and programs maintained by the
Company in which the executive participates until the earlier of (i) the end of
the three-year period and (ii) such time as the executive is covered by
comparable programs of a subsequent employer.
The Phillips Employment Agreement is for an indefinite term. The Phillips
Employment Agreement provides that if Mr. Phillips' employment terminates for
any reason other than for Cause (as defined) or if Mr. Phillips resigns for Good
Reason (as defined), Mr. Phillips would receive as severance three months of his
then current base pay. In addition, if Mr. Phillips executes and delivers to the
Company a written agreement confirming his commitment not to compete with the
Company and not to disclose confidential information or trade secrets of the
Company, the Company would then provide Mr. Phillips severance payments over an
18-month period commencing on the date of such termination or resignation. The
aggregate amount of the severance payable to Mr. Phillips over such 18-month
period would equal the sum of (i) Mr. Phillips' highest annual rate of base
salary in effect during the 12-month period prior to such termination or
resignation and (ii) the target award under AIAP (or successor thereto) for the
year in which such termination or resignation occurs (or, if greater, the amount
of the award for the next preceding year of employment). In addition, Mr.
Phillips would receive a pro rata annual bonus under the AIAP for the year in
which such termination or resignation occurs and would be entitled to
participate in the employee benefit plans and programs maintained by the Company
in which Mr. Phillips participates until the earlier of (i) the end of the
18-month period or (ii) such time as Mr. Phillips is covered by comparable
programs of a subsequent employer.
Mr. Gibbons' employment agreement is similar to that of Mr. Phillips except
that it does not require Mr. Gibbons to execute an agreement not to compete or
disclose confidential information in order to receive severance payments over an
18-month period.
DIRECTORS' COMPENSATION
Under Company policy, Messrs. Boyce, Bruer, Foley and Haycox and Ms.
O'Leary will each receive $25,000 per year to be paid in cash or in common
stock, at the option of the director. Each of these directors will also receive
$2,000 for each committee meeting of the Board of Directors attended in person.
In February 1998, the Company adopted a stock incentive plan with terms
substantially identical to the terms of the Del Monte Foods 1997 Stock Incentive
Plan for the benefit of directors and independent contractors of the Company.
Pursuant to that plan, Mr. Boyce received options representing 148,828 shares of
common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the period following consummation of the Company's recapitalization
through the end of Del Monte's last completed fiscal year, Del Monte did not
have a compensation committee or other board committee performing equivalent
functions. During that period, the entire Board of Directors had authority to
consider executive compensation matters. The membership of the Board of
Directors during that period is described under "-- Directors and Executive
Officers" above. No person who was an officer, employee or former officer of Del
Monte or any of its subsidiaries participated in deliberations of Del Monte's
Board of Directors concerning executive officer compensation.
67
<PAGE> 73
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the common stock as of December 15, 1998, and as adjusted to
reflect the sale of the shares offered hereby (i) by each person who is known by
the Company to own beneficially more than 5% of the common stock; (ii) by each
of the Company's directors; (iii) by each of the executive officers of the
Company identified in the table set forth under the heading
"Management -- Executive Compensation;" and (iv) by all executive officers and
directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(A) OFFERING(B)
NAME AND ADDRESS OF ----------------------- ------------------------
BENEFICIAL OWNER NUMBER PERCENT(C) NUMBER PERCENT(C)
------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
TPG Partners, L.P........................... 24,682,808(d) 69.5%
201 Main Street, Suite 2420
Fort Worth, TX 76102
TPG Parallel I, L.P......................... 2,459,828(d) 6.9
201 Main Street, Suite 2420
Forth Worth, TX 76102
399 Venture Partners, Inc................... 2,490,046 7.0
399 Park Avenue, 14th Floor
New York, NY 10043
Richard W. Boyce............................ 148,828(e) 0.4
Richard G. Wolford.......................... 937,110(f) 2.6
Wesley J. Smith............................. 724,110(g) 2.0
Timothy G. Bruer............................ -- --
Al Carey.................................... 3,161(h) 0.0
Patrick Foley............................... 4,655(h) 0.0
Brian E. Haycox............................. 5,363(h) 0.0
Denise M. O'Leary........................... 4,809(h) 0.0
William S. Price, III....................... --(d) --
Jeffrey A. Shaw............................. -- --
David L. Meyers............................. 277,586(i) 0.8
Glynn M. Phillips........................... 90,651(j) 0.3
Thomas E. Gibbons........................... 74,578(k) 0.2
All executive officers and directors as a
group (19 persons)........................ 29,962,064(l) 78.8
</TABLE>
- ---------------
(a) The persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in this table and these notes.
(b) Assumes no exercise of underwriters' overallotment option.
(c) Calculated excluding all shares issuable pursuant to agreements, options or
warrants of Del Monte, except as to each individual, entity or group, the
shares issuable to such individual, entity or group pursuant to agreements,
options or warrants of Del Monte, as described below in notes (e) through
(k), as the case may be.
(d) TPG Partners, L.P. and TPG Parallel I, L.P. are entities affiliated with
William S. Price, III. Mr. Price disclaims beneficial ownership of all
shares owned by such entities.
(e) Includes 148,828 shares issuable upon exercise of options issued to Mr.
Boyce.
(f) Includes 870,071 shares issuable upon exercise of options.
(g) Includes 657,071 shares issuable upon exercise of options.
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(h) Messrs. Carey and Foley and Ms. O'Leary currently receive shares of common
stock in lieu of cash for their directors' fees. See "-- Directors'
Compensation."
(i) Includes 229,701 shares issuable upon exercise of options.
(j) Includes 71,497 shares issuable upon exercise of options.
(k) Includes 53,317 shares issuable upon exercise of options.
(l) Includes all shares held by entities affiliated with a director as described
in note (d) above and all shares issuable by Del Monte pursuant to
arrangements as described in notes (e) through (j) above.
The Company has granted the underwriters an option to purchase up to
additional shares of common stock solely to cover overallotments.
The 35,496,944 shares of common stock issued to and owned by TPG and other
existing stockholders prior to this offering were originally acquired in
connection with the Company's recapitalization and the Contadina Acquisition for
total consideration of approximately $182 million, or $5.13 per share, as
compared with new investors who will pay approximately $ million, or $
per share, for the shares of common stock that Del Monte is offering
(assuming an initial public offering price of $ per share).
Accordingly, TPG and other existing stockholders will benefit from an
appreciation of $ per share of common stock (approximately $
million in the aggregate) in the value of their shares of common stock as a
result of this offering (assuming an initial public offering price of
$ per share and no exercise of the underwriters' overallotment option).
See "Dilution."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's recapitalization, the Company entered into
a ten-year agreement dated April 18, 1997 (the "Management Advisory Agreement")
with TPG. Under this agreement, TPG is entitled to receive an annual fee from
the Company for management advisory services equal to the greater of $500,000
and 0.05% of the budgeted consolidated net sales of the Company for each fiscal
year under the contract term. In addition, the Company has agreed to indemnify
TPG, its affiliates and shareholders, and their respective directors, officers,
controlling persons, agents, employees and affiliates from and against all
claims, actions, proceedings, demands, liabilities, damages, judgments,
assessments, losses and costs, including fees and expenses, arising out of or in
connection with the services rendered by TPG thereunder. This indemnification
may not extend to actions arising under the U.S. federal securities laws. This
agreement of TPG makes its resources available concerning a variety of financial
and operational matters, including advice and assistance in reviewing the
Company's business plans and its results of operations and in evaluating
possible strategic acquisitions, as well as providing investment banking
services in identifying and arranging sources of financing. The agreement does
not specify a minimum number of TPG personnel who must provide such services or
the individuals who must provide them. It also does not require that a minimum
amount of time be spent by such personnel on Company matters. The Company cannot
otherwise obtain the services that TPG will provide without the addition of
personnel or the engagement of outside professional advisors. In management's
opinion, the fees provided for under this agreement reasonably reflect the
benefits to be received by the Company and are comparable to those obtainable in
an arm's-length transaction with an unaffiliated third party.
In connection with the recapitalization, the Company entered into a
ten-year advisory agreement dated April 18, 1997 with TPG. Under this agreement,
TPG received a cash financial advisory fee of approximately $8.4 million upon
the closing of the recapitalization as compensation for its services as
financial advisor for the recapitalization. These services included assistance
in connection with the evaluation of the fairness of the recapitalization and
the valuation of the Company for those purposes. TPG also is entitled to receive
a fee of 1.5% of the "transaction value" for each transaction in which the
Company is involved, which may include acquisitions, refinancings and
recapitalizations. The term "transaction value" means the total value of any
subsequent transaction, including, without limitation, the aggregate amount of
the funds required to complete the subsequent transaction (excluding any fees
payable pursuant to this advisory agreement and fees, if any, paid to any other
person or entity for financial advisory, investment banking, brokerage or any
other similar services rendered in connection with such transaction) including
the amount of any indebtedness, preferred stock or similar items assumed (or
remaining outstanding). The advisory agreement includes indemnification
provisions similar to those described above. These provisions may not extend to
actions arising under the U.S. federal securities laws. In connection with the
Contadina Acquisition, TPG received from the Company a transaction fee of
approximately $3 million, and approximately $500,000 in connection with the
South America Acquisition. In connection with this offering, TPG expects to
receive approximately million as compensation for its services as
financial advisor. In management's opinion, the fees provided for under the
advisory agreement reasonably reflect the benefits received and to be received
by the Company and are comparable to those obtainable in an arm's-length
transaction with an unaffiliated third party.
In connection with the recapitalization, Del Monte and the holders of the
Common Stock, including TPG and 399 Venture Partners, Inc., an affiliate of one
of the Company's bank lenders, entered into a stockholders' agreement dated as
of April 18, 1997. Among other things, the stockholders' agreement (i) imposes
certain restrictions on the transfer of shares of common stock by such holders;
and (ii) gives such holders registration rights under certain circumstances. Del
Monte will bear the costs of preparing and filing any such registration
statement and will indemnify and hold harmless, to the extent customary and
reasonable, holders selling shares covered by such a registration statement.
Directors and members of management of the Company to date have received 465,639
restricted shares of common stock, which are subject to stockholders' agreements
with the Company which impose similar restrictions.
As set forth in the Merger Agreement, an affiliate of 399 Venture Partners,
and certain current and former employees of an affiliate of 399 Venture
Partners, received approximately $7.9 million, and $215,000, respectively, in
return for shares of Del Monte preferred stock which were surrendered and were
cancelled by
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virtue of the Merger. Since the beginning of fiscal 1996, in connection with
certain interest rate protection transactions, the Company has also paid fees
and made other payments to banking and other affiliates of 399 Venture Partners
totaling approximately $442,000, consisting of fees for banking services. In
addition, in consideration of advisory services rendered and its participation
in connection with the recapitalization, the Company paid to 399 Venture
Partners a transaction advisory fee of approximately $900,000. The Company
believes that the terms of these transactions were comparable to those
obtainable in an arm's-length transaction with a disinterested third party.
The employment of Mr. Haycox pursuant to the CEO Agreement was terminated
effective as of April 18, 1997. Mr. Haycox continued to receive the salary that
he would have earned pursuant to the CEO Agreement until September 1997. In
September 1997, the Company paid to Mr. Haycox a lump sum payment of salary.
Such lump sum payment was $250,000, which was equal to the base salary that Mr.
Haycox would have earned pursuant to the CEO Agreement between the date the lump
sum payment was made and December 31, 1997. The Company believes that the terms
of these transactions were comparable to those obtainable in an arm's-length
transaction with an unaffiliated third party.
During the second and third quarters of fiscal 1998, the Company sold
shares of common stock to certain key employees, including the executive
officers of the Company, pursuant to the Company's Employee Stock Purchase Plan.
See "Management -- Employment and Other Arrangements -- Stock Purchase Plan."
Messrs. Wolford and Smith each borrowed $175,000 from the Company in order to
acquire a portion of the stock purchased by him pursuant to such plan, all of
which remains outstanding. At September 30, 1998, these loans bore interest at a
rate of 5.41%, which rate is adjusted semi-annually. These loans are evidenced
by promissory notes that are secured by a pledge of the stock purchased with the
proceeds of the loans. The Company extended these loans in accordance with
applicable law governing transactions by a corporation with its officers. The
Company cannot predict whether the terms of such transactions, if made with a
disinterested third party, would be more or less favorable to Messrs. Wolford
and Smith. The Company has no reason to believe that such terms would be less
favorable. The Bank Financing limits the ability of the Company to make loans or
advances to employees to a maximum amount outstanding at any time of $5 million.
Aside from the loans to Messrs. Wolford and Smith, the Company has made no such
loans or advances to any of its directors, officers or employees. Any vote by
the party receiving any loan must be made in accordance with Delaware law.
Certain conflicts of interest could arise as a result of the relationship
between the Company and TPG. Messrs. Price and Shaw, each a partner of TPG, and
Mr. Boyce, an officer of a company that provides management services to TPG, are
also directors of the Company. None of the Company's management is affiliated
with TPG. Following this offering, TPG will continue to have the power to
control the management and policies of the Company and matters requiring
stockholder approval. TPG may be subject to a conflict of interest in allocating
acquisition or other business opportunities between the Company and other
entities in which TPG has substantial investments. Although currently TPG has no
investment in any entity that competes directly with the Company, it may in the
future make such an investment.
The Company will address any conflicts of interest and future transactions
it may have with its affiliates, including TPG, or other interested parties in
accordance with applicable law. Delaware law provides that any transaction with
any director or officer or other entity in which any of the Company's directors
or officers are also directors or officers, or have a financial interest, will
not be void or voidable solely due to the fact of the interest or affiliation,
nor because the votes of interested directors are counted in approving the
transaction, so long as (i) the material facts of the relevant party and its
interest are disclosed to the Board of Directors or the stockholders, as
applicable, and the transaction is approved in good faith by a majority of the
disinterested directors or by a specific vote of the stockholders, as
applicable; or (ii) the transaction is fair to the Company at the time it is
authorized, approved or ratified.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description summarizes Del Monte's capital stock and does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the certificate of incorporation, a copy of
which has been filed as an exhibit to the registration statement.
COMMON STOCK
The certificate of incorporation authorizes the issuance of an aggregate of
500,000,000 shares of common stock. Upon consummation of this offering, of those
authorized shares of common stock, will be validly issued,
fully paid and nonassessable. Prior to the consummation of this offering, there
were 45 holders of record of common stock.
The holders of the shares of common stock are entitled to receive, when, as
and if declared by the Board of Directors out of legally available funds,
dividends and other distributions in cash, shares or property of the Company.
Dividends or distributions so declared by the Board will be paid ratably in
proportion to the number of shares held by the holders of common stock.
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of Del Monte, after payment of the creditors of Del Monte, the
remaining assets and funds of Del Monte available for distribution to Del
Monte's stockholders shall be divided among and paid ratably to the holders of
the shares of common stock.
Except as provided by statute or the certificate of incorporation, holders
of the common stock have the sole right and power to vote on all matters on
which a vote of Del Monte's stockholders is to be taken. At every meeting of the
stockholders, each holder of common stock is entitled to cast one vote provided
such holder is present in person or by proxy for each share of common stock
standing in his or her name as of the record date for such a vote.
The holders of common stock are entitled, by a majority vote of those
present, to nominate and thereafter elect and remove directors to and from the
Board.
PREFERRED STOCK
The certificate of incorporation authorizes the issuance of an aggregate of
2,000,000 shares of preferred stock. Upon consummation of this offering, there
will be no shares of preferred stock outstanding.
Del Monte's Board of Directors may, from time to time, direct the issue of
shares of preferred stock in series and may, at the time of issue, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding preferred stock would reduce the amount of funds
available for the payment of dividends on shares of common stock. Holders of
preferred stock may be entitled to receive a preference payment in the event of
any liquidation, dissolution or winding-up of Del Monte before any payment is
made to the holders of common stock. Under certain circumstances, the issuance
of preferred stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of Del Monte's securities or the removal of incumbent management. Upon the
affirmative vote of a majority of the total number of directors then in office,
the Board may issue shares of preferred stock with voting and conversion rights
which could adversely affect the holders of shares of common stock.
Prior to the consummation of this offering, there were approximately 37,253
shares of Series A Preferred Stock outstanding. The Company intends to use a
portion of the proceeds of this offering to redeem these shares. See "Use of
Proceeds."
The Series A Preferred Stock accumulates dividends at the rate of 14% per
annum, which dividends are payable in cash or additional shares of Series A
Preferred Stock, at the option of Del Monte, subject to availability of funds
and the terms of its indebtedness. The Series A Preferred Stock has an initial
liquidation preference of $1,000 per share, and may be redeemed at the option of
Del Monte, in whole at any time or in part from time to time, at a redemption
price ranging from 103% of the liquidation preference, if redeemed prior to
October 1998, to 100% of the liquidation preference, if redeemed after October
2000, plus
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accumulated and unpaid dividends to the redemption date. Del Monte must redeem
all outstanding shares of Series A Preferred Stock on April 18, 2008 at such
redemption price. In certain other circumstances, including the occurrence of a
change of control of Del Monte, the holders of the Series A Preferred Stock have
the right to require Del Monte to repurchase said shares at 101% of the
liquidation preference, plus accumulated and unpaid dividends to the redemption
date. Holders of Series A Preferred Stock do not have any voting rights with
respect thereto, except for those provided under applicable law, the right to
elect, as a class, two directors of Del Monte in the event that six consecutive
quarterly dividends are in arrears and class voting rights with respect to
transactions adversely affecting the rights, preferences or powers of the Series
A Preferred Stock. In January 1998, TPG sold approximately 93% of its holdings
of Series A Preferred Stock to unaffiliated investors, and TPG holds
approximately 1,315 shares of the approximately 37,253 shares of Series A
Preferred Stock outstanding.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The certificate of incorporation provides for the Board to be divided into
three classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. The provision
for a classified board could prevent a party who acquires control of a majority
of the outstanding voting shares from obtaining control of the Board until the
second annual stockholders meeting following the date the acquiror obtains the
controlling share interest. The classified board provision is designed to have
the effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of Del Monte and to increase the
likelihood that incumbent directors will retain their positions. See
"Management."
The certificate of incorporation provides that stockholder action can be
taken only at a general meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The bylaws provide that, except as otherwise
required by law, general meetings of the stockholders can only be called
pursuant to a resolution adopted by a majority of the Board or by the Chairman
of the Board. Stockholders are not permitted to call a general meeting or to
require the Board to call a general meeting.
The bylaws establish an advance notice procedure for stockholder proposals
to be brought before a general meeting of stockholders, including proposed
nominations of persons for election to the Board.
Stockholders at a general meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the Board or by a stockholder who was a stockholder of
record on the record date for the meeting, who is entitled to vote at the
meeting and who has given to Del Monte's Secretary timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. Although the certificate of incorporation does not give the Board the
power to approve or disapprove stockholder nominations of candidates or
proposals regarding other business to be conducted at a general meeting, the
certificate of incorporation may have the effect of precluding the conduct of
certain business at a meeting if the proper procedures are not followed or may
discourage or deter a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of Del Monte.
The certificate of incorporation provides that the provisions of Section
203 of the Delaware General Corporation Law, which relate to business
combinations with interested stockholders, do not apply to Del Monte.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The summaries of the indebtedness contained herein do not purport to be
complete and are qualified in their entirety by reference to the provisions of
the various agreements and indentures related thereto, copies of which have been
filed as exhibits to the registration statement for this offering.
BANK FINANCING
The Bank Financing consists of the Revolving Credit Facility and the Term
Loan Facility. The principal terms of the Bank Financing are summarized below.
Revolving Credit Facility
The Revolving Credit Facility provides for revolving loans in an aggregate
amount of $350 million, including a letter of credit sublimit of $70 million and
a "swingline loan" sublimit of $25 million (representing funds that DMC may
borrow with only limited advance notice). Amounts available under the Revolving
Credit Facility are subject to certain borrowing base limitations based upon,
among other things, the amounts and applicable advance rates in respect of DMC's
eligible accounts receivable and eligible inventory. Interest rates per annum
applicable to amounts outstanding under the Revolving Credit Facility are
currently, at DMC's option, either (i) the Base Rate (as defined) plus 1.00%
(the "Applicable Base Rate Margin") or (ii) the reserve adjusted Offshore Rate
(as defined) plus 2.00% (the "Applicable Offshore Rate Margin"). The margins on
outstanding balances under the Revolving Credit Facility are subject to
quarterly adjustment. In addition, DMC currently is required to pay to lenders
under the Revolving Credit Facility a commitment fee (the "Commitment Fee") of
0.425%, payable quarterly in arrears, on the unused portion of such Revolving
Credit Facility. DMC currently is also required to pay to lenders under the
Revolving Credit Facility letter of credit fees (collectively, the "Letter of
Credit Fees") of 1.50% for commercial letters of credit and 2.00% for all other
letters of credit, as well as an additional fee in the amount of 0.25% to the
bank issuing such letters of credit. Upon attainment of certain levels of the
Senior Debt Ratio (as defined), such Applicable Base Rate Margin and Applicable
Offshore Rate Margin, as well as the Commitment Fee and Letter of Credit Fees,
will be adjusted. At September 30, 1998, borrowings under the Revolving Credit
Facility were $202 million, and the weighted average interest rate thereon was
approximately 7.66%.
Term Loan Facility
At September 30, 1998, the outstanding principal amounts of the Tranche A
and B term loans were $193 million and $229 million, respectively, and the
weighted average rate on the Term Loan Facility was approximately 8.17%.
Interest rates per annum applicable to the Tranche A term loan are currently, at
DMC's option, either (i) the Base rate plus the Applicable Base Rate Margin, or
(ii) the Offshore Rate plus the Applicable Offshore Rate Margin. Upon attainment
of certain levels of the Senior Debt Ratio, such Applicable Base Rate Margin and
Applicable Offshore Rate Margin will be adjusted. Interest rates applicable to
the Tranche B term loan rate are, at DMC's option, either (i) the Base Rate plus
2.00% or (ii) the Offshore Rate plus 3.00%.
Consummation of the Contadina Acquisition required certain amendments under
the Bank Financing agreements to permit additional funding under the existing
Tranche B term loan in an amount of $50 million. Amortization of the additional
Tranche B term loan amount is incremental to scheduled amortization of the
existing Tranche B term loan. Such additional amortization commenced in the
second quarter of fiscal 1999 in a quarterly amount equal to $0.1 million, with
such amortization increasing in the fourth quarter of fiscal 2004, through the
third quarter of fiscal 2005, to $11.8 million per quarter.
Amortization/Prepayment
The Revolving Credit Facility terminates March 31, 2003. The existing
Tranche A term loan matures March 31, 2003, and is subject to quarterly
amortization, commencing with the first quarter of fiscal 1999, in
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the quarterly amounts of $7.50 million, $8.75 million, $10.00 million and $11.25
million during the fiscal years 1999 through 2002, respectively, and $16.67
million per quarter for the first three quarters of fiscal 2003. The existing
Tranche B term loan matures March 31, 2005, and is subject to quarterly
amortization, commencing with the third quarter of fiscal 1998, in the quarterly
amount of $0.45 million, with such amortization increasing to $42.19 million per
quarter in the fourth quarter of fiscal 2004 through the first three quarters of
fiscal 2005. The incremental amortization which results from the additional
Tranche B term loan is described in the paragraph immediately above. With
certain exceptions, as set forth in the Bank Financing agreements, DMC will be
required to make prepayments under both the Revolving Credit Facility and the
Term Loan Facility from excess cash flow, asset sales, issuance or condemnation
proceedings and issuances of debt and equity securities, including the Offering.
Guarantees and Collateral
Del Monte has guaranteed DMC's obligations under the Bank Financing. DMC's
obligations are secured by substantially all personal property of DMC. Del
Monte's guarantee is secured by a pledge of the stock of DMC. DMC's obligations
also are secured by first priority liens on certain of its unencumbered real
property fee interests.
Covenants
Pursuant to the terms of the Bank Financing, DMC is required to meet
certain financial tests, certain of which are set forth below. In addition, DMC
has covenanted that, among other things, it will limit the incurrence of
additional indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers, prepayment of other indebtedness, liens and encumbrances
and other matters customarily restricted in loan agreements.
The following is a summary of certain financial tests which currently apply
under the Bank Financing (capitalized terms have the meanings set forth in the
Bank Financing):
Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio (a
ratio of EBITDA to certain interest expense and scheduled principal payments
under the Term Loan Facility) for any Computation Period may not be less than
1.2 times through September 26, 1999, increasing over specified periods to 1.5
times at June 30, 2004 and thereafter.
Maximum Senior Debt Ratio. The Senior Debt Ratio (a ratio of outstanding
debt other than subordinated debt to EBITDA) for any Computation Period may not
exceed 5.00 times through March 28, 1999, decreasing over specified periods to
2.25 times at June 30, 2003 and thereafter.
Maximum Total Debt Ratio. The Total Debt Ratio (a ratio of total
indebtedness to EBITDA) on the last day of any fiscal year may not exceed 5.50
times through June 30, 1999, decreasing at specified dates to 3.50 times at June
30, 2003 and thereafter.
Maximum Capital Expenditures. The aggregate amount of all Capital
Expenditures by the Company for any fiscal year may not exceed $50 million at
June 30, 1999, varying during specified periods to $40 million at June 30, 2001
and thereafter.
Minimum EBITDA. EBITDA for Del Monte for any Computation Period may not be
less than $120 million through March 28, 1999, increasing over specified periods
to $155 million at June 30, 2002 and thereafter.
Events of Default
The Bank Financing contains customary events of default, including payment
defaults, breach of representations and warranties, covenant defaults,
cross-defaults, certain events of bankruptcy and insolvency, ERISA judgement
defaults, failure of any guaranty or security agreement supporting DMC's
obligations under the Bank Financing to be in full force and effect and a change
of control of Del Monte or DMC.
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THE DMC NOTES AND THE DEL MONTE NOTES
On April 15, 1997, DMC issued and sold $150 million principal amount of
12 1/4% Senior Subordinated Notes due 2007 (the "Original DMC Notes"). On
December 17, 1997, Del Monte issued and sold $230 million principal amount at
maturity of 12 1/2% Senior Discount Notes due 2007 (the "Original Del Monte
Notes"). Such notes were initially sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
pursuant to Section 4(2) thereof and Regulation S thereunder and applicable
state securities laws. On July 31, 1997, DMC completed an exchange offer whereby
the Original DMC Notes were exchanged into the DMC Notes, which are registered
under the Securities Act with terms substantially identical to the Original DMC
Notes. On September 25, 1998, Del Monte completed an exchange offer whereby the
Original Del Monte Notes were exchanged into the Del Monte Notes, which are
registered under the Securities Act with terms substantially identical to the
Original Del Monte Notes.
The DMC Notes and Del Monte Notes will mature on April 15, 2007 and
December 15, 2007, respectively. Interest accrues at the rate of 12 1/4% and
12 1/2% per annum on the DMC Notes and the Del Monte Notes, respectively.
Interest is payable on the DMC Notes in cash, while interest on the Del Monte
Notes accretes until December 15, 2002, after which date interest is payable in
cash. Payment of principal, premium and interest on the DMC Notes is
subordinated, as set forth in the indenture governing the DMC Notes, to the
prior payment in full of DMC's senior debt. The obligations of DMC under the DMC
Notes are unconditionally guaranteed on a senior subordinated basis by Del
Monte. The DMC Notes and Del Monte Notes are redeemable in whole or in part by
DMC and Del Monte, respectively, in certain circumstances, including upon a
change of control of Del Monte.
The indentures for the Del Monte Notes and the DMC Notes contain various
restrictive covenants that limit the ability of Del Monte and DMC and their
subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, incur certain types of
indebtedness, incur liens, impose restrictions on the ability of a subsidiary to
pay dividends or make certain payments, merge or consolidate or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of Del Monte and DMC.
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CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the purchase, ownership and disposition of common
stock by a person that, for U.S. federal income tax purposes, is not a U.S.
Person (a "non-U.S. holder"). For purposes of this section, a "U.S. Person"
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source or a trust if (i)
a U.S. court is able to exercise primary supervision over the trust's
administration and (ii) one or more United States persons have the authority to
control all of the trust's substantial decisions, and the term "United States"
means the United States of America (including the States and the District of
Columbia).
THE DISCUSSION DOES NOT CONSIDER SPECIFIC FACTS AND CIRCUMSTANCES THAT MAY
BE RELEVANT TO A PARTICULAR NON-U.S. HOLDER'S TAX POSITION AND DOES NOT
CONSTITUTE AND IS NOT BASED UPON AN OPINION OF TAX COUNSEL. ACCORDINGLY, EACH
NON-U.S. HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE U.S.
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON STOCK, AS
WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE,
MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a non-U.S. holder of common stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30% rate, or at a lower
rate under an applicable income tax treaty that provides for a reduced rate of
withholding. However, if the dividends are effectively connected with the
conduct by the holder of a trade or business within the United States, then the
dividends will be exempt from the withholding tax described above and instead
will be subject to U.S. federal income tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain realized on a disposition of common stock, provided that (a)
the gain is not effectively connected with a trade or business conducted by the
non-U.S. holder in the United States and (b) in the case of a non-U.S. holder
who is an individual and who holds the common stock as a capital asset, such
holder is present in the United States for less than 183 days in the taxable
year of the sale and other conditions are met.
FEDERAL ESTATE TAXES
Common stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will not
apply to dividends paid on common stock to a non-U.S. holder at an address
outside the United States, except that with regard to payments made after
December 31, 1999, a non-U.S. holder will be entitled to such an exemption only
if it provides a Form W-8 (or satisfies certain documentary evidence
requirements for establishing that it is a non-United States person) or
otherwise establishes an exemption. As a general matter, information reporting
and backup withholding also will not apply to a payment of the proceeds of a
sale of common stock effected outside the United States by a foreign office of a
foreign broker. However, information reporting requirements (but not backup
withholding) will apply to a payment of the proceeds of a sale of common stock
effected outside the United States by a foreign office of a broker if the broker
(i) is a U.S. person, (ii) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, or (iii)
is a "controlled foreign corporation" as to the United States or (iv) with
respect to payments made after December 31, 1999, is a foreign partnership that,
at any time during its taxable year is 50% or more (by income or capital
interest) owned by U.S. persons or is engaged in the conduct of a U.S. trade or
business, unless the broker has documentary evidence in its records that the
holder is a non-U.S. holder and certain conditions are met, or the holder
otherwise establishes an exemption. Payment by a United States office of a
broker of the proceeds of a sale of common stock will be subject to both backup
withholding and information
77
<PAGE> 83
reporting unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the shares of
common stock. An active trading market for the common stock may not develop or
be sustained. Further, Del Monte cannot predict the effect, if any, of sales
under Rule 144 under the Securities Act or otherwise of "restricted" shares of
common stock or the availability of restricted shares of common stock for sale
in the public market. Sales of a substantial number of shares of common stock in
the public market following this offering could adversely affect the market
price of the shares of common stock prevailing from time to time.
Upon completion of this offering, Del Monte will have shares of
common stock outstanding (assuming no exercise of the underwriters'
overallotment option). Of these shares, the shares sold in this
offering will be freely transferable without restriction or registration under
the Securities Act, except for any shares purchased by an "affiliate" of Del
Monte, as that term is defined by the Securities Act, which shares will be
subject to the resale limitations of Rule 144 adopted under the Securities Act.
Substantially all of the remaining outstanding shares of common stock will be
owned by TPG and other existing stockholders of Del Monte and will be
"restricted securities" as defined in Rule 144. "Restricted securities" may not
be sold in the absence of an effective registration statement under the
Securities Act other than in accordance with Rule 144 or another exemption from
registration.
Each of Del Monte, TPG and certain other stockholders of Del Monte and each
of the directors and executive officers of Del Monte have agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, they will not, during the period ending 180 days after the date of
this prospectus, engage in specified transactions relating to the common stock.
See "Underwriters."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted securities for at least one year (including the holding period of any
prior owner except an affiliate) would be entitled to sell within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the number of shares of common stock then outstanding (approximately
shares immediately after this offering); or (ii) the average weekly
trading volume of the shares of common stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale and notice requirements and to
the availability of current public information about Del Monte. Under Rule
144(k), a person who is not deemed to have been an affiliate at any time during
the 90 days preceding a sale, and who has beneficially owned restricted
securities for at least two years (including the holding period of any prior
owner except an affiliate), is entitled to sell the shares without complying
with the manner of sale, public information requirements, volume limitations or
notice requirements of Rule 144. Accordingly, subject to the contractual
restrictions described above in the case of Del Monte, the "restricted" shares
of common stock held by TPG will be eligible for sale in the public market
without registration under the Securities Act, subject to compliance with the
resale volume limitations and other restrictions of Rule 144 under the
Securities Act.
REGISTRATION RIGHTS AGREEMENTS
Under a registration rights agreement between the Company and TPG Partners,
the Company has granted TPG Partners the right to require the Company to
register shares of common stock held by TPG Partners and its affiliates for
public sale (a "demand registration"). So long as TPG Partners and its
affiliates continue to hold at least 5% of the outstanding shares of common
stock, TPG will have the right to request one demand registration in each
nine-month period pursuant to the stockholders' agreement among some of the
current stockholders of the Company. In the event that the Company registers
shares of common stock held by TPG, the Company would also be required to
register shares of common stock held by other stockholders of the Company upon
their request. See "Certain Relationships and Related Transactions."
The Company is required to pay all expenses (other than underwriting
discounts and commissions) incurred by TPG in connection with each demand
registration.
78
<PAGE> 84
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
underwriters named below, for whom Morgan Stanley & Co. Incorporated and
Goldman, Sachs & Co. are acting as U.S. representatives, and the international
underwriters named below, for whom Morgan Stanley & Co. International Limited
and Goldman Sachs International Limited are acting as international
representatives, have severally agreed to purchase, and Del Monte has agreed to
sell to them, severally, the respective number of shares of common stock set
forth opposite the names of such underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Goldman, Sachs & Co.......................................
----------
Subtotal...............................................
----------
International Underwriters:
Morgan Stanley & Co. International Limited................
Goldman Sachs International Limited.......................
----------
Subtotal...............................................
----------
Total.............................................
==========
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the "underwriters" and the "representatives," respectively. The
underwriters are offering the shares of common stock subject to their acceptance
of the shares from the Company and subject to prior sale. The Underwriting
Agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered hereby are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered hereby (other than those covered by the underwriters'
over allotment option described below) if any of such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
shares or distribute any prospectus relating to the shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. and International Underwriters, each
international underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any shares or distribute any prospectus
relating to the shares in the United States or Canada or to any United States or
Canadian Person. With respect to any underwriter that is a U.S. underwriter and
an international underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. underwriter apply only to it in its
capacity as a U.S. underwriter and (ii) made by it in its capacity as an
international underwriter apply only to it in its capacity as an international
underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement Between
U.S. and international underwriters. As used herein, "United States or Canadian
person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or
79
<PAGE> 85
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian person. All shares of common stock to be purchased by the
underwriters under the Underwriting Agreement are referred to herein as the
"shares."
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. underwriters and international underwriters
of any number of shares as may be mutually agreed. The per share price of any
shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing such shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement Between U.S. and International Underwriters, each
international underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the shares to the international underwriters, will not offer or sell, any shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document may
otherwise lawfully be issued or passed on.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain dealers. After the
initial offering of the shares of common stock, the offering price and other
selling terms described above may from time to time be varied by the
representatives.
Del Monte has granted to the U.S. underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions. The
U.S. underwriters may exercise such option solely for the purpose of covering
overallotments, if any, made in connection with this offering. To the extent
such option is exercised, each U.S. underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of common stock as the number set forth next to such U.S.
underwriter's name in the preceding table
80
<PAGE> 86
bears to the total number of shares of common stock set forth next to the names
of all U.S. underwriters in the preceding table. If the U.S. underwriters'
option is exercised in full, the total price to the public would be $ ,
the total underwriters' discounts and commissions would be $ , and
total proceeds to Del Monte would be $ .
The underwriters have informed Del Monte that they do not intend sales to
discretionary accounts to exceed 5% of the total number of shares of common
stock offered by them.
The common stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange and the Pacific Exchange under the
symbol "DLM."
Each of Del Monte, TPG and certain other stockholders of Del Monte and each
of the directors and executive officers of Del Monte have agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, they will not, during the period ending 180 days after the date of
this prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the common stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of common stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to (x) the sale of the shares to the
underwriters, (y) the issuance by Del Monte of shares of common stock upon the
exercise of an option or a warrant or the conversion of a security outstanding
on the date of this prospectus or (z) transactions by any person other than the
Company relating to shares of common stock or other securities acquired in open
market transactions after the completion of this offering.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may overallot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in this offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
Pursuant to the application of the net proceeds of the offering, certain of
the underwriters or affiliates of the underwriters may receive in the aggregate
an amount greater than 10% of the net proceeds of this offering. Accordingly,
the underwriting arrangements for the offering will be made in compliance with
Rule 2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD"), which provides that, among other things, the initial
public offering price can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, A.G. Edwards & Sons, Inc. will serve in such role and will
recommend a price in compliance with the Conduct Rules of the NASD. In
connection with the offering, A.G. Edwards & Sons, Inc., in its role as a
qualified independent underwriter, has performed due diligence investigations
and reviewed and participated in the preparation of the prospectus and the
registration statement.
From time to time, Morgan Stanley & Co. Incorporated has provided, and
continues to provide, certain financial advisory services to Del Monte and its
subsidiaries for which they have received customary fees and commissions.
Del Monte and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
81
<PAGE> 87
DIRECTED SHARE PROGRAM
At the request of Del Monte, the underwriters have reserved for sale, at
the initial offering price, up to shares, which may be offered to
directors, officers, employees, retirees and related persons of Del Monte. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Such
related persons include officers, partners and principals of independent brokers
that represent the Company's products to the grocery trade. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered hereby.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Del Monte and the U.S. representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this prospectus is subject
to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of common stock offered hereby and certain other
legal matters in connection with the offering will be passed upon for Del Monte
by Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York
10006, counsel for Del Monte. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Brown & Wood LLP, 555
California Street, San Francisco, California 94104.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1997
and 1998, and for the years then ended, appearing in this prospectus and
Registration Statement have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, and for the year ended June 30, 1996, by Ernst &
Young LLP, independent auditors, as set forth in their respective reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of said firms as experts in accounting and
auditing.
The combined financial statements of Contadina (a division of Nestle USA,
Inc.) as of December 31, 1996 and December 18, 1997, and for the year ended
December 31, 1996 and the period January 1 through December 18, 1997, appearing
in this Prospectus and Registration Statement have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance on such
report given upon the authority of said firm as experts in accounting and
auditing.
82
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- June 30, 1997 and 1998....... F-3
Consolidated Statements of Operations -- Years ended June
30, 1996, 1997 and 1998................................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit) -- Years ended June 30, 1996, 1997 and 1998..... F-5
Consolidated Statements of Cash Flows -- Years ended June
30, 1996, 1997 and 1998................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Auditors.............................. F-29
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets -- September 30, 1997 and
September 30, 1998........................................ F-30
Consolidated Statements of Operations -- Three-month Periods
ended September 30, 1997 and September 30, 1998........... F-31
Consolidated Statements of Cash Flows -- Three-month Periods
ended September 30, 1997 and September 30, 1998........... F-32
Notes to Consolidated Financial Statements.................. F-33
CONTADINA (A DIVISION OF NESTLE USA, INC.)
Report of Independent Auditors.............................. F-36
Combined Balance Sheets at December 31, 1996 and December
18, 1997.................................................. F-37
Combined Statements of Operations and Divisional Equity for
the year ended December 31, 1996 and the period from
January 1, 1997 through December 18, 1997................. F-38
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-39
Notes to Combined Financial Statements for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-40
</TABLE>
F-1
<PAGE> 89
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated balance sheet of Del Monte
Foods Company and subsidiaries as of June 30, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Del Monte Foods Company and subsidiaries as of June 30, 1997 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
July 24, 1998
San Francisco, California
F-2
<PAGE> 90
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1998
---------- -----
(RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5 $ 7
Trade accounts receivable, net of allowance............... 67 108
Other receivables......................................... 2 6
Inventories............................................... 339 366
Prepaid expenses and other current assets................. 9 14
----- -----
Total Current Assets.............................. 422 501
Property, plant and equipment, net.......................... 222 305
Intangibles................................................. -- 16
Other assets................................................ 23 23
----- -----
Total Assets...................................... $ 667 $ 845
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 220 $ 259
Short-term borrowings..................................... 82 --
Current portion of long-term debt......................... 2 32
----- -----
Total Current Liabilities......................... 304 291
Long-term debt.............................................. 526 677
Other noncurrent liabilities................................ 203 194
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding 35,000
in 1997 and 37,253 in 1998; aggregate liquidation
preference $36 in 1997 and $41 in 1998)................... 32 33
Stockholders' equity (deficit):
Common stock ($.01 par value per share, shares authorized:
191,542,000 in 1997 and 500,000,000 in 1998; issued and
outstanding: 26,815,880 in 1997 and 35,495,058 in 1998)
Paid-in capital........................................... 129 172
Retained earnings (deficit)............................... (527) (522)
----- -----
Total Stockholders' Equity (Deficit).............. (398) (350)
----- -----
Total Liabilities and Stockholders' Equity........ $ 667 $ 845
===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 91
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------
1996 1997 1998
---------- ---------- ------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Net sales................................................... $1,305 $1,217 $1,313
Cost of products sold....................................... 984 819 898
Selling, administrative and general expense................. 239 327 316
Special charges related to plant consolidation.............. -- -- 10
Acquisition expense......................................... -- -- 7
------ ------ ------
Operating income............................................ 82 71 82
Interest expense............................................ 67 52 77
Loss (gain) on sale of divested assets...................... (123) 5 --
Other (income) expense...................................... 3 30 (1)
------ ------ ------
Income (loss) before income taxes, minority interest,
extraordinary item and cumulative effect of accounting
change.................................................... 135 (16) 6
Minority interest in earnings of subsidiary................. 3 -- --
Provision for income taxes.................................. 11 -- 1
------ ------ ------
Income (loss) before extraordinary item and cumulative
effect of accounting change............................... 121 (16) 5
Extraordinary loss from early debt retirement............... 10 42 --
Cumulative effect of accounting change...................... 7 -- --
------ ------ ------
Net income (loss)........................................... $ 104 $ (58) $ 5
====== ====== ======
Basic net income (loss) per common share
Income (loss) before extraordinary item and cumulative
effect of accounting change............................... $ 0.52 $(1.40) $ 0.01
Net income (loss)........................................... 0.29 (2.07) 0.01
Diluted net income (loss) per common share
Income (loss) before extraordinary item and cumulative
effect of accounting change............................... $ 0.52 $(1.40) $ 0.01
Net income (loss)........................................... 0.29 (2.07) 0.01
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 92
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES TOTAL
RECEIVABLE RETAINED CUMULATIVE STOCKHOLDERS'
COMMON PAID-IN FROM EARNINGS TRANSLATION EQUITY
STOCK CAPITAL STOCKHOLDERS (DEFICIT) ADJUSTMENT (DEFICIT)
------ ------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995............ $ -- $ 3 $ (1) $(369) $(26) $(393)
Repayment of notes receivable from
stockholders...................... 1 1
Issuance of shares.................. --
Net income (as restated)............ 104 104
---- ---- ---- ----- ---- -----
Balance at June 30, 1996 (as
restated)......................... -- 3 -- (265) (26) (288)
Cancellation of shares in connection
with the Recapitalization......... (3) (204) (207)
Issuance of shares.................. 129 129
Net income (as restated)............ (58) (58)
Cumulative translation adjustment... 26 26
---- ---- ---- ----- ---- -----
Balance at June 30, 1997 (as
restated)......................... -- 129 -- (527) -- (398)
Amortization of redeemable preferred
stock discount.................... (1) (1)
Issuance of shares.................. 44 44
Net income.......................... 5 5
---- ---- ---- ----- ---- -----
Balance at June 30, 1998............ $ -- $172 $ -- $(522) $ -- $(350)
==== ==== ==== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------------------------------------------
COMMON TOTAL COMMON
STOCK CLASS A CLASS B CLASS E SHARES
---------- ----------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Shares issued and outstanding at June
30, 1995............................ -- 41,125,791 -- 4,788,550 45,914,341
Repurchase of shares.................. -- (3,110,833) -- -- (3,110,833)
---------- ----------- -- ---------- -----------
Shares issued and outstanding at June
30, 1996............................ -- 38,014,958 -- 4,788,550 42,803,508
Cancellation of shares................ -- (38,014,958) -- (4,788,550) (42,803,508)
Issuance of shares.................... 26,815,880 -- -- -- 26,815,880
---------- ----------- -- ---------- -----------
Shares issued and outstanding at June
30, 1997............................ 26,815,880 -- -- -- 26,815,880
Issuance of shares.................... 8,679,178 -- -- -- 8,679,178
---------- ----------- -- ---------- -----------
Shares issued and outstanding at June
30, 1998............................ 35,495,058 -- -- -- 35,495,058
========== =========== == ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 93
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1996 1997 1998
---------- ---------- -----
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 104 $ (58) $ 5
Adjustments to reconcile net income (loss) to net cash
flows:
Extraordinary loss from early debt retirement.......... 10 42 --
Cumulative effect of accounting change................. 7 -- --
Loss on sale of divested assets........................ (123) 5 --
Net loss on sales of assets............................ 2 3 1
Depreciation and amortization.......................... 31 29 35
Stock option compensation expense...................... -- -- 2
Changes in operating assets and liabilities net of
effects of acquisition:
Accounts receivable.................................. 33 24 (45)
Inventories.......................................... 11 (48) 74
Prepaid expenses and other current assets............ (2) 3 --
Other assets......................................... 1 6 --
Accounts payable and accrued expenses................ (28) 29 28
Other non-current liabilities........................ 14 (10) (3)
------- ------- -----
Net cash provided by operating activities............ 60 25 97
------- ------- -----
Investing activities:
Capital expenditures................................... (16) (20) (32)
Proceeds from sales of assets.......................... 4 9 5
Proceeds from sales of divested assets................. 182 48 --
Acquisition of business................................ -- -- (195)
------- ------- -----
Net cash provided by (used in) investing
activities........................................ 170 37 (222)
------- ------- -----
Financing activities:
Short-term borrowings.................................. 1,276 1,137 300
Payment on short-term borrowings....................... (1,354) (1,098) (382)
Proceeds from long-term borrowings..................... -- 582 176
Principal payments on long-term debt................... (108) (407) (2)
Deferred debt issuance costs........................... (2) (26) (7)
Prepayment penalty..................................... (5) (20) --
Payments to previous shareholders for cancellation of
stock................................................ -- (422) --
Issuance of common and preferred stock................. -- 161 42
Specific Proceeds Collateral Account................... (30) 30 --
Other.................................................. (1) -- --
------- ------- -----
Net cash provided by (used in) financing
activities........................................ (224) (63) 127
------- ------- -----
Effect of exchange rate changes on cash and cash
equivalents............................................... (8) -- --
------- ------- -----
Net change in cash and cash equivalents.............. (2) (1) 2
Cash and cash equivalents at beginning of period............ 8 6 5
------- ------- -----
Cash and cash equivalents at end of period........... $ 6 $ 5 $ 7
======= ======= =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 94
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Business: Del Monte Foods Company ("DMFC") and its wholly-owned subsidiary,
Del Monte Corporation ("DMC"), (DMFC together with DMC, "the Company") operates
in one business segment: the manufacturing and marketing of processed foods,
primarily canned vegetables, fruit and tomato products. The Company primarily
sells its products under the Del Monte brand to a variety of food retailers,
supermarkets and mass merchandising stores. The Company holds the rights to the
Del Monte brand in the United States.
During fiscal 1998, the Company acquired certain of Contadina's canned
processed tomato product lines from Nestle USA, Inc. and Contadina Services,
Inc. (see Note B). Contadina operates in one business segment which manufactures
and markets branded, private label, industrial and foodservice processed tomato
products from manufacturing facilities in Hanford, California and Woodland,
California. Contadina's products are distributed throughout the United States.
The acquisition was accounted for using the purchase method of accounting.
Basis of Accounting: Pursuant to the Agreement and Plan of Merger, dated
February 21, 1997, and amended and restated as of April 14, 1997 (the "Merger
Agreement"), entered into among TPG Partners, L.P., a Delaware partnership
("TPG"), TPG Shield Acquisition Corporation, a Maryland corporation ("Shield"),
and DMFC, Shield merged with and into DMFC (the "Merger"), with DMFC being the
surviving corporation. By virtue of the Merger, shares of DMFC's preferred stock
having an implied value of approximately $14 held by certain of DMFC's
stockholders, who remained investors, were canceled and were converted into the
right to receive common stock of the surviving corporation. All other shares of
DMFC stock were canceled and were converted into the right to receive cash
consideration as set forth in the Merger Agreement. In the Merger, the common
stock and preferred stock of Shield was converted into shares of new DMFC common
stock and preferred stock, respectively. The Merger was accounted for as a
leveraged recapitalization for accounting purposes (the "Recapitalization");
accordingly, all assets and liabilities continue to be stated at historical
cost.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates: Certain amounts reported in the consolidated financial
statements are based on management estimates. The ultimate resolution of these
items may differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. The
carrying amount reported in the balance sheet for cash and cash equivalents
approximates its fair value.
Inventories: Inventories are stated at the lower of cost or market. The
cost of substantially all inventories is determined using the LIFO method. The
Company has established various LIFO pools that have measurement dates
coinciding with the natural business cycles of the Company's major inventory
items.
Inflation has had a minimal impact on production costs since the Company
adopted the LIFO method as of July 1, 1991. Accordingly, there is no significant
difference between LIFO inventory costs and current costs.
Property, Plant and Equipment and Depreciation: Property, plant and
equipment are stated at cost and depreciated over their estimated useful lives,
principally by the straight-line method. Maintenance and repairs are expensed as
incurred. Significant expenditures that increase useful lives are capitalized.
The principal estimated useful lives are: land improvements -- 10 to 30
years; building and leasehold improvements -- 10 to 30 years; machinery and
equipment -- 7 to 15 years. Depreciation of plant and
F-7
<PAGE> 95
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
equipment and leasehold amortization was $26, $24 and $32 for the years ended
June 30, 1996, 1997 and 1998.
Intangibles: Intangibles consists of tradenames and trademarks, and are
carried at cost less accumulated amortization which is calculated on a
straight-line basis over the estimated useful life of the asset, not to exceed
40 years.
Revenue Recognition: Revenue from sales of product, and related cost of
products sold, is recognized upon shipment of product at which time title passes
to the customer. Customers generally do not have the right to return product
unless damaged or defective.
Cost of Products Sold: Cost of products sold includes raw material, labor
and overhead.
Advertising Expenses: The Company expenses all costs associated with
advertising as incurred or when the advertising first takes place. Advertising
expense was $5, $6 and $2 for the years ended June 30, 1996, 1997 and 1998,
respectively.
Research and Development: Research and development costs are included as a
component of "Selling, administrative and general expense." Research and
development costs charged to operations were $6, $5 and $5 for the years ended
June 30, 1996, 1997 and 1998, respectively.
Interest Rate Contracts: To manage interest rate exposure, the Company uses
interest-rate swap agreements. These agreements involve the receipt of fixed
rate amounts in exchange for floating rate interest payments over the life of
the agreement without an exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets.
Foreign Currency Translation: For the Company's operations in countries
where the functional currency is other than the U.S. dollar, revenue and expense
accounts were translated at the average rates during the period.
Fair Value of Financial Instruments: The carrying amount of certain of the
Company's financial instruments, including accounts receivable, accounts
payable, and accrued expenses, approximates fair value due to the relatively
short maturity of such instruments.
The carrying amounts of the Company's borrowings under its short-term
revolving credit agreement and long-term debt instruments, excluding the senior
subordinated notes and the senior discount notes, approximate their fair value.
At June 30, 1998, the fair value of the senior subordinated notes was $168 and
of the senior discount notes was $147, as estimated based on quoted market
prices from dealers.
The fair value of the interest rate swap agreements at June 30, 1998 was
$(3). The fair value of interest rate swap agreements are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
credit worthiness of the counterparties.
Stock Option Plan: The Company accounts for its stock-based employee
compensation for stock options using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Accordingly, compensation cost is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the price the employee must pay to acquire the stock.
Net Income (Loss) per Common Share: The Company has adopted the provisions
of Statement of Financial Accounting Standards No. 128. Net income (loss) per
common share is computed by dividing net
F-8
<PAGE> 96
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
income (loss) attributable to common shares by the weighted average number of
common and redeemable common shares outstanding during the period (Note F). Net
income (loss) attributable to common shares is computed as net income (loss)
reduced by the cash and in-kind dividends for the period on redeemable preferred
stock.
Change in Accounting Principle: Effective July 1, 1995, the Company adopted
the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The statement requires that assets
held and used, including intangibles, be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company has identified certain events as possible
indicators that an asset's carrying value may not be recoverable, including the
elimination of or a significant reduction in a product line. Future cash flows
will be estimated based on current levels of production, market sales price and
operating costs adjusted for expected trends. The statement also requires that
all long-lived assets, for which management has committed to a plan to dispose,
be reported at the lower of carrying amount or fair value. During fiscal 1996, a
review of assets to be disposed of resulted in identification of certain assets
(farm lands and plants no longer in use) whose carrying value exceeded their
present fair value, and a loss of $7 was recorded. The Company does not
depreciate long-lived assets held for sale.
NOTE B -- ACQUISITIONS
On December 19, 1997, the Company acquired the Contadina canned tomato
business, including the Contadina trademark worldwide, capital assets and
inventory (the "Contadina Acquisition") from Nestle USA, Inc. ("Nestle") and
Contadina Services, Inc. for a total purchase price of $197, comprised of a base
price of $177 and an estimated net working capital adjustment of $20. The
consideration was paid solely in cash. The purchase price was subject to
adjustment based on the final calculation of net working capital as of the
closing date. Nestle provided its calculation of the net working capital which
resulted in a payment to the Company of $2, and therefore a reduction in the
purchase price to a total of $195. The Contadina Acquisition also included the
assumption of certain liabilities of approximately $5, consisting primarily of
liabilities in respect of reusable packaging materials and vacation accruals. In
connection with the Contadina Acquisition, approximately $7 of
acquisition-related expenses were incurred.
The acquisition was accounted for using the purchase method of accounting.
The allocation of purchase price to the assets acquired and liabilities assumed
has been made using estimated fair values which include values based on
independent appraisals and management estimates. These estimates may be adjusted
to actual amounts; however, any resulting adjustment is not expected to be
material. The allocation of the $195 purchase price is as follows: inventory
$93, prepaid expenses $5, property, plant and equipment $85, intangibles $16 and
accrued liabilities $4.
F-9
<PAGE> 97
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Results of operations of the Contadina Acquisition are included in the
Consolidated Statement of Operations for June 30, 1998 since the acquisition
date. The following unaudited pro forma information has been prepared assuming
the Contadina Acquisition had taken place on July 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Net sales.................................................. $1,377 $1,405
Operating income........................................... 61 80
Net loss before extraordinary item......................... (48) (9)
Net loss................................................... $ (90) $ (9)
====== ======
Net loss attributable to common stockholders............... $ (160) $ (14)
====== ======
Loss per share............................................. $(2.51) $(0.41)
====== ======
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to represent what the Company's results of operations
actually would have been if the Contadina Acquisition had occurred as of the
date indicated.
NOTE C -- DIVESTED ASSETS
Del Monte Latin America. On August 27, 1996, the Company signed a stock
purchase agreement to sell its Latin America subsidiaries to an affiliate of
Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"). This agreement was
amended and restated on October 25, 1996 for the sale of only the Company's
Mexican subsidiary, Productos Del Monte, S.A. de C.V. ("PDM") to an affiliate of
Hicks Muse for $38 which was completed on October 28, 1996. The sale of the
Central America and Caribbean subsidiaries to an affiliate of Donald W.
Dickerson, Inc. for $12 was completed on November 13, 1996. The combined
proceeds of both sales of $50, reduced by $2 of related transaction expenses,
resulted in a loss of $5.
The following results of the Latin American operations are included in the
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Net sales................................................... $55 $17
Costs and expenses.......................................... 50 17
--- ---
Income from operations before income taxes.................. 5 --
Provision for income taxes.................................. 1 --
--- ---
Income from Latin American operations....................... $ 4 $--
=== ===
</TABLE>
Del Monte Philippines. On March 29, 1996, the Company entered into a
repurchase agreement to sell its 50.1% interest in Del Monte Philippines (a
joint venture operating primarily in the Philippines) and also executed a supply
agreement, for total proceeds of $100 (net of $2 of related transaction
expenses) which were paid solely in cash. Under the terms of the supply
agreement, the Company must source substantially all of its pineapple
requirements from Del Monte Philippines over the eight-year term of the
agreement (Note K).
F-10
<PAGE> 98
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The following results of the Del Monte Philippines operations are included
in the Consolidated Statement of Operations for the year ended June 30, 1996:
<TABLE>
<S> <C>
Net sales................................................... $102
Costs and expenses.......................................... 97
----
Income from operations before income taxes.................. 5
Provision for income taxes.................................. 2
----
Income from operations...................................... $ 3
====
</TABLE>
All of the net proceeds from the sale of Del Monte Philippines were
temporarily applied to the revolving credit facility. In April 1996, $13 of
Senior Secured Notes were prepaid along with a $1 prepayment premium recorded as
an extraordinary loss. In addition, $30 was placed in the Specific Proceeds
Collateral Account until final agreement was reached with the Term Loan lenders
as to the application of funds. These funds were used in the September 1996
exchange offer.
Pudding Business. On November 27, 1995, the Company sold its pudding
business, including the capital assets and inventory on hand, to Kraft Foods,
Inc. for $89, net of $4 of related transaction expenses. The sale resulted in
the recognition of a $71 gain, reduced by $2 of taxes.
For the year ended June 30, 1996, net sales of $15, costs and expenses of
$11 and income from operations of $4 resulting from the pudding business are
included in the Consolidated Statement of Operations.
The net proceeds received from the pudding business sale were used to
prepay $54 of the term debt and $25 of the Senior Secured Notes. In conjunction
with the prepayment, the Company recorded an extraordinary loss for the early
retirement of debt. The extraordinary loss consists of a $4 prepayment premium
and a $5 write-off of capitalized debt issue costs related to the early
retirement of debt.
NOTE D -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1998
---------- ----
(RESTATED)
<S> <C> <C>
Trade accounts receivable:
Trade..................................................... $ 68 $109
Allowance for doubtful accounts........................... (1) (1)
---- ----
Total trade accounts receivable................... $ 67 $108
==== ====
Inventories:
Finished product.......................................... $239 $237
Raw materials and supplies................................ 13 19
Other, principally packaging material..................... 87 110
---- ----
Total inventories................................. $339 $366
==== ====
Property, plant and equipment:
Land and land improvements................................ $ 37 $ 42
Buildings and leasehold improvements...................... 93 107
Machinery and equipment................................... 233 307
Construction in progress.................................. 10 24
---- ----
373 480
Accumulated depreciation.................................. (151) (175)
---- ----
Property, plant and equipment, net..................... $222 $305
==== ====
</TABLE>
F-11
<PAGE> 99
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1998
---------- ----
(RESTATED)
<S> <C> <C>
Intangible assets:
Trademark................................................. $ -- $ 16
Accumulated amortization.................................. -- --
---- ----
Intangible assets, net................................. $ -- $ 16
==== ====
Other assets:
Deferred debt issue costs................................. $ 19 $ 26
Other..................................................... 4 --
---- ----
23 26
Accumulated amortization.................................. -- (3)
---- ----
Total other assets................................ $ 23 $ 23
==== ====
Accounts payable and accrued expenses:
Accounts payable -- trade................................. $ 79 $ 99
Marketing and advertising................................. 59 80
Payroll and employee benefits............................. 17 18
Current portion of accrued pension liability.............. 12 9
Current portion of other noncurrent liabilities........... 19 12
Other..................................................... 34 41
---- ----
Total accounts payable and accrued expenses....... $220 $259
==== ====
Other noncurrent liabilities:
Accrued postretirement benefits........................... $145 $144
Accrued pension liability................................. 26 16
Self-insurance liabilities................................ 15 8
Other..................................................... 17 26
---- ----
Total other noncurrent liabilities................ $203 $194
==== ====
</TABLE>
NOTE E -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings under the revolving credit agreement were $82 at June
30, 1997 and zero at June 30, 1998. Unused amounts under the revolving credit
agreement at June 30, 1997 and 1998 totaled $242 and $327, respectively.
In conjunction with the Contadina Acquisition, the Company issued $230 of
12 1/2% senior discount notes ("DMFC Notes" ) and received proceeds of $126. The
DMFC Notes accrue interest on each June 15 and December 15, which will be
accreted through December 15, 2002, after which time interest is to be paid in
cash until maturity. The DMFC Notes mature on December 15, 2007. These DMFC
Notes are redeemable in whole or in part at the option of the Company on or
after December 15, 2002 at a price that initially is 106.250% of par and that
decreases to par, if redeemed, on December 15, 2005 or thereafter. On or prior
to December 15, 2000, the Company may, at its option, redeem up to 35% of the
aggregate principal amount at maturity of the DMFC Notes with the net cash
proceeds of one or more public equity offerings, at a redemption price of
112.50% of the accreted value to the date of redemption. The DMFC Notes were
issued with registration rights requiring the Company (i) to file, within 75
days of the consummation of the Contadina Acquisition, a registration statement
under the Securities Act of 1933, as amended, to exchange the DMFC Notes for new
registered notes with terms substantially identical to the Initial Notes and,
(ii) to use its best efforts to effect that registration within 150 days after
the consummation of the Contadina Acquisition. A registration statement was
filed to this effect on March 4, 1998 with an amended statement filed on July
10, 1998. Until the registration statement is declared effective, the Company
will be required to pay an additional
F-12
<PAGE> 100
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
.5% interest on the accreted value of the DMFC Notes. In connection with the
financing related to the Contadina Acquisition, $7 of deferred debt issuance
costs were capitalized.
On April 18, 1997, the Company completed a recapitalization transaction in
which $301 of proceeds from the transaction were used to repay the outstanding
balances of the then-existing $400 revolving credit facility, term loan, and
Senior Subordinated Guaranteed Pay-in-Kind Notes. Concurrent with the
Recapitalization, the Company entered into a credit agreement with respect to
the Term Loan Facility (the "Term Loan") and the Revolving Credit Facility (the
"Revolver"). The Term Loan provides for term loans in the aggregate amount of
$380, consisting of Term Loan A of $200 and Term Loan B of $180. The Revolver
provides for revolving loans in an aggregate amount of up to $350, including a
$70 Letter of Credit subfacility. The Revolving Credit Facility will expire in
fiscal 2003, Term Loan A will mature in fiscal 2003, and Term Loan B will mature
in fiscal 2005. In connection with the Contadina Acquisition, the Company
amended its bank financing agreements and related debt covenants to permit
additional funding under the existing Term B loan which was drawn in an amount
of $50. Amortization of the additional Term B loan amount is incremental to the
scheduled amortization of the existing Term B loan. Such additional amortization
will begin on a quarterly basis in the second quarter of fiscal 1999.
In connection with the Recapitalization, the Company incurred expenses
totaling $85 of which $25 were included in selling, advertising, administrative
and general expense, $22 were charged to other expense and $38 were accounted
for as an extraordinary loss. The extraordinary loss consisted of previously
capitalized debt issue costs of approximately $19 and a 1996 PIK Note premium
and a term loan make-whole aggregating $19. In addition, in conjunction with the
Bank Financing, $19 of debt issue costs were capitalized. Deferred debt issuance
costs are amortized on a straight-line basis over the life of the related debt
issuance.
The interest rates applicable to amounts outstanding under Term Loan A and
the Revolving Credit Facility are, at the Company's option, either (i) the base
rate (the higher of 0.50% above the Federal Funds Rate or the bank's reference
rate) plus 1.00% or (ii) the reserve adjusted offshore rate plus 2.00% (7.625%
at June 30, 1998). Interest rates on Term Loan B are, at the Company's option,
either (i) the base rate plus 2.00% or (ii) the offshore rate plus 3.00% (8.625%
at June 30, 1998).
The Company is required to pay the lenders under the Revolving Credit
Facility a commitment fee of 0.425% on the unused portion of such facility. The
Company is also required to pay the lenders under the Revolving Credit Facility
letter of credit fees of 1.50% per year for commercial letters of credit and
2.00% per year for all other letters of credit, as well as an additional fee in
the amount of 0.25% per year to the bank issuing such letters of credit. At June
30, 1998, a balance of $23 was outstanding on these letters of credit.
In addition, on April 18, 1997, the Company issued senior subordinated
notes (the "DMC Notes") with an aggregate principal amount of $150 and received
gross proceeds of $147. The DMC Notes accrue interest at 12.25% per year,
payable semiannually in cash on each April 15 and October 15. The DMC Notes are
guaranteed by DMFC and mature on April 15, 2007. The DMC Notes are redeemable at
the option of the Company on or after April 15, 2002 at a premium to par that
initially is 106.313% and that decreases to par on April 15, 2006 and
thereafter. On or prior to April 15, 2000, the Company, at its option, may
redeem up to 35% of the aggregate principal amount of notes originally issued
with the net cash proceeds of one or more public equity offerings at a
redemption price equal to 112.625% of the principal amount thereof, plus accrued
and unpaid interest to the date of redemption; provided that at least 65% of the
aggregate principal amount of notes originally issued remains outstanding
immediately after any such redemption.
F-13
<PAGE> 101
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------
1997 1998
---- ----
<S> <C> <C>
Term Loan................................................... $380 $429
Senior Subordinated Notes................................... 147 147
Senior Discount Notes....................................... -- 133
Other....................................................... 1 --
---- ----
528 709
Less current portion........................................ 2 32
---- ----
$526 $677
==== ====
</TABLE>
At June 30, 1998, scheduled maturities of long-term debt in each of the
next five fiscal years and thereafter will be as follows:
<TABLE>
<S> <C>
1999........................................................ $ 32
2000........................................................ 37
2001........................................................ 42
2002........................................................ 47
2003........................................................ 53
Thereafter.................................................. 598
----
809
Less discount on notes...................................... 100
----
$709
====
</TABLE>
The Term Loan and Revolver are collateralized by security interests in
certain of the Company's assets. At June 30, 1998, assets totaling $808 were
pledged as collateral for approximately $429 of short-term borrowings and
long-term debt.
The DMC Notes, DMFC Notes, Term Loan and Revolver (collectively "the Debt")
agreements contain restrictive covenants with which the Company must comply.
These restrictive covenants, in some circumstances, limit the incurrence of
additional indebtedness, payment of dividends, transactions with affiliates,
asset sales, mergers, acquisitions, prepayment of other indebtedness, liens and
encumbrances. In addition, the Company is required to meet certain financial
tests, including minimum levels of consolidated EBITDA (as defined in the credit
agreement), minimum fixed charge coverage, minimum adjusted net worth and
maximum leverage ratios. The Company is in compliance with all of the Debt
covenants at June 30, 1998.
The Company made cash interest payments of $30, $24 and $71 for the years
ended June 30, 1996, 1997 and 1998, respectively.
As required by the Company's Debt agreements, the Company has entered into
interest-rate swap agreements which effectively converts $235 notional principal
amount of floating rate debt to a fixed-rate basis for a three-year period
beginning May 22, 1997, thus reducing the impact of interest-rate changes on
future income. The Company paid a fixed rate of 6.375% and received a weighted
average rate of 5.75%. The incremental effect on interest expense for the year
ended June 30, 1998 was approximately $1. The agreements also include a
provision establishing the rate the Company will pay as 7.50% if the three-month
LIBOR rate sets at or above 7.50% during the term of the agreements. The Company
will continue paying 7.50% until the three-month LIBOR again sets below 7.50% at
which time the fixed rate of 6.375% will again become effective. The Company is
exposed to credit loss in the event of nonperformance by the other parties to
the
F-14
<PAGE> 102
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
interest rate swap agreements. However, the Company does not anticipate
nonperformance by the counterparties.
NOTE F -- STOCKHOLDERS' EQUITY AND REDEEMABLE STOCK
On February 21, 1997, Del Monte Foods Company entered into a
recapitalization agreement and plan of merger, which was amended and restated as
of April 14, 1997, with affiliates of Texas Pacific Group. Under this agreement,
Shield, a corporation affiliated with TPG, was to be merged with and into DMFC,
with DMFC being the surviving corporation. The Merger became effective on April
18, 1997. By virtue of the Merger, shares of DMFC's outstanding preferred stock
having a value implied by the Merger consideration of approximately $14, held by
certain of DMFC's pre-recapitalization stockholders who remained investors
pursuant to the Recapitalization, were canceled, and were converted into the
right to receive new DMFC common stock. All other shares of DMFC stock were
canceled and were converted into the right to receive cash consideration, as set
forth in the Merger Agreement. In the Merger, the common and preferred stock of
Shield were converted into new shares of common stock and preferred stock,
respectively, of DMFC.
Immediately following the consummation of the Recapitalization, the charter
of DMFC authorized DMFC to issue capital stock consisting of 191,542,000 shares
of new common stock (the "Common Stock"), $.01 par value, and 1,000,000 shares
of new preferred stock (the "Preferred Stock"), $.01 par value. The Company
issued and had outstanding 26,815,880 shares of Common Stock, and 35,000 shares
of Preferred Stock. TPG and certain of its affiliates or partners held
20,925,580 shares of DMFC's Common Stock, continuing shareholders of DMFC held
2,729,857 shares of such stock, and other investors held 3,160,443 shares. TPG
and certain of its affiliates held 17,500 outstanding shares of Series A
Preferred Stock, and TCW Capital Investment Corporation held 17,500 outstanding
shares of Series B Preferred Stock.
The Preferred Stock accumulates dividends at the annual rate of 14% of the
liquidation value, payable quarterly. These dividends are payable in cash or
additional shares of Preferred Stock, at the option of the Company, subject to
availability of funds and the terms of its loan agreements, or through a
corresponding increase in the liquidation value of such stock. The Preferred
Stock had an initial liquidation preference of $1,000 per share and may be
redeemed at the option of the Company at a redemption price equal to the
liquidation preference plus accumulated and unpaid dividends (the "Redemption
Price"). The Company is required to redeem all outstanding shares of Preferred
Stock on or prior to April 17, 2008 at the Redemption Price, or upon a change of
control of the Company at 101% of the Redemption Price. The initial purchasers
of Preferred Stock for consideration of $35 received 35,000 shares of Preferred
Stock and warrants to purchase, at a nominal exercise price, shares of DMFC
Common Stock representing 2% of the then-outstanding shares of DMFC Common
Stock. A value of $3 was placed on the warrants, and such amount is reflected as
paid-in-capital within stockholders' equity. The remaining $32 was reflected as
redeemable preferred stock. Effective May 1, 1998, all 547,262 warrants were
exercised with a resulting 547,262 shares of common stock issued to the holders
of the warrants.
The two series of preferred stock had no voting rights except the right to
elect one director to the Board for each series, resulting in the authorized
number of directors to be increased, in cases where dividends are in arrears for
six quarters or shares have not been redeemed within ten days of a redemption
date.
On October 13, 1997, the Company authorized a new series of cumulative
redeemable preferred stock, Series C, and authorized issuance of shares of such
new series of preferred stock in exchange for all of the issued and outstanding
shares of cumulative redeemable preferred stock, Series A and B, held by
preferred stock shareholders. The Series A and Series B preferred stock were
retired upon completion of this exchange.
The terms of the Series C preferred stock are substantially identical to
those of the Series A and B stock with the exception of a call premium and right
of holders to require redemption upon a change in control. The
F-15
<PAGE> 103
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Series C preferred stock will be redeemable at the option of the Company at a
redemption price ranging from 103% of the liquidation preference, if redeemed
prior to October 1998, to 100% of the liquidation preference, if redeemed after
October 2000. The Series A and B preferred stock was redeemable by the Company
at par. In the event of a change of control of the Company, the holders of the
Series C preferred stock will have the right to require the Company to
repurchase shares of such stock at 101% of the liquidation preference. Under the
terms of the Series A and B preferred stock, shares of such stock were
mandatorily redeemable (i.e., the holder did not have the option of continuing
to hold such shares) at 101% of the liquidation preference. On January 16, 1998,
TPG and certain of its affiliates sold approximately 93% of their preferred
stock holdings to unaffiliated investors.
Dividends paid on redeemable preferred stock were $1 for the year ended
June 30, 1997 and $5 for the year ended June 30, 1998 consisting of $1 of
additional shares issued and $4 of accretion.
For the years ended June 30, 1996 and 1997, the Company declared dividends
for the following series of then-outstanding redeemable preferred stock:
<TABLE>
<CAPTION>
DIVIDEND RATE
PER SHARE
YEAR ENDED
JUNE 30,
--------------
SERIES 1996 1997
------ ----- -----
<S> <C> <C>
A1................................................... $3.81 $1.92
B.................................................... $3.87 $1.95
D.................................................... $3.94 $1.98
E.................................................... $3.94 $1.98
</TABLE>
These dividends were paid in like-kind redeemable preferred stock at the
rate of .04 shares for each $.001 dividend declared. Resulting issuance of
additional shares and related par values were:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Additional shares........................... 1,824,999 1,027,406
Total par value................... $ 0.018 $ 0.010
</TABLE>
In the Recapitalization, all of the redeemable preferred stock issued prior
to April 18, 1997 was either canceled and converted into the right to receive
new DMFC common stock or canceled and converted into the right to receive cash
consideration as set forth in the Merger Agreement.
F-16
<PAGE> 104
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE G -- EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Numerator:
Income (loss) per common share before extraordinary
item and cumulative effect of accounting change.... $ 121 $ (16) $ 5
Preferred stock dividends............................. (82) (70) (5)
------ ------ -----
Numerator for basic earnings (loss) per
share -- income (loss) attributable to common
shares before extraordinary items and cumulative
effect of accounting change........................ $ 39 $ (86) $ --
====== ====== =====
Denominator:
Denominator for basic earnings per share -- weighted
average shares..................................... 75,047,353 61,703,436 31,619,642
Basic income (loss) per common share before
extraordinary item and cumulative effect of accounting
change................................................ $ 0.52 $(1.40) $0.01
Extraordinary loss...................................... $ 10 $ 42 $ --
Extraordinary loss per common share..................... $(0.14) $(0.67) $ --
Cumulative effect of accounting change.................. $ 7 $ -- $ --
Cumulative effect of accounting change per common
share................................................. $(0.09) $ -- $ --
DILUTED EARNINGS PER SHARE
Numerator:
Income (loss) per common share before extraordinary
item and cumulative effect of accounting change.... $ 121 $ (16) $ 5
Preferred stock dividends............................. (82) (70) (5)
------ ------ -----
Numerator for diluted earnings (loss) per
share -- income (loss) attributable to common
shares before extraordinary items and cumulative
effect of accounting change........................ $ 39 $ (86) $ --
====== ====== =====
Denominator:
Denominator for diluted earnings per share -- weighted
average shares..................................... 75,047,353 61,840,245 32,355,131
Diluted income (loss) per common share before
extraordinary item and cumulative effect of accounting
change................................................ $ 0.52 $(1.40) $0.01
Extraordinary loss...................................... $ 10 $ 42 $ --
Extraordinary loss per common share..................... $(0.14) $(0.67) $ --
Cumulative effect of accounting change.................. $7 $ -- $ --
Cumulative effect of accounting change per common
share................................................. $(0.09) $ -- $ --
</TABLE>
NOTE H -- EMPLOYEE STOCK PLANS
STOCK OPTION INCENTIVE PLAN
On August 4, 1997, the Company adopted the 1997 Stock Incentive Plan
(amended November 4, 1997) which allows the granting of options to certain key
employees. Options may be granted to participants for up to 1,784,980 shares of
the Company's common stock. Options may be granted as incentive stock options or
as non-qualified options for purposes of the Internal Revenue Code. Options
terminate ten years from the date of
F-17
<PAGE> 105
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
grant. Two different vesting schedules have been approved under the 1997 Stock
Incentive plan. Under the plan, 1,736,520 options were granted. The first
provides for annual vesting on a proportionate basis over five years and the
second provides for monthly vesting on a proportionate basis over four years. In
addition, on February 24, 1998, the Company adopted the Del Monte Foods Company
Non Employee Director and Independent Contractor 1997 Stock Option Plan. Under
the plan, 148,828 options were granted. Options terminate 10 years from the date
of grant and vest monthly on a proportionate basis over four years.
The Del Monte Foods Company 1998 Stock Incentive Plan (the "1998 Stock
Incentive Plan") was approved in final form on May 29, 1998. Under the 1998
Stock Incentive Plan, grants of incentive and nonqualified stock options
("Options"), stock appreciation rights ("SARs") and stock bonuses (together with
Options and SARs, "Awards") representing 3,195,687 shares of Common Stock may be
made to key employees of the Company. The term of any Option or SAR is not to be
more than ten years from the date of its grant. At June 30, 1998, no Awards have
been made under the 1998 Stock Incentive Plan.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE EXERCISE
OPTION SHARES PRICE PER SHARE NUMBER OF SHARES
------------- ------------------------- ----------------
<S> <C> <C>
Outstanding at July 1, 1997............. -- --
Granted................................. $ 5.22 1,885,348
Canceled................................ 5.22 46,353
Exercised............................... -- --
Outstanding at June 30, 1998............ 5.22 1,838,995
Exercisable at June 30, 1998............ 5.22 452,422
Available for grant at June 30, 1998.... 13.31 3,195,687
</TABLE>
The weighted-average remaining contractual life for the above options is
8.8 years.
The Company accounts for its stock option plans using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations, under which no
compensation cost for stock options is recognized for stock option awards
granted at or above fair market value.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock Issued to Employees"
("SFAS 123"), and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option-pricing model with the following weighted average assumptions: dividend
yield of 0%, expected volatility of 0; risk-free interest rates of 5.74%; and
expected lives of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The weighted
average fair value per share of options granted during the year was $2.78.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information as calculated in accordance with SFAS 123, results in pro
forma net income of $5 and a pro forma loss per common share of $(0.01) for the
year ended June 30, 1998.
F-18
<PAGE> 106
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
STOCK PURCHASE PLAN
Effective August 4, 1997, the Del Monte Foods Company Employee Stock
Purchase Plan was established under which certain key employees are eligible to
participate. A total of 957,710 shares of common stock of the Company are
reserved for issuance under the Employee Stock Purchase Plan, At June 30, 1998,
454,146 shares of the Company's common stock have been purchased by and issued
to eligible employees. It is anticipated that no future shares will be issued
pursuant to this plan.
Total compensation expense recognized in connection with stock-based awards
for the year ended June 30, 1998 was $2.
NOTE I -- RETIREMENT BENEFITS
The Company sponsors three non-contributory defined benefit pension plans
covering substantially all full-time employees. Plans covering most hourly
employees provide pension benefits that are based on the employee's length of
service and final average compensation before retirement. Plans covering
salaried employees provide for individual accounts which offer lump sum or
annuity payment options, with benefits based on accumulated compensation and
interest credits made monthly throughout the career of each participant. Assets
of the plans consist primarily of equity securities and corporate and government
bonds.
It has been the Company's policy to fund the Company's retirement plans in
an amount consistent with the funding requirements of federal law and
regulations and not to exceed an amount that would be deductible for federal
income tax purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those benefits expected to be earned
in the future. Del Monte's defined benefit retirement plans were determined to
be underfunded under federal ERISA guidelines. In connection with the
Recapitalization, the Company entered into an agreement with the U.S. Pension
Benefit Guaranty Corporation dated April 7, 1997 whereby the Company will
contribute a total of $55 to its defined benefit pension plans through calendar
2001, with $15 contributed within 30 days after the consummation of the
Recapitalization. The contributions to be made in 1999, 2000 and 2001 will be
secured by a $20 letter of credit to be obtained by the Company by August 31,
1998.
The following table sets forth the pension plans' funding status and
amounts recognized on the Company's balance sheet:
<TABLE>
<CAPTION>
JUNE 30,
--------------
1997 1998
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(269) $(277)
===== =====
Accumulated benefit obligation.............................. $(274) $(286)
===== =====
Projected benefit obligation for services rendered to
date...................................................... $(279) $(292)
Plan assets at fair value................................... 276 299
----- -----
Plan assets in excess of (less than) projected benefit
obligation................................................ (3) 7
Unrecognized net actuarial gain............................. (34) (31)
Unrecognized prior service income........................... (1) (1)
----- -----
Accrued pension cost recognized in the consolidated balance
sheet..................................................... $ (38) $ (25)
===== =====
</TABLE>
F-19
<PAGE> 107
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The components of net periodic pension cost for all defined benefit plans
are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during period.............. $ 4 $ 3 $ 3
Interest cost on projected benefit obligation............... 21 21 21
Actual return on plan assets................................ (32) (35) (35)
Net amortization and deferral............................... 11 13 10
---- ---- ----
Net periodic pension cost................................... $ 4 $ 2 $ (1)
==== ==== ====
</TABLE>
Significant rate assumptions used in determining net periodic pension cost
and related pension obligations are as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate used in determining projected benefit
obligation................................................ 8.0% 7.75% 7.0%
Rate of increase in compensation levels..................... 5.0 5.0 5.0
Long-term rate of return on assets.......................... 9.0 9.0 9.0
</TABLE>
In addition, the Company participates in several multi-employer pension
plans which provide defined benefits to certain of its union employees. The
contributions to multi-employer plans for the year ended June 30, 1998 was $6.
The Company also sponsors defined contribution plans covering substantially all
employees. Company contributions to the plans are based on employee
contributions or compensation. Contributions under such plans totaled $1 for the
year ended June 30, 1998.
The Company sponsors several unfunded defined benefit postretirement plans
providing certain medical, dental and life insurance benefits to eligible
retired, salaried, non-union hourly and union employees. Benefits, eligibility
and cost-sharing provisions vary by plan and employee group.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $ 2 $ 1 $ 1
Interest cost............................................... 9 9 8
Amortization of prior service cost.......................... -- (1) (1)
Amortization of actuarial losses (gains).................... (3) (3) (3)
Curtailment gain............................................ (4) -- --
--- --- ---
Net periodic postretirement benefit cost.................... $ 4 $ 6 $ 5
=== === ===
</TABLE>
F-20
<PAGE> 108
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The Company amortizes unrecognized gains and losses at the end of the
fiscal year over the expected remaining service of active employees. The
following table sets forth the plans' combined status reconciled with the amount
included in the consolidated balance sheet:
<TABLE>
<CAPTION>
JUNE 30,
-----------
1997 1998
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees.......................................... $ 80 $ 83
Fully eligible active plan participants................... 11 7
Other active plan participants............................ 13 18
---- ----
104 108
Unrecognized prior service cost........................... 10 8
Unrecognized gain......................................... 38 35
---- ----
Accrued postretirement benefit cost....................... $152 $151
==== ====
</TABLE>
For the years ended June 30, 1997 and 1998, the weighted average annual
assumed rate of increase in the health care cost trend is 11.5%, and is assumed
to decrease gradually to 6.0% in the year 2004. The health care cost trend rate
assumption has a significant effect on the amounts reported. An increase in the
assumed health care cost trend by 1% in each year would increase the accumulated
postretirement benefit obligation as of June 30, 1998 by $12 and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost for the period then ended by $1.
The discount rate used in determining the accumulated postretirement
benefit obligation as of June 30, 1997 and 1998 was 7.75% and 7.00%,
respectively.
NOTE J - PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1997 1998
---------- ---------- ----
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Income before minority interest and taxes:
Domestic............................................ $106 $(58) $6
Foreign............................................. 12 1 --
---- ---- --
$118 $(57) $6
==== ==== ==
Income tax provision (benefit)
Current:
Federal........................................... $ 5 $ -- $1
State............................................. 6 -- --
---- ---- --
Total current.................................. 11 -- 1
---- ---- --
Deferred:
Federal........................................... -- -- --
State............................................. -- -- --
---- ---- --
Total deferred................................. -- -- --
---- ---- --
$ 11 $ -- $1
==== ==== ==
</TABLE>
F-21
<PAGE> 109
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997 1998
---------- -----
(RESTATED)
<S> <C> <C>
Deferred tax assets:
Post employment benefits.................................. $ 53 $ 53
Pension expense........................................... 16 12
Purchase accounting....................................... -- 7
Workers' compensation..................................... 8 4
Leases and patents........................................ 4 3
Interest.................................................. -- 3
State income taxes........................................ 14 11
Other..................................................... 24 17
Net operating loss and tax credit carry forward........... 33 31
----- -----
Gross deferred tax assets.............................. 152 141
Valuation allowance.................................... (122) (112)
----- -----
Net deferred tax assets................................ 30 29
Deferred tax liabilities:
Depreciation.............................................. 30 26
Intangible................................................ -- 3
----- -----
Gross deferred liabilities............................. 30 29
----- -----
Net deferred tax asset................................. $ -- $ --
===== =====
</TABLE>
The net change in the valuation allowance for the years ended June 30, 1997
and 1998 was an increase of $30 and a decrease of $10, respectively. The Company
believes that based on a history of tax losses and related absence of
recoverable prior taxes through net operating loss carryback, it is more likely
than not that the net operating losses and the net deferred tax assets will not
be realized. Therefore, a full valuation allowance in the amount of $112 has
been recorded.
The differences between the provision for income taxes and income taxes
computed at the statutory U.S. federal income tax rates are explained as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Income taxes (benefit) computed at the statutory U.S.
federal income tax rates.................................. $ 42 $(19) $ 2
Taxes on foreign income at rates different than U.S. federal
income tax rates.......................................... (1) -- --
State taxes, net of federal benefit......................... 3 -- --
Net operating losses for which no benefit has been
recognized................................................ -- 19 --
Realization of prior years' net operating losses and tax
credits................................................... (33) -- (1)
---- ---- ---
Provision for income taxes.................................. $ 11 $ -- $ 1
==== ==== ===
</TABLE>
As of June 30, 1998, the Company had operating loss carryforwards for tax
purposes available from domestic operations totaling $77 which will expire
between 2008 and 2012.
The Company made income tax payments of $5 and $4 for the years ended June
30, 1996 and 1997. The Company made no income tax payments for the year ended
June 30, 1998.
F-22
<PAGE> 110
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE K - COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment and office and plant
facilities. At June 30, 1998, the aggregate minimum rental payments required
under operating leases that have initial or remaining terms in excess of one
year are as follows:
<TABLE>
<S> <C>
1999........................................................ $15
2000........................................................ 13
2001........................................................ 11
2002........................................................ 6
2003........................................................ 5
Thereafter.................................................. 36
---
$86
===
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of $6
due through 2016 under noncancelable subleases. Rent expense was $28, $32 and
$35 for the fiscal years ended June 30, 1996, 1997 and 1998, respectively. Rent
expense includes contingent rentals on certain equipment based on usage.
The Company has entered into noncancelable agreements with growers, with
terms ranging from two to ten years, to purchase certain quantities of raw
products. Total purchases under these agreements were $54, $114, $66 for the
years ended June 30, 1996, 1997 and 1998. The Company also has commitments to
purchase certain finished goods.
At June 30, 1998, aggregate future payments under such purchase commitments
(priced at the June 30, 1998 estimated cost) are estimated as follows:
<TABLE>
<S> <C>
1999........................................................ $ 60
2000........................................................ 49
2001........................................................ 38
2002........................................................ 35
2003........................................................ 31
Thereafter.................................................. 73
----
$286
====
</TABLE>
In connection with the sale of the Company's 50.1% interest in Del Monte
Philippines, a joint venture operating primarily in the Philippines, on March
29, 1996, the Company signed an eight-year supply agreement whereby the Company
must source substantially all of its pineapple requirements from Del Monte
Philippines over the agreement term. The Company expects to purchase $38 in
fiscal 1999 under this supply agreement for pineapple products. During the year
ended June 30, 1998, the Company purchased $38 under the supply agreement.
Effective December 21, 1993, DMC sold substantially all of the assets and
certain related liabilities of its can manufacturing operations in the United
States to Silgan Containers Corporation ("Silgan"). In connection with the sale
to Silgan, DMC entered into a ten-year supply agreement under which Silgan,
effective immediately after the sale, began supplying substantially all of DMC's
metal container requirements for foods and beverages in the United States.
Purchases under the agreement during the year ended June 30, 1998 amounted to
$186. The Company believes the supply agreement provides it with a long-term
supply of cans at competitive prices that adjust over time for normal
manufacturing cost increases or decreases.
On November 1, 1992, DMC entered into an agreement with Electronic Data
Systems Corporation ("EDS") to provide services and administration to the
Company in support of its information services
F-23
<PAGE> 111
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
functions for all domestic operations. Payments under the terms of the agreement
are based on scheduled monthly base charges subject to various adjustments such
as system usage and inflation. Total payments for the years ended June 30, 1996,
1997 and 1998 were $16, $18 and $16, respectively. The agreement expires in
November 2002 with optional successive one-year extensions.
At June 30, 1998, base payments under the agreement are as follows:
<TABLE>
<S> <C>
1999........................................................ $14
2000........................................................ 13
2001........................................................ 13
2002........................................................ 14
2003........................................................ 5
---
$59
===
</TABLE>
Del Monte has a concentration of labor supply in employees working under
union collective bargaining agreements, which represent approximately 79% of its
hourly and seasonal work force. Of these represented employees, 4% of employees
are under agreements that will expire in calendar 1999.
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable, and the amounts of such losses are
reasonably estimable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further information
develops or circumstances change. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value.
The Company is defending various claims and legal actions that arise from
its normal course of business, including certain environmental actions. While it
is not feasible to predict or determine the ultimate outcome of these matters,
in the opinion of management none of these actions, individually or in the
aggregate, will have a material effect on the Company's results of operations,
cash flow, liquidity or financial position.
On March 25, 1997, the entities that purchased the Company's Mexican
subsidiary in October 1996 commenced an action in Texas state court alleging,
among other things, that the Company breached the agreement with respect to the
purchase because the financial statements of the Mexican subsidiary did not
fairly present its financial condition and results of operations in accordance
with U.S. generally accepted accounting principles. In connection with this
action, $8 of the cash proceeds from the Recapitalization which were payable to
shareholders and certain members of senior management of DMFC were held in
escrow to be applied to fund the Company's costs and expenses in defending the
action, with any remaining amounts available to pay up to 80% of any ultimate
liability of the Company to the purchasers. In January 1998, the Company reached
a settlement of this litigation. The settlement resolves all claims and disputes
relating to the sale of the Company's Mexican subsidiary, including the purchase
price adjustment contemplated at the time of the sale. The Company's portion of
the settlement was within the amount reserved and thus did not adversely impact
net income of the Company.
NOTE L -- FOREIGN OPERATIONS AND GEOGRAPHIC DATA
The Company's earnings in fiscal 1996 and 1997 were derived in part from
foreign operations. These operations, a significant factor in the economies of
the countries where the Company operates, were subject to the risks that are
inherent in operating in such foreign countries, including government
regulations, currency and ownership restrictions, risks of expropriation and
burdensome taxes. Certain of these operations were also dependent on leases and
other agreements with these governments. Transfers between geographic areas were
accounted for as intercompany sales, and transfer prices are based generally on
negotiated contracts. As of November 1996, the Company no longer had any
ownership in foreign operations.
F-24
<PAGE> 112
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The following table shows certain financial information relating to the
Company's operations in various geographic areas:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Net sales
United States............................................. $1,147 $1,203
Philippines............................................... 142 --
Latin America............................................. 55 17
Transfer between geographic areas......................... (39) (3)
------ ------
Total net sales................................... $1,305 $1,217
====== ======
Operating income:
United States............................................. $ 65 $ 71
Philippines............................................... 12 --
Latin America............................................. 5 --
------ ------
Total operating income............................ $ 82 $ 71
====== ======
Assets:
United States............................................. $ 701 $ 667
Philippines............................................... -- --
Latin America............................................. 35 --
------ ------
$ 736 $ 667
====== ======
Liabilities of the Company's Operations Located in Foreign
Countries................................................. $ 7 $ --
====== ======
</TABLE>
NOTE M -- DEL MONTE CORPORATION
DMC is directly-owned and wholly-owned by DMFC. For the year ended June 30,
1998, DMC and DMC's subsidiaries accounted for 100% of the consolidated revenues
and net earnings of the Company, except for those expenses incidental to the
DMFC Notes. As of June 30, 1998, DMFC's sole asset, other than intercompany
receivables from DMC, was the stock of DMC. DMFC had no subsidiaries other than
DMC and DMC's subsidiaries, and had no direct liabilities other than
intercompany payables to DMC and the DMFC Notes. DMFC is separately liable under
various guarantees of indebtedness of DMC, which guarantees of indebtedness are
full and unconditional.
NOTE N -- RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, the Company entered into a
ten-year agreement dated April 18, 1997 (the "Management Advisory Agreement")
with TPG pursuant to which TPG is entitled to receive an annual fee from the
Company for management advisory services equal to the greater of $.5 or 0.05% of
the budgeted consolidated net sales of the Company. For the year ended June 30,
1998, TPG received fees of less than $1. In addition, the Company has agreed to
indemnify TPG, its affiliates and shareholders, and their respective directors,
officers, agents, employees and affiliates from and against fees and expenses,
arising out of or in connection with the services rendered by TPG thereunder.
The Management Advisory Agreement makes available the resources of TPG
concerning a variety of financial and operational matters, including advice and
assistance in the reviewing the Company's business plans and its results of
operations and in evaluating possible strategic acquisitions, as well as
providing investment banking services in identifying and arranging sources of
financing. The services that will be provided by TPG cannot otherwise be
obtained by the Company without the addition of personnel or the engagement of
outside professional advisors. In management's
F-25
<PAGE> 113
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
opinion, the fees provided for under the Management Advisory Agreement
reasonably reflect the benefits to be received by the Company and are comparable
to those obtainable in an arms'-length transaction with an unaffiliated third
party.
In connection with the Recapitalization, the Company also entered into an
agreement dated April 18, 1997 (the "Transaction Advisory Agreement") with TPG
pursuant to which TPG is entitled to receive fees up to 1.5% of the "transaction
value" for each transaction in which the Company is involved, which may include
acquisitions, refinancings and recapitalizations. The term "transaction value"
means the total value of any subsequent transaction, including, without
limitation, the aggregate amount of the funds required to complete the
subsequent transaction (excluding any fees payable pursuant to the Transaction
Advisory Agreement and fees, if any paid to any other person or entity for
financial advisory, investment banking, brokerage or any other similar services
rendered in connection with such transaction) including the amount of
indebtedness, preferred stock or similar items assumed (or remaining
outstanding). In connection with the Contadina Acquisition, TPG received $3 upon
the closing of the acquisition as compensation for its services as financial
advisor for the acquisition. In management's opinion, the fees provided for
under the Transaction Advisory Agreement reasonably reflect the benefits to be
received by the Company and are comparable to those obtainable in an
arms'-length transaction with an unaffiliated third party.
NOTE O -- PUBLIC OFFERING
In fiscal 1998, the Company filed a registration statement on Form S-1 with
the SEC for the purpose of making a public offering of shares of its Common
Stock (the "Offering"). The Offering, which was expected to close in July 1998,
was postponed due to conditions in the equity securities market.
On May 1, 1998, in contemplation of the Offering, Del Monte Foods Company
merged with and into a newly created wholly-owned subsidiary incorporated under
the laws of the state of Delaware to change Del Monte Foods Company's state of
incorporation from Maryland to Delaware. The Certificate of Incorporation
authorizes the issuance of an aggregate of 500,000,000 shares of Common Stock
and an aggregate of 2,000,000 shares of preferred stock.
On July 22, 1998, the Company declared, by way of a stock dividend
effective July 24, 1998, a 191.542-for-one stock split of all of the Company's
outstanding shares of Common Stock (the "Stock Split"). Accordingly, all share
and per share amounts for all periods have been retroactively adjusted to give
effect to the Stock Split.
NOTE P -- PLANT CONSOLIDATION
In the third quarter of fiscal 1998, management committed to a plan to
consolidate processing operations. In connection with this plan, the Company
recorded charges of $7. These costs relate to severance and benefit costs for
433 employees to be terminated. No expenditures have been recorded against this
accrual as of June 30, 1998. This plan will be implemented in a specific
sequence over the next three years. The plan involves suspending operations at
the Modesto facility for a year while that facility is reconfigured to
accommodate fruit processing which is currently taking place at the San Jose and
Stockton facilities (which sites will be permanently closed). The tomato
processing currently at the Modesto facility will be moved to the Hanford
facility. Management believes that because of these sequenced activities, it is
not likely that there will be any significant changes to this plan. In addition,
due to historically low turnover at the affected plants, the Company can
reasonably estimate the number of employees to be terminated, and, due to the
existence of union contracts, the Company can reasonably estimate any related
benefit exposure.
The Company anticipates that it will incur total charges of approximately
$36 as a result of these plant closures. These expenses include costs, net of
estimated salvage values, of $16 representing accelerated
F-26
<PAGE> 114
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
depreciation resulting from the effects of adjusting the assets' remaining
useful lives to match the period of use prior to the plant closure, $7 in
severance costs (as described above) and various other costs totaling $13, such
as costs to remove and dispose of those assets and ongoing fixed costs to be
incurred during the Modesto plant reconfiguration and until the sale of the San
Jose and Stockton properties. Total charges relating to plant closures recorded
in fiscal 1998 were $10 million (including depreciation expense of $3 million
recorded in the fourth quarter of fiscal 1998). These charges are expected to
affect the Company's results over the next four-year period as follows: $13 in
fiscal 1999 (including depreciation expense of $9), $9 in fiscal 2000 (including
depreciation expense of $4), $3 in fiscal 2001 and $1 in fiscal 2002.
Assets that are subject to accelerated depreciation, the costs of which
have begun to be reflected in operations during the fourth quarter of fiscal
1998 resulting in an additional depreciation charge of $3, consist primarily of
buildings and of machinery and equipment, which will no longer be needed due to
the consolidation of the operations of the two fruit processing plants and the
consolidation of the operations of two tomato processing plants. The remaining
useful lives of the buildings at the San Jose facility were decreased by
approximately 20 years due to this acceleration. The remaining useful lives of
machinery and equipment at the affected plants have been reduced to one year,
two years and three years for the Modesto, San Jose and Stockton facilities,
respectively.
NOTE Q -- SUBSEQUENT EVENT
On July 10, 1998, the Company entered into an agreement with Nabisco, Inc.
to reacquire rights to the Del Monte brand in South America and to purchase
Nabisco's canned fruit and vegetable business in Venezuela, including a food
processing plant in Venezuela. Nabisco had retained ownership of the Del Monte
brand in South American and the Venezuela Del Monte business when it sold other
Del Monte businesses in 1989.
NOTE R -- RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its financial statements for the years ended June
30, 1996 and 1997. This action was taken following consultation with the staff
of the Securities and Exchange Commission regarding the deferral of $16 of gain
resulting from the sale of the Company's 50.1% interest in Del Monte Philippines
in March 1996 (see Note C). The Company had allocated $16 of the $100 proceeds
from the sale to the supply agreement the Company executed in conjunction with
the sale. The deferred gain of $16 was being recognized by the Company over the
eight-year term of the supply agreement. After discussions with the staff of the
Securities and Exchange Commission, the Company has recognized the $16 gain at
the time of the sale.
The fiscal 1996 financial statements have been restated to include the $16
gain and the fiscal 1997 financial statements have been restated to reverse the
recognition of $2 of the deferred gain. The impact of these adjustments on the
Company's financial results as originally reported is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
-------------------------- --------------------------
AS REPORTED AS RESTATED AS REPORTED AS RESTATED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) before
extraordinary item................ $105 $121 $ (14) $ (16)
Net income (loss)................... 88 104 (56) (58)
Net income (loss) attributable to
common shares..................... 6 22 (126) (128)
Net income (loss) per common
share............................. 0.08 0.29 (2.04) (2.07)
</TABLE>
F-27
<PAGE> 115
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE S -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
1998(1)(2)
Net Sales....................................... $ 251 $ 369 $ 348 $ 345
Operating income................................ 17 20 20 25
Income (loss) before extraordinary item......... -- 2 (2) 5
Net income (loss)............................... -- 2 (2) 5
Per share data: (3)
Basic income (loss) per share before
extraordinary item......................... (0.06) 0.05 (0.10) 0.11
Diluted income (loss) per share before
extraordinary item......................... (0.06) 0.05 (0.10) 0.10
1997(4)(as restated)
Net Sales....................................... $ 264 $ 364 $ 308 $ 281
Operating income................................ 17 24 26 4
Income (loss) before extraordinary item......... 3 5 15 (39)
Net income (loss)............................... (1) 5 15 (77)
Per share data:(3)
Basic income (loss) per share before
extraordinary item......................... (0.27) (0.25) (0.12) (1.47)
Diluted income (loss) per share before
extraordinary item......................... (0.27) (0.25) (0.12) (1.44)
</TABLE>
- ---------------
(1) The third and fourth quarters of 1998 include $2 and $1, respectively, of
inventory step-up related to inventory purchased in the Contadina
Acquisition.
(2) The third and fourth quarters of 1998 include $7 and $3, respectively, of
charges related to the Company's plant consolidation program.
(3) Earnings per share is computed independently for each of the periods
presented; therefore, the sum of the earnings per share amounts for the
quarters may not equal the total for the year.
(4) The fourth quarter of 1997 includes $85 of expenses related to the
Recapitalization.
F-28
<PAGE> 116
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Del Monte Foods Company and
subsidiaries for the year ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Del Monte Foods Company and subsidiaries for the year ended
June 30, 1996 in conformity with generally accepted accounting principles.
In the fiscal year ended June 30, 1996, Del Monte Foods Company changed its
method of accounting for impairment of long-lived assets and for long-lived
assets to be disposed of.
Ernst & Young LLP
San Francisco, California
August 29, 1996, except for Note R, as to which the date is
June 29, 1998, and the third paragraph of Note O, as to which the date is
July 22, 1998
F-29
<PAGE> 117
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
-------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 7 $ 11
Trade accounts receivable, net of allowance............... 108 122
Other receivables......................................... 6 6
Inventories............................................... 366 693
Prepaid expenses and other current assets................. 14 7
----- ------
Total Current Assets.............................. 501 839
Property, plant and equipment, net.......................... 305 296
Intangibles................................................. 16 44
Other assets................................................ 23 22
----- ------
Total Assets...................................... $ 845 $1,201
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 259 $ 432
Short-term borrowings..................................... -- 202
Current portion of long-term debt......................... 32 34
----- ------
Total Current Liabilities......................... 291 668
Long-term debt.............................................. 677 668
Other noncurrent liabilities................................ 194 193
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding:
37,253 at June 30, 1998, aggregate liquidation preference:
$41 and 37,253 at September 30, 1998; aggregate
liquidation preference: $43).............................. 33 33
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 500,000,000 shares
authorized; issued and outstanding: 35,495,058 at June
30, 1998 and 35,496,944 at September 30, 1998)
Paid-in capital........................................... 172 172
Retained earnings (deficit)............................... (522) (533)
----- ------
Total Stockholders' Equity (Deficit).............. (350) (361)
----- ------
Total Liabilities and Stockholders' Equity........ $ 845 $1,201
===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-30
<PAGE> 118
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
----------------
1997 1998
------ ------
<S> <C> <C>
Net sales................................................... $ 251 $ 318
Cost of products sold....................................... 172 218
Selling, administrative and general expenses................ 62 80
Special charges related to plant consolidation.............. -- 7
Acquisition expense......................................... -- 1
------ ------
Operating Income.................................. 17 12
Interest expense............................................ 17 21
Other expense............................................... -- 2
------ ------
Income (Loss) Before Income Taxes................. -- (11)
Provision for income taxes.................................. -- --
------ ------
Net Income (Loss)................................. $ -- $ (11)
====== ======
Basic net loss per common shares............................ $(0.06) $(0.34)
====== ======
Diluted net loss per common share........................... $(0.06) $(0.34)
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
F-31
<PAGE> 119
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
--------------
1997 1998
----- -----
<S> <C> <C>
Operating Activities:
Net income (loss)......................................... $ -- $ (11)
Adjustments to reconcile net income (loss) to net cash
flows (used in) operating activities:
Depreciation and amortization.......................... 7 13
Loss on disposal of assets............................. -- 3
Changes in operating assets and liabilities:
Accounts receivable.................................... (15) (14)
Inventories............................................ (285) (324)
Prepaid expenses and other current assets.............. 6 7
Accounts payable and accrued expenses.................. 132 173
Other non-current liabilities.......................... 2 --
----- -----
Net Cash Used in Operating Activities............. (153) (153)
----- -----
Investing Activities:
Capital expenditures...................................... (2) (5)
Acquisition of business................................... -- (32)
----- -----
Net Cash Used in Investing Activities............. (2) (37)
Financing Activities:
Short-term borrowings..................................... 189 256
Payments on short-term borrowings......................... (34) (54)
Principal payments on long-term borrowings................ -- (8)
----- -----
Net Cash Provided by Financing Activities......... 155 194
----- -----
Effect of exchange rate changes on cash and cash
equivalents............................................... -- --
----- -----
Net Change in Cash and Cash Equivalents........... -- 4
Cash and cash equivalents at beginning of period............ 5 7
----- -----
Cash and Cash Equivalents at End of Period........ $ 5 $ 11
===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-32
<PAGE> 120
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(IN MILLIONS EXCEPT SHARE DATA)
NOTE 1 -- BASIS OF FINANCIAL STATEMENTS
Basis of Presentation: The accompanying consolidated financial statements
at September 30, 1998 and for the three-month periods ended September 30, 1997
and 1998, are unaudited, but are prepared in accordance with generally accepted
accounting principles for interim financial information and include all
adjustments (consisting only of normal recurring entries) which, in the opinion
of management, are necessary for a fair presentation of financial position,
results of operations and cash flows. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements as of and for the year ended June 30, 1998, and notes thereto,
included in the Annual Report on Form 10-K.
Stock Split. On July 22, 1998, the Company declared, by way of a stock
dividend effective July 24, 1998, a 191.542-for-one stock split of all of the
Company's outstanding shares of Common Stock (the "Stock Split"). Accordingly,
all share and per share amounts for all prior periods presented herein have been
retroactively adjusted to give effect to the Stock Split.
Depreciation and amortization. Depreciation of plant and equipment and
leasehold amortization was $6 and $12 for the three months ended September 30,
1997 and 1998, respectively. For the three months ended September 30, 1998, $4
of depreciation is related to acceleration of depreciation resulting from the
effects of adjusting the assets' remaining useful lives to match the period of
use prior to plant closure. (The accelerated depreciation is included in the
caption "Special charges related to plant consolidation" in the Consolidated
Statement of Operations.) Depreciation and amortization also includes $1 of
amortization of deferred debt issuance costs for both three-month periods ended
September 30, 1997 and 1998.
NOTE 2 -- INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
-------- -------------
<S> <C> <C>
Finished product...................................... $237 $629
Raw materials and supplies............................ 19 27
Other, principally packaging material................. 110 37
---- ----
$366 $693
==== ====
</TABLE>
During the twelve months ended June 30, 1998 and the three months ended
September 30, 1997 and 1998, respectively, inflation had a minimal impact on
production costs. As a result, the effect of accounting for these inventories by
the LIFO method has had no material effect on inventories at June 30, 1998 and
September 30, 1998 or on results of operations for the three months ended
September 30, 1997 and 1998, respectively.
F-33
<PAGE> 121
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS EXCEPT SHARE DATA)
NOTE 3 -- EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Numerator:
Loss per common share................................... $ -- $ (11)
Preferred stock dividends............................... (2) (1)
----------- -----------
Numerator for basic and diluted loss per share -- loss
attributable to common shares........................ $ (2) $ (12)
=========== ===========
Denominator:
Denominator for basic and diluted earnings per share --
weighted average shares.............................. 26,815,880 35,495,683
Basic and diluted loss per common share................... $ (0.06) $ (0.34)
</TABLE>
The effect of outstanding options is not included in the computation of
diluted earnings per share as the result would be antidilutive due to a net
operating loss.
NOTE 4 -- ACQUISITIONS
On August 28, 1998, the Company reacquired rights to the Del Monte brand in
South America from Nabisco, Inc. and purchased Nabisco's canned fruit and
vegetable business in Venezuela, including a food processing plant in Venezuela,
for a cash purchase price of $32 (the "South America Acquisition"). In
connection with the South America Acquisition, approximately $1 of
acquisition-related expenses were incurred which included a transaction advisory
fee to a designee of Texas Pacific Group, who owns a controlling interest in the
Company. Nabisco had retained ownership of the Del Monte brand in South America
and the Venezuela Del Monte business when it sold other Del Monte businesses in
1990. The purchase price is subject to adjustment based on the final calculation
of the closing inventory amount. Such adjustment is not expected to be material
to the financial statements taken as a whole.
The South America Acquisition has been reflected in the balance sheet at
September 30, 1998. The acquisition was accounted for using the purchase method
of accounting. The total purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed (consisting primarily of
inventory, property, plant and equipment, and tradename) based on preliminary
estimates of their respective fair values. Accordingly, adjustments will be made
based upon final determination of the purchase price adjustments and completion
of the valuations that are in progress. Results of operations of the acquired
business and any other expenses of the transaction are included in the
Consolidated Statement of Operations for the quarter ended September 30, 1998,
and did not significantly effect the results of operations of the Company for
the period.
NOTE 5 -- PLANT CONSOLIDATION
In the third quarter of fiscal 1998, management committed to a plan to
consolidate the Company's tomato and fruit processing operations. In connection
with this plan, the Company established an accrual of $7 in fiscal 1998 relating
to severance and benefit costs for employees to be terminated. No expenditures
have been recorded against this accrual as of September 30, 1998. At this time,
there have been no significant changes to this plan.
F-34
<PAGE> 122
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS EXCEPT SHARE DATA)
During the quarter, the Company incurred total charges of $4 representing
accelerated depreciation. This acceleration results from the effects of
adjusting the tomato and fruit processing assets' remaining useful lives to
match the period of use prior to the closures of these plants.
In August 1998, management announced its intention to close the Company's
vegetable processing plant located in Arlington, Wisconsin after the summer 1998
pack. Upon completion of this pack, a charge of $3 was taken during the quarter
representing the write-down to fair value of the assets held for sale. These
assets primarily include building, building improvements, and machinery and
equipment with a carrying value of $4. Fair value was based on current market
values of land and buildings in the area and estimates of market values of
equipment to be disposed of. Based on the level of interest already demonstrated
in the facility by third parties, it is expected that these assets will be
disposed of within a year.
NOTE 6 -- COMPREHENSIVE INCOME
The Company has no items of other comprehensive income in any period
presented. Therefore, net income (loss) as presented in the Consolidated
Statements of Operations equals comprehensive income.
NOTE 7 -- NEW ACCOUNTING STANDARDS
In March 1998, the AICPA Accounting Standards Executive Committee issued,
Statement of Position ("SOP") No. 98-1 "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." This SOP provides guidance
with respect to the recognition, measurement and disclosure of costs of computer
software developed or obtained for internal use. SOP 98-1 is required to be
adopted for fiscal years beginning after December 15, 1998. The Company will
adopt this statement in fiscal 2000 and, is currently evaluating the impact of
adoption on the Company's financial statements.
The Company will adopt Statement of Financial Accounting Standards ("SFAS")
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" for its 1999 fiscal year. This statement establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
The Company is not required to disclose segment information in accordance with
SFAS No. 131 until its fiscal June 30, 1999 year end and for subsequent interim
periods in fiscal 2000 with comparative fiscal 1999 interim disclosures.
Adoption will not impact the Company's consolidated financial position, results
of operations or cash flows, and any effect will be limited to the form and
content of its disclosures.
Effective July 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 is
required to be adopted for fiscal years beginning after December 15, 1997 and
amends only the disclosure requirements with respect to pensions and other
postretirement benefits. Adoption of this statement will not impact the
Company's consolidated financial position, results of operations or cash flows,
and any effect will be limited to the form and content of its disclosures.
In fiscal 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 is required to be adopted for all fiscal quarters and fiscal years
beginning after June 15, 1999 and relates to accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. The Company is currently reviewing the effect of adoption of this
statement on its financial statements.
F-35
<PAGE> 123
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Del Monte Foods Company
We have audited the accompanying combined balance sheets of Contadina (a
division of Nestle USA, Inc.) as of December 18, 1997 and December 31, 1996, and
the related statements of operations, divisional equity, and cash flows for the
period January 1, 1997 through December 18, 1997 and for the year ended December
31, 1996. These financial statements are the responsibility of Del Monte Foods
Company management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Contadina (a division of
Nestle USA, Inc.) as of December 18, 1997 and December 31, 1996, and the results
of its operations and its cash flows for the period January 1, 1997 through
December 18, 1997 and for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
March 16, 1998
Los Angeles, California
F-36
<PAGE> 124
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED BALANCE SHEETS
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Trade accounts receivable................................. $ 10 $ 17
Other receivables......................................... 3 --
Inventories............................................... 92 98
---- ----
TOTAL CURRENT ASSETS.............................. 105 115
Property, plant and equipment............................... 94 90
Goodwill.................................................... 32 31
---- ----
TOTAL ASSETS...................................... $231 $236
==== ====
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 10 $ 13
Payable to Nestle USA, Inc................................ 17 52
---- ----
TOTAL CURRENT LIABILITIES......................... 27 65
Divisional equity........................................... 204 171
---- ----
TOTAL LIABILITIES AND DIVISIONAL EQUITY........... $231 $236
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-37
<PAGE> 125
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED STATEMENTS OF OPERATIONS AND
DIVISIONAL EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Net sales................................................... $160 $162
Cost of products sold....................................... 151 163
---- ----
Gross profit (loss).................................... 9 (1)
Selling, advertising, administrative and general expense.... 20 26
---- ----
OPERATING LOSS.................................... (11) (27)
Interest expense............................................ 6 6
---- ----
NET LOSS BEFORE INCOME TAXES...................... (17) (33)
DIVISIONAL EQUITY, BEGINNING OF PERIOD...................... 221 204
---- ----
DIVISIONAL EQUITY, END OF PERIOD............................ $204 $171
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-38
<PAGE> 126
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 THROUGH
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(17) $(33)
Adjustments to reconcile net loss to net cash flows used
in operating activities:
Depreciation and amortization.......................... 12 13
Changes in operating assets and liabilities:
Accounts receivable.................................... 9 (4)
Inventories............................................ (16) (6)
Accounts payable and accrued expenses.................. 4 3
---- ----
NET CASH USED IN OPERATING ACTIVITIES............. (8) (27)
INVESTING ACTIVITIES:
Capital expenditures...................................... (10) (8)
Proceeds from sale of assets.............................. 1 --
---- ----
NET CASH USED IN INVESTING ACTIVITIES............. (9) (8)
FINANCING ACTIVITIES: Net borrowings from Nestle USA,
Inc....................................................... 17 35
---- ----
NET CHANGE IN CASH AND CASH EQUIVALENTS........... -- --
Cash and cash equivalents at beginning of period............ -- --
---- ----
CASH AND CASH EQUIVALENTS
AT END OF PERIOD................................ $ -- $ --
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-39
<PAGE> 127
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 18, 1997
(IN MILLIONS)
NOTE A -- ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
General: The accompanying combined financial statements include the
accounts of Contadina Services, Inc., a wholly-owned subsidiary of Nestle USA,
Inc. ("Nestle") and other divisional accounts related to the Contadina canned
business within the culinary division of Nestle ("Contadina") on a carve-out
basis, excluding the effects of product lines not acquired (see Note E).
Contadina operates in one business segment which manufactures and markets
branded, private label, industrial and foodservice processed tomato products
from manufacturing facilities in Hanford, California and Woodland, California.
Contadina's products are distributed throughout the United States.
Contadina does not maintain stand-alone corporate treasury, legal, tax and
other similar corporate support functions. Therefore, corporate general and
administrative expense and interest expense, as well as certain other expenses
(see Note D), are allocated to Contadina from Nestle generally on a proportional
basis. Allocations and estimates, as described in Note D, are based on
assumptions that Del Monte Foods Company management believes are reasonable. It
is impracticable to determine whether such costs are comparable to those which
would have been incurred on a stand-alone basis. Long-term debt and income taxes
are not allocated by Nestle.
All purchases of inventory, payroll, capital and other expenditures are
funded through Contadina's intercompany account with Nestle. Remittances from
sales to customers are collected by Nestle and are accounted for through the
intercompany account. Accordingly, Contadina has no cash on a stand-alone basis.
Trade receivables and payables do represent the amounts due from/to
customers/suppliers at the dates presented.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, plant and equipment and depreciation: Property, plant and
equipment are stated at cost and depreciated over their estimated useful lives,
principally by the straight-line method. Maintenance and repairs are expensed as
incurred. Significant expenditures that increase useful lives are capitalized.
The ranges of estimated useful lives for computing depreciation are:
buildings -- 30 years; leasehold improvements -- the shorter of useful life or
life of lease; and machinery and equipment -- 5 to 17 years. Depreciation of
plant and equipment and building and leasehold improvements amortization was $11
for the year ended December 31, 1996 and $12 for the period ended December 18,
1997.
Goodwill: Goodwill represents the excess purchase price over fair value of
acquired assets and liabilities. Goodwill is amortized on a straight-line basis
over 40 years.
Fair Value of Financial Instruments: The carrying amount of the Company's
financial instruments, which include trade accounts receivable, accounts
payable, and accrued expenses, approximates fair value due to the relatively
short maturity of such instruments. The carrying amount of the payable to Nestle
USA, Inc. approximates fair value due to the regular settlement of this account.
Cost of Products Sold: Cost of products sold includes raw material, labor,
and overhead.
Royalties: Under a royalty agreement with Nestle S.A. (parent of Nestle
and legal entity which owns the Contadina trademarks), royalties are charged for
the license of the Contadina trademarks at a rate of 3% of net sales. Royalty
expense under this agreement was $5 for both the year ended December 31, 1996
and the period ended December 18, 1997.
F-40
<PAGE> 128
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
Divisional Equity: Divisional equity includes the combined historical
legal capital of Contadina Services, Inc. and profit and losses of Contadina
subsequent to December 31, 1995 on a carve-out basis. Pre-1996 results of
operations for the acquired product line are not available. Transactions with
Nestle for all other intercompany transactions are included in and settled
through the intercompany account payable to Nestle.
Use of Estimates: Certain amounts reported in the financial statements are
based on management estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities as of December 31, 1996 and December 18, 1997, and the reported
amounts of income and expenses for the year ended December 31, 1996 and the
period ended December 18, 1997. The ultimate resolution of these items may
differ from those estimates.
Change in Accounting Principle: Effective January 1, 1996, Contadina
adopted the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The statement requires that
assets held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Contadina evaluates impairment based upon undiscounted future cash
flows. If such cash flows indicate that long-lived assets may not be
recoverable, the loss is measured by discounting cash flows to present value.
The statement also requires that all long-lived assets, for which management has
committed to a plan to dispose, be reported at the lower of carrying amount or
fair value. Contadina does not depreciate long-lived assets held for sale. There
was no material effect upon the adoption of this statement.
F-41
<PAGE> 129
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Trade Accounts Receivable:
Trade..................................................... $ 10 $ 17
Allowance for doubtful accounts........................... -- --
---- ----
TOTAL TRADE ACCOUNTS RECEIVABLE................... $ 10 $ 17
==== ====
Inventories:
Finished product.......................................... $ 60 $ 69
Raw materials and supplies................................ 35 32
Other, principally packaging material..................... 2 2
Reserves.................................................. (5) (5)
---- ----
TOTAL INVENTORIES................................. $ 92 $ 98
==== ====
Property, Plant and Equipment:
Land and land improvements................................ $ 8 $ 4
Buildings................................................. 36 40
Machinery and equipment................................... 110 125
Construction in progress.................................. 10 3
---- ----
164 172
Accumulated amortization.................................. (70) (82)
---- ----
PROPERTY, PLANT AND EQUIPMENT, NET................ $ 94 $ 90
==== ====
Goodwill:
Goodwill.................................................. $ 44 $ 44
Accumulated amortization.................................. (12) (13)
---- ----
GOODWILL, NET..................................... $ 32 $ 31
==== ====
Accounts payable and accrued expenses:
Accounts payable.......................................... $ 6 $ 2
Payroll................................................... 1 1
Marketing................................................. 1 8
Other..................................................... 2 2
---- ----
TOTAL ACCOUNTS PAYABLE AND ACCRUED EXPENSES....... $ 10 $ 13
==== ====
</TABLE>
NOTE D -- CORPORATE ALLOCATIONS AND RELATED PARTY INFORMATION
Goodwill is associated with the acquisition of Carnation Foods in 1985, the
then-parent of Contadina, and was not recorded in the individual business units'
accounts. As such, goodwill relating to Contadina has been allocated based on a
percentage derived from the tax basis goodwill specifically identified to
Contadina in relation to total tax basis goodwill. This relative percentage was
then applied to aggregate goodwill to determine book basis goodwill attributable
to Contadina. This allocation basis was determined to be reasonable by Del Monte
Foods Company management.
Since invoicing is centralized at Nestle for all business units, customer
discounts and unapplied cash related to trade receivables are allocated based on
Contadina relative sales dollars on a customer invoice as a percentage of the
total sales dollars on the customer invoice. Cash discounts are allocated to
Contadina based
F-42
<PAGE> 130
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
on Contadina receivables as a percent of total consolidated Nestle receivables.
A specific reserve for doubtful accounts is not maintained on a business unit
basis. Therefore, a reserve for doubtful accounts was established for Contadina
through an allocation of the corporate reserve based on the percentage of
Contadina's outstanding receivables to the total Nestle outstanding accounts
receivable balance.
Variable distribution costs are allocated based on the applied usage rate
for the respective products. Fixed distribution costs are allocated on an
historical average cost per case basis. Allocated distribution costs included in
cost of products sold for the year ended December 31, 1996 were $5 and for the
period ended December 18, 1997 were $7. Marketing and sales force expense is
allocated based on relative Contadina sales dollars to total Nestle sales
dollars. The majority of warehousing costs reported are actual costs related to
Contadina's two facilities; however, a component of warehousing cost also
includes costs allocated from Nestle based on historical average inventory
stored at the distribution center.
General and administrative expenses are, for the most part, allocated by
function. Allocated selling, marketing, general and administrative expenses
amounted to $12 for the year ended December 31, 1996 and to $20 for the period
ended December 18, 1997. Benefit costs are allocated at a rate of 40% of gross
wages which is representative of total benefit costs (including pension,
postretirement benefits, bonus, 401(k) matching contribution and vacation) to
total compensation. Interest expense is charged to Contadina based on the end-
of-month working capital balance at an intercompany rate equal to 7% for all
periods.
Contadina's sales of product to Nestle were $6 for both the year ended
December 31, 1996 and the period ended December 18, 1997.
NOTE E -- SALE OF CONTADINA
On December 19, 1997, Del Monte Foods Company acquired the Contadina canned
tomato businesses, including the Contadina trademark worldwide, capital assets
and inventory from Nestle and Contadina Services, Inc., for a total purchase
price of $197 paid solely in cash, comprised of a base price of $177 and an
estimated net working capital adjustment of $20. The purchase price is subject
to adjustment based on the final calculation of net working capital as of the
closing date. In accordance with the asset purchase agreement, dated November
12, 1997, by and among Del Monte Foods Company, Del Monte Corporation ("DMC")
and Nestle USA, Inc., Nestle has provided its calculation of the net working
capital which would result in a payment to DMC of approximately $2. DMC has
until April 18, 1998 to review this calculation and determine if it has an
objection to the calculation.
F-43
<PAGE> 131
[DEL MONTE LOGO]
<PAGE> 132
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued December 23, 1998
Shares
DEL MONTE FOODS COMPANY
COMMON STOCK
[DEL MONTE LOGO]
------------------------
DEL MONTE IS OFFERING SHARES OF COMMON STOCK INITIALLY OUTSIDE THE
UNITED STATES AND CANADA AND SHARES INITIALLY IN THE UNITED STATES AND
CANADA. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY
EXISTS FOR OUR SHARES. DEL MONTE ANTICIPATES THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $ AND $ PER SHARE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE, ON THE NEW YORK STOCK EXCHANGE AND THE PACIFIC EXCHANGE UNDER THE
SYMBOL "DLM."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------- -------------- ------------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total.............................................. $ $ $
</TABLE>
- ---------------
The Securities and Exchange Commission and the state securities regulators
have not approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Del Monte has granted the underwriters the right to purchase up to an
additional shares to cover overallotments. The Underwriters expect to
deliver the shares to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER GOLDMAN SACHS INTERNATIONAL
, 1999
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the shares of
common stock being registered, other than underwriting discounts and
commissions.
<TABLE>
<S> <C>
SEC registration fee........................................ $110,258
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... 148,858
Legal fees and expenses..................................... 300,000
Transaction advisory expense................................ 3,750,000
Accounting fees and expenses................................ 200,000
Blue Sky fees and expenses.................................. 2,000
Printing and engraving expenses............................. 350,000
Registrar and transfer agent's fee.......................... 30,000
Miscellaneous............................................... 250,000
----------
Total............................................. $5,171,616
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant provides that the
Registrant will indemnify each of its directors and officers to the fullest
extent permitted by the General Corporation Law of the State of Delaware (the
"DGCL") and may indemnify certain other persons as authorized by the DGCL.
Section 145 of the DGCL provides as follows:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE. --
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect
II-1
<PAGE> 134
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person in any such capacity or arising out of such person's status as such
whether or not the corporation would have the power to indemnify such person
against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director,
II-2
<PAGE> 135
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Registrant also carries liability insurance covering officers and
directors.
Pursuant to the proposed form of Underwriting Agreement, the Underwriters
have agreed to indemnify the directors and officers of the Registrant in certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the recapitalization of the Company on April 18, 1997,
the predecessor of the Company issued and sold an aggregate of (i) 140,000
shares of its common stock; (ii) warrants to purchase an additional 2,857.14
shares of such common stock; and (iii) 35,000 shares of its preferred stock,
series A and B, each series par value $.01 per share, in each case directly to
affiliates of Texas Pacific Group and a limited group of private institutional
and individual investors in a private placement in accordance with Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"). The
consideration received for such shares of common stock was $140 million. The
consideration received for such preferred stock and such warrants was $35
million. Such common stock and preferred stock were converted by operation of
law into shares of the common stock, par value $.01 per share, and preferred
stock, series A and B, respectively, of the Company upon the merger of such
predecessor with and into the Company. The Company expressly assumed its
predecessor's obligations under such warrants, which thereupon became
convertible into shares of common stock of the Company.
On April 18, 1997, Del Monte Corporation, a wholly owned subsidiary of the
Company, issued and sold at par $150 million of its 12 1/4% Senior Subordinated
Notes due 2007, which are unconditionally guaranteed by the Company. The Notes
were sold in a private placement in accordance with Section 4(2) of the
Securities Act made to BT Securities Corporation, BancAmerica Securities, Inc.
and Bear, Stearns & Co. Inc., which acted as initial purchasers, for resale to
"qualified institutional buyers" within the meaning of Rule 144A under the
Securities Act and in offshore transactions to non-U.S. persons in compliance
with Regulation S under the Securities Act. The Company received none of the
proceeds from such sale.
On October 15, 1997, the Company issued 37,253.388 shares of its preferred
stock, series C, par value $.01 per share, in exchange for all outstanding
shares of its preferred stock, series A and B, which shares of preferred stock,
series A and B, were then canceled and returned to authorized but unissued
shares of the Company's preferred stock. Such exchange was effected in
accordance with Section 3(a)(9) of the Securities Act. Such preferred stock has
since been redesignated as Series A effective with the reincorporation of the
Company in Delaware.
On December 17, 1997, the Company issued and sold at a discount $230
million of its 12 1/2% Senior Discount Notes Due 2007 in a private placement in
accordance with Section 4(2) of the Securities Act made to Bear, Stearns & Co.
Inc., BancAmerica Robertson Stephens and BT Alex. Brown Incorporated, which
acted as initial purchasers, for resale to "qualified institutional buyers"
within the meaning of Rule 144A under the Securities Act and in offshore
transactions to non-U.S. persons in compliance with Regulation S under the
Securities Act. The consideration received by the Company upon the sale of such
Notes was approximately $125 million.
II-3
<PAGE> 136
On December 19, 1997, the Company issued 40,000 shares of common stock
directly to affiliates of Texas Pacific Group and a limited number of
institutional investors in a private placement in accordance with Section 4(2)
of the Securities Act. The consideration received by the Company for such common
stock was $40 million.
On May 1, 1998, to change its state of incorporation from Maryland to
Delaware, the predecessor of the Company merged with and into a newly created,
wholly-owned subsidiary incorporated under the laws of the State of Delaware and
such subsidiary was the surviving corporation. In connection with the
reincorporation, each issued and outstanding share of common stock of the
predecessor of the Company was converted into one share of common stock of the
surviving corporation. Also in connection with the reincorporation, each issued
and outstanding share of preferred stock of the predecessor of the Company was
converted into one share of preferred stock of the surviving corporation
containing substantially the same preferences, rights and powers.
As of June 2, 1998, all of the Company's outstanding warrants issued as
described above were exercised in transactions made in reliance on Section 4(2)
of the Securities Act.
ITEM 16. EXHIBITS.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among Del Monte Foods Company
and the several underwriters listed therein
2.1 Asset Purchase Agreement, dated as of November 12, 1997,
among Nestle USA, Inc., Contadina Services, Inc., Del Monte
Corporation and Del Monte Foods Company (the "Asset Purchase
Agreement") (incorporated by reference to Exhibit 10.1 to
Report on Form 8-K No. 33-36374-01 filed January 5, 1998)
2.2 Agreement and Plan of Merger, dated as of February 21, 1997,
amended and restated as of April 14, 1997, among TPG
Partners, L.P., TPG Shield Acquisition Corporation and Del
Monte Foods Company (the "Agreement and Plan of Merger")
(incorporated by reference to Exhibit 2.1 to Registration
Statement on Form S-4 No. 333-29079, filed June 12, 1997
(the "DMC Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Agreement and Plan of Merger.
3.1 Certificate of Incorporation of Del Monte Foods Company
3.2* Bylaws of Del Monte Foods Company, as amended
3.3 Certificate of Designations filed May 4, 1998
3.4 Certificate of Merger between Del Monte Foods Company, a
Maryland corporation, and Del Monte Foods Company, a
Delaware corporation, filed May 1, 1998
3.5 Articles of Merger between Del Monte Foods Company, a
Maryland corporation, and Del Monte Foods Company, a
Delaware corporation, filed May 1, 1998
4.1 Specimen Certificate of Common Stock of Del Monte Foods
Company
4.2 Stockholders' Agreement, dated as of April 18, 1997, among
Del Monte Foods Company and its Stockholders (incorporated
by reference to Exhibit 3.6 to the DMC Registration
Statement)
</TABLE>
II-4
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of
Item 601 of Regulation S-K, the Registrant hereby undertakes
to furnish to the Commission upon request copies of the
instruments pursuant to which various entities hold
long-term debt of the Company or its parent or subsidiaries,
none of which instruments govern indebtedness exceeding 10%
of the total assets of the Company and its parent or
subsidiaries on a consolidated basis
4.3 Form of Stockholders' Agreement among Del Monte Foods
Company and its employee stockholders (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form
S-8 filed November 24, 1997 File No. 333-40867 (the
"Registration Statement on Form S-8"))
4.4 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors
4.5 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors -- Directors' Fee
Arrangement
4.6 Form of Registration Rights Agreement by and among TPG
Partners, L.P., TPG Parallel I, L.P. and Del Monte Foods
Company
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton
10.1 Indenture, dated as of December 17, 1997, among Del Monte
Foods Company, as issuer, and Marine Midland Bank, as
trustee, relating to the Notes (the "Indenture")
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 No. 333-47289, filed
March 4, 1998 (the "Exchange Offer Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Indenture.
10.2 Registration Rights Agreement, dated as of December 17,
1997, by and among Del Monte Foods Company and the Initial
Purchasers listed therein, relating to the Notes (the
"Registration Rights Agreement") (incorporated by reference
to Exhibit 4.3 to the Exchange Offer Registration Statement)
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Registration Rights Agreement.
10.3 Amended and Restated Credit Agreement, dated as of December
17, 1997, among Del Monte Corporation, ("BofA") Bank of
America National Trust and Savings Association, as
Administrative Agent, and the other financial institutions
parties thereto (the "Amended Credit Agreement")
(incorporated by reference to Exhibit 4.4 to the Exchange
Offer Registration Statement)
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Amended Credit Agreement.
10.4 Amended and Restated Parent Guaranty, dated December 17,
1997, executed by Del Monte Foods Company, with respect to
the obligations under the Amended Credit Agreement (the
"Restated Parent Guaranty") (incorporated by reference to
Exhibit 4.5 to the Exchange Offer Registration Statement)
10.5 Security Agreement, dated April 18, 1997, between Del Monte
Corporation and Del Monte Foods Company and Bank of America
National Trust and Savings Association (incorporated by
reference to Exhibit 4.6 to the DMC Registration Statement)
</TABLE>
II-5
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.6 Pledge Agreement, dated April 18, 1997, between Del Monte
Corporation and Bank of America National Trust and Savings
Association (incorporated by reference to Exhibit 4.7 to the
DMC Registration Statement)
10.7 Parent Pledge Agreement, dated April 18, 1997, between Del
Monte Foods Company and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit
4.8 to the DMC Registration Statement)
10.8 Indenture, dated as of April 18, 1997, among Del Monte
Corporation, as issuer, Del Monte Foods Company, as
guarantor, and Marine Midland Bank, as trustee, relating to
the 12 1/4% Senior Subordinated Notes Due 2007 (incorporated
by reference to Exhibit 4.2 to the DMC Registration
Statement)
10.9 Registration Rights Agreement, dated as of April 18, 1997,
by and among Del Monte Corporation and the Purchasers listed
therein, relating to the 12 1/4% Senior Subordinated Notes
Due 2007 (incorporated by reference to Exhibit 4.9 to the
DMC Registration Statement)
10.10 Transaction Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.1 to the DMC
Registration Statement)
10.11 Management Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.2 to the DMC
Registration Statement)
10.12 Retention Agreement between Del Monte Corporation and David
L. Meyers, dated November 1, 1991 (incorporated by reference
to Exhibit 10.3 to the DMC Registration Statement)
10.13 Retention Agreement between Del Monte Corporation and Glynn
M. Phillips, dated October 5, 1994 (incorporated by
reference to Exhibit 10.4 to the DMC Registration Statement)
10.14 Retention Agreement between Del Monte Corporation and Thomas
E. Gibbons, dated January 1, 1992 (incorporated by reference
to Exhibit 10.5 to the DMC Registration Statement)
10.15 Del Monte Foods Annual Incentive Award Plan and 1997 Plan
Year Amendments (incorporated by reference to Exhibit 10.8
to the DMC Registration Statement)
10.16 Additional Benefits Plan of Del Monte Corporation, as
amended and restated effective January 1, 1996 (incorporated
by reference to Exhibit 10.9 to the DMC Registration
Statement)
10.17 Supplemental Benefits Plan of Del Monte Corporation,
effective as of January 1, 1990, as amended as of January 1,
1992 and May 30, 1996 (incorporated by reference to Exhibit
10.10 to the DMC Registration Statement)
10.18 Del Monte Foods Company Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8)
10.19 Del Monte Foods Company 1997 Stock Incentive Plan
(incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-8)
10.20 Agreement for Information Technology Services between Del
Monte Corporation and Electronic Data Systems Corporation,
dated November 1, 1992, as amended as of September 1, 1993
and as of September 15, 1993 (incorporated by reference to
Exhibit 10.11 to the DMC Registration Statement)
</TABLE>
II-6
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.21 Supply Agreement between Del Monte Corporation and Silgan
Containers Corporation, dated as of September 3, 1993, as
amended as of December 21, 1993 (incorporated by reference
to Exhibit 10.12 to the DMC Registration Statement)
10.22 Del Monte Foods Company Non-Employee Directors and
Independent Contractors 1997 Stock Incentive Plan
10.23* Del Monte Foods Company 1998 Stock Incentive Plan, as
amended
10.24 Supplemental Indenture, dated as of April 24, 1998, among
Del Monte Corporation, as Issuer, Del Monte Foods Company,
as Guarantor, and Marine Midland Bank, as Trustee
10.25 Supplemental Indenture, dated as of April 24, 1998, between
Del Monte Foods Company, as Guarantor, and Marine Midland
Bank, as Trustee
10.26 Amendment and Waiver, dated as of April 16, 1998, to the
Amended Credit Agreement and the Restated Parent Guaranty,
by Del Monte Corporation and the financial institutions
party thereto
10.27 Employment Agreement and Promissory Note of Richard Wolford
(incorporated by reference to Exhibit 10.25 to Form 10-K for
the year ended June 30, 1998, filed September 22, 1998, File
No. 001-14335 (the "1998 Form 10-K))
10.28 Employment Agreement and Promissory Note of Wesley Smith
(incorporated by reference to Exhibit 10.26 to the 1998 Form
10-K)
10.29 Supplemental Indenture, dated as of December 19, 1997, among
Del Monte Corporation, as Issuer, Del Monte Foods Company,
as Guarantor, and Marine Midland Bank, as Trustee
10.30* Master Lease, dated as of November 19, 1998, between State
Street Bank and Trust Company of California, N.A., and Del
Monte Corporation
10.31* Participation Agreement, dated as of November 19, 1998,
among Del Monte Corporation, Del Monte Foods Company, State
Street Bank and Trust Company of California, N.A., State
Street Bank and Trust Company and the other parties named
therein.
NOTE: Pursuant to paragraph (b)(2) of Item 601 of Regulation
S-K, the Registrant hereby undertakes to furnish to the
Commission upon request copies of any schedule to the
Participation Agreement.
11.1* Statement re Computation of Earnings Per Share
12.1* Statement re Computation of Ratios
21.1 Subsidiaries of Del Monte Foods Company
23.1* Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of KPMG Peat Marwick LLP, Independent Accountants
23.3* Consent of KPMG Peat Marwick LLP, Independent Accountants
23.4 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibit 5.1)
23.5 Consent of A. C. Nielsen Company
</TABLE>
- ---------------
* Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-7
<PAGE> 140
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(b)(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Post-Effective Amendment No. 1 to this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Francisco, State of California, on December 23, 1998.
DEL MONTE FOODS COMPANY
By: /s/ RICHARD G. WOLFORD
------------------------------------
Richard G. Wolford
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Richard G. Wolford, David L. Meyers and Wesley
J. Smith, and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (unless revoked in writing) to sign any and all amendments (including
post-effective amendments thereto) to this Registration Statement to which this
power of attorney is attached, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting to such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, Post-Effective
Amendment No. 1 to this registration statement has been signed by the following
persons in the capacities indicated on December 23, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD G. WOLFORD* Chief Executive Officer (Principal Executive
- ----------------------------------------------------- Officer) and Director
Richard G. Wolford
/s/ DAVID L. MEYERS Executive Vice President, Administration and
- ----------------------------------------------------- Chief Financial Officer (Principal Financial
David L. Meyers Officer)
/s/ RICHARD L. FRENCH* Senior Vice President and Chief Accounting
- ----------------------------------------------------- Officer (Principal Accounting Officer)
Richard L. French
/s/ RICHARD W. BOYCE* Chairman of the Board and Director
- -----------------------------------------------------
Richard W. Boyce
/s/ TIMOTHY G. BRUER* Director
- -----------------------------------------------------
Timothy G. Bruer
/s/ AL CAREY* Director
- -----------------------------------------------------
Al Carey
</TABLE>
S-1
<PAGE> 142
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ PATRICK FOLEY* Director
- -----------------------------------------------------
Patrick Foley
/s/ BRIAN E. HAYCOX* Director
- -----------------------------------------------------
Brian E. Haycox
/s/ JEFFREY A. SHAW* Director
- -----------------------------------------------------
Jeffrey A. Shaw
/s/ WESLEY J. SMITH* Chief Operating Officer and Director
- -----------------------------------------------------
Wesley J. Smith
/s/ DENISE M. O'LEARY* Director
- -----------------------------------------------------
Denise M. O'Leary
/s/ WILLIAM S. PRICE, III* Director
- -----------------------------------------------------
William S. Price, III
</TABLE>
- --------------------------------------
*By: /s/ DAVID L. MEYERS
---------------------------------
David L. Meyers
S-2
<PAGE> 143
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among Del Monte Foods Company
and the several underwriters listed therein
2.1 Asset Purchase Agreement, dated as of November 12, 1997,
among Nestle USA, Inc., Contadina Services, Inc., Del Monte
Corporation and Del Monte Foods Company (the "Asset Purchase
Agreement") (incorporated by reference to Exhibit 10.1 to
Report on Form 8-K No. 33-36374-01 filed January 5, 1998)
2.2 Agreement and Plan of Merger, dated as of February 21, 1997,
amended and restated as of April 14, 1997, among TPG
Partners, L.P., TPG Shield Acquisition Corporation and Del
Monte Foods Company (the "Agreement and Plan of Merger")
(incorporated by reference to Exhibit 2.1 to Registration
Statement on Form S-4 No. 333-29079, filed June 12, 1997
(the "DMC Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Agreement and Plan of Merger.
3.1 Certificate of Incorporation of Del Monte Foods Company
3.2* Bylaws of Del Monte Foods Company, as amended
3.3 Certificate of Designations filed May 4, 1998
3.4 Certificate of Merger between Del Monte Foods Company, a
Maryland corporation, and Del Monte Foods Company, a
Delaware corporation, filed May 1, 1998
3.5 Articles of Merger between Del Monte Foods Company, a
Maryland corporation, and Del Monte Foods Company, a
Delaware corporation, filed May 1, 1998
4.1 Specimen Certificate of Common Stock of Del Monte Foods
Company
4.2 Stockholders' Agreement, dated as of April 18, 1997, among
Del Monte Foods Company and its Stockholders (incorporated
by reference to Exhibit 3.6 to the DMC Registration
Statement)
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of
Item 601 of Regulation S-K, the Registrant hereby undertakes
to furnish to the Commission upon request copies of the
instruments pursuant to which various entities hold
long-term debt of the Company or its parent or subsidiaries,
none of which instruments govern indebtedness exceeding 10%
of the total assets of the Company and its parent or
subsidiaries on a consolidated basis
4.3 Form of Stockholders' Agreement among Del Monte Foods
Company and its employee stockholders (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form
S-8 filed November 24, 1997 File No. 333-40867 (the
"Registration Statement on Form S-8"))
4.4 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors
4.5 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors -- Directors' Fee
Arrangement
4.6 Form of Registration Rights Agreement by and between TPG
Partners, L.P., TPG Parallel I, L.P. and Del Monte Foods
Company
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton
10.1 Indenture, dated as of December 17, 1997, among Del Monte
Foods Company, as issuer, and Marine Midland Bank, as
trustee, relating to the Notes (the "Indenture")
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 No. 333-47289, filed
March 4, 1998 (the "Exchange Offer Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Indenture.
10.2 Registration Rights Agreement, dated as of December 17,
1997, by and among Del Monte Foods Company and the Initial
Purchasers listed therein, relating to the Notes (the
"Registration Rights Agreement") (incorporated by reference
to Exhibit 4.3 to the Exchange Offer Registration Statement)
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Registration Rights Agreement.
10.3 Amended and Restated Credit Agreement, dated as of December
17, 1997, among Del Monte Corporation, Bank of America
National Trust and Savings Association, as Administrative
Agent ("BofA"), and the other financial institutions parties
thereto (the "Amended Credit Agreement") (incorporated by
reference to Exhibit 4.4 to the Exchange Offer Registration
Statement)
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Amended Credit Agreement.
10.4 Amended and Restated Parent Guaranty, dated December 17,
1997, executed by Del Monte Foods Company, with respect to
the obligations under the Amended Credit Agreement (the
"Restated Parent Guaranty") (incorporated by reference to
Exhibit 4.5 to the Exchange Offer Registration Statement)
10.5 Security Agreement, dated April 18, 1997, between Del Monte
Corporation and Del Monte Foods Company and Bank of America
National Trust and Savings Association (incorporated by
reference to Exhibit 4.6 to the DMC Registration Statement)
10.6 Pledge Agreement, dated April 18, 1997, between Del Monte
Corporation and Bank of America National Trust and Savings
Association (incorporated by reference to Exhibit 4.7 to the
DMC Registration Statement)
10.7 Parent Pledge Agreement, dated April 18, 1997, between Del
Monte Foods Company and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit
4.8 to the DMC Registration Statement)
10.8 Indenture, dated as of April 18, 1997, among Del Monte
Corporation, as issuer, Del Monte Foods Company, as
guarantor, and Marine Midland Bank, as trustee, relating to
the 12 1/4 Senior Subordinated Notes Due 2007 (incorporated
by reference to Exhibit 4.2 to the DMC Registration
Statement)
10.9 Registration Rights Agreement, dated as of April 18, 1997,
by and among Del Monte Corporation and the Purchasers listed
therein, relating to the 12 1/4 Senior Subordinated Notes
Due 2007 (incorporated by reference to Exhibit 4.9 to the
DMC Registration Statement)
10.10 Transaction Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.1 to the DMC
Registration Statement)
10.11 Management Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.2 to the DMC
Registration Statement)
10.12 Retention Agreement between Del Monte Corporation and David
L. Meyers, dated November 1, 1991 (incorporated by reference
to Exhibit 10.3 to the DMC Registration Statement)
10.13 Retention Agreement between Del Monte Corporation and Glynn
M. Phillips, dated October 5, 1994 (incorporated by
reference to Exhibit 10.4 to the DMC Registration Statement)
10.14 Retention Agreement between Del Monte Corporation and Thomas
E. Gibbons, dated January 1, 1992 (incorporated by reference
to Exhibit 10.5 to the DMC Registration Statement)
10.15 Del Monte Foods Annual Incentive Award Plan and 1997 Plan
Year Amendments (incorporated by reference to Exhibit 10.8
to the DMC Registration Statement)
10.16 Additional Benefits Plan of Del Monte Corporation, as
amended and restated effective January 1, 1996 (incorporated
by reference to Exhibit 10.9 to the DMC Registration
Statement)
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.17 Supplemental Benefits Plan of Del Monte Corporation,
effective as of January 1, 1990, as amended as of January 1,
1992 and May 30, 1996 (incorporated by reference to Exhibit
10.10 to the DMC Registration Statement)
10.18 Del Monte Foods Company Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8)
10.19 Del Monte Foods Company 1997 Stock Incentive Plan
(incorporated by reference to Exhibit 4.2 to Registration
Statement on Form S-8)
10.20 Agreement for Information Technology Services between Del
Monte Corporation and Electronic Data Systems Corporation,
dated November 1, 1992, as amended as of September 1, 1993
and as of September 15, 1993 (incorporated by reference to
Exhibit 10.11 to the DMC Registration Statement)
10.21 Supply Agreement between Del Monte Corporation and Silgan
Containers Corporation, dated as of September 3, 1993, as
amended as of December 21, 1993 (incorporated by reference
to Exhibit 10.12 to the DMC Registration Statement)
10.22 Del Monte Foods Company Non-Employee Director and
Independent Contractor 1997 Stock Incentive Plan
10.23* Del Monte Foods Company 1998 Stock Incentive Plan, as
amended
10.24 Supplemental Indenture, dated as of April 24, 1998, among
Del Monte Corporation, as Issuer, Del Monte Foods Company,
as Guarantor, and Marine Midland Bank, as Trustee
10.25 Supplemental Indenture, dated as of April 24, 1998, between
Del Monte Foods Company and Marine Midland Bank, as Trustee
10.26 Amendment and Waiver, dated as of April 16, 1998, to the
Amended Credit Agreement and the Restated Parent Guaranty,
by Del Monte Corporation and the Financial institutions
party thereto
10.27 Employment Agreement and Promissory Note of Richard Wolford
(incorporated by reference to Exhibit 10.25 to Form 10-K for
the year ended June 30, 1998, filed September 22, 1998, File
No. 001-14335 (the "1998 Form 10-K"))
10.28 Employment Agreement and Promissory Note of Wesley Smith
(incorporated by reference to Exhibit 10.26 to the 1998 Form
10-K)
10.29 Supplemental Indenture, dated as of December 19, 1997, among
Del Monte Corporation, as Issuer, Del Monte Foods Company,
as Guarantor, and Marine Midland Bank, as Trustee
10.30* Master Lease dated as of November 19, 1998, between State
Street Bank and Trust Company of California, N.A., and Del
Monte Corporation
10.31* Participation Agreement dated as of November 19, 1998, among
Del Monte Corporation, Del Monte Foods Company, State Street
Bank and Trust Company of California, N.A., State Street
Bank and Trust Company and the other parties named therein.
NOTE: Pursuant to paragraph (b)(2) of Item 601 of Regulation
S-K, the Registrant hereby undertakes to furnish to the
Commission upon request copies of any schedule to the
Participation Agreement.
11.1* Statement re Computation of Earnings Per Share
12.1* Statement re Computation of Ratios
21.1 Subsidiaries of Del Monte Foods Company
23.1* Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of KPMG Peat Marwick LLP, Independent Accountants
23.3* Consent of KPMG Peat Marwick LLP, Independent Accountants
23.4 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibit 5.1)
23.5 Consent of A. C. Nielsen Company
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.2
DEL MONTE FOODS COMPANY
BYLAWS
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of Del Monte Foods
Company, a Delaware corporation (the "Company"), shall be located at 1209
Orange Street, in the City of Wilmington, in the County of New Castle, in the
State of Delaware. The name of its registered agent at that address is The
Corporation Trust Company.
Section 2. OTHER OFFICES. The Company may have other offices, either
within or without the State of Delaware, at such place or places as the Board
of Directors may from time to time select or the business of the Company may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. ANNUAL MEETINGS. Each annual meeting of stockholders for the
election of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at such a time, date and place as the Board
may determine by resolution. At each annual meeting, the stockholders entitled
to vote shall elect directors by a plurality vote, and stockholders may transact
such other corporate business as shall be stated in the notice of the meeting.
Section 2. SPECIAL MEETINGS. Except as provided in the Certificate of
Incorporation, special meetings of the stockholders may be called only on the
order of the Chairman of the Board or the Board of Directors and shall be held
at such date and time as may be specified by such order. The business
permitted to be conducted at any special meeting of the stockholders is limited
to the purpose or purposes specified by such order.
Section 3. PLACE. All meetings of stockholders shall be held at the
principal office of the Company, One Market, San Francisco, California or at
such other place within or without the State of Delaware as shall be stated in
the notice of the meeting.
1
<PAGE> 2
Section 4. NOTICE OF MEETINGS. Written notice of each meeting of the
stockholders shall be mailed or delivered to each stockholder entitled to vote
at such meeting not less than ten nor more than sixty days before the meeting.
The notice shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Other business may be transacted at the annual meeting (but not at any
special meeting), only if the Secretary of the Company has received from the
sponsoring stockholder (a) not less than sixty nor more than ninety days before
the date designated for the annual meeting or, if such date has not been
publicly disclosed at least seventy-five days in advance, then not less than
fifteen days after such initial public disclosure, a written notice setting
forth (i) as to each matter the stockholder proposes to bring before the annual
meeting, a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Company's books, of
the stockholder proposing such business, (iii) the class and number of shares
which are beneficially owned by the stockholder on the date of such
stockholder's notice and (iv) any material interest of the stockholder in such
proposal, and (b) not more than ten days after receipt by the sponsoring
stockholder of a written request from the Secretary, such additional
information as the Secretary may reasonably require. Notwithstanding anything
in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 4 of Article II. The officer of the Company or other person presiding
over the annual meeting shall, if the facts so warrant, determine and declare
to the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 4 of Article II and, if he or
she should so determine, such officer shall so declare to the meeting and any
business so determined to be not properly brought before the meeting shall not
be transacted.
Candidates for election to the Board of Directors of the Company (other
than nominees proposed by the Board of Directors) may be nominated at the
annual meeting (but not at any special meeting), only if the Secretary of the
Company has received from the nominating stockholder (a) not less than sixty
nor more than ninety days before the date designated for the annual meeting or,
if such date has not been publicly disclosed at least seventy-five days in
advance, then not less than fifteen days after such initial public disclosure,
a written notice setting forth (i) with respect to each person whom such
stockholder proposes to nominate for election or re-election as a director, all
information relating to such person that would be required to be disclosed in
solicitations of proxies for election of directors, or would otherwise be
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, if such Regulation 14A were applicable (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected) or any successor regulation or statute,
(ii) the name and address, as they appear on the Company's books, of the
stockholder proposing such business and (iii) the class and number of shares
which are beneficially owned by the stockholder on the date of such
stockholder's notice, and (b) not more than ten
2
<PAGE> 3
days after receipt by the nominating stockholder of a written request from the
Secretary, such additional information as the Secretary may reasonably require.
Notwithstanding anything in these Bylaws to the contrary, no person shall be
eligible for election as a director except in accordance with the provisions of
this Section 4 of Article II. The officer of the Company or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
provisions of this Section 4 of Article II and, if he or she should so
determine, such officer shall so declare to the meeting and any such defective
nomination shall be disregarded.
Section 5. QUORUM. Except as otherwise required by law, by the
Certificate of Incorporation of the Company or by these Bylaws, the presence,
in person or by proxy, of stockholders holding shares of capital stock
constituting a majority of the shares of capital stock of the Company issued
and outstanding and entitled to vote thereat, shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders present in person or by
proxy and entitled to vote thereat, shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
the requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote shall
be represented, any business may be transacted that might have been transacted
at the meeting as originally noticed; but only those stockholders entitled to
vote at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
Section 6. VOTING. Each stockholder entitled to vote in accordance with
the terms of the Certificate of Incorporation of the Company and these Bylaws
may vote in person or by proxy executed in writing by the stockholder or by his
or her duly authorized attorney-in-fact. Any such proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting. If a quorum
is present, the affirmative vote of a majority of the votes cast at a meeting
of the stockholders by the holders of shares entitled to vote thereon shall be
the act of the stockholders, unless the vote of a greater or lesser number of
shares of stock is required by law, the Certificate of Incorporation of the
Company or these Bylaws.
A complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, with the address of each, and the number of
shares held by each, shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is entitled to be present.
Section 7. ORGANIZATION. At every meeting of stockholders, the Chairman
of the Board, if there be one, shall conduct the meeting or, in the case of
vacancy in office or absence of the Chairman of the Board, one of the following
officers present shall
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conduct the meeting in the order stated: the Vice Chairman of the Board, the
Chief Executive Officer, the Chief Operating Officer, the President, any Vice
President, or a Chairman chosen by the stockholders entitled to cast, shall act
as Chairman, and the Secretary, or in his or her absence, an Assistant
Secretary, or in the absence of both the Secretary and Assistant Secretaries, a
person appointed by the Chairman, shall act as Secretary.
ARTICLE III
DIRECTORS
Section 1. NUMBER. Subject to the provisions of the Certificate of
Incorporation, the number of directors of the Company shall initially be fixed
at ten and thereafter shall be determined from time to time by resolution
adopted by affirmative vote of a majority of such directors then in office.
Section 2. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the entire Board of Directors, designate
one or more committees, each committee to consist of one or more directors of
the Company.
Section 3. MEETINGS. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the first annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent of
all the directors.
Regular meetings of the Board of Directors may be held without notice at
such places and times as shall be determined from time to time by resolution of
the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman
of the Board, the Chief Executive Officer or the President, and shall be called
by the Secretary on the written request of a majority of the directors then in
office, on at least one hour's notice to each director (except that notice to
any director may be waived in writing by such director) and shall be held at
such place or places as may be determined by the Board of Directors, or as
shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation of the
Company or these Bylaws, members of the Board of Directors, or any committee
designated by the Board of Directors, may participate in any meeting of the
Board of Directors or any committee thereof by means of a conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 4. QUORUM. A majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors
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there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no
further notice thereof need be given other than by announcement at the meeting
which shall be so adjourned. The vote of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors unless the Certificate of Incorporation of the Company or these
Bylaws shall require the vote of a greater number.
Section 5. COMPENSATION. The directors shall receive such compensation
for their services as may be prescribed by the Board of Directors. Expenses
for attendance at meetings of the Board of Directors and committees of the
Board of Directors may be reimbursed for all members of the Board of Directors.
Nothing herein contained shall be construed to preclude any director from
serving the Company in any other capacity as an officer, agent or otherwise,
and receiving compensation therefor.
Section 6. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.
ARTICLE IV
OFFICERS
Section 1. ELECTION; QUALIFICATIONS. As soon as practicable after each
annual meeting of stockholders, the Board of Directors shall elect or appoint a
Chairman of the Board, one or more Vice Chairmen, a President, one or more
Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice
Presidents, a Secretary, a Treasurer, and such other officers, including
assistant officers, as the Board of Directors may from time to time deem
advisable. No officer need be a director of the Company. Any two or more
offices may be held by the same person, except the offices of President and
Secretary.
Section 2. TERM OF OFFICE; VACANCIES. All officers shall be elected or
appointed to hold office until the meeting of the Board of Directors following
the next annual meeting of stockholders. Each officer shall hold office for
such term, and until his or her successor has been elected or appointed and
qualified unless he or she shall earlier resign, die, or be removed. Any
vacancy occurring in any office, whether because of death, resignation or
removal, with or without cause, or any other reason, shall be filled by the
Board of Directors.
Section 3. REMOVAL; RESIGNATION. Any officer may be removed by the Board
of Directors with or without cause. Any officer may resign his or her office
at any time, such resignation to be made in writing and to take effect
immediately or on any future date stated in such writing, without acceptance by
the Company.
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Section 4. POWERS AND DUTIES OF OFFICERS. Officers of the Company shall,
unless otherwise provided by the Board of Directors, each have such powers and
duties as generally pertain to their respective offices as well as such powers
and duties as may be set forth in these Bylaws or may from time to time be
specifically conferred or imposed by the Board of Directors.
Section 5. SHARES OF OTHER CORPORATIONS. Whenever the Company is the
holder of shares of any other corporation, any right or power of the Company as
such stockholder (including the attendance, acting and voting at stockholders'
meetings and execution of waivers, consents, proxies or other instruments) may
be exercised on behalf of the Company by the Chairman, any Vice Chairman, the
President, any Executive Vice President, any Senior Vice President, Secretary
or such other person as the Board of Directors may authorize from time to time.
Section 6. DELEGATION. In the event of the absence of any officer of the
Company or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may at any time and from time to time
delegate all or any part of the powers or duties of any officer to any other
officer or officers or to any director or directors.
ARTICLE V
TRANSFER RESTRICTIONS
Any direct or indirect sale, transfer, assignment, pledge, hypothecation
or other encumbrance or disposition (a "Transfer") of legal or beneficial
ownership of any stock heretofore or hereafter issued and sold by the Company
pursuant to Rule 144A or Regulation S under the Securities Act of 1933, as
amended (the "Securities Act"), may be made only (i) pursuant to an effective
registration statement under the Securities Act or (ii) pursuant to a
transaction that is exempt from, or not subject to, the registration
requirements of the Securities Act. Neither the Company nor any employee or
agent of the Company shall record any Transfer prohibited by the preceding
sentence, and the purported transferee of such a prohibited Transfer (the
"Purported Transferee") shall not be recognized as a securityholder of the
Company for any purpose whatsoever in respect of the security or securities
that are the subject of the prohibited Transfer. The Purported Transferee
shall not be entitled, with respect to such securities, to any rights of a
securityholder of the Company, including without limitation, in the case of
securities that are Common Stock, the right to vote such Common Stock or to
receive dividends or distributions in respect thereof, if any. All
certificates representing securities subject to the transfer restrictions set
forth in this Article V shall bear a legend to the effect that the securities
represented by such certificates are subject to such restrictions, unless and
until the Company determines in its sole discretion that such legend may be
removed consistent with applicable law.
ARTICLE VI
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MISCELLANEOUS
Section 1. CERTIFICATES OF STOCK. A certificate of stock shall be issued
to each stockholder certifying the number of shares owned by such stockholder
in the Company. Certificates of stock of the Company shall be of such form and
device as the Board of Directors may from time to time determine.
Section 2. LOST CERTIFICATES. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the Company, alleged to have
been lost or destroyed, and the Board of Directors may, in its discretion,
require the owner of the lost or destroyed certificate, or such owner's legal
representatives, to give the Company a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the Company against
any claim that may be made against it on account of the alleged loss of any
such certificate, or the issuance of any such new certificate.
Section 3. TRANSFER OF SHARES. The shares of stock of the Company shall
be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such
transfer the old certificates shall be surrendered to the Company by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be canceled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
Section 4. STOCKHOLDERS RECORD DATE. In order that the Company may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and
which record date: (1) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than sixty nor less than ten days before
the date of such meeting; (2) in the case of determination of stockholders
entitled to express consent to corporate action in writing without a meeting,
shall not be more than ten days from the date upon which the resolution fixing
the record date is adopted by the Board of Directors; and (3) in the case of
any other action, shall not be more than sixty days prior to such other action.
If no record date is fixed: (1) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; (2) the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting when no prior action of the Board of
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Directors is required by law, shall be the first day on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Company in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day
on which the Board of Directors adopts the resolution taking such prior action;
and (3) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation of the Company, the Board of Directors may, out of funds legally
available therefor at any regular or special meeting, declare dividends upon
stock of the Company as and when they deem appropriate. Before declaring any
dividend there may be set apart out of any funds of the Company available for
dividends, such sum or sums as the Board of Directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the Company.
Section 6. SEAL. The corporate seal of the Company shall be in such form
as shall be determined by resolution of the Board of Directors. Said seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise imprinted upon the subject document or paper.
Section 7. FISCAL YEAR. The fiscal year of the Company shall end on June
30 of each year unless otherwise determined by resolution of the Board of
Directors.
Section 8. CHECKS. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Company shall be signed by such officer or officers, or agent or agents, of the
Company, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
to be given under these Bylaws, personal notice is not required (except in the
case of notices pursuant to Article III, Section 3), and any notice so required
shall be deemed to be sufficient if given by depositing the same in the United
States mail, postage prepaid, addressed to the person entitled thereto at his
or her address as it appears on the records of the Company, and such notice
shall be deemed to have been given on the day of such mailing. Stockholders
not entitled to vote shall not be entitled to receive notice of any meetings
except as otherwise provided by law. Whenever any notice is required to be
given under the provisions of any law, or under the provisions of the
Certificate of Incorporation of the Company or of these Bylaws, a waiver
thereof, in writing and signed by the person or persons entitled to said
notice, whether before or after the time stated thereon, shall be deemed
equivalent to such required notice.
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ARTICLE VII
AMENDMENTS
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors of the Company is expressly authorized and empowered to
adopt, amend and repeal the Bylaws of the Company by a majority vote at any
regular or special meeting of the Board of Directors or by written consent,
subject to the power of the stockholders of the Company to amend or repeal any
Bylaws made by the Board of Directors.
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EXHIBIT 10.23
DEL MONTE FOODS COMPANY
1998 STOCK INCENTIVE PLAN,
AS AMENDED SEPTEMBER 23, 1998
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1. Purpose of the Plan
This Del Monte Foods Company 1998 Stock Incentive Plan is intended to
promote the interests of the Company by encouraging the Company's employees,
nonemployee directors and consultants of the Company to continue in the service
of the Company, and to provide such persons with incentives and rewards for
superior management, growth and protection of the business of the Company.
2. Definitions
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors of Del Monte.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean (i) dishonesty; (ii)
deliberate and continual refusal to perform employment duties on substantially a
full-time basis; (iii) failure to act in accordance with any specific lawful
instructions given to the Participant in connection with the performance of his
duties for the Company or any of its Subsidiaries or affiliates, unless the
Participant has an existing Disability; or (iv) deliberate misconduct which is
reasonably likely to be materially damaging to the Company without a reasonable
good faith belief by the Participant that such conduct was in the best interests
of the Company. Notwithstanding the foregoing provisions of this Section 2(b),
"Cause," when used in connection with the termination of the employment with the
Company of a Participant who at the time of such termination is a party to a
written employment or retention agreement with the Company, shall have the
meaning assigned to such term in such agreement.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(d) "Committee" shall mean the Compensation Subcommittee of the Board of
Directors or such other committee as the Board of Directors shall appoint from
time to time to administer the Plan.
(e) "Common Stock" shall mean Del Monte's common stock, $0.01 par value
per share.
(f) "Company" shall mean Del Monte and each of its Subsidiaries.
(g) "Consultant" shall mean any consultant, independent contractor, or
other person who provides significant services to the Company, but who is
neither an Employee nor a Director.
(h) "Director" shall mean a member of the Board of Directors, whether or
not such individual also is an Employee.
<PAGE> 3
(i) "Disability" shall mean physical or mental disability as a result of
which the Participant is unable to perform his duties with the Company on
substantially a full-time basis for any period of six (6) consecutive months.
Any dispute as to whether or not the Participant is so disabled shall be
resolved by a physician reasonably acceptable to the Participant and the Company
whose determination shall be final and binding upon both the Participant and the
Company. Notwithstanding the foregoing provisions of this Section 2(i),
"Disability," when used in connection with the termination of the employment
with the Company of a Participant who at the time of such termination is a party
to a written employment or retention agreement with the Company, shall have the
meaning assigned to such term in such agreement.
(j) "Employee" shall mean any employee of the Company, whether such
employee is so employed at the time the Plan is adopted or becomes so employed
subsequent to the adoption of the Plan.
(k) the "Fair Market Value" of a share of Common Stock with respect to
any day shall be (i) the average of the high and low sales prices on such day of
a share of Common Stock as reported on the principal securities exchange on
which shares of Common Stock are then listed or admitted to trading or (ii) if
not so reported, the average of the closing bid and ask prices on such day as
reported on the National Association of Securities Dealers Automated Quotation
System or (iii) if not so reported, as furnished by any member of the National
Association of Securities Dealers, Inc. selected by the Committee. In the event
that the price of a share of Common Stock shall not be so reported, the Fair
Market Value of a share of Common Stock shall be determined by the Committee in
its absolute discretion.
(l) "Incentive Award" shall mean an Option, Tandem SAR, Stand-Alone SAR
or Stock Bonus granted pursuant to the terms of the Plan.
(m) "Incentive Stock Option" shall mean an Option which is an "incentive
stock option" within the meaning of Section 422 of the Code and which is
identified as an Incentive Stock Option in the agreement by which it is
evidenced.
(n) "Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option and which is identified as a Non-Qualified Stock Option
in the agreement by which it is evidenced.
(o) "Del Monte" shall mean Del Monte Foods Company, a Delaware
corporation, and its successors.
(p) "Option" shall mean an option to purchase shares of Common Stock of
Del Monte granted pursuant to Section 6 hereof. Each Option shall be identified
as either an Incentive Stock Option or a Non-Qualified Stock Option in the
agreement by which it is evidenced.
(q) "Participant" shall mean an Employee, Director or Consultant to whom
an Incentive Award is granted pursuant to the Plan, and upon his death, his
successors, heirs, executors and administrators, as the case may be.
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(r) "Plan" shall mean this Del Monte Foods Company 1998 Stock Incentive
Plan, as it may be amended from time to time.
(s) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, and any future regulation amending,
supplementing or superseding such regulation.
(t) "Section 16 Person" shall mean a person who, with respect to the
Common Stock, is subject to Section 16 of the Securities Exchange Act of 1934,
as amended.
(u) "Stand-Alone SAR" shall mean a stock appreciation right granted
pursuant to Section 8 hereof which is not related to any Option.
(v) "Stock Bonus" shall mean a grant of a bonus payable in shares of
Common Stock pursuant to Section 9 hereof.
(w) "Subsidiary" shall mean any "subsidiary corporation" within the
meaning of Section 424(f) of the Code.
(x) "Tandem SAR" shall mean a stock appreciation right granted pursuant
to Section 7 hereof which is related to an Option. Each Tandem SAR shall be
exercisable only to the extent its related Option is exercisable and only in the
alternative to the exercise of its related Option.
(y) "Change of Control" shall mean the occurrence of one or more of the
following events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any individual, partnership, corporation, limited liability company,
unincorporated organization, trust or joint venture, or a governmental agency or
political subdivision thereof (a "Person") or group of related Persons for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (a
"Group"), together with any Affiliates (as defined below) thereof other than to
TPG Partners, L.P. ("TPG") or its Affiliates;
(2) the approval by the holders of any and all shares, interests,
participations or other equivalents (however designated and whether or not
voting) of corporate stock, including each class of common stock and preferred
stock, of the Company ("Capital Stock") of any plan or proposal for the
liquidation or dissolution of the Company;
(3) (i) any Person or Group (other than TPG or its Affiliates) shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 40% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock (the "Voting Stock") of the Company and
(ii) TPG and its Affiliates shall beneficially own, directly or indirectly, in
the aggregate a lesser percentage of the Voting Stock of the Company than such
other Person or Group; or
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(4) the replacement of a majority of the Board of Directors over a
two-year period from the directors who constituted the Board of Directors at the
beginning of such period, and such replacement shall not have been approved by a
vote of at least a majority of the Board of Directors then still in office who
either were members of such Board of Directors was previously so approved or who
were nominated by, or designees of TPG or its Affiliates.
For purposes of this Section 2(y), "Affiliate" shall mean, with respect
to any specified Person, any other Person who directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common control
with, such specified Person. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" or "controlled" have meanings
correlative of the foregoing.
(z) A "Public Market" for the Common Stock shall be deemed to exist if
the Common Stock is registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, or if trading regularly occurs in such Common
Stock in, on or through the facilities of securities exchanges and/or
inter-dealer quotation systems in the United States (within the meaning of
Section 902(n) of the Securities Act of 1933, as amended) or any designated
offshore securities market (within the meaning of Rule 902(a) of the Securities
Act of 1933, as amended).
3. Stock Subject to the Plan
(a) Maximum Shares Available for Delivery. Subject to 10 hereof, the
maximum number of shares of Common Stock that may be delivered to Participants
and their beneficiaries under the Plan shall be equal to the sum of (i)
3,195,687, and (ii) any shares of Common Stock that are represented by awards
granted under any prior plan of the Company, which are forfeited, expire or are
canceled without the delivery of shares of Common Stock or which result in the
forfeiture of shares of Common Stock back to the Company; provided, however,
that in no event shall such maximum number of shares of Common Stock exceed a
number of shares which is equal to 30% of the then outstanding shares of Del
Monte (any convertible preferred or convertible senior common shares of Del
Monte will be counted as if on a converted basis). In addition, any shares of
Common Stock granted under the Plan which are forfeited back to the Company
because of the failure to meet an Incentive Award contingency or condition shall
again be available for delivery pursuant to new Incentive Awards granted under
the Plan. Any shares of Common Stock covered by an Incentive Award (or portion
of an Incentive Award) granted under the Plan, which is forfeited or canceled,
expires or is settled in cash, including the settlement of tax withholding
obligations using shares of Common Stock, shall be deemed not to have been
delivered for purposes of determining the maximum number of shares of Common
Stock available for delivery under the respective plan. Likewise, if any Option
is exercised by tendering shares of Common Stock, either actually or by
attestation, to the Company as full or partial payment for such exercise under
this Plan or any prior plan of the Company, only the number of shares of Common
Stock issued net of the shares of Common Stock tendered shall be deemed
delivered for purposes of determining the maximum number of shares of Common
Stock
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available for delivery under the Plan. Further, shares of Common Stock issued
under the Plan through the settlement, assumption or substitution of outstanding
Incentive Awards or obligations to grant future Incentive Awards as a condition
of the Company acquiring another entity shall not reduce the maximum number of
shares of Common Stock available for delivery under the Plan. Shares of Common
Stock issued under the Plan may be either newly issued shares or treasury
shares, as determined by the Committee.
(b) Payment Shares. Subject to the overall limitation on the number of
shares of Common Stock that may be delivered under the Plan, the Committee may,
in addition to granting Incentive Awards under Section 4, use available shares
of Common Stock as the form of payment for compensation, grants or rights earned
or due under any other compensation plans or arrangements of the Company,
including those of any entity acquired by the Company.
4. Administration of the Plan
The Plan shall be administered by a Committee of the Board of Directors
consisting of two or more persons, each of whom shall be a "nonemployee
director" within the meaning of Rule 16b-3, unless otherwise determined by the
Board of Directors. The Committee shall from time to time designate the key
employees of the Company who shall be granted Incentive Awards and the amount
and type of such Incentive Awards.
The Committee shall have full discretionary authority to administer the
Plan, including authority to interpret and construe any provision of the Plan
and the terms of any Incentive Award issued under it and to adopt such rules and
regulations for administering the Plan as it may deem necessary. The Committee,
in its sole discretion and on such terms and conditions as it may provide, may
delegate all or any part of its authority and powers under the Plan to one or
more Directors. Decisions of the Committee shall be final and binding on all
parties, and shall be given the maximum deference permitted by law.
The Committee may, in its absolute discretion, accelerate the date on
which any Option or Stand-Alone SAR granted under the Plan becomes exercisable
or, subject to Section 6(c)(1) hereof, extend the term of any Option or
Stand-Alone SAR granted under the Plan.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and Del Monte shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or employee
in bad faith and without reasonable belief that it was in the best interests of
the Company.
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5. Eligibility
The persons who shall be eligible to receive Incentive Awards pursuant
to the Plan shall be such Employees, Directors and Consultants as the Committee
shall select from time to time.
6. Options
The Committee may grant Options pursuant to the Plan to Participants,
which Options shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Options shall comply with and be subject to the
following terms and conditions:
(a) Identification of Options
All Options granted under the Plan shall be clearly identified in the
agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options.
(b) Exercise Price
The exercise price of any Non-Qualified Stock Option granted under the
Plan shall be such price as the Committee shall determine on the date on which
such Non-Qualified Stock Option is granted and shall not be less than 85% of the
Fair Market Value of a share of Common Stock on the date on which such
Non-Qualified Stock Option is granted; provided, that the exercise price of any
Non-Qualified Stock Option granted to an individual, who at the time of the
proposed grant owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of Del Monte or any of its Subsidiaries,
shall not be less than 110% of the Fair Market Value of a share of Common Stock
on the date on which such Non-Qualified Stock Option is granted.
(c) Term and Exercise of Options
(1) Each Option shall be exercisable on such date or dates,
during such period and for such number of shares of Common Stock as shall be
determined by the Committee on the day on which such Option is granted and set
forth in the Option agreement with respect to such Option; provided, however,
that no Option will be exercisable after the expiration of ten years from the
date the Option is granted; and provided, further, that each Option shall be
subject to earlier expiration, termination, cancellation or exercisability as
provided in this Plan. Subject to earlier termination of the Option as
determined by the Committee, each Participant who is not an officer, Director or
Consultant of the Company or of a Subsidiary shall have the right to exercise an
Option at the rate of at least twenty percent over five years from the date such
Option is granted.
(2) Each Option shall be exercisable in whole or in part, subject
to the provisions of the applicable Option agreement. The partial exercise of an
Option shall not cause the expiration, termination or cancellation of the
remaining portion thereof.
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(3) An Option shall be exercised by delivering written notice to
Del Monte's principal office, to the attention of the office specified by Del
Monte. Such notice shall specify the number of shares of Common Stock with
respect to which the Option is being exercised and the effective date of the
proposed exercise and shall be signed by the Participant. Payment for shares of
Common Stock purchased upon the exercise of an Option shall be made on the
effective date of such exercise in full in cash or its equivalent. The
Committee, in its sole discretion, also may permit exercise (i) by tendering
previously acquired shares of Common Stock having an aggregate Fair Market Value
at the time of exercise equal to the total exercise price, or (ii) by any other
means which the Committee, in its sole discretion, determines to both provide
legal consideration for the Common Stock, and to be consistent with the purposes
of the Plan. In the event that, prior to the existence of a Public Market for
the Common Stock, a Participant elects to pay the exercise price upon the
exercise of an Option by the tender of previously-owned shares, the delivery by
Del Monte of certificates representing the shares of Common Stock purchased upon
such exercise shall be deferred pending a determination of the exact number of
the shares of Common Stock required to be tendered by the Participant.
(4) Any Option granted under the Plan may be exercised by a
broker-dealer acting on behalf of a Participant if (i) the broker-dealer has
received from the Participant or Del Monte a fully- and duly-endorsed agreement
evidencing such Option and instructions signed by the Participant requesting Del
Monte to deliver the shares of Common Stock subject to such Option to the
broker-dealer on behalf of the Participant and specifying the account into which
such shares should be deposited, (ii) adequate provision has been made with
respect to the payment of any withholding taxes due upon such exercise or, in
the case of an Incentive Stock Option, the disposition of such shares and (iii)
the broker-dealer and the Participant have otherwise complied with Section
220.3(e)(4) of Regulation T, 12 CFR Part 220.
(5) Certificates for shares of Common Stock purchased upon the
exercise of an Option (which may be in book entry form) shall be issued in the
name of the Participant and delivered to the Participant as soon as practicable
following the effective date on which the Option is exercised.
(6) During the lifetime of a Participant, each Option granted to
him shall be exercisable only by him. No Option shall be assignable or
transferable other than by will, the laws of descent and distribution, or to the
limited extent provided in Paragraph 17 hereof.
(7) Subject to earlier termination pursuant to Section 7(b)(2)
and 10(d), exercise of an Option shall always be subject to the following:
(i) In the event of the termination of the employment of a
Participant with the Company for Cause, each Option then outstanding shall
expire and be cancelled upon such termination.
(ii) In the event that the employment of a Participant
with the Company shall be terminated other than by the Company for Cause or on
account of Disability or death of the Participant (A) Options granted to such
Participant, to the extent that they were exercisable at the time of such
termination, shall remain exercisable until the expiration of ninety
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(90) days after such termination, on which date they shall expire, and (B)
Options granted to such participant, to the extent that they were not
exercisable at the time of such termination, shall expire at the close of
business on the date of such termination; provided, however, that no Option
shall be exercisable after the expiration of its term.
(iii) In the event that the employment of a Participant
with the Company shall terminate on account of Disability or death of the
Participant, (A) Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall remain exercisable until
the expiration of one (1) year after such termination, on which date they shall
expire, and (B) Options granted to such Participant, to the extent that they
were not exercisable at the time of such termination, shall expire at the close
of the business on the date of such termination; provided, however, that no
Option shall be exercisable after the expiration of its term.
(d) Limitations on Grant of Incentive Stock Options
(1) The aggregate Fair Market Value of shares of Common Stock
with respect to which "incentive stock options" (within the meaning of Section
422 of the Code) are exercisable for the first time by a Participant during any
calendar year under the Plan and any other stock option plan of the Company (or
any "subsidiary" of Del Monte as such term is defined in Section 424 of the
Code) shall not exceed $100,000. Such Fair Market Value shall be determined as
of the date on which each such incentive stock option is granted. In the event
that the aggregate Fair Market Value of shares of Common Stock with respect to
such incentive stock options exceeds $100,000, then Incentive Stock Options
granted hereunder to such Participant shall, to the extent and in the order
required by regulations promulgated under the Code (or any other authority
having the force of regulations), automatically be deemed to be Non-Qualified
Stock Options, but all other terms and provisions of such Incentive Stock
Options shall remain unchanged. In the absence of such Regulations (and
authority), or in the event such Regulations (or authority) require or permit a
designation of the options which shall cease to constitute incentive stock
options, Incentive Stock Options shall, to the extent of such excess and in the
order in which they were granted, automatically be deemed to be Non-Qualified
Stock Options, but all other terms and provisions of such Incentive Stock
Options shall remain unchanged.
(2) No Incentive Stock Option may be granted to an individual if,
at the time of the proposed grant, such individual owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
Del Monte or any of its "subsidiaries" (within the meaning of Section 424 of the
Code), unless (i) the exercise price of such Incentive Stock Option is at least
one hundred and ten percent of the Fair Market Value of a share of Common Stock
at the time such Incentive Stock Option is granted and (ii) such Incentive Stock
Option is not exercisable after the expiration of five years from the date such
Incentive Stock Option is granted.
(3) Only Employees are eligible to be granted Incentive Stock
Options. Directors and Consultants are not eligible to be granted Incentive
Stock Options.
(e) Cash Bonuses and Loans
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(1) The Committee may, in its absolute discretion, grant to any
Participant a cash bonus in an amount determined by the Committee to enable the
Participant to pay any federal, state or local income taxes arising out of the
exercise of an Option.
(2) The Committee may, in its absolute discretion, provide a loan
to any Participant in an amount determined by the Committee to enable the
Participant to pay (i) any federal, state or local income taxes arising out of
the exercise of an Option or (ii) the exercise price with respect to any Option.
Any such loan (i) shall be for such term and at such rate of interest as the
Committee may determine, (ii) shall be evidenced by a promissory note in a form
determined by the Committee and executed by the Participant and (iii) shall be
subject to such other terms and conditions as the Committee may determine.
(f) Consequences Upon Certain Transactions
Not more than ten (10) days prior to a Change of Control, all
outstanding Options shall vest and become immediately exercisable.
7. Tandem Stock Appreciation Rights
The Committee may grant in connection with any Option granted hereunder
one or more Tandem SARs relating to a number of shares of Common Stock less than
or equal to the number of shares of Common Stock subject to the related Option.
Notwithstanding anything herein to the contrary, no Tandem SARs shall be granted
prior to the existence of a Public Market for the Common Stock. A Tandem SAR may
be granted at the same time as, or subsequent to the time that, its related
Option is granted. Each Tandem SAR shall be evidenced by an agreement in such
form as the Committee shall from time to time approve. Tandem SARs shall comply
with and be subject to the following terms and conditions:
(a) Benefit Upon Exercise
The exercise of a Tandem SAR with respect to any number of shares of
Common Stock shall entitle a Participant to (i) a cash payment, for each such
share, equal to the excess of (A) the Fair Market Value of a share of Common
Stock on the effective date of such exercise over (B) the exercise price of the
related Option, (ii) the issuance or transfer to the Participant of a number of
shares of Common Stock which on the date of the exercise of the Tandem SAR have
a Fair Market Value equal to such excess or (iii) a combination of cash and
shares of Common Stock in amounts equal to such excess, all as determined by the
Committee in its discretion.
(b) Term and Exercise of Tandem SAR
(1) A Tandem SAR shall be exercisable at the same time and to the
same extent (on a proportional basis, with any fractional amount being rounded
down to the immediately preceding whole number) as its related Option.
(2) The exercise of a Tandem SAR with respect to a number of
shares of Common Stock shall cause the immediate and automatic cancellation of
its related Option with
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respect to an equal number of shares. The exercise of an Option, or the
cancellation, termination or expiration of an Option (other than pursuant to
this Paragraph (2)), with respect to a number of shares of Common Stock shall
cause the automatic and immediate cancellation of its related Tandem SARs to the
extent that the number of shares of Common Stock subject to such Option after
such exercise, cancellation, termination or expiration is less than the number
of shares subject to such Tandem SARs. Such Tandem SARs shall be cancelled in
the order in which they became exercisable.
(3) Each Tandem SAR shall be exercisable in whole or in part, as
provided in the applicable agreement. The partial exercise of a Tandem SAR shall
not cause the expiration, termination or cancellation of the remaining portion
thereof.
(4) During the lifetime of a Participant, each Tandem SAR granted
to him shall be exercisable only by him. No Tandem SAR shall be assignable or
transferable other than by will, the laws of descent and distribution, or as
provided in Paragraph 17 hereof and otherwise than together with its related
Option.
(5) A Tandem SAR shall be exercised by delivering written notice
to Del Monte's principal office, to the attention of the office specified by Del
Monte. Such notice shall specify the number of shares of Common Stock with
respect to which the Tandem SAR is being exercised and the effective date of the
proposed exercise and shall be signed by the Participant.
8. Stand-Alone Stock Appreciation Rights
The Committee may grant Stand-Alone SARs pursuant to the Plan, which
Stand-Alone SARs shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Notwithstanding anything herein to the
contrary, no Stand-Alone SARs shall be granted prior to the existence of a
Public Market for the Common Stock. Stand-Alone SARs shall comply with and be
subject to the following terms and conditions:
(a) Exercise Price
The exercise price of any Stand-Alone SAR granted under the Plan shall
be determined by the Committee at the time of the grant of such Stand-Alone SAR.
(b) Benefit Upon Exercise
The exercise of a Stand-Alone SAR with respect to any number of shares
of Common Stock shall entitle a Participant to (i) a cash payment, for each such
share, equal to the excess of (A) the Fair Market Value of a share of Common
Stock on the effective date of such exercise over (B) the exercise price of the
Stand-Alone SAR, (ii) the issuance or transfer to the Participant of a number of
shares of Common Stock which on the date of the exercise of the Stand-Alone SAR
have a Fair Market Value equal to such excess or (iii) a combination of cash and
shares of Common Stock in amounts equal to such excess, all as determined by the
Committee in its absolute discretion.
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(c) Term and Exercise of Stand-Alone SARs
(1) Each Stand-Alone SAR shall be exercisable on such date or
dates, during such period and for such number of shares of Common Stock as shall
be determined by the Committee and set forth in the Stand-Alone SAR agreement
with respect to such Stand-Alone SAR. Each Stand-Alone SAR shall be subject to
such termination, expiration or cancellation provisions as provided in the
agreement evidencing such Stand-Alone SAR.
(2) Each Stand-Alone SAR may be exercised in whole or in part, as
provided in the applicable agreement. The partial exercise of a Stand-Alone SAR
shall not cause the expiration, termination or cancellation of the remaining
portion thereof.
(3) A Stand-Alone SAR shall be exercised by delivering written
notice to Del Monte's principal office, to the attention of the office
designated by Del Monte. Such notice shall specify the number of shares of
Common Stock with respect to which the Stand-Alone SAR is being exercised and
the effective date of the proposed exercise and shall be signed by the
Participant.
(4) During the lifetime of a Participant, each Stand-Alone SAR
granted to him shall be exercisable only by him. No Stand-Alone SAR shall be
assignable or transferable otherwise than by will, the laws of descent and
distribution, or to the limited extent provided in Paragraph 17 hereof.
9. Stock Bonuses
The Committee may grant Stock Bonuses in such amounts as it shall
determine from time to time. A Stock Bonus shall be paid at such time and
subject to such conditions as the Committee shall determine at the time of the
grant of such Stock Bonus. Notwithstanding anything herein to the contrary, no
Stock Bonus shall be granted prior to the existence of a Public Market for the
Common Stock. Certificates for shares of Common Stock granted as a Stock
Bonus shall be issued in the name of the Participant to whom such grant
was made and delivered to such Participant as soon as practicable after the date
on which such Stock Bonus is required to be paid.
10. Adjustment Upon Changes in Common Stock
(a) Shares Available for Grants
In the event of any change in the number of shares of Common Stock
outstanding by reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares or similar corporate change,
the maximum aggregate number of shares of Common Stock with respect to which the
Committee may grant Options, Stand-Alone SARs and Stock Bonuses shall be
appropriately adjusted by the Committee. In the event of any change in the
number of shares of Common Stock outstanding by reason of any other event or
transaction, the Committee may, but need not, make such adjustments in the
number and class of shares of
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Common Stock with respect to which Options, Stand-Alone SARs and Stock Bonuses
may be granted as the Committee may deem appropriate.
(b) Outstanding Options, Tandem SARs and Stand-Alone SARs - Increase
or Decrease in Issued Shares Without Consideration
Subject to any required action by the stockholders of Del Monte, in the
event of any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common Stock), or any
other increase or decrease in the number of such shares effected without receipt
or payment of consideration by Del Monte, the Committee shall proportionally
adjust the number of shares of Common Stock subject to each outstanding Option,
Tandem SAR and Stand-Alone SAR and the exercise price per share of Common Stock
of each such Option, Tandem SAR and Stand-Alone SAR.
(c) Outstanding Options, Tandem SARs and Stand-Alone SARs - Certain
Mergers
Subject to any required action by the stockholders of Del Monte, in the
event that Del Monte shall be the surviving corporation in any merger or
consolidation (except a merger or consolidation as a result of which the holders
of shares of Common Stock receive securities of another corporation), each
Option, Tandem SAR and Stand-Alone SAR outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of the
number of shares of Common Stock subject to such Option, Tandem SAR or
Stand-Alone SAR would have received in such merger or consolidation.
(d) Outstanding Options, Tandem SARs and Stand-Alone SARs - Certain
Other Transactions
In the event of (i) a dissolution or liquidation of Del Monte, (ii) a
sale of all or substantially all of Del Monte's assets, (iii) a sale of all or a
substantial portion of the Common Stock held by TPG, (iv) a merger or
consolidation involving Del Monte in which Del Monte is not the surviving
corporation or (iv) a merger or consolidation involving Del Monte in which Del
Monte is the surviving corporation but the holders of shares of Common Stock
receive securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option (including each Tandem-SAR related thereto) and Stand-Alone
SAR outstanding immediately prior to such event (whether or not then
exercisable), and, in full consideration of such cancellation, pay to the
Participant to whom such Option or Stand-Alone SAR was granted an amount in
cash, for each share of Common Stock subject to such Option or Stand-Alone SAR,
respectively, equal to the excess of (A) the value, as determined by the
Committee in its absolute discretion, of the property (including cash) received
by the holder of a share of Common Stock as a result of such event over (B) the
exercise price of such Option or Stand-Alone SAR; or
(ii) permit Participants to exercise their Options (or Tandem
SARs related
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thereto) and Stand-Alone SARs and participate in such transaction on a basis no
less favorable than that afforded other owners of Common Stock.
(e) Outstanding Options, Tandem SARs and Stand-Alone SARs - Other
Changes
In the event of any change in the capitalization of Del Monte or
corporate change other than those specifically referred to in Sections 10(b),
(c) or (d) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options, Tandem SARs
and Stand-Alone SARs outstanding on the date on which such change occurs and in
the per share exercise price of each such Option, Tandem SAR and Stand-Alone SAR
as the Committee may consider appropriate to prevent dilution or enlargement of
rights.
(f) No Other Rights
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation, merger or
consolidation of Del Monte or any other corporation. Except as expressly
provided in the Plan, no issuance by Del Monte of shares of stock of any class,
or securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to an Incentive Award or the exercise price of
any Option, Tandem SAR or Stand-Alone SAR.
11. Rights as a Stockholder
(a) No person shall have any rights as a stockholder with respect to any
shares of Common Stock covered by or relating to any Incentive Award granted
pursuant to this Plan until the date of the issuance of a stock certificate with
respect to such shares. Except as otherwise expressly provided in Section 10
hereof, no adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.
(b) Notwithstanding anything herein to the contrary, prior to the
existence of a Public Market, Del Monte shall not be obligated to cause to be
issued or delivered to or for the benefit of any Participant any certificates
evidencing shares of Common Stock pursuant to the Plan unless and until such
Participant executes a Stockholders' Agreement in the form attached hereto as
Exhibit A. Del Monte shall comply with Section 260.140.1 of Title 10 of the
California Code of Regulations with respect to the voting rights of Common
Stock.
(c) Del Monte will provide financial statements to each Participant
prior to such Participant's purchase of shares of Common Stock under the Plan,
and to each Participant annually during the period such Participant has Options
outstanding, or as otherwise required under Section 260.140.46 of Title 10 of
the California Code of Regulations. Notwithstanding the foregoing, Del Monte
will not be required to provide such financial statements to Participants when
issuance is limited to key employees whose services in connection with Del Monte
assure them access to equivalent information.
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12. No Special Employment Rights; No Right to Incentive Award
Nothing contained in the Plan or any Incentive Award shall confer upon
any Participant any right with respect to the continuation of his employment by
the Company or interfere in any way with the right of the Company, subject to
the terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
13. Securities Matters
(a) Del Monte shall be under no obligation to effect the registration
pursuant to the Securities Act of 1933 of any shares of Common Stock to be
issued hereunder or to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, Del Monte shall not be
obligated to cause to be issued or delivered any certificates evidencing shares
of Common Stock pursuant to the Plan unless and until Del Monte is advised by
its counsel that the issuance and delivery of such certificates is in compliance
with all applicable laws, regulations of governmental authority and the
requirements of any securities exchange on which shares of Common Stock are
traded. The Committee may require, as a condition of the issuance and delivery
of certificates evidencing shares of Common Stock pursuant to the terms hereof,
that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be effective
at such time as counsel to Del Monte shall have determined that the issuance and
delivery of shares of Common Stock pursuant to such exercise is in compliance
with all applicable laws, regulations of governmental authority and the
requirements of any securities exchange on which shares of Common Stock are
traded. Del Monte may, in its sole discretion, defer the effectiveness of any
exercise of an Option granted hereunder in order to allow the issuance of shares
of Common Stock pursuant thereto to be made pursuant to registration or an
exemption from registration or other methods for compliance available under
federal or state securities laws. Del Monte shall inform the Participant in
writing of its decision to defer the effectiveness of the exercise of an Option
granted hereunder. During the period that the effectiveness of the exercise of
an Option has been deferred, the Participant may, by written notice, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.
(c) In the event that the Committee defers the effectiveness of the
exercise of a Participant of an Option granted hereunder in order to allow the
issuance of shares of Common Stock pursuant thereto to be made pursuant to
registration or an exemption from registration or
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other methods for compliance available under federal or state securities laws,
such Participant may elect, by delivery of written notice by the Participant to
the Company not later than thirty (30) days following his receipt of notice of
such deferral or the expiration of such deferral, to surrender the exercisable
portion of such Option (or any portion thereof) to the Company in consideration
for a lump sum payment in cash in an amount equal to the product of (A) the
excess of (i) the value of a share of Common Stock as determined by the Board of
Directors as of the date of surrender over (ii) the per share exercise price of
the Option and (B) the number of shares with respect to which such Participant
desires and is entitled to exercise such Option. Notice shall be delivered in
person or by certified mail, return receipt requested and shall be deemed to
have been given when personally delivered or three (3) days after mailing.
14. Withholding Taxes
(a) Cash Remittance
Whenever shares of Common Stock are to be issued upon the exercise of an
Option or the grant of a Stock Bonus, Del Monte shall have the right to require
the Participant to remit to Del Monte in cash an amount sufficient to satisfy
federal, state and local withholding tax requirements, if any, attributable to
such exercise prior to the delivery of any certificate or certificates for such
shares. In addition, upon the exercise of a Tandem SAR or Stand-Alone SAR, Del
Monte shall have the right to withhold from any cash payment required to be made
pursuant thereto an amount sufficient to satisfy the federal, state and local
withholding tax requirements, if any, attributable to such exercise.
(b) Stock Remittance
At the election of the Participant, subject to the approval of the
Committee, when shares of Common Stock are to be issued upon the exercise of an
Option or the grant of a Stock Bonus, the Participant may tender to Del Monte a
number of shares of Common Stock determined by such Participant, the Fair Market
Value of which at the tender date the Committee determines to be sufficient to
satisfy the federal, state and local withholding tax requirements, if any,
attributable to such exercise or grant and not greater than the Participant's
estimated total federal, state and local tax obligations associated with such
exercise or grant. Such election shall satisfy the Participant's obligations
under Paragraph 14(a) hereof. In the event that a Participant makes an election
pursuant to this Section 14(b) prior to the existence of a Public Market for the
Common Stock, the delivery by Del Monte of certificates representing the shares
of Common Stock purchased upon such exercise shall be deferred pending a
determination of the exact number of the shares of Common Stock required to be
tendered or withheld.
(c) Stock Withholding
At the election of the Participant, subject to the approval of the
Committee, when shares of Common Stock are to be issued upon the exercise of an
Option or the grant of a Stock Bonus, Del Monte shall withhold a number of such
shares determined by such Participant, the Fair Market Value of which at the
exercise date the Committee determines to be sufficient to satisfy the federal,
state and local withholding tax requirements, if any, attributable to such
exercise or
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grant and is not greater than the Participant's estimated total federal, state
and local tax obligations associated with such exercise or grant. Such election
shall satisfy the Participant's obligations under Paragraph 14(a) hereof.
15. Amendment of the Plan
The Board of Directors may at any time suspend or discontinue the Plan
or revise or amend it in any respect whatsoever; provided, however, that without
approval of the stockholders no revision or amendment shall except as provided
in Section 10 hereof, increase the number of shares of Common Stock that may be
issued under the Plan.
16. No Obligation to Exercise
The grant to a Participant of an Option, Tandem SAR or Stand-Alone SAR
shall impose no obligation upon such Participant to exercise such Option, Tandem
SAR or Stand-Alone SAR.
17. Transfers Upon Death
If permitted by the Committee, a Participant may name a beneficiary or
beneficiaries to whom any vested but unpaid Incentive Award shall be paid in the
event of the Participant's death. Each such designation shall revoke all prior
designations by the Participant and shall be effective only if given in a form
and manner acceptable to the Committee. In the absence of any such designation,
any vested benefits remaining unpaid at the Participant's death shall be paid to
the Participant's estate and, subject to the terms of the Plan and of the
applicable Incentive Award agreement, any unexercised vested Incentive Award may
be exercised by the administrator or executor of the Participant's estate. No
such transfer or distribution of any Incentive Award, or the right to exercise
any Incentive Award, shall be effective to bind Del Monte unless the Committee
shall have been furnished with (a) written notice thereof and with a copy of the
will and/or such evidence as the Committee may deem necessary to establish the
validity of the transfer and (b) an agreement by the transferee to comply with
all the terms and conditions of the Incentive Award that are or would have been
applicable to the Participant and to be bound by the acknowledgements made by
the Participant in connection with the grant of the Incentive Award.
18. Expenses and Receipts
The expenses of the Plan shall be paid by Del Monte. Any proceeds
received by Del Monte in connection with any Incentive Award will be used for
general corporate purposes.
19. Failure to Comply
In addition to the remedies of Del Monte elsewhere provided for herein,
failure by a Participant to comply with any of the terms and conditions of the
Plan or the agreement executed by such Participant evidencing an Incentive
Award, unless such failure is remedied by such Participant within ten days after
having been notified of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Incentive Award, in whole or in part, as the
Committee, in its absolute discretion, may determine.
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20. Compliance with Rule 16b-3
Transactions under this Plan with respect to Section 16 Persons are
intended to comply with all applicable conditions of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended. To the extent any provision of the
Plan, Incentive Award agreement or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
21. Applicable Law
The Plan will be administered in accordance with the laws of the State
of California, without reference to its principles of conflicts of law.
22. Effective Date
The Plan shall commence on May 29, 1998 (the date of adoption of the
Plan), and subject to Paragraph 15 (regarding the Board's right to amend or
terminate the Plan), shall remain in effect thereafter. The Plan shall be
approved by stockholders of Del Monte within twelve months before or after the
effective date of the Plan. However, without further stockholder approval, no
Incentive Stock Option may be granted under the Plan after May 29, 2006.
18
<PAGE> 1
EXHIBIT 10.30
================================================================================
MASTER LEASE
(Del Monte Corporation Trust No. 1998-A)
Dated as of November 19, 1998
between
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
not in its individual capacity, but solely as
Certificate Trustee,
as Lessor,
and
DEL MONTE CORPORATION, as Lessee
================================================================================
THIS MASTER LEASE HAS BEEN EXECUTED IN __ MANUALLY EXECUTED SERIALLY NUMBERED
COUNTERPARTS OF WHICH THIS IS COUNTERPART NUMBER __. TO THE EXTENT, IF ANY, THAT
THIS MASTER LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE
UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO
SECURITY INTEREST IN THIS MASTER LEASE MAY BE CREATED THROUGH THE TRANSFER OR
POSSESSION OF ANY COUNTERPART HEREOF OTHER THAN COUNTERPART "NUMBER 1", WHICH
SHALL BE IDENTIFIED AS THE COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED
BY CERTIFICATE TRUSTEE ON OR FOLLOWING THE SIGNATURE PAGE THEREOF.
SEE SECTION 23.20 FOR THE NATURE OF THIS TRANSACTION AND INTENTION OF THE
PARTIES.
<PAGE> 2
TABLE OF CONTENTS
(Lease)
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
ARTICLE I - DEFINITIONS; LESSEE LIABILITY
ARTICLE II - LEASE OF PREMISES; LEASE TERM
SECTION 2.1. Acceptance and Lease of Sites.......................2
SECTION 2.2. Acceptance Procedure................................2
SECTION 2.3. Term................................................3
ARTICLE III - OTHER PROPERTY
ARTICLE IV - RENT
SECTION 4.1. Basic Rent..........................................4
SECTION 4.2. Supplemental Rent...................................4
SECTION 4.3. Method and Amount of Payment........................4
SECTION 4.4. Late Payment........................................5
ARTICLE V - NET LEASE
ARTICLE VI - UTILITY CHARGES
ARTICLE VII - CONDITION AND USE OF PREMISES
SECTION 7.1. Waivers ..........................................8
ARTICLE VIII - NO LESSOR CONSENT OR LIABILITY
ARTICLE IX - MAINTENANCE AND REPAIR; ALTERATIONS AND ADDITIONS
SECTION 9.1. Maintenance and Repair; Compliance
With Law..........................................10
SECTION 9.2. Improvements and Alterations........................11
SECTION 9.3. Title to Alterations................................13
SECTION 9.4. Maintenance and Repair Reports......................14
SECTION 9.5. Permitted Contests..................................14
SECTION 9.6. Liens...............................................15
ARTICLE X - USE
ARTICLE XI - INSURANCE
SECTION 11.1. Required Coverages.................................16
SECTION 11.2. Delivery of Insurance Certificates.................18
ARTICLE XII - ASSIGNMENT AND SUBLEASING
ARTICLE XIII - LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
SECTION 13.1. Event of Loss; Condemnation or Casualty............20
SECTION 13.2. Application of Payments Relating to an Event
of Loss..........................................20
</TABLE>
i
<PAGE> 3
<TABLE>
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<S> <C> <C> <C>
SECTION 13.3. Application of Certain Payments Relating to a
Condemnation.....................................21
SECTION 13.4. Casualty ..........................................21
SECTION 13.5. Negotiations.......................................22
SECTION 13.6. No Rent Abatement..................................22
SECTION 13.7. Notice of Environmental Matters....................22
ARTICLE XIV - NON-INTERFERENCE
SECTION 14.1. Non-Interference...................................23
SECTION 14.2. Certain Duties and Responsibilities
of Lessor........................................23
ARTICLE XV - INSPECTION AND REPORTS
SECTION 15.1. Inspection.........................................24
SECTION 15.2. Reports............................................24
ARTICLE XVI - OWNERSHIP, GRANT OF LIEN AND FURTHER ASSURANCES
SECTION 16.1. Grant of Security Interest.........................24
SECTION 16.2. Attorney-in-Fact...................................25
ARTICLE XVII - LEASE EVENTS OF DEFAULT
ARTICLE XVIII - ENFORCEMENT
SECTION 18.1. Remedies ..........................................28
SECTION 18.2. Proceeds of Sale; Deficiency.......................34
SECTION 18.3. Mortgage and Lease Supplement Remedies.............34
SECTION 18.4. Remedies Cumulative; No Waiver; Consents...........34
SECTION 18.5. Limitation of Recourse Liability...................35
ARTICLE XIX - RIGHT TO PERFORM FOR LESSEE
SECTION 19.1. Right to Cure......................................36
SECTION 19.2. Grants and Releases of Easements...................36
SECTION 19.3. Power of Attorney..................................37
ARTICLE XX - EARLY TERMINATION OPTION AND OBLIGATION TO PURCHASE
SECTION 20.1. Early Termination Option...........................38
SECTION 20.2. Required Purchase..................................38
ARTICLE XXI - END OF TERM OPTIONS
SECTION 21.1. End of Term Options................................39
SECTION 21.2. Election of Options................................40
SECTION 21.3.
Renewal Options; Extension Options................................40
ARTICLE XXII - SALE OPTION
SECTION 22.1. Sale Option Procedures.............................41
SECTION 22.2. Sale...............................................42
SECTION 22.3. Application of Sale Proceeds and Recourse
Payments.........................................44
SECTION 22.4. Appraisal..........................................44
</TABLE>
ii
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<TABLE>
<CAPTION>
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<S> <C> <C> <C>
ARTICLE XXIII - MISCELLANEOUS
SECTION 23.1. Binding Effect; Successors and Assigns;
Survival.........................................45
SECTION 23.2. Severability.......................................45
SECTION 23.3. Notices ..........................................45
SECTION 23.4. Amendment; Complete Agreements.....................45
SECTION 23.5. Headings ..........................................46
SECTION 23.6. Original Lease.....................................46
SECTION 23.7. GOVERNING LAW......................................46
SECTION 23.8. RESERVED...........................................47
SECTION 23.9. Liability of Lessor Limited........................47
SECTION 23.10. Estoppel Certificates.............................47
SECTION 23.11. No Joint Venture..................................48
SECTION 23.12. No Accord and Satisfaction........................48
SECTION 23.13. No Merger.........................................49
SECTION 23.14. Successor Lessor..................................49
SECTION 23.15. Survival..........................................49
SECTION 23.16. Transfer of Premises..............................49
SECTION 23.17. Enforcement of Certain Warranties.................50
SECTION 23.18. Security Interest in Funds........................51
SECTION 23.19. Recording of Lease Supplements....................51
SECTION 23.20. Nature of Transaction.............................52
EXHIBIT A-1 - Form of Lease Supplement (California)
EXHIBIT A-2 - Form of Lease Supplement (Indiana)
</TABLE>
iii
<PAGE> 5
THIS MASTER LEASE, dated as of November 19, 1998 (as amended,
supplemented, or otherwise modified from time to time, this "Lease"), is between
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., a national banking
association, not in its individual capacity, except as expressly stated herein,
but solely as Certificate Trustee under the Trust Agreement, as Lessor
("Lessor"), and DEL MONTE CORPORATION, as Lessee ("Lessee").
W I T N E S S E T H:
A. Lessee desires to enter into the Overall Transaction for the purpose
of financing the acquisition of a fee interest in certain of the Sites and the
construction on the Sites of the Financed Improvements.
B. Subject to the terms and conditions set forth in the Operative
Documents, (i) Lessor will purchase on each Site Acquisition Date one or more
Sites from one or more third parties designated by Lessee on each Site
Acquisition Date or, in the case of the Modesto Site on the Site Acquisition
Date for such Site, Lessee and Certificate Trustee will enter into the Ground
Lease pursuant to which Lessee will lease the Modesto Site to Lessor, using
Advances funded by the Participants; (ii) during the Construction Period,
Construction Agent, using Advances funded by the Participants, will construct on
the Sites the Financed Improvements on behalf of Lessor and (iii) pursuant to
this Lease, Lessor will lease the Sites (or in the case of the Modesto Site,
sublease such Site) and the Financed Improvements to Lessee, and Lessee will
lease such Sites (or in the case of the Modesto Site, sublease such Site) and
Financed Improvements from Lessor.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto, intending to be legally
bound hereby, hereby agree as follows:
ARTICLE I
DEFINITIONS; LESSEE LIABILITY
For all purposes hereof, the capitalized terms used herein and not
otherwise defined shall have the meanings assigned thereto in Appendix 1 to that
certain Participation Agreement dated as of even date herewith, among Lessee,
Guarantor, Lessor, Agent, and the Participants identified therein (the
"Participation Agreement"). Except as specially provided for at Section 18.5
hereof, all obligations imposed on the "Lessee" in this Lease shall be the full
recourse liability of Lessee.
<PAGE> 6
ARTICLE II
LEASE OF PREMISES; LEASE TERM
SECTION 2.1. Acceptance and Lease of Sites. Lessor, subject to the
satisfaction or waiver of the conditions set forth in Article III of the
Participation Agreement, hereby agrees to accept delivery on each Site
Acquisition Date of fee title to each Site (or in the case of the Modesto Site,
a leasehold interest in) to be delivered on such Site Acquisition Date and of
the Financed Improvements to be constructed thereon pursuant to the terms of the
Construction Agency Agreement and to lease all of Lessor's interest in such Site
and Financed Improvements to Lessee hereunder, and Lessee hereby agrees,
expressly for the direct benefit of Lessor, to lease from Lessor for the Site
Term applicable to such Site, Lessor's interest in such Site and such Financed
Improvements.
SECTION 2.2. Acceptance Procedure. Lessor hereby authorizes one or more
employees of Lessee, to be designated by Lessee, as the authorized
representative or representatives of Lessor to accept delivery of each Site
identified on the applicable Advance Request and the Financed Improvements to be
constructed thereon. Lessee hereby agrees that acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
Lessee on each Site Acquisition Date of a Lease Supplement(in the form of
Exhibit A-1 or Exhibit A-2, as applicable, appropriately completed) with respect
to such Site and the Improvements now on such Site and all Improvements,
including without limitation all Financed Improvements, to be constructed during
the applicable Site Term shall, without further act, constitute the irrevocable
acceptance by Lessee of such Site and all such Improvements for all purposes of
this Lease and the other Operative Documents on the terms set forth therein and
herein and that such Site and such Improvements shall be deemed to be included
in the Premises and shall be subject to the terms and conditions of this Lease
during the applicable Site Term.
SECTION 2.3. Term.
(a) Site Term. Unless earlier terminated, the term of the Lease
Supplement with respect to each Site shall consist of (a) an interim period (the
"Interim Term") commencing on and including the Site Acquisition Date for such
Site and ending on but not including the earlier of (i) the Completion Date for
such Site or (ii) such Site becoming subject to this Lease pursuant to Section
5.1 of the Construction Agency Agreement, (b) a base term (the "Base Term")
commencing on and including the last day of the Interim Term for such Site (such
day, the "Base Term Commencement Date") and ending on but not including the
fifth anniversary of the Document Closing Date, and (c) if exercised and
approved pursuant to each of the terms and conditions of Section 2.14 of the
Participation Agreement, each Lease Renewal Term (the Interim Term, the Base
Term
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<PAGE> 7
and the Lease Renewal Terms, if any, with respect to a Site collectively the
"Site Term").
(b) Lease Term. The term of this Lease (the "Lease Term") shall begin on
the first occurring Site Acquisition Date and shall end on the last occurring
Site Expiration Date.
ARTICLE III
OTHER PROPERTY
Lessee may from time to time own or hold under lease from Persons other
than Lessor, furniture, trade fixtures, equipment and other tangible personal
property located on or about any Site that is not subject to this Lease and does
not constitute a portion of the Financed Improvements. Lessor shall from time to
time, upon the reasonable request, and at the cost and expense of Lessee, which
request shall be accompanied by such supporting information and documents as
Lessor may reasonably require, promptly acknowledge in writing to Lessee or
other Persons that the particular items of furniture, trade fixtures and
equipment in question are not part of the Premises and that, subject to the
rights of Lessor hereunder and under any other Operative Documents, Lessor does
not own or have any other right or interest in or to such furniture, trade
fixtures and equipment.
ARTICLE IV
RENT
SECTION 4.1. Basic Rent. During the Base Term with respect to a Site and
any Lease Renewal Term, Lessee shall pay to Lessor Basic Rent (i) on each
Quarterly Payment Date, (ii) on the date required under Section 22.3 in
connection with Lessee's exercise of the Sale Option and (iii) on any date on
which this Lease terminates or upon demand following a Lease Event of Default
pursuant to Section 17.1. Basic Rent payable on each Quarterly Payment Date
shall be allocated to each Lease Supplement in the same proportion that the
Advances with respect to, or allocated to, the Site subject to such Lease
Supplement bears to the aggregate amount of all Advances made by the
Participants.
SECTION 4.2. Supplemental Rent. Lessee shall pay to Lessor, or to
whomever shall be entitled thereto as expressly provided herein or in any other
Operative Document (and Lessor hereby directs Lessee, on behalf of Lessor, to so
pay any such other Person), any and all Supplemental Rent promptly as the same
shall become due and payable and, in the event of any failure on the part of
Lessee to pay any Supplemental Rent, Lessor shall have all rights, powers and
remedies provided for herein or by law or in equity or otherwise in the case of
nonpayment of Basic Rent.
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<PAGE> 8
Lessee hereby reaffirms that its obligation to pay Supplemental Rent shall
include the payment of any and all Additional Costs. The expiration or other
termination of Lessee's obligations to pay Basic Rent hereunder shall not limit
or modify the obligations of Lessee with respect to Supplemental Rent.
SECTION 4.3. Method and Amount of Payment. Basic Rent and Supplemental
Rent shall be paid by wire transfer to Lessor (or, in the case of Supplemental
Rent, to such Person as may be entitled thereto) at such place as Lessor (or
such other Person) shall specify in writing to Lessee pursuant to Schedule II to
the Participation Agreement or Section 9.3 of the Participation Agreement;
provided, however, that, so long as the Notes remain outstanding, Lessor directs
Lessee to pay Basic Rent directly to the Agent. Each payment of Rent shall be
made by Lessee prior to 12:00 noon New York time (and payments made after such
time shall be deemed to have been made on the next day) at the place of payment
in funds consisting of lawful currency of the United States of America which (in
the case of any amount payable to Lessor, Agent or any Participant or any other
Indemnitee) shall be immediately available on the scheduled date when such
payment shall be due unless with respect to Supplemental Rent, the scheduled
date shall not be a Business Day, in which case such payment shall be due and
made on the next succeeding Business Day. The provisions of the foregoing
sentence of this Section 4.3 shall be applicable only to Basic Rent and to
Supplemental Rent payable to, or on behalf of or for the account of, Lessor,
Agent, any Participant and any other Indemnitee.
SECTION 4.4. Late Payment. If any Basic Rent shall not be paid when due,
Lessee shall pay to Lessor, or if any Supplemental Rent payable to or on behalf
or for the account of Lessor, Agent, any Participant, or other Indemnitee is not
paid when due, Lessee shall pay to whomever shall be entitled thereto, in each
case as Supplemental Rent, interest at the Overdue Rate (to the maximum extent
permitted by law) on such overdue amount from and including the due date thereof
(without regard to any applicable grace period) to but excluding the Business
Day of payment thereof.
ARTICLE V
NET LEASE
This Lease shall constitute a net lease and, notwithstanding any other
provision of this Lease, it is intended that Basic Rent, Supplemental Rent, the
Lease Balance and all other amounts due and payable under the Operative
Documents shall be paid without counterclaim, setoff, deduction or defense of
any kind and without abatement, suspension, deferment, diminution or reduction
of any kind, and Lessee's obligation to pay all such amounts throughout the
Lease Term is absolute and unconditional. The obligations and
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<PAGE> 9
liabilities of Lessee hereunder shall in no way be released, discharged or
otherwise affected for any reason, including, to the maximum extent permitted by
law: (a) any defect in the condition, merchantability, design, construction,
quality or fitness for use of any portion of any Leased Property, or any failure
of any Leased Property to comply with all Applicable Laws and Regulations,
including any inability to occupy or use any Leased Property by reason of such
non-compliance; (b) any damage to, abandonment, loss, contamination of or
Release from or destruction of or any requisition or taking of any Leased
Property or any part thereof, including eviction; (c) any restriction,
prevention or curtailment of or interference with any use of any Leased Property
or any part thereof, including eviction; (d) any defect in title to or rights to
any Leased Property or any Lien on such title or rights or on any Leased
Property; (e) any change, waiver, extension, indulgence or other action or
omission or breach in respect of any obligation or liability of or by Lessor,
Agent or any Participant; (f) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceedings
relating to Lessee, Lessor, Agent, any Participant or any other Person, or any
action taken with respect to this Lease by any trustee or receiver of Lessee,
Lessor, Agent, any Participant or any other Person, or by any court, in any such
proceeding; (g) any claim that Lessee has or might have against any Person,
including, without limitation, Lessor, Agent, or any Participant; (h) any
failure on the part of Lessor to perform or comply with any of the terms of this
Lease, any other Operative Document or of any other agreement whether or not
related to the Overall Transaction; (i) any invalidity or unenforceability or
disaffirmance against or by Lessee of this Lease or any provision hereof or any
of the other Operative Documents or any provision of any thereof; (j) the
impossibility of performance by Lessee, Lessor or both; (k) any action by any
court, administrative agency or other Authority; any restriction, prevention or
curtailment of or any use of any Leased Property or any part thereof or the
construction of any Alterations; (l) the failure of Lessee or Guarantor to
achieve any accounting or tax benefits or the characterization of the
transaction intended by Section 23.20 hereinbelow and Section 2.7 of the
Participation Agreement; or (m) any other occurrence whatsoever, whether similar
or dissimilar to the foregoing, whether or not Lessee shall have notice or
knowledge of any of the foregoing. Except as specifically set forth in Article
XIII or Section 20.1 of this Lease, this Lease shall be noncancellable by Lessee
for any reason whatsoever, and Lessee, to the extent permitted by Applicable
Laws and Regulations, waives all rights now or hereafter conferred by statute or
otherwise to quit, terminate or surrender this Lease, or to any diminution,
abatement or reduction of Rent payable by Lessee hereunder. If for any reason
whatsoever this Lease shall be terminated in whole or in part by operation of
law or otherwise, except as expressly provided in Article XIII or Section 20.1
of this Lease, Lessee shall, unless prohibited by Applicable Laws and
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<PAGE> 10
Regulations, nonetheless pay to Lessor (or, in the case of Supplemental Rent, to
whomever shall be entitled thereto) an amount equal to each Rent payment
(including the Lease Balance or any other amount due and payable under any
Operative Documents) at the time and in the manner that such payment would have
become due and payable under the terms of this Lease if it had not been
terminated in whole or in part. Each payment of Rent and any payment of the
Lease Balance made by Lessee hereunder shall be final and, absent manifest error
in the computation of the amount thereof, Lessee shall not seek or have any
right to recover all or any part of such payment from Lessor, Agent, any
Participant or any party to any agreements related thereto for any reason
whatsoever. Lessee assumes the sole responsibility for the condition, use,
operation, maintenance, and management of the Premises and Lessor shall have no
responsibility in respect thereof and shall have no liability for damage to the
property of Lessee or any subtenant of Lessee on any account or for any reason
whatsoever other than by reason of Lessor's willful misconduct or gross
negligence or negligence in the handling of funds; provided, however, any
liability of Lessor with respect to any such willful misconduct or gross
negligence or negligence in the handling of funds shall not limit or affect
Lessee's absolute obligations as set forth in this Article V. Without affecting
Lessee's obligation to pay Basic Rent, Supplemental Rent, the Lease Balance and
all other amounts due and payable under the Operative Documents or to perform
its obligations under the Operative Documents, Lessee may seek damages or any
other remedy at law or equity against Lessor for a breach by Lessor of its
obligations under this Lease or the Participation Agreement, subject to the
limitations set forth at Section 23.9.
ARTICLE VI
UTILITY CHARGES
During the Lease Term Lessee shall pay or cause to be paid all charges
for electricity, power, gas, oil, water, telephone, sanitary sewer service and
all other rents and utilities used in or on each Leased Property during the
Lease Term. Lessee shall be entitled to receive any credit or refund with
respect to any utility charge paid by Lessee and the amount of any credit or
refund received by Lessor on account of any utility charges paid by Lessee, net
of the costs and expenses reasonably incurred by Lessor in obtaining such credit
or refund, shall be promptly paid over to Lessee. All charges for utilities
imposed with respect to a Leased Property for a billing period during which this
Lease expires or terminates (except pursuant to Article XX or Section 21.1(b),
in which case Lessee shall be solely responsible for all such charges) shall be
adjusted and prorated on a daily basis between Lessee and any purchaser of such
Leased Property, and each party shall pay or reimburse the other for each
party's pro rata share thereof;
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<PAGE> 11
provided, that in no event shall Lessor have any liability therefor.
ARTICLE VII
CONDITION AND USE OF PREMISES
SECTION 7.1. Waivers. LESSEE ACKNOWLEDGES AND AGREES THAT, ALTHOUGH
LESSOR WILL OWN AND HOLD RECORD TITLE TO THE PREMISES, LESSEE SELECTED THE SITES
AND IS SOLELY RESPONSIBLE FOR THE DESIGN, DEVELOPMENT, BUDGETING AND THE
SUPERVISION OF CONSTRUCTION OF THE FINANCED IMPROVEMENTS AND ANY ALTERATIONS.
The Premises are let by Lessor "AS IS" in its present condition, subject to (a)
any rights of any parties in possession thereof, (b) the state of the title
thereto existing at the time Lessor acquired its interest in the Premises, (c)
any state of facts which an accurate survey or physical inspection might show
(including any survey delivered on the Document Closing Date, any Advance Date
or any Completion Date), (d) all Applicable Laws and Regulations, and (e) any
violations of Applicable Laws and Regulations which may exist at the
commencement of the Lease Term. Lessee has examined the Premises and (insofar as
Lessor is concerned) has found the same to be satisfactory. WITHOUT LIMITING THE
SPECIFIC REPRESENTATIONS AND WARRANTIES IN SECTIONS 4.2, 4.3 AND 4.4 OF THE
PARTICIPATION AGREEMENT, NONE OF LESSOR, AGENT NOR ANY PARTICIPANT HAS MADE OR
SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE TO THE
PREMISES OR TO THE VALUE, MERCHANTABILITY, HABITABILITY, CONDITION, OR FITNESS
FOR USE OF THE PREMISES, OR ANY PART THEREOF, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PREMISES, OR ANY
PART THEREOF, AND NONE OF LESSOR, AGENT NOR ANY PARTICIPANT SHALL BE LIABLE FOR
ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF THE PREMISES, OR
ANY PART THEREOF, TO COMPLY WITH ANY APPLICABLE LAWS AND REGULATIONS, except
that Lessor hereby represents and warrants that as of the date of this Lease,
the Premises are free of Certificate Trustee Liens (such Certificate Trustee
representations and warranty being made by (x) Bank with respect to any
Certificate Trustee Liens attributable to Bank, and (y) Certificate Trustee with
respect to any Certificate Trustee Liens attributable to Certificate Trustee).
Lessee has been afforded full opportunity to inspect the Premises, is satisfied
with the results of its inspections and is entering into this Lease solely on
the basis of the results of its own inspections, and all risks incident to the
matters discussed in the preceding sentence, as between Lessor, Agent and the
Participants, on the one hand, and Lessee, on the other, are to be borne by
Lessee. The provisions of this Article VII have been negotiated, and, except to
the extent otherwise expressly stated, the foregoing provisions are intended to
be a complete exclusion and negation of any representations or warranties by any
of Lessor, Agent or the
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<PAGE> 12
Participants, express or implied, with respect to the Premises (or any interest
therein), that may arise pursuant to any law now or hereafter in effect or
otherwise.
ARTICLE VIII
NO LESSOR CONSENT OR LIABILITY
Nothing contained in this Lease shall be construed as constituting the
consent or request of Lessor, expressed or implied, to or for the performance by
any contractor, mechanic, laborer, materialman, supplier or vendor of any labor
or services or for the furnishing of any materials for any construction,
alteration, addition, repair or demolition of or to the Premises or any part
thereof. NOTICE IS HEREBY GIVEN THAT NONE OF LESSOR, AGENT OR ANY PARTICIPANT IS
OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE
FURNISHED TO LESSEE, OR TO ANYONE HOLDING THE PREMISES OR ANY PART THEREOF
THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH
LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR OR
AGENT IN AND TO THE PREMISES.
ARTICLE IX
MAINTENANCE AND REPAIR; ALTERATIONS AND ADDITIONS
SECTION 9.1. Maintenance and Repair; Compliance With Law. At all times
during each Site Term with respect to each Site on and after the Base Term
Commencement Date for each Site with respect to the Financed Improvements to be
constructed thereon, Lessee, at its own expense, shall at all times (a) maintain
such Leased Property in good operating condition, subject to ordinary wear and
tear, and in any event at least as good as the condition of similar buildings
owned or leased by Guarantor or its Subsidiaries and in good repair and
condition; (b) maintain such Leased Property in accordance with all Applicable
Laws and Regulations in all material respects, whether or not such maintenance
requires structural modifications; (c) comply in all material respects with the
Insurance Requirements which are in effect at any time with respect to such
Leased Property or any part thereof; (d) use such Leased Property only in
accordance with Article X and cause such Leased Property to have at all times
the capacity and functional ability to be used, on a continuing basis and in
commercial operation, in accordance with Article X; (e) make all necessary or
appropriate repairs, replacements and renewals of such Leased Property or any
part thereof which may be required to keep such Leased Property in the condition
required by the preceding clauses (a) through (d), whether interior or exterior,
structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen,
and including, without limitation, repairs, replacements and renewals that would
constitute capital expenditures under GAAP if incurred by an owner
-8-
<PAGE> 13
of property; and (f) procure, maintain and comply in all material respects with
all material licenses, permits, orders, approvals, consents and other
authorizations required for the construction, use, maintenance and operation of
such Leased Property. Lessee waives any right that it may now have or hereafter
acquire to (x) require Lessor to maintain, repair, replace, alter, remove or
rebuild all or any part of such Leased Property or (y) make repairs at the
expense of Lessor pursuant to any Applicable Laws and Regulations or other
agreements.
SECTION 9.2. Improvements and Alterations.
(a) In addition to Lessee's obligations as Construction Agent to
build the Financed Improvements on each Site under the Construction Agency
Agreement, on and after the Base Term Commencement Date with respect to a Site
(i) Lessee, at Lessee's own cost and expense, shall make alterations,
renovations, improvements and additions to such Leased Property or any part
thereof and substitutions and replacements therefor (collectively,
"Alterations") which are (A) necessary to repair or maintain such Leased
Property in the condition required by Section 9.1; (B) necessary in order for
such Leased Property to be in compliance in all material respects with
Applicable Laws and Regulations; or (C) necessary or advisable to restore such
Leased Property to its condition existing prior to a Casualty or Condemnation to
the extent required pursuant to Article XIII; and (ii) so long as no Lease Event
of Default has occurred and is continuing, Lessee, at Lessee's own cost and
expense, may undertake Alterations on such Leased Property so long as such
Alterations comply in all material respects with Applicable Laws and Regulations
except to the extent such non-compliance would not have a Material Adverse
Effect with Section 9.1 and subsection (b) of this Section 9.2.
(b) The making of any Alterations must be in compliance with the
following requirements:
(1) No such Alterations with a cost exceeding $1,000,000 shall
be made or undertaken except upon not less than thirty days' prior
written notice to Lessor.
(2) Lessee shall not make any Alterations in violation of the
terms of any restriction, easement, condition, covenant or other similar
matter affecting title to or binding on such Leased Property.
(3) No Alterations shall be undertaken until Lessee shall have
procured and paid for, so far as the same may be required from time to
time, all permits and authorizations relating to such Alterations of all
municipal and other Authorities having jurisdiction over such Leased
Property. Lessor, at Lessee's expense, shall join in the application for
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any such permit or authorization and execute and deliver any document in
connection therewith, whenever such joinder is necessary or advisable.
(4) The Alterations shall be completed in a good and workmanlike
manner and in compliance in all material respects with all Applicable
Laws and Regulations then in effect and with the standards imposed by
any insurance policies required to be maintained hereunder.
(5) All Alterations shall, when completed, be of such a
character as to not materially adversely affect the Fair Market Value,
utility, remaining economic useful life or residual value of such Leased
Property from its Fair Market Value, utility, remaining economic useful
life or residual value immediately prior to the making thereof or, in
the case of Alterations being made by virtue of a Casualty or
Condemnation, immediately prior to the occurrence of such Casualty or
Condemnation. If such Alterations have a cost exceeding $1,000,000 and
if requested by Required Participants, Lessor may engage an appraiser of
nationally recognized standing, at Lessee's sole cost and expense, to
determine (by appraisal methods satisfactory to the Required
Participants) the projected Fair Market Value of such Leased Property
following completion of the Alterations relating thereto.
(6) Lessee shall have made adequate arrangements for payment of
the cost of all Alterations when due so that the Leased Property shall
at all times be free of Liens for labor and materials supplied or
claimed to have been supplied to the Premises, other than Permitted
Liens; provided, that Lessee shall have the right to engage in Permitted
Contests in accordance with Section 9.5.
(7) The Alterations must be located solely on such Site.
SECTION 9.3. Title to Alterations. Title to the following described
Alterations shall without further act vest in Lessor and shall be deemed to
constitute a part of a Leased Property and be subject to this Lease:
(a) each of the Financed Improvements;
(b) Alterations that are in replacement of or in substitution
for a portion of any Improvements existing on the date of this Lease with
respect to a Site or any Financed Improvements with respect to a Site;
(c) Alterations that are required to be made pursuant to the
terms of Section 9.1 or 9.2(a)(i) hereof; or
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(d) Alterations that are Nonseverable.
Lessee, at Lessor's request, shall execute and deliver any
deeds, bills of sale, assignments or other documents of conveyance reasonably
necessary to evidence the vesting of title in and to such Alterations to Lessor.
If such Alterations are not within any of the categories set
forth in clauses (a) through (d) of this Section 9.3, then title to such
Alterations shall vest in Lessee and such Alterations shall not be deemed to be
Alterations which are part of the Premises.
All Alterations to which Lessee shall have title may, so long as
removal thereof shall not result in the violation of any Applicable Laws and
Regulations and no Lease Event of Default is continuing, be removed at any time
by Lessee. Lessee agrees to notify Lessor in writing at least 30 days before it
removes any such Alterations which individually or in the aggregate had an
original cost exceeding $1,000,000, and Lessee shall at its expense prior to the
Lease Term Expiration Date repair any damage to the Premises caused by the
removal of such Alterations. Lessor (or the purchaser of the applicable Leased
Property) if Lessee elects the Sale Option or in connection with a Sale pursuant
to Section 18.1) may purchase from Lessee any such Alterations (if not already
owned by Lessor) that Lessee intends to remove from a Leased Property prior to
the Lease Term Expiration Date, which purchase shall be at the Fair Market Value
of such Alterations as determined by the Appraiser at the time of such purchase.
Title to any such Alterations shall vest in Lessor (or the purchaser of the
applicable Leased Property) if not removed from the Leased Property by Lessee
prior to the return of such Leased Property to Lessor or sale of such Leased
Property if Lessee elects the Sale Option or in connection with a Sale pursuant
to Section 18.1.
SECTION 9.4. Maintenance and Repair Reports. During the Lease Term
Lessee shall keep maintenance and repair reports in sufficient detail, on the
same basis as records are kept for similar properties owned or leased by
Guarantor or its Subsidiaries, to indicate the nature and date of major work
done. Such reports shall be kept on file by Lessee at its offices during the
Lease Term, and shall be made available at Lessee's office to Lessor upon
reasonable request. Lessee shall give notice to Lessor of any Condemnation or
Casualty the cost to repair which is reasonably expected by Lessee to exceed
$500,000, promptly after Lessee has knowledge thereof.
SECTION 9.5. Permitted Contests. If, to the extent and for so long as
(a) a contest of the legality, validity or applicability to any Leased Property
or any interest therein of, or the operation, use or maintenance thereof by,
Lessee of (i) any
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Applicable Laws and Regulations, (ii) any term or condition of, or any
revocation or amendment of, or other proceeding relating to, any Governmental
Action, or (c) any Lien or Tax shall be made in good faith, by appropriate
proceedings initiated timely and diligently prosecuted, by Lessee or (b)
compliance with such Applicable Laws and Regulations, Governmental Action, Lien
or Tax shall have been excused or exempted by a valid nonconforming use permit,
waiver, extension or forbearance, Lessee shall not be required to comply with
such Applicable Laws and Regulations, Governmental Action, Lien or Tax but only
if and so long as any such contest or noncompliance shall in the reasonable
opinion of Lessor, acting at the direction of the Required Participants,
constitute a Permitted Contest.
Lessor will not be required to join in any Permitted Contest
pursuant to this Section 9.5 unless a provision of any Applicable Laws and
Regulations requires, or, in the good faith opinion of Lessee, it is helpful to
Lessee, that such proceedings be brought by or in the name of Lessor; and in
that event, Lessor will join in the proceedings or permit them or any part
thereof to be brought in its name if and so long as no Lease Event of Default is
continuing and Lessee pays all related expenses, and Lessee shall be deemed to
have acknowledged and agreed that Lessor is indemnified therefor pursuant to
Article VII of the Participation Agreement.
SECTION 9.6. Liens. During the Lease Term Lessee will not directly or
indirectly create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) on or with respect to any portion of any Leased Property,
Lessor's title thereto, or any interest therein. Lessee, at its own expense,
will promptly pay, satisfy and otherwise take such actions as may be necessary
to keep the Premises free and clear of, and duly to discharge, eliminate or bond
in a manner reasonably satisfactory to Lessor, Agent and the Required
Participants, any such Lien (other than Permitted Liens) not accepted above if
the same shall arise at any time.
ARTICLE X
USE
Each Leased Property shall be used only for the production (including
labeling), storage and distribution of processed and fresh fruits and vegetables
and fruit and vegetable products. Lessee shall not use any Site or any part
thereof for any purpose or in any manner that would materially adversely affect
the Fair Market Value, utility, remaining useful life or residual value of such
Leased Property. Lessee shall use each Leased Property in compliance in all
material respects with (a) any Applicable Laws and Regulations, except to the
extent permitted by Section 9.5, (b) any insurance policies required by Article
XI, and (c) all of
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the Operative Documents. Lessee shall pay, or cause to be paid, all charges and
costs required in connection with the use of each Leased Property in accordance
with this Lease and the Participation Agreement. Lessee shall not commit or
permit any waste of any Leased Property or any part thereof.
ARTICLE XI
INSURANCE
SECTION 11.1. Required Coverages. During the Site Term for each Leased
Property Lessee will provide or cause to be provided insurance with respect to
each such Leased Property of a character usually insured by Persons engaged in
the same or similar business similarly situated against loss or damage of the
kinds and in the amounts customarily insured against by such Persons, and carry
such other insurance as is usually carried by such Persons; provided, that in
any event Lessee will maintain:
(a) Commercial General Liability Insurance. Combined single
limit insurance against claims for third-party bodily injury, including death
and third-party property damage occurring on, in or about each Leased Property
(including adjoining streets and sidewalks) in an amount at least equal to
$19,000,000 per occurrence. Following the Base Term Commencement Date for each
Leased Property, such coverage may be subject to deductibles or self-insured
retentions up to an amount that is customarily carried by a company of similar
size and engaged in business similar to Lessee; provided however, that during
the Construction Period with respect to a Leased Property there shall be no such
deductibles and self insurance amounts. (This coverage may be provided in a
combination of umbrella and excess liability policies.)
(b) Property Insurance. Insurance against loss or damage
covering each Leased Property or any portion thereof by reason of any Peril (as
defined below) in an amount (following the Base Term Commencement Date for each
Leased Property, subject to such deductibles and/or self-insurance in such
minimum amounts as is carried by corporations owning and/or operating similar
properties; provided, however, that during the Construction Period with respect
to a Leased Property there shall be no such deductibles and self insurance
amounts; provided, however, that at no time shall the amount of such coverage be
less than the replacement cost of the Improvements with respect to a Leased
Property, including any costs that may be required to cause such Leased Property
to be reconstructed to then current Applicable Laws and Regulations. The term
"Peril" shall mean, collectively, fire, lightning, flood, windstorm, hail,
explosion, riot and civil commotion, vandalism and malicious mischief, damage
from aircraft, vehicles and smoke and all other perils covered by the "all risk
endorsement" then in use in the State in which such Leased Property
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is located. Alternatively, at Lessee's election, such insurance shall be on a
coverage form reasonably available in the commercial insurance market at the
time of the most recent policy reviewed.
(c) Workers' Compensation Insurance. Lessee shall, in the
construction of the Financed Improvements or other Alterations and the operation
of each Leased Property, comply with the applicable Workers' Compensation laws
and protect Lessor, Agent and the Participants against any liability under such
laws.
(d) Builder's Risk Insurance. During the construction of any
Alteration costing in excess of $1,000,000, Lessee shall also maintain, for the
benefit of Lessor, all-risk Builders' Risk Insurance in an amount equal to the
greater of the replacement value of such Alterations and the aggregate cost for
the construction of same.
(e) Other Insurance. Such other insurance, including worker's
compensation and business interruption insurance, in each case as is generally
carried by owners of similar properties in such amounts and against such risks
as are then customary for properties similar in use and to the extent required
by any Participant, flood insurance to the extent required by Applicable Law and
Regulations applicable to such Participant.
Such insurance shall be written by reputable insurance companies
that are financially sound and solvent and otherwise reasonably appropriate
considering the amount and type of insurance being provided by such companies.
Any insurance company selected by Lessee shall be rated in A.M. Best's Insurance
Guide or any successor thereto (or if there be none, an organization having a
similar national reputation) and shall have a general policyholder rating of "A"
(or comparable rating for a rating by an organization other than A.M. Best) and
a financial rating of at least "X" (or comparable rating for a rating by an
organization other than A.M. Best) or be otherwise acceptable to the Required
Participants. In the case of liability insurance maintained by Lessee, it shall
name Lessor (both in its individual capacity and as trustee), Agent and each of
the Participants, as additional insureds and, in the case of property insurance
maintained by Lessee, it shall name Agent, as mortgagee and loss payee as its
interests may appear. Each policy referred to in this Section 11.1 shall provide
that: (i) it will not be canceled, materially modified or its limits reduced, or
allowed to lapse without renewal, except after not less than 30 days' prior
written notice to Lessor; (ii) the interests of Lessor, Agent and any
Participant shall not be invalidated by any act or negligence of or breach of
warranty or representation by Lessee or any Person having an interest in the
Premises or the Improvements; (iii) such insurance is primary with respect to
any other insurance carried by or available to Lessor, Agent or any Participant;
(iv) the insurer shall waive any right of subrogation,
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setoff, counterclaim, or other deduction, whether by attachment or otherwise,
against Lessor; and (v) such policy shall contain a cross-liability clause
providing for coverage of Lessor, Agent and each Participant, as if separate
policies had been issued to each of them. Lessee will notify Lessor promptly of
any policy cancellation, reduction in policy limits, modification or amendment.
SECTION 11.2. Delivery of Insurance Certificates. With respect to the
Site or Sites to be acquired on each Site Acquisition Date, Lessee shall deliver
to Lessor certificates of insurance satisfactory to Lessor evidencing the
existence of all insurance required to be maintained hereunder and setting forth
the respective coverages, limits of liability, carrier, policy number and period
of coverage. Thereafter, throughout the Lease Term, at the time each of Lessee's
insurance policies is renewed (but in no event less frequently than once each
year on or before December 31) or upon written request by any Lessor following a
Lease Event of Default, Lessee shall deliver to Lessor certificates of insurance
evidencing that all insurance required by Section 11.1 to be maintained by
Lessee with respect to the Premises is in effect.
ARTICLE XII
ASSIGNMENT AND SUBLEASING
Lessee during the Lease Term may not assign, mortgage or pledge to any
Person, including an Affiliate of Lessee, at any time, in whole or in part, any
of its right, title or interest in, to or under this Lease or any portion of any
Leased Property, and any such assignment, mortgage or pledge shall be void.
Except for the leasehold interest in the Modesto Site granted to Lessor pursuant
to the Ground Lease and as expressly permitted in this Article XII, Lessee may
not sublease, in whole or in part, any of its right, title or interest in, to or
under this Lease or any portion of any Leased Property to any Person, except
that, following the Final Completion Date, Lessee may enter into subleases with
(i) a direct or indirect wholly-owned Subsidiary of Guarantor and (ii) a Person
which is not a direct or indirect wholly-owned Subsidiary of Lessee ("Third
Party Sublease"); provided, however, that in no event shall the aggregate
subleased space (together with the nonexclusive use of any related or necessary
portion of any Site as necessary for access and parking) subject to all Third
Party Subleases exceed 30% of the aggregate net rentable square feet of any
Site. Lessee shall not sublease any portion of any Leased Property to, or permit
the sublease of any portion of any Leased Property by, any Person who shall then
be engaged in any proceedings for relief under any bankruptcy or insolvency law
or laws relating to the relief of debtors.
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No sublease hereunder will discharge or diminish any of Lessee's
obligations to Lessor hereunder, and Lessee shall remain directly and primarily
liable under the Lease with respect to the entire Premises. Each sublease
permitted hereby shall be made and shall expressly provide in writing that it is
subject and subordinate to this Lease and the rights of Lessor hereunder, shall
expressly provide for the surrender of the space subleased by the applicable
sublessee at the election of Lessor after a Lease Event of Default, and that
such provisions may be directly enforced by Lessor or Agent. All such subleases
under this Article XII shall expressly provide in writing for termination on or
prior to the Lease Expiration Date unless Lessee shall purchase all of the
Premises pursuant to Section 21.1(b) of this Lease.
Lessee shall, within fifteen (15) days after the execution of any Third
Party Sublease deliver to Agent a fully executed copy of such sublease.
ARTICLE XIII
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
SECTION 13.1. Event of Loss; Condemnation or Casualty.
(a) If an Event of Loss shall occur during the Lease Term,
Lessee shall give Lessor prompt written notice of such occurrence and the date
thereof and Lessee shall purchase the Leased Property(ies) affected thereby from
Lessor on the next succeeding Quarterly Payment Date after the date such Event
of Loss shall have occurred or, if such Event of Loss shall have occurred within
ten (10) Business Days preceding a Quarterly Payment Date, then on the next
succeeding Quarterly Payment Date after such Event of Loss shall have occurred,
at a purchase price equal to the Purchase Amount of such Leased Property. In the
case of an Event of Taking which is deemed to have occurred because of a
requisition which is not scheduled to last beyond the earlier of the Lease
Expiration Date and Lessee's election of the Sale Option but which in fact is
continuing on the earlier of such dates, the foregoing purchase price shall be
paid on such earlier date.
(b) Upon payment in full of all amounts payable pursuant to
Section 13.1(a), (i) the Site Term shall end with respect to the affected Leased
Property(ies), (ii) the obligations of Lessee hereunder with respect to the
affected Leased Property(ies) (other than any obligations expressed herein or
any other Operative Document as surviving termination of this Lease) shall
terminate as of the date of such payment. Lessor shall thereupon transfer its
right, title and interest in the affected Leased Property(ies) to Lessee in
accordance with Section 23.16(a) and (iii) the Lease Supplement for the affected
Leased Property(ies) shall be canceled.
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SECTION 13.2. Application of Payments Relating to an Event of Loss. All
Net Condemnation Proceeds and property insurance proceeds received at any time
by Lessee during the Lease Term from any Authority or other Person with respect
to any Event of Loss shall be promptly remitted to Lessor (up to, but not
exceeding, the amounts owed under Section 13.1(a)) and, upon the purchase of the
affected Leased Property(ies) by Lessee pursuant to Section 13.1(a) and the
payment by Lessee of the purchase price and all other amounts payable by Lessee
pursuant to Section 13.1(a), any such Net Condemnation Proceeds and property
insurance proceeds remaining thereafter shall be paid over to, or retained by,
Lessee, or as Lessee may direct.
SECTION 13.3. Application of Certain Payments Relating to a
Condemnation. In case of a requisition for temporary use of all or a portion of
any Leased Property which is not an Event of Taking, this Lease shall remain in
full force and effect, without any abatement or reduction of Rent, and the
proceeds received from any Authority relating to a Condemnation for the affected
portion of the Leased Property shall, so long as no Lease Event of Default
exists and subject to Section 16.2, be paid to Lessee and, to the extent
applicable, shall be used by Lessee to repair and restore the affected Premises
to the condition required by Section 9.1. Notwithstanding anything herein to the
contrary, any portion of such proceeds that is awarded with respect to the time
period after the expiration or termination of the Lease Term (unless Lessee
shall have exercised an option to purchase all of the Premises and consummated
such purchase) shall be paid to Lessor; provided, that if Lessee has paid the
Lease Balance to Lessor, such proceeds (or the portion of such proceeds in
excess of portion thereof applied to the Lease Balance) shall be paid over to
Lessee.
SECTION 13.4. Casualty. Upon any Casualty during the Lease Term with
respect to any portion of any Leased Property the cost of repair of which would
exceed $500,000 Lessee shall give to Lessor written notice thereof. As soon as
practicable after a Casualty, Lessee shall repair and rebuild the affected
portions of the Leased Property suffering such Casualty (or cause such affected
portions to be repaired and rebuilt) to the condition required to be maintained
by Section 9.1 hereof; provided, that the value and functional capability of
such item as restored is at least equivalent to the value and functional
capability of such item as in effect immediately prior to the occurrence of such
Casualty. So long as no Lease Event of Default or Material Default is
continuing, any insurance proceeds received with respect to any Casualty shall
be paid over to or retained by Lessee up to $500,000. Insurance proceeds
received with respect to any Casualty in excess of $500,000 shall be held by
Agent and made available to Lessee to pay costs actually incurred by Lessee to
restore the Premises as required herein.
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SECTION 13.5. Negotiations. In the event any part of any Leased Property
becomes subject to condemnation or requisition proceedings during the Lease
Term, Lessee shall give notice thereof to Lessor promptly after Lessee has
knowledge thereof and, to the extent permitted by any Applicable Laws and
Regulations, Lessee shall control the negotiations with the relevant Authority
unless a Lease Event of Default exists, in which case Lessor shall be entitled
to control such negotiations; provided, that in any event Lessor may participate
at Lessor's expense (or if a Lease Event of Default exists, at Lessee's expense)
in such negotiations; and provided in all cases, that no settlement will be made
without Lessor's prior written consent acting at the direction of the Required
Participants, not to be unreasonably withheld. Lessee shall give to Lessor such
information, and copies of such documents, which relate to such proceedings, or
which relate to the settlement of amounts due under insurance policies required
by Section 11.1, and are in the possession of Lessee, as are reasonably
requested by Lessor. If the proceedings relate to an Event of Taking, Lessee
shall act diligently in connection therewith. Nothing contained in this Section
13.5 shall diminish Lessor's rights with respect to Condemnation Proceeds and
property insurance proceeds under Section 13.2.
SECTION 13.6. No Rent Abatement. Rent shall not abate hereunder by
reason of any Casualty, any Event of Loss, any Event of Taking or any
Condemnation of any portion of any Leased Property, and Lessee shall continue to
perform and fulfill all of Lessee's obligations, covenants and agreements
hereunder notwithstanding such Casualty, Event of Loss, Event of Taking or
Condemnation until the Lease Expiration Date.
SECTION 13.7. Notice of Environmental Matters. Promptly, but in any
event within thirty (30) days from the date a Responsible Officer of Lessee has
actual knowledge thereof, Lessee shall provide to Lessor written notice of any
pending or, to Lessee's knowledge, threatened claim, action or proceeding
involving any Environmental Law or any Release on or in connection with any
Leased Property, which claim, action or proceeding would require in excess of
$250,000 in remediation costs in respect of such Leased Property (such claim,
action or proceeding, a "Material Environmental Claim"). All such notices shall
describe in reasonable detail the nature of the claim, action or proceeding and
Lessee's proposed response thereto. In addition, Lessee shall provide to Lessor,
within thirty (30) days of receipt, copies of all material written
communications with any Authority relating to any Material Environmental Claim.
Lessee shall also promptly provide such detailed reports of any such Material
Environmental Claims as may reasonably be requested by Lessor or Agent.
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ARTICLE XIV
NON-INTERFERENCE
SECTION 14.1. Non-Interference. Subject to Lessor's cure rights, as
provided for in Article XIX, Lessor covenants that it will not interfere in
Lessee's use or possession of the Premises during the Lease Term, so long as no
Lease Event of Default has occurred and is continuing; it being agreed that
Lessee's remedies for breach of the foregoing covenant shall be limited to a
claim for damages or the commencement of proceedings to enjoin such breach. Such
right is independent of and shall not affect Lessee's obligations hereunder and
under the other Operative Documents or Lessor's rights otherwise to initiate
legal action to enforce the obligations of Lessee under this Lease. The
foregoing covenant shall not require Lessor to take any action contrary to, or
which would permit Lessee to use the Premises for a use not permitted under the
provisions of, this Lease.
SECTION 14.2. Certain Duties and Responsibilities of Lessor. Lessor
undertakes to perform such duties and only such duties as are specifically set
forth herein and in the other Operative Documents, and no implied covenants or
obligations shall be read into this Lease against Lessor, and Lessor agrees that
it shall not, nor shall it have a duty to, manage, control, use, sell, maintain,
insure, register, lease, operate, modify, dispose of or otherwise deal with the
Premises or any other part of the Trust Estate in any manner whatsoever, except
as required by the terms of the Operative Documents and as otherwise provided
herein.
ARTICLE XV
INSPECTION AND REPORTS
SECTION 15.1. Inspection. Upon five (5) Business Days prior notice to
Lessee, Lessor or its authorized representatives (the "Inspecting Parties") at
any time during the Lease Term may inspect (a) the Premises and (b) the books
and records of Lessee relating to the Premises and make copies and abstracts
therefrom. All such inspections shall be during Lessee's normal business hours
(unless a Lease Event of Default has occurred and is existing)and shall be at
the expense and risk of the Inspecting Parties, except that one such inspection
in each calendar year shall be at Lessee's expense at a cost not to exceed
$1,000 per Site inspected and except that if a Lease Event of Default or Lease
Default has occurred and is continuing, Lessee shall reimburse the Inspecting
Parties for the reasonable costs of such inspections and, except for the
Inspecting Party's gross negligence or willful misconduct, such inspection shall
be at Lessee's risk. No inspection shall unreasonably interfere with Lessee's
operations. None of the Inspecting Parties shall have any duty to make any such
inspection or inquiry. None of the Inspecting Parties shall incur any liability
or obligation
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by reason of making any such inspection or inquiry unless and to the extent such
Inspecting Party causes damage to the Premises or any property of Lessee or any
other Person during the course of such inspection.
SECTION 15.2. Reports. To the extent permissible under Applicable Laws
and Regulations, during the Lease Term Lessee shall prepare and file in timely
fashion, or, where Lessor shall be required to file, Lessee shall prepare and
make available to Lessor within a reasonable time prior to the date for filing
and Lessor shall file, any reports with respect to the condition or operation of
the Premises that shall be required to be filed with any Authority.
ARTICLE XVI
OWNERSHIP, GRANT OF LIEN AND FURTHER ASSURANCES
SECTION 16.1. Grant of Security Interest. Title to the Premises are held
by Lessor, as security for the obligations of Lessee hereunder and under each of
the other Operative Documents to which it is a party until such time as Lessee
shall have fulfilled all of its obligations hereunder and under such other
Operative Documents. Lessee hereby assigns, grants, warrants and pledges to
Lessor for the benefit of the Participants a Lien against all of Lessee's right,
title and interest, whether now or hereafter existing or acquired, in the
Premises and the other Del Monte Collateral to secure the payment and
performance of all obligations of Lessee now or hereafter existing under this
Lease or any other Operative Document. Lessee shall, at its expense, promptly
and duly execute, acknowledge and deliver to Lessor and file, register and
record such documents and assurances including the Mortgages and any financing
statements and fixture filings and take such further actions as Lessor, Agent or
any Participant may from time to time reasonably request in order to carry out
more effectively the intent and purpose of this Lease and the other Operative
Documents, to establish and protect the rights and remedies created or intended
to be created in favor of Lessor hereunder and thereunder, and to establish,
perfect and maintain the right, title and interest of Lessor in and to the
Premises and the other Del Monte Collateral, subject to no Lien other than
Permitted Liens, and Lessee agrees to execute and deliver promptly such of the
foregoing Mortgages, financing statements and fixture filings or other documents
as may require execution by Lessee. To the extent permitted by Applicable Laws
and Regulations, Lessee hereby authorizes any such Mortgages, financing
statement and fixture filings to be filed without the necessity of the signature
of Lessee. Upon Lessee's request, Lessor shall at such time as all of the
obligations of Lessee under this Lease or any other Operative Documents have
been indefeasibly paid or performed in full (other than Lessee's contingent
obligations, if any, under Article VII of
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the Participation Agreement and under Article VI of the Construction Agency
Agreement) execute and deliver termination statements and other appropriate
documentation reasonably requested by Lessee, all at Lessee's expense, to
evidence Lessor's release of its Lien against the Del Monte Collateral.
SECTION 16.2. Attorney-in-Fact. Lessee hereby irrevocably appoints
Lessor as Lessee's attorney-in-fact, with full authority in the place and stead
of Lessee and in the name of Lessee or otherwise, from time to time in Lessor's
discretion, to execute any instrument which Lessor may deem necessary or
advisable to accomplish the purposes of this Lease (subject to any limitations
set forth in the Operative Documents), and to take any action (including any
action that Lessee is entitled to take), including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for money due and to become due under
or in connection with all or any portion of the Premises and the other Del Monte
Collateral;
(b) to receive, endorse and collect any drafts or other
instruments, documents and chattel paper in connection with the foregoing clause
(a);
(c) to file any claim or take any action or institute any
proceedings which Lessor may deem to be necessary or advisable for the
collection thereof or to enforce compliance with the terms and conditions of
this Lease; and
(d) to perform any affirmative obligations of Lessee hereunder,
including the execution of mortgages, financing statements and other documents.
Lessee hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section 16.2 is irrevocable and coupled with an
interest. Notwithstanding anything contained herein to the contrary, the rights
and powers presently granted Lessor by this Section 16.2 may be exercised by
Lessor only upon the occurrence and during the continuance of a Lease Event of
Default.
ARTICLE XVII
LEASE EVENTS OF DEFAULT
The occurrence of any one or more of the following events, whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any
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order, rule or regulation of any administrative or governmental body, shall
constitute a "Lease Event of Default":
(a) Lessee shall fail to make any payment of (i) Basic Rent and
such failure shall continue for a period of three days or (ii) amounts payable
pursuant to Section 13.1(a), Article XX, or Sections 21.1(b), 22.3 or 22.4 when
due;
(b) Lessee or Guarantor shall fail to make payment of any other
amount payable hereunder or under any of the other Operative Documents and such
failure shall continue for a period of five (5) days after the earlier of notice
to Lessee or Guarantor, as the case may be, of such failure or a Responsible
Officer of Lessee or Guarantor knew or reasonably should have known of such
failure;
(c) Lessee shall fail to maintain insurance as required by
Section 11.1;
(d) Lessee shall fail to purchase the Premises in accordance
with Section 20.2 or Lessee shall fail to sell all of the Premises on the Lease
Expiration Date in accordance with and satisfaction of each of the terms,
covenants, conditions and agreements set forth at Articles XXI and XXII in
connection with and following its exercise of the Sale Option, including each of
Lessee's obligations at Sections 21.1 and 21.2;
(e) Lessee or Guarantor shall fail timely to perform or observe
any covenant, condition or agreement (not included in any other clause of this
Article XVII) to be performed or observed by it hereunder or under any other
Operative Document and such failure shall continue for a period of 30 days (but
in no event later than the Lease Expiration Date) after the earlier to occur of
(i) written notice thereof to Lessee from any Lessor, Agent or any Participant
or (ii) the date upon which a Responsible Officer of Lessee knew or reasonably
should have known thereof;
(f) the occurrence of a Del Monte Event of Default;
(g) Any Operative Document or the security interest and lien
granted under this Lease (except in accordance with its terms), in whole or in
part, terminates, ceases to be effective or ceases to be the legal, valid and
binding enforceable obligation of Lessee, Guarantor, or any of their Affiliates,
as the case may be, on account of, or as a result of, directly or indirectly,
any act or omission of Lessee, Guarantor or any of their Affiliates, or Lessee,
Guarantor or any of their Affiliates, directly or indirectly, contests in any
manner in any court the effectiveness, validity, binding nature or
enforceability thereof; or the security interest and lien securing Lessee's or
Guarantor's obligations under the Operative Documents, in whole or in part,
ceases to be a
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perfected first priority security interest and lien on account of, or as a
result of, directly or indirectly, any action or omission of Lessee, Guarantor
of any of their Affiliates;
(h) A Construction Agency Agreement Event of Default shall have
occurred and be continuing;
(i) An Event of Default shall occur under any Material Credit
Agreement;
(j) The Syndication (as defined in the Syndication Agreement) is
not fully completed on or before 90 days after the Document Closing Date; or
(k) Lessee fails to replace any Non-Funding Participant within
the ninety (90) day period permitted for such replacement in Section 2.17 of the
Participation Agreement.
ARTICLE XVIII
ENFORCEMENT
SECTION 18.1. Remedies. During the existence of a Lease Event of
Default, at Lessor's option and without limiting Lessor in the exercise of any
other right or remedy Lessor may have on account of such default (including,
without limitation, the obligation of Lessee to purchase the Premises as set
forth below), and without any further demand or notice, Lessor may cause the
following to occur:
(i) By notice to Lessee, Lessor may terminate Lessee's right to
possession of the Premises. A notice given in connection with unlawful
detainer proceedings specifying a time within which to cure a default
shall terminate Lessee's right to possession if Lessee fails to cure the
default within the time specified in the notice.
(ii) Upon termination of Lessee's right to possession and
without further demand or notice, Lessee shall surrender possession and
vacate the Premises and deliver possession thereof, and Lessor may
re-enter the Premises and remove any Persons in possession thereof.
(iii) Lessor may terminate this Lease with respect to all or any
of the Leased Properties and/or on and after the Base Term Commencement
Date with respect to a Leased Property declare the aggregate outstanding
Site Balance for such Leased Property to be immediately due and payable,
and Lessor shall be entitled to (x) recover from Lessee the following
amounts and (y) take the following actions:
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(A) Lessee shall pay all accrued and unpaid Rent
hereunder (including, without limitation, Basic Rent and Supplemental
Rent) with respect to such Leased Property for the period commencing on
the Base Term Commencement Date with respect to such Leased Property
through the Final Rent Payment Date with respect to such Leased
Property;
(B) Lessor may elect either of the following with
respect to any or all of the Leased Properties:
(1) Lessor may demand, by written notice to the Lessee
specifying a payment date (the "Final Rent Payment Date") not
earlier than ten (10) days after the date of such notice, that
Lessee purchase such Leased Property, and Lessee shall pay to
Lessor, on the Final Rent Payment Date (in lieu of Basic Rent
with respect to such Leased Property due after the Final Rent
Payment Date with respect to such Leased Property), an amount
equal to the sum of (A) the Site Balance for such Leased
Property computed for the period commencing on the Base Term
Commencement Date with respect to such Leased Property to and
including the Final Rent Payment Date with respect to such
Leased Property, plus (B) all accrued and unpaid Rent with
respect to such Leased Property due and unpaid for the period
commencing on the Base Term Commencement Date with respect to
such Leased Property to and including the Final Rent Payment
Date with respect to such Leased Property, and upon payment of
such amount, and the amount of all other sums due and payable by
Lessee under this Lease and the other Operative Documents (and
interest at the Overdue Rate on the amounts payable under this
clause (B)(1) from the Final Rent Payment Date to the date of
actual payment) with respect to such Leased Property, Lessor
shall transfer to Lessee all of Lessor's right, title and
interest in and to such Leased Property pursuant to Section
23.16; or
(2) Lessor may sell its interest in such Leased Property
and the other applicable Del Monte Collateral in which event
Lessee shall pay to Lessor an amount equal to the excess, if
any, of (x) all amounts due Lessor under clause (B)(1) above
over (y) the net Sale Proceeds received by Lessor from the
foregoing sale (provided, that in calculating such net Sale
Proceeds, all expenses and Taxes incurred by Lessor or any of
the Participants in connection with such sale, including,
without limitation, legal fees, shall be deducted from such Sale
Proceeds);
(C) Any other amount necessary to compensate Lessor for
all the damages proximately caused by Lessee's failure to
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perform Lessee's obligation under this Lease or which in the ordinary
course of things would be likely to result therefrom, including, but not
limited to, the costs and expenses (including without limitation,
reasonable attorneys' fees, advertising costs and brokers' commissions)
of recovering possession of the Premises, removing Persons or property
therefrom, placing the Premises in good order, condition, and repair,
preparing and altering the Premises for reletting, and all other costs
and expenses of reletting; and
(D) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by Applicable Laws and
Regulations.
(iv) Lessor may enforce the Lien given hereunder pursuant to
Section 16.1 hereof, Section 11 of the Lease Supplements, the Mortgages,
the Uniform Commercial Code or any other Applicable Laws and Regulations
to recover all damages caused by a Lease Event of Default, including any
damages arising from Lessee's failure to purchase the Premises pursuant
to Section 20.2 hereof.
(v) If Lessee has breached this Lease, this Lease shall continue
in effect for so long as Lessor does not terminate this Lease, and
Lessor may enforce all of Lessor's rights and remedies under this Lease,
including the right to recover the Rent hereunder (including, without
limitation, Basic Rent (when applicable) and Supplemental Rent) as it
becomes due under this Lease. Lessee's right to possession shall not be
deemed to have been terminated by Lessor except pursuant to clause (iii)
above. The following do not constitute a termination of this Lease:
(A) Acts of maintenance or preservation or efforts to
relet the Premises;
(B) The appointment of a receiver upon the initiative of
Lessor to protect Lessor's interest under this Lease;
(C) Withholding of consent to an assignment or
subletting, or terminating a subletting or assignment by Lessee.
(vi) In the event that Lessor elects to continue this Lease in
full force and effect following the termination of Lessee's right of
possession, Lessor, to the maximum extent permitted by Applicable Laws
and Regulations, may enforce all its rights and remedies under this
Lease, including, but not limited to, the right to recover Rent
hereunder as it becomes due. During the continuance of a Lease Event of
Default or
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following the termination of Lessee's right to possession, Lessor may
enter the Premises in accordance with Applicable Laws and Regulations
without terminating this Lease and sublet all or any part of the
Premises for Lessee's account to any Person, for such term (which may be
a period beyond the remaining Lease Term), at such rents and on such
other terms and conditions as are commercially reasonable. In the event
of any such subletting, rents received by Lessor from such subletting
shall be applied (a) first, to the payment of the reasonable costs
incurred by Lessor in maintaining, preserving, altering and preparing
the Premises for subletting and other reasonable costs of subletting,
including, but not limited to, brokers' commissions and attorneys' fees;
(b) second, to the payment of Rent hereunder then due and payable; (c)
third, to the payment of future Rent hereunder as the same may become
due and payable hereunder; (d) fourth, to the payment of all other
obligations of Lessee hereunder and under the other Operative Documents
(including, without limitation, the Lease Balance), and (e) fifth, the
balance, if any, shall be paid to Lessee upon (but not before)
expiration of the Lease Term. If the rents received by Lessor from such
subletting, after application as provided above, are insufficient in any
period to pay the Rent due and payable hereunder for such period, Lessee
shall pay such deficiency to Lessor upon demand. Notwithstanding any
such subletting for Lessee's account without termination, Lessor may at
any time thereafter, by written notice to Lessee, elect to terminate
this Lease.
(vii) Lessor may exercise any other right or remedy that may be
available to it under Applicable Laws and Regulations or in equity, or
proceed by appropriate court action (legal or equitable) to enforce the
terms or to recover damages for the breach hereof, including those
arising from a breach by Lessee of its obligations under Section 20.2
hereof. Separate suits may be brought to collect any such damages for
any Rent installment period(s), and such suits shall not in any manner
prejudice Lessor's right to collect any such damages for any subsequent
Rent installment period(s), or Lessor may defer any such suit until
after the expiration of the Basic Term or any Renewal Term, in which
event such suit shall be deemed not to have accrued until the expiration
of the Lease Term.
(viii) Lessor may retain and apply against Lessor's damages all
sums which Lessor would, absent such Lease Event of Default, be required
to pay to, or turn over to, Lessee pursuant to the terms of this Lease.
(ix) As a matter of right and without notice to Lessee or anyone
claiming under Lessee, and without regard to the then value of the Del
Monte Collateral or the interest of
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Lessee therein, Lessor shall have the right to apply to any court having
jurisdiction to appoint a receiver or receivers of the Del Monte
Collateral at Lessee's sole cost and expense, and Lessee hereby
irrevocably consents to such appointment and waives notice of any
application therefor. Any such receiver or receivers shall have all the
usual powers and duties of receivers in like or similar cases and all
the powers and duties of Lessor in case of entry as provided in this
Lease and shall continue as such and exercise all such powers until the
latest to occur of (i) the date of confirmation of sale of the Del Monte
Collateral; (ii) the disbursement of all proceeds of the Del Monte
Collateral collected by such receiver and the payment of all expenses
incurred in connection therewith; or (iii) the termination of such
receivership with the consent of Lessor or pursuant to an order by a
court of competent jurisdiction.
(x) Lessor may exercise the remedies described in Section 11 of
the Lease Supplements.
(xi) Lessee hereby grants to Chicago Title Company, as trustee
(together with all successor trustees, the "Trustee"), IN TRUST for the
benefit of Lessor as security for the obligations hereunder A SECURITY
INTEREST AND LIEN against the Premises WITH POWER OF SALE, and that,
upon the occurrence of any Lease Event of Default, Lessor shall have the
power and authority, to the extent provided by Applicable Laws, after
proper notice and lapse of such time as may be required by Applicable
Laws, to cause the Trustee to sell the Premises, or any portion thereof,
at the time and place of sale fixed by Lessor in said notice of sale,
either as a whole, or in separate lots or parcels or items and in such
order as Lessor may elect, at auction to the highest bidder for cash in
lawful money of the United States payable at the time of sale;
accordingly, it is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN
THIS INSTRUMENT; A POWER OF SALE MAY ALLOW LESSOR TO TAKE THE APPLICABLE
PREMISES AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON
DEFAULT BY LESSEE UNDER THIS INSTRUMENT, and (ii) upon the occurrence of
a Lease Event of Default, Lessor, in lieu of or in addition to
exercising any power of sale hereinabove given, may proceed by a suit or
suits in equity or at law, whether for a foreclosure hereunder, or for
the sale of the Premises, or against Lessee on a recourse basis for the
Lease Balance and all accrued and unpaid interest on the Loans, all
accrued and unpaid Yield on the Certificate Amounts, and all other
amounts owing by Lessee under the Operative Documents with respect to
such Premises, or for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power
herein granted, or for the appointment of a receiver pending any
foreclosure hereunder or the sale of the Premises, or for
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the enforcement of any other appropriate legal or equitable remedy.
Lessor acknowledges and agrees that upon the declaration of a Lease
Event of Default the amount due and owing by it to Lessor hereunder shall be the
Lease Balance and that to the maximum extent permitted by Applicable Laws,
Lessee waives any right to contest the Lease Balance as the liquidated sum due
upon acceleration of this Lease.
SECTION 18.2. Proceeds of Sale; Deficiency. All payments received and
amounts held or realized by Lessor at any time when a Lease Event of Default
shall be continuing and after the Lease Balance shall have been accelerated
pursuant to this Article XVIII as well as all payments or amounts then held or
thereafter received by Lessor (except for rents received by Lessor from
subletting pursuant to Section 18.1(vi), which shall be distributed as set forth
therein) and the proceeds of sale pursuant to Section 18.1(iii)(B)(2) or
pursuant to the Mortgages shall be distributed forthwith upon receipt by Lessor
in accordance with Article III of the Loan Agreement.
SECTION 18.3. Mortgage and Lease Supplement Remedies. Without limiting
any other remedies set forth in this Lease, Lessor and the Lessee agree that
upon the occurrence of a Lease Event of Default, the Lessor and Agent shall have
all the rights and may pursue any of the remedies provided to it in the
Mortgages and Lease Supplements the terms and provisions of which Mortgages and
the Lease Supplements are incorporated herein by this reference.
SECTION 18.4. Remedies Cumulative; No Waiver; Consents. To the extent
permitted by, and subject to the mandatory requirements of, Applicable Laws and
Regulations, each and every right, power and remedy herein specifically given to
Lessor or otherwise in this Lease shall be cumulative and shall be in addition
to every other right, power and remedy herein specifically given or now or
hereafter existing at law, in equity or by statute, and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed
expedient by Lessor, and the exercise or the beginning of the exercise of any
power or remedy shall not be construed to be a waiver of the right to exercise
at the same time or thereafter any other right, power or remedy. No delay or
omission by Lessor in the exercise of any right, power or remedy or in the
pursuit of any remedy shall impair any such right, power or remedy or be
construed to be a waiver of any default on the part of Lessee or be an
acquiescence therein. Lessor's consent to any request made by Lessee shall not
be deemed to constitute or preclude the necessity for obtaining Lessor's
consent, in the future, to all similar requests. No express or implied waiver by
Lessor of any Lease Event of Default shall in any way be, or be
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construed to be, a waiver of any future or subsequent Lease Default or Lease
Event of Default. To the extent permitted by Applicable Laws and Regulations and
subject to the provisions of Section 18.1, Lessee hereby waives any rights now
or hereafter conferred by statute or otherwise that may require Lessor to sell,
lease or otherwise use the Premises, the other Del Monte Collateral or any part
thereof in mitigation of Lessor's damages upon the occurrence of a Lease Event
of Default or that may otherwise limit or modify any of Lessor's rights or
remedies under this Article XVIII.
SECTION 18.5. Limitation of Recourse Liability. Notwithstanding anything
set forth herein to the contrary, prior to the commencement of the Base Term
with respect to a Lease Supplement for a Site, the aggregate amount payable by
Lessee on a recourse basis under this Article XVIII shall be subject to the
limitations on recourse liability set forth in Section 7.9 of the Participation
Agreement to the extent such amounts arose solely as a result of an Nonrelated
Construction Event relating directly to such Leased Property.
ARTICLE XIX
RIGHT TO PERFORM FOR LESSEE
SECTION 19.1. Right to Cure. If any Lease Default or Lease Event of
Default shall be continuing and in Lessor's reasonably exercised judgment Lessee
is not acting diligently and appropriately to cure such Lease Default or Lease
Event of Default, Lessor may, but shall not be obligated to, on five (5)
Business Days' prior notice to Lessee (except in the event of an emergency, in
which case only one Business Day's prior notice shall be required), cure such
Lease Default or Lease Event of Default, and Lessor shall not thereby be deemed
to have waived any default caused by such failure to cure, and the amount of
such payment and the amount of the expenses of Lessor (including reasonable
attorneys' fees and expenses) incurred in connection with such cure, together
with interest thereon at the Overdue Rate, shall be deemed Supplemental Rent,
payable by Lessee to Lessor upon demand.
SECTION 19.2. Grants and Releases of Easements. Provided that no Default
or Lease Event of Default shall have occurred and be continuing, Lessor hereby
consents in each instance to the following actions by Lessee, in the name and
stead of Lessor and as Lessor's attorney-in-fact, but at Lessee's sole cost and
expense: (i) the granting of easements, licenses, rights-of-way and other rights
and privileges in the nature of easements reasonably necessary or desirable for
the use, repair or maintenance of any Leased Property in accordance with this
Lease; (ii) the release of existing easements or other rights in the nature of
easements which are for the benefit of any Leased Property; (iii) the dedication
or transfer of unimproved portions of any Leased Property for road,
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highway or other public purposes; (iv) the execution of petitions to have any
Leased Property annexed to any municipal corporation or utility district; (v)
the execution of any covenants and restrictions affecting any Leased Property or
amendments or modifications thereto; and (vi) the execution or release of any
similar agreements; provided, however, that in each case Lessee, prior to taking
any such action, shall have delivered to Lessor an Officer's Certificate stating
that (x) such grant, release, dedication, transfer, annexation, or amendment or
similar agreement does not materially impair the Fair Market Value, residual
value, utility, operation or remaining useful life of the applicable Leased
Property, (y) such grant, release, dedication, transfer, annexation or amendment
will not cause the applicable Leased Property or any portion thereof to fail to
comply in any respect with the provisions of this Lease or any other Operative
Document or in any material respect with all Applicable Laws and Regulations
(including, without limitation, all applicable zoning, planning, building and
subdivision ordinances, all applicable restrictive covenants and all applicable
architectural approval requirements), and (z) Lessee shall timely pay and
perform any obligations of Lessor under such grant, release, dedication,
transfer, annexation or amendment during the Lease Term. Without limiting the
effectiveness of the foregoing or the power of attorney granted to Lessee
pursuant to Section 19.3, provided that no Material Default or Lease Event of
Default shall have occurred and be continuing, Lessor shall, upon the request of
Lessee, and at Lessee's sole cost and expense, execute and deliver any
instruments necessary or appropriate to confirm any such grant, release,
dedication, transfer, annexation or amendment to any Person permitted under
Sections 19.2 and 19.3.
SECTION 19.3. Power of Attorney. Unless and until a Default or Lease
Event of Default has occurred and is continuing, the Lessor does, solely for the
purposes stated in Section 19.2, hereby irrevocably make, constitute and appoint
Lessee and any of its officers or designees its true and lawful
attorney-in-fact, with full power and authority to do any and all acts necessary
or proper to carry out the intent of Sections 19.2 and 19.3, including without
limitation, the right, power and authority (i) to take such actions described in
Section 19.2, and (ii) to execute such documents and agreements as the Lessee
may reasonably determine are necessary for the purposes of carrying out the
intent of Sections 19.2 and 19.3, and the Lessor hereby ratifies and confirms
all that Lessee as such attorney-in-fact or its substitute undertakes by virtue
of this power of attorney, which power is coupled with an interest and is
irrevocable. Lessor hereby agrees to execute, at Lessee's sole cost and expense,
such additional powers of attorney in recordable form as may be necessary for
the Lessee to carry out the intent of Sections 19.2 and 19.3.
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ARTICLE XX
EARLY TERMINATION OPTION AND OBLIGATION TO PURCHASE
SECTION 20.1. Early Termination Option. Without limitation of Lessee's
purchase obligation pursuant to Section 20.2, on (1) any scheduled Quarterly
Payment Date following the expiration of the Construction Period for all of the
Sites, or (2) on any Business Day following the occurrence of a Lease Event of
Default of the types described in clause (ii) of the next sentence, Lessee may,
at its option, purchase all, but not less than all, of the Premises (the "Early
Termination Option") at a price equal to the Purchase Amount. Lessee's right to
purchase all of the Premises pursuant to this Section 20.1 shall terminate
automatically and without notice(i) upon the occurrence of a Lease Event of
Default arising as a result of an Insolvency Event and (ii) upon the occurrence
of any other Lease Event of Default, unless in the case of a Lease Event of
Default described in this clause (ii) Lessee delivers a written notice of its
election to exercise this option to purchase not less than three (3) days prior
to the date of the purchase and consummates the purchase within ten (10)
Business Days following the occurrence of such Lease Event of Default. In order
to exercise its option to purchase the Premises pursuant to this Section 20.1
and except as provided for in the clause(ii) of the foregoing sentence, Lessee
shall give to Lessor not less than ten (10) days' prior written notice of such
election to exercise, which election shall become irrevocable if not revoked or
extended by written notice to Lessor not later than five (5) days prior to the
end of such ten (10) day period. Upon receipt of the Purchase Amount, Lessor
shall transfer the Premises to Lessee, or its assigns, pursuant to Section
23.16, on the date set forth in the written notice delivered by Lessee pursuant
to this Section 20.1. If a Lease Event of Default of the type described in
clause (ii) above (other than a Lease Event of Default of the type described in
clause (a) or (b) of Article XVII) relates only to a specific Leased Property
but not all Leased Properties, the exercise of the Early Termination Option and
the purchase of such Leased Properties for the applicable Purchase Amount in
accordance with the requirements hereof shall be deemed to cure such Lease Event
of Default.
SECTION 20.2. Required Purchase. Provided that Lessor has not exercised
any other remedy inconsistent therewith, Lessee shall be obligated to purchase
Lessor's interest in the Premises for the Purchase Amount (a) automatically and
without notice upon the occurrence of any Lease Event of Default arising as a
result of an Insolvency Event, (b) immediately upon written demand of Lessor
upon the occurrence of any other Lease Event of Default.
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ARTICLE XXI
END OF TERM OPTIONS
SECTION 21.1. End of Term Options. At least 270 days before the
scheduled expiration date of the Lease Term, Lessee shall, by delivery of
written notice to Lessor and the Agent, exercise one of the following options:
(a) Renew this Lease (together with each Lease Supplement) with
respect to all, but not less than all, of the Premises for five (5) additional
one-year Lease Renewal Terms (the "Renewal Option") on the terms and conditions
set forth herein and in the other Operative Documents; provided, however, such
Renewal Option shall be available at the end of the Base Term only if the
conditions to the Extension Option set forth in Section 2.14 of the
Participation Agreement are satisfied; and provided further, that the Renewal
Option shall not be available during the fifth Renewal Term; or
(b) Purchase for cash for the Purchase Amount all, but not less
than all, of the Premises then subject to this Lease on the last day of the
Lease Term (the "Purchase Option"); and if Lessee shall have elected the
Purchase Option, Lessor shall, upon the payment to Lessor of the Purchase
Amount, transfer all of Lessor's right, title and interest in and to the
Premises pursuant to Section 23.16; or
(c) Sell on behalf of Lessor for cash to a single purchaser not
in any way affiliated with Lessee or any of its Affiliates all, but not less
than all, of the Premises then subject to this Lease on the last day of the
Lease Term (the "Sale Option"). Lessee's right to sell the Premises pursuant to
the Sale Option shall be conditioned upon and subject to (i) the fulfillment by
Lessee of each of the terms and conditions set forth in Article XXII and (ii)
there not being at the time of such election any existing Third Party Subleases.
Lessee shall not enter into any additional subleases or renew any subleases with
respect to the Premises following Lessee's election of the Sale Option.
Following Lessee's election of the Sale Option, Lessee shall not remove any
Alterations.
SECTION 21.2. Election of Options. To the extent that the Renewal Option
is available, unless Lessee shall have affirmatively elected in accordance
herewith the Purchase Option or the Sale Option, Lessee shall be deemed to have
elected the Renewal Option. To the extent that the Renewal Option is not
available for any reason (including because of the Participants' refusal to
consent to an Extension Option Request), unless Lessee shall have (a)
affirmatively elected the Sale Option within the time period provided for in
Section 21.1 and (b) satisfied each of the requirements in Article XXII, Lessee
shall be deemed to have
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elected the Purchase Option. In addition, the Sale Option shall automatically be
revoked if there exists a Lease Default, Lease Event of Default or Event of Loss
at any time after the Sale Option is properly elected or Lessee fails to comply
with each of the terms and conditions set forth at Article XXII and Lessor shall
be entitled to exercise all rights and remedies provided in Article XVIII.
Lessee may not elect the Sale Option if there exists on the date the election is
made a Lease Default, a Lease Event of Default, an Event of Loss, or an
outstanding Extension Option Request.
SECTION 21.3. Renewal Options; Extension Options. The exercise of any
Renewal Option by Lessee shall be subject to satisfaction of the following
conditions:
(i) on the Lease Expiration Date then in effect and on the date
Lessee gives notice of its exercise of the Renewal Option, no Lease
Event of Default or Lease Default shall have occurred and be continuing;
and
(ii) Lessee shall not have exercised the Sale Option or the
Purchase Option.
Lessee's exercise of a Renewal Option shall be deemed to be a representation by
Lessee that on both the Lease Expiration Date then in effect and the date Lessee
gives notice of its exercise of the Renewal Option, no Lease Event of Default or
Lease Default shall have occurred and be continuing. Following the Extension
Effective Date, each Renewal Option (other than the first) shall be at the sole
option of Lessee, not subject to the consent of the Participants.
ARTICLE XXII
SALE OPTION
SECTION 22.1. Sale Option Procedures. If Lessee elects the Sale Option,
Lessee shall use its best commercial efforts as nonexclusive agent for Lessor to
obtain the highest all cash purchase price for the purchase of the Premises, and
in the event Lessee receives any bid, Lessee shall within five (5) Business Days
after receipt thereof, and at least twenty (20) Business Days prior to the Lease
Expiration Date, certify to Lessor in writing the amount and terms of such bid,
the name and address of the party (who shall not be Lessee, Guarantor or any
Affiliate of Lessee or Guarantor or any Person with whom Lessee or Guarantor has
an understanding or arrangement regarding their future use, possession or
ownership of the Premises), but who may be Lessor or a Participant, any
Affiliate thereof, or any Person contacted by any Participant (other than any
Person referred to in the foregoing parenthetical) submitting such bid. Unless
pursuant to the terms
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of the bid submitted, the Sale Proceeds shall exceed the aggregate outstanding
Lease Balance as of the Lease Expiration Date any Participant may submit a bid
to Lessee not later than five (5) Business Days prior to the Lease Expiration
Date. Lessee shall bear its own expense and pay the expenses of Lessor and each
Participant in connection with any such bidding and sale process pursuant to
this Section 22.1 as well as all costs and expenses incurred by any party
(including a buyer or potential buyer) to place the Premises in the condition
required by Section 9.1 and costs of repair and alterations for improvements
desired by such buyer. None of the foregoing costs or expenses shall be deducted
from the Sale Proceeds or serve to reduce the purchase price to be paid for the
Premises. After Lessee shall have certified to Lessor all bids received, if all
such bids received on an all cash basis are for less than the aggregate
outstanding Lease Balance as of the Lease Expiration Date, any Participant, any
Affiliate thereof, or any Person contacted by any Participant may submit a
further bid or bids to Lessee not later than five (5) Business Days prior to the
Lease Expiration Date. On or before the Lease Expiration Date, so long as no
Lease Event of Default or Lease Default shall have occurred and be continuing:
(i) Lessee shall transfer all of Lessee's right, title and interest in the
Premises, or cause the Premises to be transferred, to the bidder, if any, which
shall have submitted the highest bid therefor at least twenty (20) (or in the
case of a Participant, any Affiliate thereof or Person contacted by a
Participant, five (5)) Business Days) prior to such Lease Expiration Date, in
the same manner and in the same condition and otherwise in accordance with all
of the terms of this Lease; (ii) subject to the prior or current payment by
Lessee of all amounts due under clause (iii) of this sentence, Lessor shall
comply with any conditions to transfer set forth in Section 22.2 and the
transfer provisions of Section 23.16 in order to transfer Lessor's right, title
and interest in and to the Premises for cash to such bidder; and (iii) Lessee
shall simultaneously pay to Lessor all of the amounts required pursuant to
Section 22.3. All costs related to a sale and delivery pursuant to this Section
22.1 including the cost of sales agents retained by Lessee, Lessor or the
Participants, improvements desired by the potential buyer, delivery of
documents, filing and documentary transfer fees, Taxes relating to or arising as
a result of such transfer, title insurance, certification and testing of the
Premises, environmental audits, legal costs, costs of notices, any advertisement
or other similar costs shall be borne entirely by Lessee, without regard to
whether such costs were incurred by Lessor, Lessee or any potentially qualified
buyer, and shall in no event be paid by the purchaser of the Premises or from
any of the Sale Proceeds or as a reduction to the purchase price. Neither Lessor
nor any Participant shall have any responsibility for procuring any purchaser;
provided, however, that Lessor and its designees may, at the direction of the
Required Participants, engage in activities to market and sell the Premises. Any
such activities undertaken by
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Lessor pursuant to this Section 22.1 shall not reduce Lessee's obligations under
this Section 22.1 to use its best commercial efforts to sell the Premises in
accordance with the requirements of this Article XXII.
SECTION 22.2. Sale. Lessee shall, on the Lease Expiration Date at
Lessee's own expense, transfer each Leased Property to the purchaser thereof
free and clear of all Liens other than Permitted Exceptions, in as good
condition as it was on the applicable Site Acquisition Date and on the
applicable Completion Date, ordinary wear and tear excepted, and in compliance
with all Applicable Laws and Regulations (and in any event without (x) any
asbestos installed or maintained in any part of the Premises, (y) any
polychlorinated biphenyls (PCBs) in, on or used, stored or located at the
Premises, and (z) any other Hazardous Materials). As a condition to Lessee's
rights hereunder, Lessee shall obtain all necessary governmental consents and
approvals and make all governmental filings required by Lessee or Lessor in
connection with any third party sale. Lessee shall cooperate with the purchaser
of the Premises in order to facilitate the ownership and operation of each
Leased Property by such purchaser after the date of the sale or transfer,
including providing all books, reports and records regarding the maintenance,
repair and ownership of the Premises and granting or assigning all licenses
necessary for the operation of each Leased Property and cooperating in seeking
and obtaining all necessary Governmental Action. As a further condition to
Lessee's rights hereunder, Lessee shall pay the total cost for the completion of
the Financed Improvements and of all Alterations commenced prior to the Lease
Expiration Date and for the repair and rebuilding of the affected portions of
each Leased Property suffering a Casualty. All Financed Improvements and
Alterations and all such repairs and rebuilding shall be completed prior to the
date of Lessee's election of the Sale Option. Prior to the Lease Expiration
Date, Lessee shall furnish to the Certificate Trustee, the Agent, the
Participants and the independent purchaser hereunder a reasonably current
Environmental Audit for each Leased Property dated no earlier than 45 days prior
to the Lease Expiration Date and addressed to each such party in form and
substance satisfactory in the sole discretion of such purchaser, the Certificate
Trustee, the Agent and the Required Participants. The obligations of Lessee
under this Section 22.2 shall survive the expiration or termination of this
Lease. Unless Lessee shall have exercised or been deemed to have exercised its
Purchase Option, Lessor shall at Lessee's expense be entitled to perform such
investigation, including obtaining reports of engineers and other experts as to
the condition and state of repair and maintenance of the Premises required by
this Section 22.2 and as to the compliance of the Premises with Applicable Laws
and Regulations including Environmental Laws, as it deems appropriate. Lessee,
at its sole cost and expense, shall cause the repair or other remediation of any
discrepancies between the actual condition
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of the Premises and the condition required under this Lease, such repair or
remediation to be completed not later than the Lease Expiration Date.
SECTION 22.3. Application of Sale Proceeds and Recourse Payments.
(a) On the Lease Expiration Date in connection with an exercise
of the Sale Option, Lessee shall pay to Lessor all Rent then due together with
all other amounts due and payable by Lessee to Lessor, Agent, any Participant or
any Indemnitee. Lessee also shall pay to Lessor, as Supplemental Rent, from the
aggregate Sale Proceeds the aggregate outstanding Lease Balance as of the Lease
Expiration Date (as determined after the payment of all Rent due on such date).
If the Sale Proceeds exceed the Lease Balance as of the Lease Expiration Date,
Lessee shall retain the portion of the Sale Proceeds in excess thereof. If the
Sale Proceeds are less than the aggregate outstanding Lease Balance, Lessee
shall pay or shall cause to be paid to Lessor, as Supplemental Rent, on the
Lease Expiration Date, in addition to the Sale Proceeds an additional amount
equal to the lesser of (x) the Sales Recourse Amount and (y) the amount that the
Lease Balance exceeds the Sale Proceeds.
(b) The obligation of Lessee to pay the amounts determined
pursuant to Sections 22.3(a) and 22.4 shall be recourse obligations of Lessee,
and such payments by Lessee shall not limit any other obligation of Lessee under
the Operative Documents, including pursuant to Article VII of the Participation
Agreement.
SECTION 22.4. Appraisal. If any Participant expects that the Sale
Proceeds will be less than the outstanding Lease Balance as of the Lease
Expiration Date, Lessor (upon direction from such Participant) shall engage an
appraiser reasonably satisfactory to Lessee, at Lessee's expense, to determine
(by appraisal methods reasonably satisfactory to the Required Participants) the
Fair Market Value of the Premises then subject to this Lease as of the Lease
Expiration Date. If the Appraiser concludes that the Fair Market Value of such
Premises as of the Lease Expiration Date is in excess of the Sale Proceeds to be
obtained from the sale of the Premises, Lessee shall promptly pay to Lessor on
the date of such sale together with the Sale Proceeds, as Supplemental Rent,
such excess which, together with such Sale Proceeds and the Sales Recourse
Amount so paid to Lessor, shall not exceed the Lease Balance determined
immediately before the application of the foregoing amounts.
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ARTICLE XXIII
MISCELLANEOUS
SECTION 23.1. Binding Effect; Successors and Assigns; Survival. The
terms and provisions of this Lease, and the respective rights and obligations
hereunder of Lessor, Lessee, Agent and the Participants shall be binding upon
them and their respective successors, legal representatives and assigns
(including, in the case of Lessor, any Person to whom Lessor may transfer the
Premises or any interest therein in accordance with the provisions of the
Operative Documents), and inure to their benefit and the benefit of their
respective permitted successors, legal representatives and assigns.
SECTION 23.2. Severability. Any provision of this Lease that shall be
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, and Lessee shall remain
liable to perform its obligations hereunder except to the extent of such
unenforceability. To the extent permitted by Applicable Laws and Regulations,
Lessee hereby waives any provision of law that renders any provision hereof
prohibited or unenforceable in any respect.
SECTION 23.3. Notices. Unless otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be in writing and shall be delivered and shall be deemed to have
been given in accordance with Section 9.3 of the Participation Agreement.
SECTION 23.4. Amendment; Complete Agreements. Neither this Lease nor any
of the terms hereof may be terminated, amended, supplemented, waived or modified
orally, but only by an instrument in writing signed by the party against which
the enforcement of the termination, amendment, supplement, waiver or
modification shall be sought. This Lease, together with the other Operative
Documents, is intended by the parties as a final expression of their agreement
and as a complete and exclusive statement of the terms thereof, all
negotiations, considerations and representations between the parties having been
incorporated herein and therein. No course of prior dealings between the parties
or their officers, employees, agents or Affiliates shall be relevant or
admissible to supplement, explain, or vary any of the terms of this Lease or any
other Operative Document. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement between the parties or
their Affiliates shall not be relevant or admissible to determine the meaning of
any of the terms of this Lease or any other Operative Document. No
representations, undertakings, or agreements have been made or relied upon in
the making of this
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Lease other than those specifically set forth in the Operative Documents.
SECTION 23.5. Headings. The Table of Contents and headings of the
various Articles and Sections of this Lease are for convenience of reference
only and shall not modify, define or limit any of the terms or provisions
hereof.
SECTION 23.6. Original Lease. The single executed original of this Lease
containing the receipt of Lessor therefor on or following the signature page
thereof shall be the "original executed counterpart" of this Lease. To the
extent that this Lease constitutes chattel paper, as such term is defined in the
UCC as in effect in any applicable jurisdiction, no security interest in this
Lease may be created through the transfer or possession of any counterpart other
than the "original executed counterpart."
SECTION 23.7. GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL
IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES(EXCEPT SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), EXCEPT AS TO MATTERS RELATING
TO THE GRANTING, CONVEYANCING, OR LEASING OF, AND CREATION OF LIENS AND THE
EXERCISE OF REMEDIES WITH RESPECT TO, THE PREMISES CONSTITUTING REAL PROPERTY,
WHICH, TO THE EXTENT REQUIRED BY APPLICABLE LAWS AND REGULATIONS, SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE
APPLICABLE LEASED PROPERTY IS LOCATED.
SECTION 23.8. RESERVED.
SECTION 23.9. Liability of Lessor Limited. The parties hereto agree that
State Street Bank and Trust Company of California, N.A., in its individual
capacity (the "State Street CA"), shall have no personal liability whatsoever to
Lessee or its respective successors and assigns for any Claim based on or in
respect of this Lease or any of the other Operative Documents or arising in any
way from the transactions contemplated hereby or thereby; provided, however,
that State Street CA shall be liable in its individual capacity (a) for its own
willful misconduct or gross negligence (or negligence in the handling of funds),
(b) for liabilities that may result from the incorrectness of any representation
or warranty expressly made by it in its individual capacity in Section 4.3 of
the Participation Agreement or from the failure of State Street CA to perform
its covenants and agreements set forth in Section 6.2(a) of the Participation
Agreement, or (c) for any Tax based on or measured by any fees, commission or
compensation received by it for acting as Lessor as contemplated by the
Operative Documents. It is understood and agreed that, except as provided in the
preceding proviso: (i) State Street CA shall have no personal liability under
any of the Operative Documents as
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a result of acting pursuant to and consistent with any of the Operative
Documents; (ii) all obligations of the Certificate Trustee to Lessee are solely
nonrecourse obligations except to the extent that it has received payment from
others; (iii) all such personal liability of State Street CA is expressly waived
and released as a condition of, and as consideration for, the execution and
delivery of the Operative Documents by State Street CA; and (iv) this Lease is
executed and delivered by State Street CA solely as Certificate Trustee in the
exercise of the powers expressly conferred upon it as Lessor under the Trust
Agreement.
SECTION 23.10. Estoppel Certificates. Each party hereto agrees that at
any time and from time to time during the Lease Term, it will promptly, but in
no event later than thirty (30) days after request by the other party hereto,
execute, acknowledge and deliver to such other party or to any prospective
purchaser (if such prospective purchaser has signed a commitment letter or
letter of intent to purchase the Premises or any part thereof or to purchase any
Certificate), assignee or mortgagee or third party designated by such other
party, a certificate stating (a) that this Lease is unmodified and in force and
effect (or if there have been modifications, that this Lease is in force and
effect as modified, and identifying the modification agreements); (b) the date
to which Basic Rent has been paid; (c) in the case of an estoppel certificate to
be given by Lessee, whether or not there is any existing default by Lessee in
the payment of Basic Rent or any other sum of money hereunder, and whether or
not there is any other existing Lease Default or Lease Event of Default with
respect to which a notice of default has been served, and, if there is any such
default, specifying the nature and extent thereof; (d) in the case of an
estoppel certificate to be given by Lessee, whether or not, to the knowledge of
Lessee after due inquiry and investigation, there are any purported setoffs,
defenses or counterclaims against enforcement of the obligations to be performed
hereunder existing in favor of Lessee; and (e) other items that may be
reasonably requested; provided, that no such certificate may be requested unless
the requesting party has a good faith reason for such request. In addition,
Lessee, promptly, but in no event later than ten (10) Business Days after
request by any other party hereto, shall use commercially reasonable efforts to
obtain and deliver to such other party or to any prospective purchaser (if such
prospective purchaser has signed a commitment letter or letter of intent to
purchase the Premises or any part thereof or to purchase any Certificate),
assignee, mortgagee or third party designated by such other party, an estoppel
certificate from each subtenant under each sublease containing such items as
reasonably requested by the party requesting the same; provided, that no such
certificate may be requested unless the requesting party has a good faith reason
for such request.
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SECTION 23.11. No Joint Venture. Any intention to create a joint venture
or partnership relation hereunder or pursuant to any other Operative Document
between Lessor and Lessee is hereby expressly disclaimed.
SECTION 23.12. No Accord and Satisfaction. The acceptance by Lessor of
any sums from Lessee (whether as Basic Rent or otherwise) in amounts which are
less than the amounts due and payable by Lessee hereunder is not intended, nor
shall be construed, to constitute an accord and satisfaction of any dispute
between Lessor and Lessee regarding sums due and payable by Lessee hereunder,
unless the Required Participants specifically deem it as such in writing.
SECTION 23.13. No Merger. In no event shall the leasehold estate of
Lessee hereunder merge with any interests, estates or rights of Lessor in or to
the Premises, it being understood that such leasehold estate of Lessee hereunder
shall be deemed to be separate and distinct from Lessor's interests, estates and
rights in or to the Premises, notwithstanding that any such interests, estates
or rights shall at any time or times be held by or vested in the same Person.
SECTION 23.14. Successor Lessor. Lessee agrees that, in the case of the
appointment of any successor certificate trustee pursuant to the Trust Agreement
and the other Operative Documents, such successor certificate trustee shall,
upon written notice by such successor certificate trustee to Lessee, succeed to
all the rights, powers and title of Lessor hereunder and shall be deemed to be
Lessor for all purposes hereof and without in any way altering the terms of this
Lease or Lessee's obligations hereunder.
SECTION 23.15. Survival. The termination of this Lease pursuant to
Section 18.1 shall in no event relieve Lessee of its liabilities and obligations
hereunder which accrued prior to such termination, all of which shall survive
any such termination. The extension of any applicable statute of limitations by
Lessor, Lessee, any Participant or any other Indemnitee shall not affect such
survival.
SECTION 23.16. Transfer of Premises. (a) Whenever pursuant to any
provision of this Lease, Lessor is required to transfer all or any portion of
the Premises or to any Leased Property to Lessee or to an independent third
party, such transfer shall be made at Lessee's expense by the transfer by a deed
and assignment of all of Lessor's interest in and to the applicable Premises on
an "as is, where is, with all faults" basis free and clear of all Certificate
Trustee Liens, without covenants or warranties of title, except for matters
arising by, through or under Lessor, and otherwise without recourse,
representation or warranty of any kind, and together with the due assumption by
Lessee (or such third party) of, and due
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release of Lessor from, all obligations relating to the applicable Premises and
the applicable Del Monte Collateral. In connection with any transfer to an
independent third party, Lessee shall execute and deliver such documents,
certificates and estoppels as may be required to facilitate the transfer of the
applicable Premises. Any provision in this Lease or other Operative Document to
the contrary notwithstanding, Lessor shall not be obligated to make any such
transfer until Lessor and the Participants have received all Rent and other
amounts then due and owing by Lessee hereunder and under the other Operative
Documents. At or subsequent to the transfer or return of all or any of the
Premises, Lessee will provide Lessor with such lien and title searches as Lessor
may reasonably request to demonstrate to Lessor's satisfaction that the
applicable Premises are subject to no liens for which Lessor would be liable
under any warranties of title.
(b) Lessee may assign to another Person its right, upon a
purchase by Lessee, to take title to the Premises or to any Leased Property
pursuant to Article XX or Section 21.1(b); provided, that (i) Lessee shall
exercise any such option, (ii) such assignee shall be bound by the provisions of
Article XX or Section 21.1(b),as applicable, with respect to the Premises or the
Leased Property to be purchased by it, (iii) Lessee shall have delivered to
Lessor proof that all necessary governmental approvals, consents and filings
with respect to such transfer, including the purchase of the Premises or any
Leased Property by any other Person as contemplated herein, have been obtained
or made, as applicable, and (iv) no such assignment shall release Lessee from
its obligations under any such Section, and Lessee shall remain personally
liable to Lessor for the payment of all amounts due under any such section and
Section 23.16.
SECTION 23.17. Enforcement of Certain Warranties. Unless a Lease Event
of Default shall have occurred and be continuing, Lessor authorizes Lessee
(directly or through agents), at Lessee's expense, to assert, during the Lease
Term, all of Lessor's rights (if any) under any applicable warranty and any
other claim that Lessee or Lessor may have under the warranties provided to
Lessor in connection with the Financed Improvements and Lessor agrees to
cooperate, at Lessee's expense, with Lessee and its agents in asserting such
rights. Any amount recovered by Lessee under any such warranties shall be
retained by or paid over to Lessee, subject to Section 23.18.
SECTION 23.18. Security Interest in Funds. As long as a Lease Event of
Default, or a Lease Default that upon notice or lapse of time, or both, would
become an Insolvency Event, shall have occurred and be continuing, any amount
that would otherwise be payable to Lessee under the Operative Documents shall be
paid to or retained by Lessor (including amounts to be paid to Lessee pursuant
to Article XIII or Section 23.17) as security for the performance
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by Lessee in full of its obligations under this Lease and the other Operative
Documents, and it may be applied to the obligations of Lessee hereunder and
under the other Operative Documents and distributed pursuant to Section 18.2. At
such time as no Lease Event of Default, or no Lease Default that upon notice or
lapse of time, or both, would become an Insolvency Event, or failure to perform
shall be continuing, such amounts, net of any amounts previously applied to
Lessee's obligations hereunder or under any other Operative Documents, shall be
paid to Lessee. Any such amounts which are held pending payment to Lessee or
application hereunder shall be invested by Lessor as directed from time to time
in writing by Lessee, and at the expense and risk of Lessee, in Permitted
Investments. Any gain (including interest received) realized as the result of
any such investment (net of any fees, commissions and other expenses, if any,
incurred in connection with such investment) shall be applied from time to time
in the same manner as the principal invested. Lessor shall not be liable for any
losses on such investments or for any failure to make any investment. Lessee
will promptly pay to Lessor on demand, the amount of any loss realized as the
result of any such investment (together with any fees, commissions and other
expenses, if any, incurred in connection with such investment), such amount to
be held, paid and applied in the same manner as other amounts subject to this
Section 23.18.
SECTION 23.19. Recording of Lease Supplements. Concurrently with the
execution and delivery of this Lease and concurrently with the execution and
delivery of each Lease Supplement, Lessor and Lessee shall execute, acknowledge
and cause to be recorded each such Lease Supplement or a memorandum thereof in
the official records of the Counties where each Site that is the subject of this
Lease or such Lease Supplement is located and in such other places as Lessor
deems necessary to perfect the Lien granted pursuant to this Lease or such Lease
Supplement. Notwithstanding the execution, delivery and recording of any such
Lease Supplement or memorandum thereof, the terms, covenants and conditions of
this Lease shall control.
SECTION 23.20. Nature of Transaction. It is the intention of the parties
that:
(a) the Overall Transaction constitutes an operating lease from
Lessor to Lessee for purposes of Lessee's and Guarantor's financial reporting;
(b) for federal and state income tax, property tax, bankruptcy
(including the substantive law upon which bankruptcy proceedings are based) and
real estate and Uniform Commercial Code purposes:
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(i) the Overall Transaction constitutes a financing by the
Participants to Lessee, and on each Site Acquisition Date beneficial
ownership in the Premises shall be deemed to pass directly to and that
the Overall Transaction preserves beneficial ownership in the Premises
in Lessee, and the obligations of Lessee to pay Basic Rent shall be
treated as payments of interest to the Participants, and the payment by
Lessee of any amounts in respect of the Lease Balance shall be treated
as payments of principal to the Participants;
(ii) Lessor holds title in the Premises as security for Lessee's
and Guarantor's obligations under the Operative Documents, and the Lease
grants a security interest or a lien, as the case may be, in the
Premises and the other Del Monte Collateral in favor of the Certificate
Trustee, and for the benefit of the Participants; and
(iii) the Mortgages create liens and security interests in the
Mortgaged Property defined therein for the benefit of all of the
Participants.
Nevertheless, Lessee acknowledges and agrees that none of Certificate Trustee,
Agent, Arranger, or any Participant has made any representations or warranties
concerning the tax, accounting or legal characteristics of the Operative
Documents or any aspect of the Overall Transaction and that Lessee and Guarantor
have obtained and relied upon such tax, accounting and legal advice concerning
the Operative Documents and the Overall Transaction as each deems appropriate.
[SIGNATURE PAGES FOLLOW]
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<PAGE> 48
LEASE
IN WITNESS WHEREOF, the undersigned have each caused this Lease to be duly
executed and delivered by their respective officers thereunto duly authorized
as of the day and year first above written.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., not in its
individual capacity, but solely as
Certificate Trustee
By:_____________________________________
Name: Mark Henson
Title: Assistant Vice President
DEL MONTE CORPORATION, as Lessee
By:_____________________________________
Name Printed:
Title:
Acknowledged in the
presence of:
____________________________
Print Name:_________________
____________________________
Print Name:_________________
S-44
<PAGE> 1
EXHIBIT 10.31
================================================================================
PARTICIPATION AGREEMENT
(Del Monte Trust No. 1998-A)
Dated as of November 19, 1998
Among
DEL MONTE CORPORATION, as Lessee,
DEL MONTE FOODS COMPANY, as Guarantor,
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
not in its individual capacity except as expressly
stated herein, but solely as Certificate Trustee
STATE STREET BANK AND TRUST COMPANY,
not in its individual capacity except as expressly
stated herein, but solely as Agent
THE PERSONS NAMED ON SCHEDULE I-A,
as Certificate Purchasers,
THE PERSONS NAMED ON SCHEDULE I-B,
as Lenders
================================================================================
SECURITY PACIFIC LEASING CORPORATION,
as Arranger
<PAGE> 2
THIS PARTICIPATION AGREEMENT (Del Monte Trust No. 1998-A), dated as
of November 19, 1998 (this "Agreement" or "Participation Agreement"), is among
DEL MONTE CORPORATION, a New York corporation, as Lessee; DEL MONTE FOODS
COMPANY, a Maryland corporation, as Guarantor; STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., a national banking association, not in its
individual capacity except as expressly stated herein, but solely as Certificate
Trustee; STATE STREET BANK AND TRUST COMPANY, not in its individual capacity
except as expressly stated herein, but solely as Agent; the Persons named on
Schedule I-A hereto (together with their respective permitted successors,
assigns and transferees), as Certificate Purchasers; the Persons listed on
Schedule I-B hereto (together with their respective permitted successors,
assigns and transferees), as Lenders.
PRELIMINARY STATEMENT
A. Lessee is the owner of the Modesto Site and has contracted to
purchase the remaining Sites and desires to enter into the Overall Transaction
for the purpose of financing the purchase of the Sites (other then the Modesto
Site) and the construction of the Financed Improvements on all of the Sites.
B. The Trust under the Trust Agreement has been created for the
purpose of providing financing for the purchase of the Sites to be purchased and
the construction of the Financed Improvements on all of the Sites.
C. Subject to the terms and conditions of this Participation
Agreement and the other Operative Documents:
(i) on the Document Closing Date, among other things:
(a) Lessee and Certificate Trustee will enter into
the Lease pursuant to which Certificate Trustee will sublease
the Modesto Site and lease the balance of the Premises to the
Lessee pursuant to the Lease; and
(b) Certificate Trustee and Construction Agent will
enter into the Construction Agency Agreement pursuant to which
Construction Agent will construct the Financed Improvements on
the Sites, on behalf of Lessor;
(ii) on the Site Acquisition Date for each Site:
(a) Certificate Trustee will purchase one or more
Sites, or, with respect to the Modesto Site, Lessee and
<PAGE> 3
Certificate Trustee will enter into the Ground Lease for such
Site pursuant to which Certificate Trustee will lease such Site
from Lessee;
(b) Lessee and Certificate Trustee will enter into a
Lease Supplement for each such Site pursuant to which
Certificate Trustee will lease (or with respect to the Modesto
Site, sublease) each such Site and the Financed Improvements to
be constructed thereon to the Lessee pursuant to the Lease; and
(c) Certificate Trustee and Construction Agent will
enter into a Construction Agency Agreement Supplement for each
such Site, which will provide for the construction of Financed
Improvements on such Site; and
(iii) during the Construction Period:
(a) Construction Agent, using Advances funded by the
Participants, will construct the Financed Improvements on each
Site on behalf of Certificate Trustee; and
(b) notwithstanding the effectiveness of certain
covenants and terms of the Lease during such period, Lessee will
not be required to make scheduled payments of Basic Rent under
the Lease and the Lease Supplements for a Site until the
Completion Date for such Site.
D. Subject to the terms and conditions of this Participation
Agreement and the other Operative Documents, the Participants are willing to
advance funds for the acquisition (or, with respect to the Modesto Site, the
ground lease) of the Sites, the financing of the Financed Improvements, and to
pay certain Transaction Costs as contemplated herein.
E. To induce the Participants to provide the funds for such
financing and to enter into this Participation Agreement, the Loan Agreement and
the transactions contemplated hereby and thereby, Guarantor desires to, and it
is a condition to the effectiveness of the Overall Transaction that Guarantor,
enter into and deliver to Agent, for the benefit of the Participants, the
Guarantees.
F. To secure their respective Certificate Amounts and Loans, Agent,
on behalf of the Participants, will have the benefit of a Lien on the Premises
and Certificate Trustee's interest in the Lease.
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NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix 1 hereto
for all purposes hereof; and the rules of interpretation set forth in Appendix 1
hereto shall apply to this Participation Agreement.
ARTICLE II
EFFECTIVENESS; ACQUISITION AND LEASE; GENERAL PROVISIONS
SECTION 2.1. Effectiveness of Agreement. This Agreement shall be
effective as of the earliest date (on or before November 30, 1998) (the
"Document Closing Date") on which all of the conditions precedent thereto set
forth in Appendix 2 hereto have been satisfied or waived by the applicable
parties as set forth therein.
SECTION 2.2. Acquisition of Site(s); Grants of Liens.
(a) Sites. Subject to the terms and conditions of this
Participation Agreement, on each Advance Date that constitutes a Site
Acquisition Date, (i) Agent shall make an advance (such advance or an advance
pursuant to Section 3.3, a "Site Advance"), the proceeds of which shall be used
to fund the Site Acquisition Cost of the Sites to be acquired (or, with respect
to the Modesto Site, ground leased) on such Site Acquisition Date and related
Transaction Costs, (ii) Lessor shall acquire such Sites, or with respect to the
Modesto Site, Lessor and Lessee shall enter into the Ground Lease pursuant to
which Lessee shall lease the Modesto Site to Lessor, (iii) Lessor and Lessee
shall enter into a Site Lease Supplement for each such Site pursuant to which
Lessor shall lease (or sublease in the case of the Modesto Site) to Lessee such
Sites together with the Financed Improvements to be constructed thereon, and
(iv) Lessee and Lessor shall enter into and Lessee shall record the Lease
Supplement, the Mortgages and the Financing Statements.
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(b) Construction Costs. Subject to the terms and conditions
of this Participation Agreement, on each Advance Date that constitutes a
Construction Advance Date, Agent shall make an advance (a "Construction
Advance"), the proceeds of which shall be used by Construction Agent for the
payment of Construction Costs, and to fund Capitalized Interest and Capitalized
Yield relating to any Interest and Yield accrued during the Payment Period
immediately preceding such Construction Advance on the portion of the
outstanding principal amount of the Certificates and the Notes attributable to
any Sites for which a Completion Date has not occurred.
SECTION 2.3. Fundings.
(a) Amount of Fundings. Subject to the terms and conditions
of this Agreement and in reliance on the representations and warranties of each
of the parties hereto contained herein or made pursuant hereto, upon receipt of
an Advance Request, on each Advance Date each Certificate Purchaser shall
acquire its interest in the Trust Estate and each Lender will assist in funding
Certificate Trustee's Advance, in each case by making available to Certificate
Trustee by wire transfer in accordance with the instructions set forth in the
Advance Request an amount in immediately available funds on such Advance Date
equal to such Participant's Commitment Percentage of the aggregate amount of the
requested Advance with respect to each Site, which funding by such Participant,
together with the fundings for such Advance by all other Participants on such
date plus all prior fundings by the Participants on each prior Advance Date,
shall not exceed such Participant's Commitment for such Site, as adjusted
pursuant to Section 2.3(e), or the aggregate Commitments as set forth on
Schedule I-A and Schedule I-B, as applicable.
(b) Notes and Certificates. Each Lender's Loan shall be
evidenced by a separate Note issued to such Lender and repayable in accordance
with and with Interest accruing pursuant to the terms of the Loan Agreement. The
amounts made available by each Certificate Purchaser on each Advance Date shall
be evidenced by a separate Certificate issued by Certificate Trustee to each
Certificate Purchaser and held by Agent on each such Certificate Purchaser's
behalf. Each Certificate shall accrue Yield at the Yield Rate on the Certificate
Amount thereof, payable as more fully set forth in the Trust Agreement.
(c) Advances to Lessee and Construction Agent. Any Advance
required to be made by Certificate Trustee pursuant to any Operative Document
shall be made by the Participants making a
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Funding directly into a Site Acquisition Escrow with respect to a Site Advance
or disbursed to Lessee with respect to a Construction Advance. Such Funding by
the Participants into either a Site Acquisition Escrow or directly to Lessee
with respect to a Construction Advance shall be deemed to constitute: (i) the
required Funding from the Participants to Certificate Trustee, and (ii) the
corresponding Advance by Lessee or Certificate Trustee to Lessee or Construction
Agent.
(d) Advances; Limitations and Limits. In addition to any
other provision hereof, Certificate Trustee shall not be obligated to make an
Advance to Lessee or Construction Agent, and no Participant shall be obligated
to Fund any Loan, and no Certificate Purchaser shall be required to Fund any
Certificate Amount on such Advance Date if the amount of such Advance would
exceed the Aggregate Available Amount for such Site or, after giving effect to
such Advance, the aggregate outstanding amount of Loans and Certificate Amounts
with respect to such Site would exceed the aggregate Commitments for such Site.
The amount of the initial Advance shall be used solely to pay
for the Site Acquisition Cost of the Sites to be acquired on that date, any
Transaction Costs incurred through the initial Advance Date, and to reimburse
Construction Agent for any Construction Costs paid by Construction Agent prior
to such date. Following the initial Advance Date, each Site Advance requested by
Lessee shall be used solely for payment of the Site Acquisition Costs for the
Site for which such Site Advance is made or any Transaction Costs incurred
through the Advance date, and each Construction Advance shall be used solely to
reimburse Construction Agent for any Construction Costs or Transaction Costs
paid by Construction Agent prior to the date of the Advance Request for such
Construction Advance.
The initial Advance Date shall occur on or before November 30,
1998. Each Advance Date shall be a Business Day, and there shall be no more than
one Advance during any calendar month (excluding any Advance made solely to pay
the Commitment Fee pursuant to Section 2.15 or Capitalized Interest and
Capitalized Yield pursuant to Section 2.13). Each Advance (which may be for one
or more Sites) shall be in a minimum amount equal to $500,000, or an integral
multiple of $100,000 in excess thereof, provided, that so long as an Advance is
for, in whole or in part, the full amount of the aggregate Available Commitment
for any one or more Sites and exceeds the minimum threshold of $500,000, such
Advance need not be in an integral multiple of $100,000. All remittances made by
Certificate Purchasers and Lenders for the Funding of any Advance shall be made
in immediately available federal funds by
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wire transfer to Agent for deposit not later than 1:00 p.m., New York time, on
the applicable Advance Date to such account as Lessee or Construction Agent, as
applicable, shall have indicated in the Advance Request. The Funding by each
Certificate Purchaser and each Lender to Agent of its respective portion of an
Advance shall constitute authorization and direction by such party to Agent to
make an Advance pursuant to Article 3. One or more Site Advances and
Construction Advances may occur on the same Advance Date and, for purposes of
the restriction in the second sentence of this paragraph, will constitute one
Advance.
(e) Termination of Commitments.
(i) Notwithstanding anything in this Participation
Agreement to the contrary, the Commitments shall terminate and Agent
shall not be obligated to make any Advance, and no party hereto shall be
obligated to make any Fundings, and no Advance Date may thereafter occur
(i) upon the occurrence of the earlier of (x) 2:00 p.m. New York time on
November 30, 2000, or (y) a termination of the Lenders' Commitments
pursuant to Section 6.2 of the Loan Agreement; (ii) in the case of Site
Advances, July 31, 1999, and (iii) in the case of Construction Advances,
the earlier of the Final Completion Date for such Site and the Outside
Completion Date; provided, however, that upon Completion of any Site and
the payment of all Site Acquisition Costs, Construction Costs and
Transaction Costs incurred in connection with such Site (including any
amounts which are being contested as provided in Section 3.5(b)(i)), any
Commitment for such Site which is then unused shall be allocated to
remaining Sites which have not yet been Completed, pro rata, in
proportion to the Commitments for each such Site before the allocations
described in this Section; provided, however, that no such Commitment
for any Site, as adjusted as provided in this Section 2.3(e) shall
exceed the "as built" Fair Market Value for such Site as set forth in
the Appraisal.
(ii) Lessee shall have the right, upon not less than
ten (10) days prior written notice to Lessor, Agent and each Participant
and the satisfaction of the conditions set forth below, to voluntarily
(x) reduce the Commitment for any Site, or (y) before the Site
Acquisition Date for any Site, to terminate all but not less than all of
the Commitments of the Participants with respect to such Site and to
eliminate such Site as a Site to become subject to this Participation
Agreement and the other Operative Documents.
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Any such exercise by Lessee of the right set forth this Section
2.3(e)(ii)(x), to reduce the Commitments for any Site, shall be subject to the
satisfaction of the following conditions:
(A) Lessee shall certify to Lessor and Agent
with respect to such Site following such reduction of the Commitments
for such Site: (i) that the Financed Improvements to be constructed on
such Site can be constructed for the remaining amount of the Commitments
for such Site, setting forth the Construction Budget for such Site and
the then remaining unused and unallocated amount of the contingency
reserve after giving effect to such reduction of the Commitments for
such Site, which calculations shall include capitalized Interest and
Yield thereafter expected to accrue, (ii) that the remaining contingency
reserves for such Site after such reduction of the Commitments for such
Site are sufficient for any reasonably foreseeable contingency which
might occur during the remaining course of construction of the Financed
Improvements to be constructed on such Site, and (iii) setting forth the
anticipated date on which the construction of the Financed Improvements
to be constructed on such Site will be completed;
(B) Lessee shall provide to Lessor and Agent
Construction Consultant's written concurrence with Lessee's
certification described in Section 2.3(e)(ii)(A) above; and
(C) All fees, expenses, Transaction Costs
and other amounts previously paid by Lessee or accrued with respect to
the portion of the Commitment so reduced through the effective date of
such Reduction shall be paid in accordance with Section 2.15.
Any such exercise by Lessee of the right set forth this Section
2.3(e)(ii)(y), to terminate the entire Commitments of the Participants with
respect to a Site, shall be subject to the satisfaction of the condition that
after the reallocation of any Transaction Costs or other costs previously
incurred with respect to such Site as to which the Commitments of the
Participants are to be terminated to the other Sites, the Fair Market Value of
the remaining Sites, as improved with the Financed Improvements, must exceed the
non- terminated aggregate Commitments of the Participants.
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SECTION 2.4. Application of Funds; Purchase and Lease of Premises.
(a) Subject to the terms and conditions of this Agreement,
on the initial Advance Date, Certificate Trustee shall pay certain Transaction
Costs from funds made available by the Participants pursuant to Section 2.3(a).
Effective on the initial Advance Date, Lessee is hereby appointed as Certificate
Trustee's agent (the "Construction Agent") to construct the Financed
Improvements on the terms and conditions set forth herein and in the
Construction Agency Agreement. On the initial Advance Date and on each
subsequent Advance Date, upon the satisfaction of the terms and conditions of
this Participation Agreement, Certificate Trustee shall make an Advance from
funds made available by the Participants pursuant to Section 2.3(a) in the
amount specified in the applicable Advance Request:
(i) with respect to Site Acquisition Costs, in such
amount and into the Site Acquisition Account as may be specified in the
applicable Advance Request to pay Site Acquisition Costs and related
Transaction Costs incurred in connection with the acquisition of any
Site; and
(ii) with respect to costs incurred under or in
connection with the Construction Agency Agreement, directly to Lessee to
pay Construction Costs and Transaction Costs incurred by Construction
Agent on behalf of Certificate Trustee.
SECTION 2.5. Advance Dates.
(a) Notice and Closing. At least five (5) Business Days
prior to the initial Advance Date, and at least four (4) Business Days prior to
each other proposed Advance Date, Lessee, in its capacity as Lessee, with
respect to Site Advances, and as Construction Agent, with respect to
Construction Advances, shall deliver to Agent, Certificate Trustee and each of
the Participants an irrevocable written notice substantially in the form of
Exhibit B (an "Advance Request"), setting forth:
(i) the proposed Advance Date;
(ii) a statement of the amount of the requested
Advance; and whether the Advance is a Site Advance or a Construction
Advance (including a statement of the amount thereof, if any, that
constitutes Capitalized Interest and Capitalized Yield);
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(iii) With respect to a Site Advance:
(A) a description of the Site and all
amounts required to complete the acquisition (or, with respect to the
Modesto Site, ground lease) of such Site, by type and amount (including
Transaction Costs);
(B) estimated Construction Costs for the
construction of Financed Improvements on such Site and the Estimated
Completion Date;
(C) a certification by Lessee that: (I) such
Advance complies with the limitations and conditions set forth at
Section 2.3(d), and (II) all conditions set forth in Sections 3.1, 3.2
and 3.3 hereof to such Advance have been fully satisfied; and
(D) wire transfer instructions for the
disbursement of funds into the Site Acquisition Escrow.
(iv) With respect to a Construction Advance (such
information to be furnished on a Site-by-Site basis):
(A) a description of all Construction Costs,
by type and amount, which have been paid by Construction Agent and for
which Construction Agent has not been reimbursed hereunder (including a
description of all Soft Costs and Transaction Costs, it being understood
that, to the extent such amounts are retained by and paid at the
direction of the Agent, a general description of the types of categories
of Transaction Costs will be sufficient);
(B) a certification by Construction Agent
that: (I) such Advance complies with the limitations and conditions set
forth at Section 2.3(d), (II) the aggregate amount to be Funded by the
Participants on such Construction Advance Date together with Advances
made on all prior Construction Advance Dates for such Site does not
exceed the lesser of: 1) the Aggregate Available Amount for such Site or
2) the estimated as-built Fair Market Value of the Financed Improvements
for such Site as set forth in the Appraisal, and the aggregate amount to
be funded by the Participants on such Construction Advance Date together
with all Advances made on all prior Construction Advance Dates for such
Site does not exceed the aggregate amount set forth in the budget for
constructing the Financed Improvements on such Site,
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(III) all conditions to Construction Agent's right to request an Advance
for Construction Costs pursuant to the Construction Agency Agreement
have been fully satisfied, and (IV) all conditions set forth in the
Construction Agency Agreement to the disbursement of all prior Advances
to Lessee in respect of Construction Costs have been fully satisfied to
the extent not waived in writing by the Required Participants; and
(C) wire transfer instructions for the
disbursement of the appropriate amount of funds to Lessee.
Any such Advance Request for a Construction Advance shall also be
accompanied by the certifications required under the Construction Agency
Agreement.
All documents and instruments required to be delivered on the initial Advance
Date pursuant to this Agreement shall be delivered at the offices of Mayer,
Brown & Platt, 350 South Grand Avenue, Los Angeles, California 90071-1503, or at
such other location as the Required Participants and Lessee may agree. All
documents and instruments required to be delivered on any subsequent Advance
Date pursuant to this Agreement shall be delivered to the Agent, or at such
other location as the Required Participants, Agent, Certificate Trustee and
Lessee may agree. On the scheduled Advance Date, and subject to the satisfaction
of the conditions set forth in Section 2.5(a), Participants shall Fund the
Advance by wire transfer into the applicable Site Acquisition Escrow or directly
to Lessee with respect to a Construction Advance. Notwithstanding the foregoing,
in the event that Lessor elects to terminate the Construction Agency Agreement
with respect to any one or more Sites and to cause the completion of the
Financed Improvements to be constructed on such Sites pursuant to Section 5.3(c)
of the Construction Agency Agreement, then Lessor may submit Advance Requests,
the aggregate amount available to be Funded by the Participants shall equal the
aggregate amount of the Commitments (without regard to the limitations in clause
(B) of Section 2.5(a)(iv)(B)(II), and such amounts shall be disbursed directly
to Lessor for the payment of Construction Costs.
(b) Commitment. Subject to compliance by the Lessee and the
Construction Agent with the terms of this Participation Agreement and the
satisfaction or waiver of the conditions set forth in this Article II and in
Article III, the Participants shall disburse the respective amounts of their
Commitments in accordance with the requirements of this Participation Agreement.
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(c) Certificates; Notations. Agent, on behalf of each
Participant, is hereby authorized to record the date and amount of each Funding,
the amount of all Capitalized Interest or Capitalized Yield (as the case may
be), each payment or repayment of principal or Certificate Amount (as the case
may be) and the length of each Payment Period with respect thereto, and in each
such case the Site and Lease Supplement to which any such amount, payment or
Payment Period applies on the grid annexed to and constituting a part of each
Note and/or Certificate issued to such Participant and held by Agent, and any
such recordation shall constitute prima facie evidence of the accuracy of the
information so recorded; provided, that the failure to make any such recordation
or any errors in such recordation shall not affect the obligation of Certificate
Trustee under such instrument or the corresponding obligation of Lessee to pay
Rent (including any Lease Balance). Agent shall, upon any request to do so, also
determine with respect to each Note and Certificate the Site Balance and Land
Balance relating to each Site, which determination shall be conclusive and
binding on Lessee and the Participants absent manifest error.
SECTION 2.6. Participants' Instructions to Certificate Trustee and
Payments to Participants.
(a) Each Participant agrees that the making of its monies
available pursuant to Section 2.3 shall constitute, without further act,
authorization and direction by such Participant to Certificate Trustee to take
the actions specified in Section 1.1 of the Trust Agreement.
(b) The parties to this Participation Agreement hereby agree
that any payment required to be made to the Participants by Certificate Trustee
pursuant to any Operative Document may be made directly to the Participants by
Lessee, or to Agent pursuant to the Loan Agreement for the benefit of the
Participants, in lieu of the corresponding payment required to be made by Lessee
to Certificate Trustee pursuant to any Operative Document. Such payment by
Lessee to the Participants or to Agent pursuant to the Loan Agreement for the
benefit of the Participants, shall be deemed to constitute: (a) the required
payment from Lessee to Certificate Trustee, and (b) the corresponding payment by
Certificate Trustee to the Participants.
SECTION 2.7. Nature of Transaction. It is the intention of the parties
that:
(a) the Overall Transaction constitutes an operating lease
from Lessor to Lessee for purposes of Lessee's and Guarantor's financial
reporting;
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(b) for federal and state income tax, property tax,
bankruptcy (including the substantive law upon which bankruptcy proceedings are
based) and real estate and Uniform Commercial Code purposes:
(i) the Overall Transaction constitutes a financing by the
Participants to Lessee, and on each Site Acquisition Date beneficial
ownership in the Premises shall be deemed to pass directly to and the
Overall Transaction preserves beneficial ownership in the Premises in
Lessee, and the obligations of Lessee to pay Basic Rent shall be treated
as payments of interest to the Participants, and the payment by Lessee
of any amounts in respect of the Lease Balance shall be treated as
payments of principal to the Participants;
(ii) Lessor holds title in the Premises as security for
Lessee's and Guarantor's obligations under the Operative Documents, and
the Lease grants a security interest or a lien, as the case may be, in
the Premises and the other Del Monte Collateral in favor of the
Certificate Trustee, and for the benefit of the Participants; and
(iii) the Mortgages create liens and security interests in the
Mortgaged Property defined therein for the benefit of all of the
Participants.
Nevertheless, each of Lessee and Guarantor acknowledges and agrees that none of
Certificate Trustee, Agent, Arranger, or any Participant has made any
representations or warranties concerning the tax, accounting or legal
characteristics of the Operative Documents or any aspect of the Overall
Transaction and that Lessee and Guarantor have obtained and relied upon such
tax, accounting and legal advice concerning the Operative Documents and the
Overall Transaction as each deems appropriate.
SECTION 2.8. Amounts Due. Anything else herein or elsewhere to the
contrary notwithstanding, it is the intention of Lessee, Certificate Trustee,
and Participants that from and after the Final Completion Date: (i) the amount
and timing of installments of Basic Rent due and payable from time to time from
Lessee under the Lease shall be equal to the aggregate payments due and payable
in respect of Interest accrued on the Notes and Yield accrued on the
Certificates on each Payment Date (to the extent such Interest or Yield is not
Capitalized Interest or Capitalized Yield); (ii) if Lessee becomes obligated to
purchase the Premises under the Lease, the principal of the Notes, the
Certificate Amounts, all Interest and Yield thereon and all other obligations of
Lessee owing to the Participants, Agent and Certificate Trustee shall be paid in
full
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by Lessee in accordance with Article XX and Article XXI of the Lease; (iii) if
Lessee properly elects the Sale Option and remarkets the Premises in accordance
with Article XXII of the Lease, Lessee shall only be required to pay the Sales
Proceeds of the sale of the Premises and, if the Sales Proceeds are less than
the Lease Balance, the amount of such difference but not more than the Sale
Recourse Amount, all in accordance with Article XXII of the Lease, and any
amounts due pursuant to Section 7.7 hereof and Section 22.3(a) of the Lease
(which aggregate amounts may be less than the Lease Balance); and (iv) upon a
Lease Event of Default resulting in an acceleration of Lessee's obligation to
purchase the Premises under the Lease and except as specifically provided in
Section 7.9 hereof, the amounts then due and payable by Lessee under the Lease
shall include all amounts necessary to pay in full the outstanding principal
under the Notes, the Certificate Amounts and all accrued Interest and Yield
thereon, plus all other amounts then payable by Lessee to Participants, Agent
and Certificate Trustee under the Operative Documents.
SECTION 2.9. Computations. For all purposes under the Operative
Documents, all computations of Interest, Yield and other accrued amounts
(including, without limitation, the Overdue Rate) shall be made on the basis of
a 360-day year and the actual days elapsed, subject to the last sentence in
Section 2.10 and to Section 2.7 of the Loan Agreement.
SECTION 2.10. Determination of Interest Rate and Yield Rate. The amount
of principal outstanding on the Notes shall accrue Interest at the per annum
rate equal to the Interest Rate. The amount of Certificate Amounts outstanding
from time to time shall accrue Yield at the per annum rate equal to the Yield
Rate. Agent shall as soon as practicable, but in no event later than 11:00 a.m.,
New York time, two Business Days prior to the effectiveness of each LIBO Rate,
notify Borrower, Lessee and the Participants of such LIBO Rate and the
corresponding Interest Rate and Yield, as applicable, but failure to so notify
shall not affect the obligations of the parties hereunder or under the other
Operative Documents. Prior to the Completion Date for any Site, Interest and
Yield attributable to amount Advanced with respect to such Site will be Funded
and added to the Notes and Certificates pursuant to Section 2.13. From and after
the Completion Date for each Site, accrued Interest and Yield shall be due and
payable by Lessee as Basic Rent on each applicable Payment Date and on the Lease
Expiration Date. If all or any portion of the principal under the Notes, the
Certificate Amounts, any accrued Interest or Yield payable thereon or any other
amount payable hereunder shall not be paid when due (whether at stated maturity,
acceleration or otherwise), such overdue amount shall bear interest at a rate
per
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annum which is equal to the Overdue Rate and shall be payable from time to time
on demand as Supplemental Rent. If at any time the rate on which Yield accrues
cannot be determined by reference to a LIBO Rate, or if such rate becomes
unavailable or illegal, then the rate on which Yield accrues shall be determined
as provided at Sections 2.7 and 2.12 of the Loan Agreement.
SECTION 2.11. Obligations Several. The obligations of the Participants
hereunder or elsewhere in the Operative Documents shall be several and not
joint; and no Participant shall be liable or responsible for the acts or
defaults of any other party hereunder or under any other Operative Document.
SECTION 2.12. Highest Lawful Rate. It is the intention of the parties
hereto to conform strictly to applicable usury laws and, anything herein to the
contrary notwithstanding, the obligations of (x) Lessee to Certificate Trustee
under this Participation Agreement and the Lease, (y) Certificate Trustee to the
Certificate Purchasers under the Trust Agreement and the Certificates and to the
Lenders under the Loan Agreement and the Notes, and (z) either Lessee or
Certificate Trustee or any other party under any other Operative Document shall
be subject to the limitation that payments of interest or of other amounts
constituting interest under Applicable Laws and Regulations shall not be
required to the extent that receipt thereof would be in excess of the Highest
Lawful Rate (as defined below), or otherwise contrary to provisions of law
applicable to the recipient limiting rates of interest which may be charged or
collected by the recipient. Accordingly, if the transactions or the amount paid
or otherwise agreed to be paid for the use, forbearance or detention of money
under this Participation Agreement, the Lease, the Trust Agreement, the
Certificates, the Loan Agreement, the Notes or any other Operative Document
would exceed the Highest Lawful Rate or otherwise be usurious under Applicable
Laws and Regulations (including without limitation the federal and state laws of
the United States of America, or of any other jurisdiction whose laws may be
mandatorily applicable) with respect to the recipient of any such amount, then,
in that event, notwithstanding anything to the contrary in this Participation
Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement,
the Notes or any other Operative Document, it is agreed as follows as to the
recipient of any such amount:
(a) the provisions of this Section 2.12 shall govern and
control over any other provision in this Participation Agreement, the Lease, the
Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other
Operative Document and each provision set forth therein is hereby so limited;
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(b) the aggregate of all consideration which constitutes
interest under Applicable Laws and Regulations that is contracted for, charged
or received under this Participation Agreement, the Lease, the Trust Agreement,
the Certificates, the Loan Agreement, the Notes or any other Operative Document
shall under no circumstances exceed the maximum amount of interest allowed by
Applicable Laws and Regulations (such maximum lawful interest rate, if any, with
respect to such recipient herein called the "Highest Lawful Rate"), and all
amounts owed under this Participation Agreement, the Lease, the Trust Agreement,
the Certificates, the Loan Agreement, the Notes and any other Operative Document
shall be held subject to reduction and: (i) the amount of interest which would
otherwise be payable to the recipient hereunder and under the Lease, the Trust
Agreement, the Certificates, the Loan Agreement, the Notes and any other
Operative Document, shall be automatically reduced to the amount allowed under
Applicable Laws and Regulations, and (ii) any unearned interest paid in excess
of the Highest Lawful Rate shall be credited to the payor by the recipient (or,
if such obligation shall have been paid in full, refunded to the payor);
(c) all sums paid, or agreed to be paid for the use,
forbearance and detention of the money under this Participation Agreement, the
Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or
any other Operative Document shall, to the extent permitted by Applicable Laws
and Regulations, be amortized, prorated, allocated and spread throughout the
full term of such indebtedness until payment in full so that the actual rate of
interest is uniform throughout the full term thereof;
(d) if at any time the interest, together with any other
fees, late charges and other sums payable pursuant to or in connection with this
Participation Agreement, the Lease, the Trust Agreement, the Certificates, the
Loan Agreement, the Notes and any other Operative Document executed in
connection herewith or therewith and deemed interest under Applicable Laws and
Regulations, exceeds that amount which would have accrued at the Highest Lawful
Rate, the amount of interest and any such fees, charges and sums to accrue to
the recipient of such interest, fees, charges and sums pursuant to the Operative
Documents shall be limited, notwithstanding anything to the contrary in the
Operative Documents to that amount which would have accrued at the Highest
Lawful Rate for the recipient, but any subsequent reductions, as applicable,
shall not reduce the interest to accrue pursuant to the Operative Documents
below the recipient's Highest Lawful Rate until the total amount of interest
payable to the recipient (including all consideration which constitutes
interest) equals the amount of interest which would have been payable to the
recipient (including
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all consideration which constitutes interest), plus the amount of fees which
would have been received but for the effect of this Section 2.12.
SECTION 2.13. Capitalized Interest and Capitalized Yield. During the
Construction Period with respect to any Site as to which the Completion Date has
not occurred, on each date which is three (3) Business Days prior to any Payment
Date, Construction Agent shall be deemed to have requested an Advance in an
amount equal to Capitalized Interest and Capitalized Yield accrued on the
outstanding principal and Certificate Amounts attributable to each such Site,
with a Payment Period ending on such Payment Date. The Advance Date with respect
to each such Advance for such accrued Capitalized Interest and Capitalized Yield
shall be the relevant Payment Date (subject to the terms and conditions for an
Advance set forth in this Participation Agreement) and the proceeds of such
Advance shall be applied to pay such accrued Capitalized Interest and
Capitalized Yield. On each such Advance Date with respect to any Site as to
which such an Advance is being made, the Certificate Amounts shall be increased
by an amount equal to the Capitalized Yield Funded on such date, the outstanding
principal on the Notes shall be increased by an amount equal to the Capitalized
Interest Funded on such date, and the Construction Costs for such Site shall be
increased by an amount equal to the Capitalized Interest and the Capitalized
Yield so funded (less the portion of such Capitalized Interest and the
Capitalized Yield allocated to the Land Balance for such Site); provided,
however, that if an Advance hereunder would exceed the aggregate Available
Commitments of the Participants for such Site, no Participant shall have any
obligation to make any such Advance and the Required Participants shall have the
right to declare a default under, inter alia, the Construction Agency Agreement.
SECTION 2.14. Extension of Lease Expiration Date and Final Maturity
Date.
(a) Lessee may request in writing (the "Extension Option
Request") to the Agent, Certificate Trustee and each of the Participants that
each of the Participants agrees that Lessee be granted the right (the "Extension
Option") pursuant to the Lease to extend the Lease Term for all (but not less
than all) of the Premises (the "Lease Extension") for five (5) additional
one-year periods commencing on the last day of the then current Lease Term, as
applicable (each, a "Lease Renewal Term") and that the Final Maturity Date be
correspondingly extended to the extended Lease Expiration Date. Such Extension
Option Request must be delivered in writing to Certificate Trustee, Agent and
each Participant not later than 270 days nor more than 360 days prior to the
expiration
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of the Base Term. Each Participant will notify the Certificate Trustee in
writing of whether or not it has consented to such Extension Option Request not
later than 45 days after receipt of the Extension Option Request (the "Extension
Option Response Date"). Any Participant who does not so notify Certificate
Trustee by the Extension Option Response Date will be deemed to be, and any
Participant that has notified the Certificate Trustee that it has not consented
to an Extension Option Request will be, a Non-Consenting Participant. Each
Participant's determination with respect to an Extension Option Request shall be
a new credit determination and within such Participant's sole and absolute
discretion and may be conditioned upon such terms and conditions as deemed
appropriate by the consenting Participants, including the modification of the
Sale Recourse Amount, receipt of such financial information, documentation or
other information or conditions as may be requested by such Participant, the
receipt of a satisfactory appraisal of each of the Sites then comprising the
Premises, and Guarantor's reaffirmation of the Guarantees.
The Lease Extension contemplated by the Extension Option Request
shall become effective as of the first date (the "Extension Effective Date" with
respect to the Lease Extension) on or after the Extension Option Response Date
on which all of the Participants (other than Non-Consenting Participants who
have been replaced by Replacement Participants in accordance with Section
2.14(b)) and Replacement Participants shall have consented to such Lease
Extension;
provided that on both the date of the Extension Option Request
and the Extension Effective Date: (w) each of the representations and
warranties made by the Certificate Trustee, Guarantor and Lessee in or
pursuant to the Operative Documents shall be true and correct in all
material respects as if made on and as of each such date (except to the
extent any such representation or warranty specifically relates to an
earlier date), (x) Lessee shall not have elected the Purchase Option or
Sale Option, (y) no Lease Event of Default shall have occurred and be
continuing, and (z) on each of such dates, the Certificate Trustee shall
have received a certificate of Lessee as to the matters set forth in
clauses (x) and (y) above; and
provided further that in no event shall the Extension Effective
Date occur unless each of the Participants (other than Non-Consenting
Participants who have been replaced in accordance with Section 2.14(b))
and the Replacement Participants shall have consented to the Extension
Option Request on or before the expiration of the Base Term.
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(b) At any time after the Extension Option Response Date,
Lessee shall be permitted to replace any Non-Consenting Participant with a
replacement bank or other financial institution (a "Replacement Participant"),
and such Non-Consenting Participant shall sell (without recourse) to the
Replacement Participant all Loans and Certificate Amounts of such Non-Consenting
Participant for an amount equal to the aggregate outstanding principal amount of
such Loans and Certificate Amounts plus accrued Interest and Yield to (but not
including) the date of sale, provided that: (i) such replacement does not
conflict with any Applicable Laws and Regulations, (ii) the Lessee shall pay to
such Non-Consenting Participant any amounts arising under Section 7.5 if any
Loan or Certificate Amount owing to such Non-Consenting Participant shall be
purchased other than on the last day of the Payment Period relating thereto,
(iii) such replacement shall be made in accordance with the provisions of
Section 6.3 (provided that the relevant Replacement Participant or Lessee shall
be obligated to pay the transaction costs arising in connection therewith),(iv)
the Replacement Participant shall have agreed to be subject to all of the terms
and conditions of the Operative Documents, and (v) such replacement must be
consummated no later than thirty (30) days prior to the expiration of the Base
Term. A Non-Consenting Participant's rights under the indemnification provisions
of the Operative Documents shall survive any sale of its Loans and Certificate
Amounts to a Replacement Participant.
SECTION 2.15. Commitment and Facility Fees.
(a) During the period (the "Commitment Period") commencing
on the Document Closing Date and ending on the earlier of the Final Completion
Date and the Outside Completion Date, a fully-earned, nonrefundable commitment
fee (the "Commitment Fee") payable by Lessee to Lessor shall accrue equal to
forty-two and one half (42.5) basis points per annum on an amount equal to the
daily unused portion of the aggregate Commitments during the Commitment Period.
On each date which is three (3) Business Days prior to any Payment Date during
the Commitment Period, Construction Agent shall be deemed to have requested an
Advance in an amount equal to the Commitment Fee accrued for the month ending on
such Payment Date. The Advance Date with respect to such accrued Commitment Fee
shall be the relevant Payment Date (subject to the terms and conditions for an
Advance set forth in this Participation Agreement) and the proceeds of such
Advance shall be applied to pay accrued Commitment Fees. On such Advance Date,
the Certificate Amounts shall be increased by an amount equal to the Certificate
Purchasers' pro rata portion (in accordance with their respective Commitments)
of the accrued Commitment Fee Funded on such date, the outstanding principal on
the Notes shall be increased by an amount equal to the
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Lenders' pro rata portion (in accordance with their respective Commitments) of
the accrued Commitment Fee Funded on such date, and the Commitment Fees so
funded shall be allocated pro rata to the Site Balances for each Site based on
the Available Commitment for such Site divided by the aggregate Available
Commitments for all Sites as determined immediately prior to such funding;
provided, however, that if an Advance hereunder would exceed the aggregate
Available Commitments of the Participants, no Participant shall have any
obligation to make any such Advance and the Required Participants shall have the
right to declare a default under, inter alia, the Construction Agency Agreement
and the Lease.
(b) Lessee shall pay a fully-earned, nonrefundable facility
fee (the "Facility Fee") to Lessor equal to fifty (50) basis points on the
aggregate Commitments. Such Facility Fee shall be due when aggregate Commitments
sufficient to acquire the Sites and to construct the Financed Improvements have
been received. On such date, Construction Agent shall be deemed to have
requested an Advance in an amount equal to the Facility Fee. The Advance Date
with respect to such Facility Fee shall be the next Payment Date (subject to the
terms and conditions for an Advance set forth in this Participation Agreement)
and the proceeds of such Advance shall be applied to pay the Facility Fee. On
such Advance Date, the Certificate Amounts shall be increased by an amount equal
to the Certificate Purchasers' pro rata portion (in accordance with their
respective Commitments) of the Facility Fee Funded on such date, the outstanding
principal on the Notes shall be increased by an amount equal to the Lenders' pro
rata portion (in accordance with their respective Commitments) of the Facility
Fee Funded on such date, and the Facility Fee so funded shall be allocated pro
rata to the Site Balances for each Site based on the Commitments for each such
Site; provided, however, that if an Advance hereunder would exceed the aggregate
Available Commitments of the Participants, no Participant shall have any
obligation to make any such Advance and the Required Participants shall have the
right to declare a default under, inter alia, the Construction Agency Agreement
and the Lease.
SECTION 2.16. Completion Payments.
(a) Two Business Days after the Completion of the first
Site, Lessee shall pay to Agent a portion of the Lease Balance in an amount
equal to the aggregate Facility Fee payable pursuant to Section 2.15.
(b) Two Business Days after Completion of the Financed
Improvements for each Site, Lessee shall pay to Agent a portion of
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the Lease Balance in an amount equal to the aggregate accrued Commitment Fee
allocated to such Site pursuant to Section 2.15.
(c) Upon receipt of any such payment pursuant to this
Section 2.16, Agent will promptly distribute to the Participants their pro rata
portions of such amounts in accordance with Article III of the Loan Agreement.
SECTION 2.17. Replacement of Non-Funding Participant. Upon the failure
of any Participant to Fund any Advances in breach of the terms of the Operative
Documents (any such Participant being referred to herein as a "Non-Funding
Participant"), Lessee shall be permitted to replace any such Non-Funding
Participant with a Replacement Participant; provided that, prior to the
effectiveness of any such replacement of a Non-Funding Participant, all of the
conditions set forth in subclauses (i) through (iv) of Section 2.14(b) shall be
satisfied with respect to such Non-Funding Participant and to the replacement of
such Non-Funding Participant, as applicable; provided, however, that Lessee must
complete any such replacement of a Non-Funding Participant within ninety (90)
days from the date of such Non-Funding Participant's failure to Fund. A
Non-Funding Participant's rights under the indemnification provisions of the
Operative Documents shall survive any sale of its Loans and Certificate Amounts
to a Replacement Participant. Any Non-Funding Participant agrees to cooperate
with Lessee, the remaining Participants and the Replacement Participant in
connection with the transfer of such Non-Funding Participant interest set forth
herein. Lessee agrees that any and all claims that Lessee may have against any
Non-Funding Participant shall in no way affect any of Lessee's obligations
under, or any of the remaining Participants' rights under, the Operative
Documents. Any replacement of a Non-Funding Participant in accordance with the
terms of this paragraph shall not release such Non-Funding Participant from any
claims that Lessee or any other party may have against such Non-Funding
Participant.
ARTICLE III
CONDITIONS TO ADVANCES
SECTION 3.1. Conditions to Each Advance. The obligation of each
Participant to perform its obligations on any Advance Date shall be subject to
the fulfillment to the satisfaction of, or the waiver in writing by, such
Participant of the conditions precedent set forth in this Section 3.1 on or
prior to the Advance Date
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(except that the obligation of any party hereto shall not be subject to such
party's own performance or compliance):
(a) Advance Request. Construction Agent shall have delivered
an Advance Request conforming with the requirements of Section 2.5 in respect of
the proposed Advance Date.
(b) Performance. Lessee, Guarantor and Construction Agent
shall have performed and complied with all agreements and conditions contained
herein and in any other Operative Document to which Lessee, Guarantor or
Construction Agent is a party required to be performed or complied with by such
party, on or prior to the Advance Date, with respect to such Advance.
(c) Consents and Approvals. All Governmental Actions and
other approvals and consents required to be taken, given or obtained, as the
case may be, by or from any Authority or another Person, or by or from any
trustee or holder of any Indebtedness or obligation of Lessee, that are
necessary at such time for the execution, delivery and performance of the
Operative Documents shall have been taken, given or obtained as the case may be,
shall be in full force and effect and the time for appeal with respect to any
thereof shall have expired (or, if an appeal shall have been taken, the same
shall have been dismissed) and shall not be subject to any pending proceedings
or appeals (administrative, judicial or otherwise).
(d) Representations and Warranties True; Absence of Defaults
and Material Adverse Effect. Each representation and warranty of Lessee and
Guarantor contained herein or in any other Operative Document shall be true and
correct in all material respects as though made on and as of the Advance Date,
except that any such representation or warranty which is expressly made only as
of an earlier date need be true only as of such date. No Lease Event of Default
or Material Default shall have occurred and be continuing. Each Advance shall be
deemed to be a representation and warranty of Del Monte and Guarantor to each of
the other parties hereto that as of the Advance Date of such Advance (i) the
matters specified in Section 3.1(b) above as they apply to Del Monte and
Guarantor are true and correct, (ii) after giving effect to such Advance the
certification given by Lessee as described in Section 2.5(a)(iii)(C) or by
Construction Agent as described in Section 2.5(a)(iv)(B), as applicable, is true
and correct, and (iii) each of the representations and warranties of Lessee and
Guarantor contained in the Operative Documents is true and correct in all
material respects as though made on and as of such Advance Date, except that any
such representation and warranty which is
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expressly made only as of an earlier date is true and correct only as of such
date.
(e) Transaction Costs. After the Initial Advance, all
Transaction Costs invoiced through the immediately preceding Advance Date and
included in any prior Advance Request shall have been paid to the parties to
whom such Transaction Costs were owed from prior Advances.
(f) Taxes. All Taxes, if any, due and payable in connection
with the execution, delivery, recording and filing of the Operative Documents
and the transactions contemplated to be consummated on the Advance Date shall
have been paid in full or satisfactory arrangements for payment shall have been
made.
SECTION 3.2. Arranger Matters. In connection with the first Advance
under Section 3.3 or under Section 3.4 to occur after the consummation of the
syndication described in the Syndication Agreement,
(a) Arranger Certificate. Each Participant and Certificate
Trustee shall have received a certificate, substantially in the form of Exhibit
N, from Security Pacific Leasing Corporation, dated the Document Closing Date,
with respect to offerees of the Notes or the Certificates.
(b) Arranger's Fee. The Arrangement Fee shall have been paid
to the Arranger or arrangements satisfactory to the Arranger shall have been
established to pay such amount to the Arranger from such Advance.
SECTION 3.3. Conditions to each Site Advance. The obligation of each
Participant to perform its obligations on any Site Advance Date shall be subject
to the prior or concurrent fulfillment to the satisfaction of, or the waiver in
writing by, such Participant of the conditions precedent set forth in this
Section 3.3 with respect to the Site to be acquired on such Site Advance Date
and the other applicable conditions precedent set forth in Section 3.1 on or
prior to such Advance Date (except that the obligation of any party hereto shall
not be subject to such party's own performance or compliance):
(a) Appraisal and Improvements Matters. Not less than ten
(10) Business Days prior to the Site Advance Date, Lessee shall have delivered
to Certificate Trustee and each Participant or, in the case of (ii) below,
Participants shall have obtained:
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(i) a description of the Financed Improvements to be
constructed on such Site and a copy of the Plans and Specifications;
(ii) a detailed budget for such Site setting forth
all costs of acquiring such Site (including applicable Transaction
Costs), constructing the Financed Improvements thereon, capitalized
Interest and Yield and all other costs necessary to acquire and develop
such Site as described in the budgets attached hereto as Exhibits P-1
through P-4 (individually a "Construction Budget");
(iii) certification from the Construction Consultant
substantially in the form attached hereto as Exhibit Q;
(iv) certifications from each of Construction Agent
and Lessee that, as of the Site Advance Date, no work of constructing
the Financed Improvements had begun on such Site; and
(v) an appraisal (the "Appraisal") in form and
substance satisfactory to each of the Participants which shall establish
(by the use of appraisal methods satisfactory to the Participants) the
"as-built" Fair Market Value of such Site (assuming the Completion of
the Financed Improvements on such Site in accordance with the Plans and
Specifications, and assuming that the Financed Improvements on such Site
have been constructed) as of the Estimated Completion Date for such Site
and as of the last day of the Base Term. The Appraisal shall be prepared
in accordance with FIRREA and be performed by an independent appraisal
company chosen by the Required Participants. The Appraisal shall assume
that all of the Financed Improvements shall have been completed in a
good and workmanlike manner, in compliance with Applicable Laws and
Regulations. The Appraisal must show an "as-built" Fair Market Value of
such Site as of the Estimated Completion Date for such Site and as of
the last day of the Base Term of an amount not less than the aggregate
Commitments for such Site.
(b) Ground Lease. With respect to the Modesto Site, Lessor
and Lessee shall have entered into the Ground lease for such Site, pursuant to
which Lessee shall lease such Site to Lessor.
(c) Filings and Recordings. All filings or recordings
enumerated and described in Schedule 4.1(c)(i) hereof, as well as all other
filings and recordings necessary or advisable, including precautionary financing
statements and mortgage filings, in the opinion of counsel to the Participants,
to perfect the rights,
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title and interest of Certificate Trustee, the Participants and the Agent
intended to be created by the Operative Documents shall have been made in the
appropriate places or offices, including any recordings and filings necessary to
create, perfect, preserve and protect: (i) Certificate Trustee's interest in the
Site, the Financed Improvements to be located thereon and any other property and
interests included in the Trust Estate, (ii) first mortgage liens and mortgages
of record on the Mortgaged Property, subject to Permitted Exceptions, (iii) a
first priority perfected security interest in all fixtures appurtenant to the
Leased Property, subject to Permitted Exceptions. All recording and filing fees
and taxes with respect to any recordings or filings made pursuant to this
Section 3.2(b) shall be Transaction Costs, and satisfactory evidence of the
payment thereof shall have been delivered by Lessee to the Certificate Trustee
and Agent, or arrangements for such payment shall have been made by Lessee to
the satisfaction of the Agent.
(d) Opinions of Counsel. Certificate Trustee, Agent and the
Participants shall have received opinions of counsel dated the Site Advance Date
substantially in the forms of Exhibits H-1 and H-2 with respect to the Overall
Transaction and the Site or Sites to be acquired on such Date.
(e) Survey. Lessee shall have delivered, or shall have
caused to be delivered, to the Certificate Trustee, Agent and to the Title
Insurance Company an ALTA survey of the Site in a form satisfactory to the Title
Insurance Company (and including any applicable flood zone designation (with
property annotations based on Federal Flood Insurance Rate Maps or the local
equivalent) by scaled map location and graphic plotting) in order to issue the
Title Policies and showing no state of facts unsatisfactory to the Agent.
(f) Title and Title Insurance. Certificate Trustee shall
have received from the Title Insurance Company an ALTA 1970 owner's policy of
title insurance (or an irrevocable commitment for the issuance thereof),
reasonably acceptable in form and substance to each Participant(the "Owner's
Policy"), insuring that Certificate Trustee has good and marketable fee title
to, or a valid leasehold estate in, such Site, subject to the Lease and such
other exceptions to title as are reasonably acceptable to each Participant, in
an amount equal to the aggregate Commitments with respect to such Site together
with complete, legible copies of all encumbrances, maps and surveys of record.
Agent, for the benefit of the Participants, shall have received from the Title
Insurance Company (or an irrevocable commitment for the issuance thereof), an
ALTA 1970 form of loan policy of title insurance (the "Lender's
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Policy"; together with the Owner's Policy, the "Title Policies"), reasonably
acceptable in form and substance to the Required Participants, insuring the
creation under the Agent's Mortgage in favor of Agent of valid first priority
Liens against the Mortgaged Property (defined in the Agent's Mortgage), subject
to such exceptions to title as are reasonably acceptable to the Required
Participants, in an amount equal to the aggregate Commitments, together with
complete, legible copies of all encumbrances and plats of record. The Title
Policies shall be dated as of the Site Advance Date and, to the extent permitted
under Applicable Laws and Regulations, shall: (w) contain affirmative
endorsements as to mechanics' liens, doing business, usury, Form 3.0 zoning,
Form B-1 comprehensive coverage, encroachments, the nonviolation of covenants
and restrictions, rights of access and survey matters, (x) delete the creditors'
rights and survey exclusions, (y) contain endorsements regarding the effect of
recharacterization and (z) contain such other endorsements reasonably requested
by the Required Participants.
(g) Environmental Review. Each Participant shall have
received a copy of the Environmental Audit with respect to such Site together
with a letter from the consultant performing the Environmental Audit which
allows each Participant to rely on the Environmental Audit (with copies provided
to the Certificate Trustee).
(h) Hazardous Materials Undertaking. Lessee shall have
executed and delivered a Hazardous Materials Undertaking in the form of Exhibit
R hereto.
(i) No Casualty or Condemnation. No Casualty and no
Condemnation shall have occurred. No action shall be pending or threatened by an
Authority to initiate a Condemnation.
(j) Plans and Specifications; Assignment of Agreements. At
least 60 days prior to the Site Advance, Certificate Trustee shall have received
and the Participants shall have reasonably approved with respect to such Site:
(i) a copy of the Plans and Specifications, the first page of which shall be
signed by Lessee, as Construction Agent, and the General Contractor or
Design/Builder, as applicable, for such Site, (ii) a copy of Construction
Agent's or Lessee's agreements with the Architect and General Contractor or
Design/Builder for such Site, as applicable, (iii) a copy of each Major
Construction Document entered into with respect to such Site by the General
Contractor or Design/Builder, as applicable, and (iv) an assignment, from Lessee
and/or Construction Agent, as applicable, in favor of Certificate Trustee, of
Lessee's and Construction Agent's interest in the Plans and
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Specifications, the Architect's agreement and the Construction Contract, if
applicable, or the Design/Build Contract, in either case in the form required by
the Construction Agency Agreement, and either (A) attached thereto the
Architect's, General Contractor's or Design/Builder's written consent to such
assignment, as applicable, in the form required by the Construction Agency
Agreement, or (B) included in such assignment is a certification of Lessee that
the Architect's agreement, the Construction Contract or the Design/Builder's
agreement, as applicable, includes a provision in substance identical to such
consent.
(k) Insurance. Insurance complying with the provisions of
Article XI of the Lease shall be in full force and effect with respect to such
Site as evidenced by certificates of insurance, broker's reports or insurance
binders delivered to Agent and Certificate Trustee, all in form and substance
reasonably satisfactory to the Participants; provided, however, that prior to
the Completion Date for such Site, the Builder's Risk Insurance shall contain no
deductible amount.
(l) Construction Agency Agreement Supplement. Lessor and
Construction Agent shall each have executed and delivered a supplement to the
Construction Agency Agreement in the form of Exhibit A attached thereto,
appropriately completed.
(m) Lease Supplement. Lessor and Lessee shall have executed
and delivered a Lease Supplement, in the form of Exhibit A-1 attached to the
Lease, or in the case of the Plymouth Site, in the case of Exhibit A-2 attached
to the Lease, appropriately completed.
(n) Modesto Ground Lease. With respect to the Site Advance
for the Modesto Site, lessor and Lessee shall have executed and delivered the
Ground Lease in the form of Exhibit L, hereto, appropriately completed.
(o) Absence of Changes. Since June 30, 1998, no event or
events have occurred, have had, or are reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect.
SECTION 3.4. Conditions to Each Construction Advance. The obligation of
each Participant to perform its obligations on any Construction Advance Date
shall be subject to the fulfillment to the satisfaction of, or the waiver in
writing by, such Participant of the conditions precedent set forth in this
Section 3.4 on or prior to the Advance Date as to each Site for which such
Construction Advance has been requested (except that the obligation
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of any party hereto shall not be subject to such party's own performance or
compliance):
(a) Construction Progress Information and Certification.
Construction Agent shall have delivered to Certificate Trustee and each
Participant with such Advance Request the items described in Section 2.7(j) of
the Construction Agency Agreement, including any certificates to be delivered
pursuant thereto.
(b) Title and Title Insurance. Certificate Trustee shall
have received from the Title Insurance Company an endorsement assuring the
continued priority of the Agent's Mortgage in favor of Agent of valid first
priority Liens against the Mortgaged Property (defined in the Agent's Mortgage),
subject only to Permitted Exceptions.
SECTION 3.5. Deliveries Upon Completion. Within ten (10) days of the
earlier of (i) the date of substantial completion of the Financed Improvements
at any Site in accordance with the Plans and Specifications or (ii) the date
Agent gives Lessee notice of the determination by Construction Consultant
described at clause (i) in the definition of the term "Completion":
(a) Design/Builder's Certificate. Construction Agent shall
furnish to Agent a certificate of the Design/Builder (substantially in the form
of Exhibit E) dated at or about the Completion Date for such Site and stating
that: (i) the construction of the Financed Improvements on such Site has been
completed in all material respects in accordance with the Plans and
Specifications, and (ii) the Financed Improvements, as so completed, and such
Leased Property complies in all material respects with all Applicable Laws and
Regulations, and certifying that attached thereto are true and complete copies
of an "as built" or "record" set of the Plans and Specifications.
(b) Construction Agent's Certification. Construction Agent
shall furnish to Agent a certification of Construction Agent (substantially in
the form of Exhibit K) as follows:
(i) the representations and warranties of Lessee
with respect to the Premises and Financed Improvements set forth in
Section 4.1(m), (n), (o), (p) and (q) are true and correct in all
material respects as of the Completion Date for such Site. All amounts
owing to third parties for the construction of the Financed Improvements
on such Site have been paid in full (other than any subject to a
Permitted
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Contest and other than contingent obligations for which reserves have
been created to the extent required by GAAP);
(ii) no changes or modifications were made to the
Plans and Specifications for purposes of preparing the Appraisal that,
individually or in the aggregate, have caused or reasonably could cause,
the Fair Market Value of the Financed Improvements on such Site to be
less than the estimated Fair Market Value at Completion as set forth in
the Appraisal.
(iii) there are no defects to the Financed
Improvements on such Site including the plumbing, heating, air
conditioning and electrical systems thereof, or such Leased Property,
which individually or in the aggregate, have caused or reasonably could
cause, the Fair Market Value of the Financed Improvements on such Site
to be less than the estimated Fair Market Value at Completion as set
forth in the Appraisal; and
(iv) all water, sewer, electric, gas, telephone and
drainage facilities and all other utilities required to adequately
service the Financed Improvements and the Premises for their intended
use are available pursuant to adequate permits (including any that are
required under applicable Environmental Laws) except to the extent the
unavailability of which individually or in the aggregate would not be
reasonably expected to have a Material Adverse Effect.
(c) As Built Survey; Title Insurance Endorsements.
Construction Agent shall furnish to Agent and Certificate Trustee true, correct
and complete copies, certified by the Construction Agent, of the following (to
the extent not previously delivered to Certificate Trustee):
(i) an "as built" ALTA survey of the Site, certified
to Agent and Certificate Trustee, showing the location of the completed
Financed Improvements on such Site, the location of all points of access
to the Site and the location of all easements affecting the Site and
certifying that there are no encroachments of the Financed Improvements
onto any easements affecting the Site or onto any adjoining property
(other than Permitted Exceptions) and that all applicable setback
requirements and other restrictions have been complied with;
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(ii) a date-down endorsement, dated not earlier than
the date of Completion of the Financed Improvements, to the Title
Insurance Policies; and
(iii) an ALTA 3.1 Zoning Endorsement (with express
parking coverage).
(d) Absence of Changes. Since June 30, 1998, no event or
events have occurred, have had, or are reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of Lessee and Guarantor.
As of the date of its execution of this Agreement and each Advance Date, each of
Lessee and Guarantor, jointly and severally, makes the representations and
warranties set forth in this Section 4.1 to each of the other parties hereto.
(a) Due Organization, etc. Lessee, Guarantor and each
Subsidiary:
(i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation;
(ii) has the power and authority and all governmental
licenses, authorizations, consents and approvals (A) to own its assets
and to carry on its business and (B) to execute, deliver and perform its
obligations under the Operative Documents to which it is or is to be a
party and each other agreement, instrument and document to be executed
and delivered by it on or before the Document Closing Date and each
Advance Date in connection with or as contemplated by each such
Operative Document to which it is or is to be a party;
(iii) (A) is duly qualified as a foreign corporation
and is licensed and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of
its business requires such qualification or license; and (B) is (as to
Lessee only) duly qualified as a foreign corporation and is in good
standing in California and Indiana.
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(iv) is in compliance with all Applicable Laws and
Regulations;
except, in each case referred to in clause (ii)(A), (iii)(A) or (iv), to the
extent that the failure to do so would not reasonably be expected to have a
Material Adverse Effect.
(b) Authorization; No Conflict. The execution and delivery
by each of Lessee and Guarantor of each of the Operative Documents to which it
is or is to be a party and the performance by it of its obligations under such
Operative Documents: (i) are within its corporate powers, (ii) have been duly
authorized by all necessary corporate action (including any necessary
shareholder action) and (iii) do not and will not:
(i) contravene the terms of any of the respective
Organization Documents of Lessee or Guarantor;
(ii) conflict with or result in a breach or
contravention of, or the creation of any Lien (other than the
Liens created pursuant to the Operative Documents) under, any
document evidencing any Contractual Obligation to which Lessee,
Guarantor or any Subsidiary is a party or any order, injunction,
writ or decree of any Governmental Authority to which Lessee,
Guarantor, any Subsidiary or any of their properties are
subject; or
(iii) violate any Applicable Laws and Regulations
currently in effect applicable to or binding on it.
(c) Governmental Authorization. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Authority is necessary or required in connection with the execution, delivery or
performance by, or enforcement against, Lessee of this Agreement or any other
Operative Document to which it is a party or Guarantor with respect to each
Operative Document to which it is a party, except, in each case, for the filings
and recordings listed on Schedule 4.1(c)(i) to perfect the rights of Certificate
Trustee and Agent on behalf of the Participants intended to be created by the
Operative Documents or Schedule 4.1(c)(ii) with respect to construction of the
Financed Improvements.
(d) Binding Effect. This Agreement and each other Operative
Document to which Lessee or Guarantor is a party constitutes the legal, valid
and binding obligation of Lessee enforceable against Lessee in accordance with
its terms, except as
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enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability; and with respect to Guarantor and each
Subsidiary, each Operative Document to which such Person is a party constitutes
the legal, valid and binding obligation of such Person, enforceable against such
Person in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally and by equitable principles relating to
enforceability.
(e) Litigation. Except as described in Schedule 4.1(e),
there are no actions, suits, proceedings, claims or disputes pending or, to the
best knowledge of Lessee and Guarantor, threatened or contemplated, at law, in
equity, in arbitration or before any Authority, against Guarantor, Lessee or any
Subsidiary or any of their respective properties which: purport to affect or
pertain to this Agreement or any other Operative Document, or any of the
transactions contemplated hereby or thereby; or would reasonably be expected to
have a Material Adverse Effect. No injunction, writ, temporary restraining order
or other order of any nature has been issued by any court or other Authority
purporting to enjoin or restrain the execution, delivery or performance of this
Agreement or any other Operative Document, or directing that the transactions
provided for herein or therein not be consummated as herein or therein provided.
(f) Taxes. Guarantor, Lessee and the Subsidiaries have filed
all Federal and State income tax returns and all other material tax returns and
reports required to be filed, and have paid all Federal and State income taxes
and all other material taxes, assessments, fees and other governmental charges
levied or imposed upon them or their properties, income or assets otherwise due
and payable, except those which are being contested in good faith by appropriate
proceedings and for which reserves have been provided to the extent required by
GAAP. There is no proposed tax assessment against Guarantor, Lessee or any
Subsidiary that would, if made, be reasonably expected to have a Material
Adverse Effect. The Tax Sharing Agreement is the only agreement among Guarantor,
Lessee and the Subsidiaries regarding tax sharing, tax reimbursement or tax
indemnification.
(g) No Lease Default, Loss, etc. No Lease Default, Lease
Event of Default, Condemnation or Casualty has occurred and is continuing; there
is no action pending or, to the best of its knowledge, threatened by an
Authority to initiate a Condemnation. No condition exists that constitutes, or
with the giving of notice or lapse of time or both would constitute an event of
default by it
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or any of its Material Subsidiaries under any indenture, mortgage, chattel
mortgage, deed of trust, lease, conditional sales contract, loan or credit
arrangement or other material agreement or instrument to which it or any of its
Material Subsidiaries is a party or by which it or any of its Material
Subsidiaries or any of their respective properties or the Premises is bound,
which event of default, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
(h) Subjection to Government Regulation. To Lessee's
knowledge, neither Certificate Trustee, Agent nor any Participant will become
solely by reason of entering into the Operative Documents or consummation of the
transactions contemplated thereby (other than Lessor or Agent upon the exercise
by Lessor or Agent of remedies under the Lease) subject to ongoing regulation of
its operations by an Authority (except with respect to bank regulations).
(i) Chief Executive Office of Lessee. Lessee's principal
place of business and chief executive office, as such terms are used in Section
9-103(3) of the UCC, is located at One Market, San Francisco, California 94105.
(j) Private Offering. Excluding the effect of any failure of
the representations and warranties set forth in Sections 4.2(d) and 4.3(h) to be
true and correct, the issuance, sale and delivery of the Certificates, the Notes
and the interests in the Operative Documents under the circumstances
contemplated hereby do not require the registration or qualification of such
Certificates, Notes or interests under the Securities Act, any state securities
laws, or the Trust Indenture Act of 1939. Neither Lessee nor anyone authorized
to act on its behalf has, directly or indirectly, solicited any offers to
acquire, offered or sold: (i) any interest in the Certificates, the Premises,
the Lease or the Operative Documents in violation of Section 5 of the Securities
Act or any state securities laws, or (ii) any interest in any security or lease
the offering of which, for purposes of the Securities Act or any state
securities laws, would be deemed to be part of the same offering as the offering
of the aforementioned interests. Neither it or anyone authorized to act on its
behalf was involved in (y) offering or soliciting offers for the Certificates
(or any similar securities) or (z) selling Certificates (or any similar
securities) to any Person other than the Certificate Purchasers identified and
contacted by the Arranger and not more than 35 Institutional Investors.
(k) Regulated Companies. None of Guarantor, Lessee or any
Subsidiary is an "investment company" within the meaning of the
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Investment Company Act of 1940. None of Guarantor, Lessee or any Subsidiary is
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act, any state public utilities code,
or any other Federal or state statute or regulation limiting its ability to
incur Indebtedness.
(l) Licenses, Registrations and Permits. Except as disclosed
in Schedule 4.1(l), Lessee, Guarantor and the Subsidiaries own or possess all
licenses, permits, franchises, authorizations that are Material, without known
conflict with the rights of others, except for those conflicts that,
individually or in the aggregate, would not be reasonably expected to have a
Material Adverse Effect. All material licenses, approvals, authorizations,
consents, permits (including building, demolition and environmental permits,
licenses, approvals, authorizations and consents), easements and rights-of-way,
including proof and dedication, required for the use and occupancy of the
Premises and for the operation thereof have either been obtained from the
appropriate Authorities having jurisdiction or from private parties, as the case
may be, or will be obtained from the appropriate Authorities having jurisdiction
or from private parties, as the case may be, prior to commencing any such
construction or use and operation, as applicable.
(m) The Premises.
(i) Lessee has the contractual right to acquire (or
in the case of the Modesto Site, has acquired) fee title in the Site
free and clear of all Liens other than Permitted Liens and (ii) Lessee
has the contractual right to nominate Lessor to take title to the Site
upon the close of each Site Acquisition Escrow, or in the case of the
Modesto Site, to lease such Site to Lessor pursuant to the Ground Lease.
Lessee is not a party to any other contract or agreement to sell,
transfer or encumber any interest in the Premises or any part thereof
other than pursuant to this Agreement and the Lease.
(ii) The Sites are located in Hanford, California,
Kingsburg, California, Modesto, California and Plymouth, Indiana. The
Premises and any present use and presently anticipated future use
thereof by Lessee and its agents, assignees, employees, invitees,
lessees, licensees and tenants comply with all Applicable Laws and
Regulations (including zoning and land use laws and Environmental Laws)
and insurance requirements, except for such instances of non-compliance
that would not reasonably be expected to have, individually or in
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the aggregate, a Material Adverse Effect. No notices, complaints or
orders of violation or non-compliance or liability have been issued or,
to the best of its knowledge, threatened by any Person with respect to
the Premises or the present or intended future use thereof, except for
such violations and instances of non-compliance as would not reasonably
be expected to have, individually or in the aggregate, a Material
Adverse Effect, and Lessee is not aware of any circumstances which could
give rise to the issuance of any such notices, complaints or orders.
(iii) All utilities serving the Premises, or proposed
to serve the Premises are located in, and vehicular access to the
Premises is provided by, either public rights-of-way abutting the
Premises or Appurtenant Rights. "Appurtenant Rights" means: (i) all
agreements, easements, rights of way or use, rights of ingress or
egress, privileges, appurtenances, tenements, hereditaments and other
rights and benefits at any time belonging or pertaining to the Site or
the Improvements, including, without limitation, the use of any streets,
ways, alleys, vaults or strips of land adjoining, abutting, adjacent or
contiguous to the Site, and (ii) all permits, licenses and rights,
whether or not of record, appurtenant to the Site.
(iv) Except as otherwise identified on the applicable
survey delivered pursuant to Section 3.2(d), no portion of any Site is
located in an area identified as a special flood hazard area by the
Federal Emergency Management Agency or other applicable Authority. If
any Site is located in an area identified as a special flood hazard area
by the Federal Emergency Management Agency or other applicable
Authority, then, to the extent required by Applicable Laws and
Regulations, flood insurance has been obtained in accordance with the
National Flood Insurance Act of 1968, as amended.
(v) Except for the filings and recordings listed in
Schedule 4.1A (which filings or recordings have been duly made with
respect to any Site on the date of any Site Advance with respect to such
Site, or shall have been arranged to be made promptly thereafter
(including the payment of any fees or taxes relating to any of the
foregoing) in a manner satisfactory to each Participant), no other
filings or recordings are necessary to validly and effectively convey to
Certificate Trustee good and marketable title to the Premises, and Agent
has a valid and enforceable first priority Lien for the benefit of the
Participants on the Premises and the other
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Del Monte Collateral free and clear of all other Liens, other than
Permitted Liens.
(vi) Taken as a whole, the information provided by it
and its Affiliates to the Appraiser was true and correct in all material
respects when provided and when provided will not omit any information
known to it regarding the title, physical condition, or use of the
Premises or construction of the Financed Improvements which it or any of
its Affiliates knew or should reasonably have known was necessary to
make the information provided not materially misleading.
(n) Title to Real Property; Security. Each of Guarantor,
Lessee and each Subsidiary has good record and marketable title in fee simple
to, or a valid leasehold interest in, all real property necessary or used in the
ordinary conduct of its businesses, except for such defects in title as would
not, individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. Each of Guarantor, Lessee and each Subsidiary has good title to
all their other respective material properties and assets including the Modesto
Site (except for those assets disposed of not in violation of this Agreement and
the other Operative Documents and except for encumbrances and title defects that
would not be reasonably likely to have a Material Adverse Effect). As of the
Closing Date, the property of Guarantor, Lessee and the Subsidiaries is subject
to no Liens, other than liens which are "Permitted Liens" under the Credit
Agreement.
(o) Federal Reserve Regulations and Other Laws. Neither it
nor its Affiliates will, directly or indirectly, use any of the proceeds from
the Funding made by the Participants with respect to the issuance of the
Certificates and the Notes or the Advance for the purpose of purchasing or
carrying any "margin stock" or "margin security" within the meaning of
Regulation T, U or X of the Board of Governors of the Federal Reserve System or
to extend credit to others for such purpose or for any purpose which violates or
which would be inconsistent with, the provisions of Regulation T, U or X of the
Board of Governors of the Federal Reserve System.
(p) Solvency. On the date hereof (or, in the case of any
Person that becomes a party to any Operative Document after the Closing Date, on
the date such Person becomes such a party), and immediately prior to and after
giving effect to the execution and delivery of each Operative Document hereunder
and the use of the proceeds thereof, each of Lessee, Guarantor and each Material
Subsidiary will not have an unreasonably small capital, each of Lessee,
Guarantor and each Material Subsidiary will be solvent,
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will be able to pay its liabilities as they mature and both the fair value and
fair saleable value of the assets of Lessee, Guarantor and each Material
Subsidiary exceeds the liabilities, respectively, of each of Lessee, Guarantor
and each Material Subsidiary.
(q) No Burdensome Restrictions. None of Guarantor, Lessee
nor any Subsidiary is a party to or bound by any Contractual Obligation or
subject to any restriction in any Organization Document or any Requirement of
Law which would reasonably be expected to have a Material Adverse Effect.
(r) Copyrights, Patents, Trademarks and Licenses, etc.
Lessee and the Subsidiaries own or are licensed or otherwise have the right to
use all of the patents, trademarks, service marks, trade names, copyrights,
trade secrets and other similar rights ("Intellectual Property") that are
necessary for the operation of their respective businesses, without conflict
with the rights of any other Person except for Intellectual Property the failure
of which to own or be licensed or otherwise have the right to use, individually
or in the aggregate, would not be reasonably likely to have a Material Adverse
Effect. All of such Intellectual Property is subsisting, valid and enforceable,
except to the extent that the failure to be subsisting, valid and enforceable
would not be reasonably expected to have a Material Adverse Effect. Except to
the extent set forth on Schedule 4.1(r), there is no individual item of
Intellectual Property the loss of which would reasonably be expected to have a
Material Adverse Effect. To the best knowledge of Guarantor and Lessee, no
slogan or other advertising device, product, process, method, substance, part or
other material now employed, or now contemplated to be employed, by Guarantor,
Lessee or any Subsidiary infringes upon any rights held by any other Person
except for any infringement which, individually or in the aggregate, would not
reasonably likely to have a Material Adverse Effect. Except as specifically
disclosed on Schedule 4.1(r), no claim or litigation regarding any of the
foregoing is pending or threatened against Guarantor, Lessee or any Subsidiary,
and no patent, invention, device, application, principle or any statute, law,
rule, regulation, standard or code, relating in each case to Intellectual
Property, is, to the knowledge of Guarantor and Lessee, pending or proposed,
which, in either case, would reasonably be expected to have a Material Adverse
Effect.
(s) ERISA.
(i) Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other
federal or state law. To the best knowledge of
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Guarantor, nothing has occurred which would cause any Plan which is
intended to qualify under Section 401(a) of the Code to fail to be so
qualified. Guarantor and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made within the last
five years with respect to any Plan.
(ii) There are no pending or, to the best knowledge
of Lessee, threatened claims, actions or lawsuits, or actions by any
Authority, with respect to any Plan which has resulted or would
reasonably be expected to result in a Material Adverse Effect. There has
been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan which has resulted or
would reasonably be expected to result in a Material Adverse Effect.
(iii) No ERISA Event has occurred or is reasonably
expected to occur that would reasonably be expected to have a Material
Adverse Effect; no contribution failure has occurred with respect to a
Pension Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA; and neither Lessee nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability to the PBGC under Title IV of
ERISA with respect to any Pension Plan.
(t) Financial Information.
(i) The audited consolidated financial statements of
Guarantor dated June 30, 1997, and June 30, 1998, and the related
consolidated statements of income or operations, shareholders' equity
and cash flows for the fiscal periods ended on such dates:
(1) were prepared in accordance with GAAP
consistently applied throughout the periods covered thereby,
except as otherwise expressly noted therein;
(2) present fairly the financial condition
of Guarantor and the Subsidiaries as of the dates thereof and
results of operations for the periods covered thereby; and
(3) except as specifically disclosed in
Schedule 4.1(t), show all material indebtedness and other
liabilities, direct or contingent, of Guarantor and the
Subsidiaries as of the date thereof, including
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liabilities for taxes, material commitments and Contingent
Obligations.
(ii) Lessee has furnished to Agent and each
Participant an estimated consolidated pro forma balance sheet of
Guarantor and the Subsidiaries as of September 30, 1998, prepared by
Guarantor and certified as true and correct in all material respects by
the Chief Financial Officer of Guarantor.
(iii) Lessee has furnished to each Agent and each
Participant financial projections dated the Closing Date and covering
the period from March 31, 1997 to June 30, 2006. Such projections were
prepared by Guarantor and the Subsidiaries in good faith on the basis of
information and assumptions that Guarantor and its senior management
believed to be reasonable as of the date of such projections and such
assumptions are reasonable as of the Closing Date (it being understood
that projections are subject to significant uncertainties and
contingencies, many of which are beyond Guarantor's control, and that no
assurance can be given that the projections will be realized).
(iv) Since June 30, 1998 there has been no Material
Adverse Effect.
(u) Year 2000. Lessee has developed and is presently
implementing a comprehensive, detailed program to address on a timely basis the
"Year 2000 Problem" (that is, the risk that computer applications used by Lessee
and the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999) and reasonably anticipates that it will successfully resolve
the Year 2000 Problem on a timely basis for all material computer applications
used by it.
(v) Subsidiaries. Guarantor has no Subsidiaries other than
those specifically disclosed in part Schedule 4.1(v) hereto and has no equity
investments in any other corporation or entity other than those specifically
disclosed in part (b) of Schedule 4.1(v). As of the Closing Date, Guarantor has
no Material Subsidiaries.
(w) Insurance. The properties of Guarantor, Lessee and the
Subsidiaries are insured with financially sound and reputable insurance
companies not Affiliates of Guarantor or Lessee, in such amounts, with such
deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and
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owning similar properties in localities where Guarantor, Lessee or such
Subsidiary operates.
(x) Swap Obligations. Neither Guarantor nor any of the
Subsidiaries has incurred any outstanding obligations under any Swap Contracts,
other than Permitted Swap Obligations. Guarantor has undertaken its own
independent assessment of its consolidated assets, liabilities and commitments
and has considered appropriate means of mitigating and managing risks associated
with such matters and has not relied on any swap counterpart or any Affiliate of
any swap counterpart in determining whether to enter into any Swap Contract.
(y) Environmental Warranties. Except as set forth in
Schedule 4.1(y):
(i) all facilities and property (including underlying
groundwater) owned or leased by Guarantor or any of the Subsidiaries
(including each of the Sites) are in compliance with all Environmental
Laws, except for such non-compliance as would not reasonably be expected
to result in a Material Adverse Effect;
(ii) there are no pending or threatened Environmental
Claims, except for such Environmental Claims that are not reasonably
likely, either singly or in the aggregate, to result in a Material
Adverse Effect;
(iii) there have been no Releases of Hazardous Materials
at, on or under any property now or, to the best of Lessee's or
Guarantor's knowledge, previously owned or leased by Guarantor or any of
the Subsidiaries that, singly or in the aggregate, have, or may
reasonably be expected to have, a Material Adverse Effect;
(iv) Guarantor and the Subsidiaries have been issued and
are in compliance with all permits, certificates, approvals, licenses
and other authorizations relating to environmental matters and necessary
or desirable for their businesses, except to the extent that the failure
to have or comply with such permits, certificates, approvals, licenses
and other authorizations relating to environmental matters would not be
reasonably likely to have a Material Adverse Effect;
(v) no property now or, to the best of Lessee's and
Guarantor's knowledge, previously owned or leased by Guarantor or any of
the Subsidiaries including each of the Sites, is
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listed or proposed for listing (with respect to owned property only) on
the National Priorities List pursuant to CERCLA, or, to the best of
Lessee's knowledge, is on the CERCLIS or on any similar state list of
sites requiring investigation or clean-up, except, in each case, for any
such listing that, singly or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect; and
(vi) to the best of Lessee's and Guarantor's knowledge,
neither Guarantor nor any Subsidiary of Guarantor has directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed or proposed for listing on the
National Priorities List pursuant to CERCLIS, or which is the subject of
Federal, state or local enforcement actions or other investigations
which may lead to Environmental Claims against Guarantor or such
Subsidiary except, in each case, to the extent that the foregoing would
not reasonably be expected to have a Material Adverse Effect.
(z) Full Disclosure. None of the representations or warranties
made by Guarantor or Lessee in the Operative Documents as of the date such
representations and warranties are made or deemed made and none of the written
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of Guarantor or Lessee in connection with the Operative
Documents, considering each of the foregoing and in the context in which it was
made and together with all other representations, warranties and written
statements theretofore furnished by Guarantor and Lessee to Agent and the
Participants in connection with the Operative Documents, contains any untrue
statement of a material fact or omits any material fact required to be stated
therein or necessary to make such representation, warranty or written statement,
in light of the circumstances under which it is made, not misleading as of the
time when made or delivered; provided that Lessee's representation and warranty
as to any forecast, projection or other statement regarding future performance,
future financial results or other future development is limited to the fact that
such forecast, projection or statement was prepared in good faith on the basis
of information and assumptions that Lessee believed to be reasonable as of the
date such material was provided (it being understood that projections are
subject to significant uncertainties and contingencies, many of which are beyond
Lessee's control, and that no assurance can be given that the projections will
be realized).
SECTION 4.2. Representations and Warranties of each Participant. As of
the date of its execution of this Agreement,
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each Participant represents and warrants severally and only as to itself to each
of the other parties hereto as follows:
(a) Due Organization, etc. It is duly organized and validly
existing under the laws of the jurisdiction of its organization and has full
corporate power and authority to enter into and perform its obligations as
either a Participant or a Certificate Purchaser (as the case may be) under each
Operative Document to which it is or is to be a party and each other agreement,
instrument and document to be executed and delivered by it on or before the
initial Advance Date in connection with or as contemplated by each such
Operative Document to which it is or is to be a party.
(b) Certificate Trustee Liens. The Premises are free and clear
of all Certificate Trustee Liens attributable to it and no act or omission by it
has occurred which would cause a Certificate Trustee Lien.
(c) ERISA. It is purchasing its interest in the Certificate(s)
and the Notes with assets that are either: (i) not assets of any Employee
Benefit Plan (or its related trust) which is subject to Title I of ERISA or
Section 4975 of the Code; or (ii) assets of any Employee Benefit Plan (or its
related trust) which is subject to Title I of ERISA or Section 4975 of the Code,
but there is available an exemption from the prohibited transaction rules under
Section 406(a) of ERISA and Section 4975 of the Code and such exemption is
immediately applicable to each transaction contemplated by the Operative
Documents to the extent that any other party to such transaction is a "party in
interest" as defined in Section 3(14) of ERISA with respect to such plan assets.
(d) Investment in Notes and Certificates. It is acquiring its
interest in the Note(s) and Certificate(s) for its own account for investment
and not with a view to any distribution (as such term is used in Section 2(11)
of the Securities Act) thereof, and if in the future it should decide to dispose
of its interest in the Notes and/or Certificates, it understands that it may do
so only in compliance with the Securities Act and the rules and regulations of
the SEC thereunder and any applicable state securities laws. Each Participant is
aware that the Notes and Certificates have not been registered under the
Securities Act or qualified or registered under any state or other
jurisdiction's securities laws. Neither it nor anyone authorized to act on its
behalf has taken or will take any action which would subject the issuance or
sale of any Note or Certificate or any interest in the Premises, the Trust
Estate, the Lease Collateral, the Mortgaged Property or the Lease to the
registration requirements of Section 5
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of the Securities Act. No representation or warranty contained in this Section
4.2(d) shall include or cover any action or inaction of Lessee or any Affiliate
thereof whether or not purportedly on behalf of any Participant, Agent,
Certificate Trustee or any of their Affiliates. Notwithstanding the foregoing,
but subject to the provisions of Article V of the Trust Agreement and of Article
VI hereof, it is understood among the parties that the disposition of each
Participant's property shall be at all times within its control. Each
Participant and its respective agents and representatives have such knowledge
and experience in financial and business matters as to enable them to utilize
the information made available to them in connection with the transactions
contemplated hereby, to evaluate the merits and risk of an investment in Notes
and/or Certificates and to make an informed decision with respect thereto and
such an evaluation and informed decision have been made.
Each Participant understands and agrees that the Certificates and Notes
will bear a legend that shall read substantially as follows:
"THIS [CERTIFICATE] [NOTE] HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
"BLUE SKY" LAW, AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR
SALE IN VIOLATION OF SUCH ACT OR LAWS."
SECTION 4.3. Representations and Warranties of Certificate Trustee. As
of the date of its execution of this Agreement and as of the initial Advance
Date, State Street Bank and Trust Company of California, N.A.("Bank"), in its
individual capacity and not as Certificate Trustee (with the exception of the
last sentence of subsection (c), which representation and warranty is made by
Bank solely in its capacity as Certificate Trustee), represents and warrants to
each of the other parties hereto as follows:
(a) Chief Executive Office. The Bank's chief executive office
and principal place of business and the place where the documents, accounts and
records relating to the Overall Transaction are kept is located at 633 West 5th
Street, 12th Floor, Los Angeles, California 90071, Attn.: Corporate Trust
Department.
(b) Due Organization, etc. The Bank is a national banking
association duly organized and validly existing in good standing under the laws
of the United States and has full corporate power and authority to execute,
deliver and perform its obligations: (i) in its individual capacity under the
Trust
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Agreement and, to the extent it is a party hereto in its individual capacity,
this Agreement, and (ii) acting as Certificate Trustee under the Trust
Agreement, under this Agreement and each other Operative Document to which it is
or will be a party as Certificate Trustee.
(c) Due Authorization; Enforceability, etc. This Agreement and
each other Operative Document to which the Bank is or will be a party have been
or will be (to the extent it is to be a party thereto in its individual
capacity), duly authorized, executed and delivered by or on behalf of the Bank
(in its individual capacity) and are, or upon execution and delivery will be,
legal, valid and binding obligations of the Bank (in its individual capacity),
enforceable against it in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally and by general equitable principles.
The Operative Documents to which the Certificate Trustee is a party constitute
the legal, valid and binding obligation of the Certificate Trustee (acting
solely as Certificate Trustee under the Trust Agreement, and not in its
individual capacity) except as such enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
by general equitable principles.
(d) No Conflict. The execution and delivery by (a) the Bank, in
its individual capacity, of the Trust Agreement and, to the extent it is a party
hereto in its individual capacity, this Agreement and (b) the Bank, in its
capacity as Certificate Trustee, of each Operative Document to which Certificate
Trustee is or will be a party, are not and will not be, and the performance by
the Bank, in its individual capacity or as Certificate Trustee, as the case may
be, of its obligations under each are not and will not be, inconsistent with the
articles of association or by-laws of the Bank, do not and will not contravene
any Applicable Laws and Regulations of the United States of America or the State
of California relating to the banking or trust powers of the Bank and do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales
contract, loan or credit arrangement or other agreement or instrument to which
the Bank is a party or by which it or its properties may be bound or affected.
(e) No Approvals, etc. Neither the execution and delivery by
Bank in its individual capacity or (assuming the due authorization, execution
and delivery of the Trust Agreement by each Certificate Purchaser) as
Certificate Trustee, as the case may be, of any of the Operative Documents to
which it is a party
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requires the consent or approval of, or the giving of notice to or registration
with, or the taking of any other action in respect of, any Authority or other
United States of America or California body governing its banking practices.
(f) Litigation. There is no action, proceeding or investigation
pending or, to its knowledge, threatened against the Bank (in its individual
capacity or as Certificate Trustee) which questions the validity of the
Operative Documents, and there is no action, proceeding or investigation pending
or, to its knowledge, threatened which is likely to result, either in any case
or in the aggregate, in any material adverse change in the ability of the Bank
(in its individual capacity or as Certificate Trustee) to perform its
obligations (in either capacity) under the Operative Documents to which it is a
party.
(g) Certificate Trustee Liens. The Premises are free and clear
of all Certificate Trustee Liens attributable to the Bank (in its individual
capacity) and no act or omission by it has occurred which would cause a
Certificate Trustee Lien.
(h) Securities Act. Neither the Bank (in its individual capacity
or as a Certificate Trustee) nor anyone authorized to act on its behalf has,
directly or indirectly, in violation of Section 5 of the Securities Act or any
state securities laws, offered or sold any interest in the Certificates, the
Premises, the Lease, or the Operative Documents or in any security or lease the
offering of which, for purposes of the Securities Act or any state securities
laws, would be deemed to be part of the same offering as the offering of the
aforementioned securities or leases, or solicited any offer to acquire any of
the aforementioned securities or leases.
(i) Taxes. There are no taxes payable by the Bank
imposed by the State of California or any political subdivision thereof
or by the United States of America in connection with the execution and
delivery by the Bank of this Participation Agreement, the other
Operative Documents to be delivered on the Document Closing Date solely
because the Bank is a national banking association with its principal
place of business in the State of California and performs certain of its
duties as the Certificate Trustee in the State of California and there
are no taxes payable by the Bank imposed by the State of California or
any political subdivision thereof or by the United States of America in
connection with the acquisition of its interest in the Trust Estate, and
its execution, delivery and performance of the Trust Agreement and any
other Operative Document (other than franchise or other taxes based on
or services rendered in connection with the
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transactions contemplated hereby), solely because the Bank is a national banking
association with its principal place of business in the State of California and
performs certain of its duties as Certificate Trustee in the State of
California.
SECTION 4.4. Representations and Warranties of Agent. Agent, in its
individual capacity, hereby represents and warrants to the Participants as set
forth in this Section 4.4.
(a) Organization and Authority. Agent is a trust company duly
organized and validly existing in good standing under the laws of the
Commonwealth of Massachusetts and has the power and authority to enter into and
perform its obligations under the Operative Documents.
(b) Authorization; Binding Effect. The Operative Documents to
which Agent is or will be a party have been or will be, on the date required to
be delivered hereby, duly authorized, executed and delivered by Agent, and this
Participation Agreement is, and such other Operative Documents are, or, when so
executed and delivered by Agent will be, valid, legal and binding agreements of
Agent, enforceable against Agent in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity.
(c) Non-Contravention. Neither the execution and delivery by
Agent of the Operative Documents to which it is or will be a party, either in
its individual capacity, as Agent, or both, nor compliance with the terms and
provisions thereof, conflicts with, results in a breach of, constitutes a
default under (with or without the giving of notice or lapse of time or both),
or violates any of the terms, conditions or provisions of: (i) the articles of
association or by-laws of Agent; (ii) any bond, debenture, note, mortgage,
indenture, agreement, lease or other instrument to which Agent, either in its
individual capacity, as Agent, or both, is now a party or by which it or its
property, either in its individual capacity, as Agent, or both, is bound or
affected, where such conflict, breach, default or violation would be reasonably
likely to materially and adversely affect the ability of Agent, either in its
individual capacity, as Agent or both, to perform its obligations under any
Operative Document to which it is or will be a party, either in its individual
capacity, as Agent, or both; or (iii) any of the terms, conditions or provisions
of any federal or Massachusetts law, rule or regulation governing its banking or
trust powers, or any order, injunction or decree of any Authority applicable to
it in its individual capacity, as Agent, or both,
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where such conflict, breach, default or violation would be reasonably likely to
materially and adversely affect the ability of Agent, either in its individual
capacity, as Agent or both, to perform its obligations under any Operative
Document to which it is or will be a party.
(d) Absence of Litigation, etc. There is no litigation
(including, without limitation, derivative actions), arbitration or governmental
proceedings pending or, to the best knowledge of Agent, threatened against it
which would be reasonably likely to adversely affect Agent's ability to perform
its obligations under the Operative Documents to which it is party.
(e) Consents, etc. No authorization, consent, approval, license
or formal exemption from, nor any filing, declaration or registration with, any
federal or Massachusetts Authority governing its banking or trust powers, is or
will be required in connection with the execution and delivery by Agent of the
Operative Documents to which it is party or the performance by Agent of its
obligations under such Operative Documents.
ARTICLE V
COVENANTS OF LESSEE AND GUARANTOR
SECTION 5.1. Construction Matters. Each of Lessee and Guarantor, jointly
and severally, covenants and agrees with Certificate Trustee, Agent and each of
the Participants that from the Document Closing Date through the Final
Completion Date, Lessee and Guarantor shall comply, or cause Construction Agent
to comply, with the following provisions of this Section 5.1:
(a) Further Assurances. Lessee, Guarantor or Construction Agent,
as a Transaction Cost or a Construction Cost, as applicable, will cause to be
promptly and duly taken, executed, acknowledged and delivered all such further
acts, documents and assurances as Certificate Trustee, Agent or any Participant
reasonably may request from time to time in order to carry out more effectively
the intent and purposes of this Agreement and the other Operative Documents and
the Overall Transaction. Lessee or Construction Agent, as a Transaction Cost or
a Construction Cost, as applicable, will cause all financing statements
(including precautionary financing statements), fixture filings, mortgages and
other documents, to be recorded or filed at such places and times in such
manner, and will take all such other actions or cause such actions to be taken,
as may be necessary or as may be reasonably requested by Agent, any Lender or
Certificate Trustee in order to establish, preserve, protect and perfect the
title and Lien of
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Certificate Trustee and/or Agent in the Premises and Certificate Trustee's,
Agent's and/or any Participant's rights under this Agreement and the other
Operative Documents.
(b) Completion. The Completion of the Financed Improvements
shall occur prior to the Outside Completion Date in accordance with the
standards set forth at Section 3.5(a). No proceeds of any of the Advances shall
be used to pay for personal property, including, without limitation, furniture,
trade fixtures or equipment (other than equipment described in the Plans and
Specifications as part of the Financed Improvements which are to become real
property fixtures).
(c) Construction Assurances. Each Person engaged by Construction
Agent on behalf of Certificate Trustee under each material construction,
architectural and engineering contract shall covenant and agree that: (i) none
of the Certificate Trustee, Agent or any Participant is personally liable for
any claims or obligations incurred under such contract, (ii) such Person will
provide written notice to Certificate Trustee and Agent of any material breach
under such contract and, during the existence of a Lease Event of Default,
Certificate Trustee and Agent shall have at least thirty (30) days following the
receipt of such notice to cure such breach, and (iii) upon written request of
Certificate Trustee or Agent, such Person shall provide to Certificate Trustee
and Agent an estoppel certificate in respect of such contract in a form
reasonably requested by the Certificate Trustee or Agent.
(d) Construction Progress Information. Lessee shall furnish or
cause to be furnished to the Construction Consultant or, if requested in lieu
thereof, the Agent, upon request (but so long as no Lease Event of Default has
occurred and is continuing not more than once per calendar month or such shorter
period to coincide with Advance Requests), on forms approved by the Construction
Consultant or Agent, as applicable, details concerning construction of the
Financed Improvements as the Construction Consultant or Agent, as applicable,
shall reasonably require, including: (i) the costs incurred and the progress of
the Financed Improvements, (ii) copies of any modifications or changes to the
Plans and Specifications, and (iii) a list of the names and addresses of
Lessee's general contractor and all materials dealers and subcontractors with
whom written agreements have been made by Lessee.
(e) Liens. Lessee and Guarantor shall not by any act or omission
to act incur or create any Lien on the Premises other than Permitted Liens.
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(f) Other Covenants. Lessee and Guarantor shall comply with the
covenants set forth in Section 5.2.
SECTION 5.2. Covenants of Lessee and Guarantor. Each of Lessee and
Guarantor jointly and severally covenants and agrees with Certificate Trustee,
Agent and each of the Participants that during the Lease Term Lessee shall
comply with the following provisions of this Section 5.2.
(a) Further Assurances. Each of Lessee and Guarantor, at its
cost and expense, will cause to be promptly and duly taken, executed,
acknowledged and delivered all such further acts, documents and assurances as
Certificate Trustee, Agent or any Participant reasonably may request from time
to time in order to carry out more effectively the intent and purposes of this
Agreement and the other Operative Documents and the Overall Transaction. Each of
Lessee and Guarantor, at its cost and expense, will cause all financing
statements (including precautionary financing statements), fixture filings,
mortgages and other documents, to be recorded or filed at such places and times
in such manner, and will take all such other actions or cause such actions to be
taken, as may be necessary or as may be reasonably requested by Agent, any
Participant or Certificate Trustee in order to establish, preserve, protect and
perfect the title and Lien of Certificate Trustee and/or Agent in the Premises
and Certificate Trustee's, Agent's and/or any Participant's rights under this
Agreement and the other Operative Documents.
(b) Liens. Lessee shall not incur or suffer to exist any Lien on
the Premises other than Permitted Liens.
(c) Change of Name or Address. Lessee shall provide Agent thirty
days' prior written notice of any change in name, or the address of its chief
executive office and principal place of business or the office where it keeps
its records concerning its accounts and the Premises.
(d) Compliance with Law. Lessee and Guarantor shall comply at
all times with all Applicable Laws and Regulations the violation of which could
reasonably be expected to have a Material Adverse Effect; Hazardous Materials
maintained at any Leased Property shall be held and used in compliance with all
Applicable Laws and Regulations the violation of which could be reasonably
expected to have a Material Adverse Effect; and Lessee shall not cause or permit
the installation of any underground storage tanks at any Leased Property unless
such underground storage tanks are installed, monitored and maintained in
accordance with Applicable
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Laws and Regulations and do not in any manner materially adversely affect the
Fair Market Value, utility, remaining useful life or residual value of such
Leased Property.
(e) Investigation and Litigation. Lessee shall deliver a written
notice to Agent and Certificate Trustee promptly upon Lessee's receiving notice
or actual knowledge of a Responsible Officer of Lessee of the intent by an
Authority to take an action which would constitute a Condemnation, investigate
any Leased Property for a material violation of any Applicable Laws and
Regulations on or at any Leased Property, including any Environmental Law, under
which liability may be imposed upon Certificate Trustee, Agent, any Participant,
or Lessee, or investigate any Leased Property (other than routine fire, life-
safety and similar inspections) for any violation of Applicable Laws and
Regulations under which criminal liability may be imposed upon Certificate
Trustee, Agent, any Participant, or Lessee.
(f) Financial Statements. Lessee shall deliver to the Agent
(which shall promptly provide copies to each Participant), in form and detail
satisfactory to the Required Participants:
(i) as soon as available, but not later than 90 days
after the end of each fiscal year, a copy of the audited consolidated
balance sheet of Guarantor and its Subsidiaries as at the end of such
year and the related consolidated statements of income or operations,
shareholders' equity and cash flows for such year, setting forth in each
case in comparative form the figures for the previous fiscal year, and
accompanied by (i) the opinion of a nationally-recognized independent
public accounting firm (the "Independent Auditor"), which report (x)
shall state that such consolidated financial statements present fairly
the consolidated financial position of Guarantor and its Subsidiaries
for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and (y) shall not be qualified or limited
because of a restricted or limited examination by the Independent
Auditor of any material portion of Guarantor's or any of its
Subsidiary's records and (ii) a comparison with the budget for such
fiscal year;
(ii) Promptly when available, and in any event within 30
days after the end of each month that is not the end of a fiscal
quarter, and within 45 days after the end of each month that is the end
of a fiscal quarter (other than the last month of each fiscal year), a
copy of the unaudited consolidated balance sheet of Guarantor and its
Subsidiaries as of the end of such month and the related consolidated
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statements of income, shareholders' equity and cash flows for the period
commencing on the first day and ending on the last day of such month,
including a comparison with the corresponding month and period of the
previous fiscal year and a comparison with the budget for such month and
for such period of the current fiscal year, together with a certificate
of a Responsible Officer of Lessee that each such statement fairly
presents the financial condition and results of operations (subject to
normal year-end audit adjustments) of Guarantor and its Subsidiaries and
has been prepared in accordance with GAAP consistently applied; and
(iii) Not later than 60 days after the end of each
fiscal year, a copy of the projections of Guarantor of the consolidated
operating budget and cash flow budget of Guarantor and its Subsidiaries
for the succeeding fiscal year (including an explanation of the
assumptions used in preparing such budgets), such projections to be
accompanied by a certificate of a Responsible Officer of Lessee to the
effect that (i) such projections were prepared by Guarantor in good
faith, (ii) Guarantor has a reasonable basis for the assumptions
contained in such projections and (iii) such projections have been
prepared according to such assumptions.
(g) Compliance Certificates. Lessee shall furnish to the Agent
(and the Agent will promptly distribute copies of the same to the Participants):
(i) concurrently with the delivery of the financial
statements referred to in subsection 5.2(f)(i), a certificate of the
Independent Auditor stating that in making the examination necessary
therefor no knowledge was obtained of any Event of Default or Unmatured
Event of Default, except as specified in such certificate;
(ii) promptly, copies of all financial statements and
regular, periodic or special reports (including Forms 10K, 10Q and 8K)
that Lessee, Guarantor or any Subsidiary may make to, or file with, the
SEC;
(iii) promptly from time to time, any notices (including
notices of default or acceleration thereunder) received from any holder
or trustee of, under or with respect to any Subordinated Debt of Lessee;
(iv) forthwith upon any Qualified Refinancing or
Qualified Guarantor Refinancing, a copy of the related Qualified
Indenture or Qualified Guarantor Indenture,
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certified as true and correct by the Secretary or an Assistant Secretary
of Lessee or Guarantor, as applicable; and
(v) promptly, such additional information regarding the
business, financial or corporate affairs of Lessee, Guarantor or any
Subsidiary as the Agent, at the request of any Participant, may from
time to time reasonably request.
(h) Notices. Promptly upon a Responsible Officer obtaining
knowledge thereof, Lessee shall notify the Agent (and the Agent will promptly
distribute such notice to the Participants) of:
(i) the occurrence of any Lease Event of Default,
Construction Agency Event of Default, Lease Default or Construction
Agency Default;
(ii) any matter that has resulted or would reasonably be
expected to result in a Material Adverse Effect, including, if
applicable, (A) any breach or non-performance of, or any default under,
a Contractual Obligation of Lessee or any Subsidiary, (B) any dispute,
litigation, investigation, proceeding or suspension between Lessee or
any Subsidiary and any Governmental Authority or (C) the commencement
of, or any material development in, any litigation or proceeding
affecting Lessee or any Subsidiary;
(iii) the occurrence of any of the following events
affecting Lessee or any ERISA Affiliate (but in no event more than ten
days after such event), and deliver to the Agent (which shall promptly
deliver to each Participant a copy thereof) a copy of any notice with
respect to such event that is filed with a Authority and any notice
delivered by a Authority to Lessee or any ERISA Affiliate with respect
to such event:
(A) an ERISA Event; or
(B) a contribution failure with respect to a Pension
Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA;
(iv) any material change in accounting policies or
financial reporting practices by Lessee or any of its consolidated
Subsidiaries;
(v) any Mandatory Prepayment Event;
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(vi) any proposed payment of principal of Subordinated
Debt prior to the making thereof; and
Each notice under this Section shall be accompanied by a written statement by a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action Lessee or any affected Subsidiary proposes to take with
respect thereto and at what time. Each notice under this Section shall describe
with particularity any and all clauses or provisions of this Agreement, any
other Operative Document or the Credit Agreement that have been breached or
violated.
(i) Securities. Lessee shall not, nor shall it permit anyone
authorized to act on its behalf to, take any action which would subject the
issuance or sale of the Notes or Certificates, the Premises or the Operative
Documents, or any security or lease the offering of which, for purposes of the
Securities Act or any state securities laws, would be deemed to be part of the
same offering as the offering of the aforementioned items to the registration
requirements of Section 5 of the Securities Act or any state securities laws.
(j) Rates. With respect to each determination of Interest and
Yield pursuant to this Agreement, the Loan Agreement, the Trust Agreement and
Basic Rent under the Lease, Lessee agrees to be bound by Sections 2.6 and 2.7 of
the Loan Agreement, Sections 2.4 and 2.5 of the Trust Agreement, and Sections
2.9 and 2.10 hereof and the applicable definitions in Appendix 1.
ARTICLE VI
OTHER COVENANTS AND AGREEMENTS
SECTION 6.1. Cooperation with Lessee. Certificate Trustee, Agent and
each Participant shall, to the extent reasonably requested by Lessee (but
without assuming additional liability on account thereof), as a Transaction Cost
or as a Construction Cost before the Final Completion Date and at Lessee's
expense thereafter, cooperate to allow Lessee to (a) perform its covenants
contained in Article V including, without limitation, at any time and from time
to time, upon the reasonable request of Lessee, to promptly and duly execute and
deliver any and all such further instruments, documents and financing statements
(and continuation statements related thereto) as Lessee may reasonably request
in order to perform such covenants and (b) further Lessee's requirements as
lessee of the Premises, including, without limitation, to file any statement
with respect to any tax abatements or other requirements.
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SECTION 6.2. Covenants of Certificate Trustee, Agent and the
Participants.
(a) Discharge of Liens. Each of the Participants covenants as to
itself, and not jointly with any other Participant, that it will not create or
permit to exist at any time, and will, at its own cost and expense, promptly
take such action as may be necessary duly to discharge, or to cause to be
discharged, all Certificate Trustee Liens attributable to it and will cause
restitution to be made to the Trust Estate in the amount of any diminution of
the value thereof as a result of its failure to comply with its obligations
under this Section 6.2(a). Certificate Trustee, in its trust capacity, will not
create or permit to exist at any time, and will promptly take such action as may
be necessary duly to discharge, or to cause to be discharged, all Certificate
Trustee Liens attributable to it and will cause restitution to be made to the
Trust Estate in the amount of any diminution of the value thereof as a result of
its failure to comply with its obligations under this Section 6.2(a). The Bank,
in its individual capacity, will not create or permit to exist at any time, and
will, at its own cost and expense, promptly take such action as may be necessary
duly to discharge, or to cause to be discharged, all Certificate Trustee Liens
attributable to it and will cause restitution to be made to the Trust Estate in
the amount of any diminution of the value thereof as a result of its failure to
comply with its obligations under this Section 6.2(a). Agent, in its individual
capacity, will not create or permit to exist at any time, and will, at its own
cost and expense, promptly take such action as may be necessary duly to
discharge, or to cause to be discharged, all Certificate Trustee Liens
attributable to it and will cause restitution to be made to the Trust Estate in
the amount of any diminution of the value thereof as a result of its failure to
comply with its obligations under this Section 6.2(a). Notwithstanding the
foregoing, none of the Participants, Certificate Trustee, Agent or the Bank, as
the case may be, shall be required to so discharge any such Certificate Trustee
Lien while the same is being contested in good faith by appropriate proceedings
diligently prosecuted so long as such proceedings shall not involve any
meaningful danger of the sale, forfeiture or loss of, and shall not interfere
with the use or disposition of, any part of the Premises, the Lease or the Trust
Estate or title thereto or any interest therein or the payment of Rent;
provided, however, that each Participant, Agent, Certificate Trustee and the
Bank shall discharge any such Certificate Trustee Lien attributable to it,
whether or not subject to contest as provided above, upon the purchase of the
Premises by Lessee pursuant to the Lease or a sale pursuant to the Sale Option.
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(b) Trust Agreement. Without prejudice to any right under the
Trust Agreement of Certificate Trustee to resign, or the Certificate Purchasers'
right under the Trust Agreement to remove Certificate Trustee, each of the
Certificate Purchasers and Certificate Trustee hereby agrees with Lessee: (i)
except as permitted by the Trust Agreement not to terminate or revoke the trust
created by the Trust Agreement prior to the Lease Expiration Date, (ii) not to
amend, supplement, terminate or revoke or otherwise modify any provision of the
Trust Agreement prior to the Lease Expiration Date in such a manner as to
materially and adversely affect the rights of any such party, (iii) except as
otherwise expressly authorized under the Operative Documents, not to withdraw
from the Trust Estate any funds other than amounts payable to it by Certificate
Trustee as distributions of Basic Rent and Supplemental Rent without the prior
written consent of each such party and (iv) to comply with all of the terms of
the Trust Agreement and the Loan Agreement applicable to it the nonperformance
of which would adversely affect such party.
(c) Successor Certificate Trustee. Certificate Trustee or any
successor may resign or be removed by the Certificate Purchasers as Certificate
Trustee, a successor Certificate Trustee may be appointed, and a corporation may
become Certificate Trustee under the Trust Agreement, only (and, so long as no
Lease Event of Default has occurred and is continuing, with the written consent
of Lessee) in accordance with the provisions of Article IV of the Trust
Agreement.
(d) Indebtedness; Other Business. Certificate Trustee on behalf
of the Trust shall not contract for, create, incur or assume any indebtedness,
or enter into any business or other activity, other than pursuant to or under
the Operative Documents and, for the benefit of Lessee and the Certificate
Purchasers, agrees to be bound by Section 1.2(b) of the Trust Agreement.
(e) Change of Principal Place of Business. Certificate Trustee
shall give prompt notice to the Participants and Lessee, if Certificate
Trustee's principal place of business or chief executive office, or the office
where the records concerning the accounts or contract rights relating to the
Premises or the Overall Transaction are kept, shall cease to be located at its
address in the State of California set forth on Schedule II or if it shall
change its name or identity.
(f) Depreciation. Prior to the Lease Expiration Date, neither
Certificate Trustee nor any Participant shall claim any federal or state tax
attributes or benefits (including depreciation) relating to the Premises unless
required to do so by
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an appropriate taxing authority or after a clearly applicable change in
Applicable Laws and Regulations or as a protective response to a proposed
adjustment by an Authority; provided, however, that if an appropriate taxing
authority shall require Certificate Trustee or any Participant to claim any such
federal or state tax attributes or benefits, such Person shall promptly notify
Lessee thereof and shall permit Lessee to contest such requirement in a manner
similar to the contest rights provided in, and subject to any applicable
limitation to a context contained in, Section 7.2(b) hereof.
SECTION 6.3. Restrictions on and Effect of Transfer. No Participant
shall assign, convey or otherwise transfer all or any portion of its right,
title or interest in, to or under any Note or Certificate without the prior
written consent of Agent and, provided no Lease Event of Default has occurred
and is in existence, Lessee (which consent shall not be unreasonably withheld or
delayed, but who may each condition its approval upon the satisfaction of any or
all of the conditions of subsections (a) through (i) below), except that without
the prior written consent of Agent or Lessee, (x) any Participant may pledge or
encumber its interest to another Person; provided, that, no transfer upon a
foreclosure pursuant to such a pledge or encumbrance may occur unless the other
provisions of this Section are complied with, and (y) any Participant may
transfer all or any portion of its interest to any other existing Participant
upon compliance with subsections (a), (b), (c), (d), (f)(i), (g), (h) and (i)
below; and provided, further, that the restrictions set forth in this Section
6.3 shall not apply to a Participation with respect to which Section 6.4 shall
apply:
(a) Required Notice and Effective Date. In the event of a
transfer pursuant to which this Section 6.3(a) applies, the Participant desiring
to effect a transfer of its interest shall give written notice of such proposed
transfer to Lessee, Agent, Certificate Trustee and each other Participant at
least ten (10) Business Days prior to such proposed transfer, setting forth the
name of such proposed transferee, the percentage or interest to be retained by
such Participant, if any, and the date on which such transfer is proposed to
become effective. Any expenses incurred by the transferee in connection with its
review of the Operative Documents and its investigation of the transactions
contemplated thereby and any costs and expenses incurred by the transferee, the
transferor Agent or Certificate Trustee in connection with such transfer shall
be borne by such transferee or the relevant Participant, as they may determine,
but shall not be considered costs and expenses which Lessee is obligated to pay
or reimburse under Section 9.9, except in the case of a transfer made pursuant
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to Section 2.14, 2.15 or 7.4 or a transfer that occurs while a Lease Event of
Default has occurred and is continuing.
(b) Assumption of Obligations. Any transferee with respect to a
transfer to which this Section 6.3(b) applies shall have executed and delivered
to Certificate Trustee and Agent the Investor's Letter, and thereupon the
obligations of the transferring Participant under the Operative Documents shall
be proportionately released and reduced to the extent of such transfer. Upon any
such transfer as above provided, the transferee shall be deemed to be bound by
all obligations (whether or not yet accrued) under, and to have become a party
to, all Operative Documents to which its transferor was a party, shall be deemed
the pertinent "Participant" for all purposes of the Operative Documents and
shall be deemed to have made that portion of the payments pursuant to this
Agreement previously made or deemed to have been made by the transferor
represented by the interest being conveyed; and each reference herein and in the
other Operative Documents to the pertinent "Participant" shall thereafter be
deemed a reference to the transferee, to the extent of such transfer, for all
purposes. Upon any such transfer, Certificate Trustee shall deliver to Agent,
each "Participant" and Lessee an amended Schedule I to the Participation
Agreement, revised to reflect the relevant information for such new Participant
and the commitment of such new Participant (and the revised Commitment of the
transferor Participant if it shall not have transferred its entire interest).
(c) Employee Benefit Plans. No Participant may make any such
assignment, conveyance or transfer to or in connection with any arrangement or
understanding in any way involving any employee benefit plan (or its related
trust), as defined in Section 3(3) of ERISA, or with the assets of any such plan
(or its related trust), as defined in Section 4975(e)(1) of the Code (other than
a governmental plan, as defined in Section 3(32) of ERISA), with respect to
which Lessee or such Participant or any of their Affiliates is a party in
interest within the meaning of ERISA or a "disqualified person" within the
meaning of the Code.
(d) Representations and Warranties; Compliance with Laws.
Notwithstanding anything to the contrary set forth above, no Participant may
assign, convey or transfer its interest to any Person to which this Section
6.3(d) applies, (i) unless such Person shall have delivered to Certificate
Trustee and Lessee a certificate confirming the accuracy of the representations
and warranties set forth in Section 4.2 with respect to such Person (other than
as such representation or warranty relates to the execution and delivery of
Operative Documents) or (ii) if such assignment, conveyance or transfer would
result in a violation of
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the Securities Act or any other material Applicable Laws and Regulations.
(e) Financial Condition of Transferee. No transfer to which this
Section 6.3(e) applies by a Participant shall be effective against the other
parties to this Agreement unless the transferee is (A) a bank or other financial
institution with a combined capital, surplus and undivided profits (or its
equivalent) of at least $100,000,000 or with a net worth of at least
$100,000,000, or (B) any subsidiary of such a bank, financial institution or
corporation, provided that such bank, financial institution or corporation
furnishes a guaranty with respect to the transferee's obligations as a
Participant.
(f) Amounts. Any transfer pursuant to which this Section 6.3
applies (i) shall consist of the transferring Participant's pro rata share of
both its Notes and Certificates, and (ii) shall be in a combined principal
amount and Certificate Amount which is equal to or greater than $5,000,000 in
the aggregate; provided that the foregoing Dollar limitation shall not apply to
a Participant's transfer of the entire principal amount of such Participant's
Notes and Certificates.
(g) Effect. From and after any transfer pursuant to which this
Section 6.3(g) applies, the transferring Participant shall be released, to the
extent assumed by the transferee, from its liability and obligations hereunder
and under the other Operative Documents to which such transferor is a party in
respect of obligations to be performed on or after the date of such transfer.
Upon any transfer by a Participant as above provided, any such transferee shall
be deemed a "Participant" for all purposes of such documents and each reference
herein to a Participant shall thereafter be deemed a reference to such
transferee for all purposes, except as the context may otherwise require.
Notwithstanding such transfer, the transferor shall be entitled to all benefits
accrued and all rights vested prior to such transfer, including, without
limitation, rights to indemnification under this Agreement or any other
Operative Document.
(h) Transferee Indemnities. Each transferee shall be entitled to
the benefits of Article VII with respect to its Notes or Certificates or
participation in the Notes or Certificates outstanding from time to time.
(i) Future Participants. Each Participant by its acceptance of
its Note and/or Certificate, shall be deemed to be bound by and, upon compliance
with the applicable requirements of
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Section 6.3, will be entitled to all of the benefits of the provisions of this
Agreement.
SECTION 6.4. Participations. Each Participant may sell, transfer or
assign a participation in all or a portion of the interests represented by its
Notes and Certificates or any right to payment thereunder (a "Participation") to
any Person (a "Participation Holder"). In the event of any such sale by a
Participant of a Participation to a Participation Holder, such obligations under
this Participation Agreement and under the other Operative Documents shall
remain unchanged, such Participant shall remain solely responsible for the
performance thereof, such Participant shall remain the holder of its Note and
Certificate for all purposes under this Participation Agreement and under the
other Operative Documents, and Certificate Trustee shall continue to deal solely
and directly with such Participant in connection with such Participation
Holder's rights and obligations under this Trust Agreement and under the other
Operative Documents. In connection with any Participation, the Participant shall
obtain from such Participation Holder, if such Participation Holder is not an
Affiliate, a certificate containing the following representations and warranties
from such Participation Holder:
(a) The Participation Holder is a sophisticated institutional
investor with sufficient knowledge and experience in financial and business
matters to enable it to evaluate the merits and risk of acquiring the
Participation. It is acquiring the Participation for its own account for
investment and not with a view to any distribution (as such term is used in
Section 2(11) of the Securities Act) thereof and if in the future it should
decide to dispose of its interest in the Participation, it understands that it
may do so only in compliance with the Securities Act and the rules and the
regulations of the SEC thereunder and any applicable state securities laws, if
applicable. It is aware that the Participation has not been registered under the
Securities Act or qualified or registered under any state or other
jurisdiction's securities laws.
(b) The Participant understands and agrees that any
documentation providing for the Participation will contain a paragraph that
shall read substantially as follows:
THIS PARTICIPATION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAW, AND
MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF
SUCH ACT OR LAWS.
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ARTICLE VII
INDEMNIFICATION
SECTION 7.1. General Indemnification.
(a) General Indemnity. Without limitation on the rights of any
Indemnitee under Article VI of the Construction Agency Agreement, Lessee agrees,
whether or not any of the transactions contemplated hereby shall be consummated,
to indemnify, protect, defend, save and keep harmless each Indemnitee from and
against any and all Claims that may be imposed on, incurred by or asserted
against such Indemnitee, whether or not such Indemnitee shall also be
indemnified as to any such Claim by any other Person, whether or not such Claim
is covered by the indemnification at Article VI of the Construction Agency
Agreement and whether or not such Claim arises or accrues prior to the Document
Closing Date, the initial Advance Date or the Completion Date for any Site, in
any way relating to or arising out of (a) any of the Operative Documents or any
of the transactions contemplated thereby or any investigation, litigation or
proceeding in connection therewith, and any amendment, modification or waiver in
respect thereof; or (b) the Premises or any part thereof or interest therein; or
(c) the acquisition, mortgaging, design, construction, preparation,
installation, inspection, delivery, non-delivery, acceptance, rejection,
purchase, ownership, possession, rental, lease, sublease, repossession,
maintenance, repair, alteration, modification, addition or substitution,
storage, transfer or title, redelivery, use, financing, refinancing, operation,
condition, sale (including, without limitation, any sale or other transfer
pursuant to Articles XX, XXI or XXII of the Lease), return or other disposition
of all or any part of any interest in the Premises or the imposition of any Lien
(or incurring of any liability to refund or pay over any amount as a result of
any Lien) thereon, including, without limitation: (i) Claims or penalties
arising from any violation of law or in tort (strict liability or otherwise),
(ii) loss of or damage to the environment (including, without limitation,
investigation costs, cleanup costs, response costs, remediation and removal
costs, costs of corrective action, costs of financial assurance, and all other
damages, costs, fees and expenses, fines and penalties, including natural
resource damages), or death or injury to any Person, and all expenses associated
with the protection of wildlife, aquatic species, vegetation, flora and fauna,
and any mitigative action required by or under any Environmental Laws, (iii)
latent or other defects, whether or not discoverable, (iv) any Claims resulting
from the existence or Release of any Hazardous Materials at or from the
Premises, (v) the construction of the Financed Improvements and (vi) any Claim
for patent, trademark or copyright infringement; (d) the offer,
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issuance, sale, transfer or delivery of the Notes or Certificates; (e) the
breach or alleged breach by Lessee of any representation or warranty made by it
or deemed made by it in any Operative Document; (f) the transactions
contemplated hereby or by any other Operative Document, in respect of the
application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any
prohibited transaction described in Section 4975(c) of the Code, or (g) any
other agreement entered into or assumed by Lessee in connection with the
Premises (including, in connection with each of the matters described in this
Section 7.1 to which this indemnity shall apply, matters based on or arising
from the negligence of any Indemnitee); provided, however, that to the extent
any such Claim relates to a specific Site during the Construction Period for
such Site, Lessee's obligation to indemnify any indemnitee under this Section
solely to the extent such Claim relates directly to such Site shall arise upon
the Base Term Commencement Date of the Lease Supplement for such Site, whereupon
Lessee shall pay such indemnity Claim immediately to the Indemnitee entitled
thereto (provided that the foregoing shall not limit the obligations of
Construction Agent to indemnify each Construction Period Indemnitee and Borrower
to indemnify each Participant Indemnitee pursuant to Article VII of the
Construction Agency Agreement and Article VII of the Loan Agreement).
Notwithstanding the foregoing provisions of this Section 7.1(a), Lessee shall
not be obligated to indemnify an Indemnitee under this Section 7.1(a) for any
Claim to the extent that it is attributable to any of the following: (i) Taxes,
loss of tax benefits and the cost and expense of tax controversies (whether or
not indemnified by Lessee under Section 7.2), other than a payment necessary to
make payments under this Section 7.1 on an after-tax basis; provided, that the
exclusion set forth in this clause (i) does not apply to any taxes or penalties
included in Claims against which the Indemnitee is provided an indemnification
under clause (f) of this Section 7.1; (ii) the gross negligence or willful
misconduct of such Indemnitee; (iii) the breach by such Indemnitee of its
representations and warranties in Sections 4.2, 4.3, or 4.4, as the case may be
or the breach by an Indemnitee of its covenant in Section 6.2(a) hereof; and
(iv) any Claim resulting from the imposition of any Certificate Trustee Lien for
which such Indemnitee is responsible for discharging under the Operative
Documents.
(b) Contests. In respect of the indemnification provided under
Section 7.1(a) or Section 7.8, promptly after receipt by an Indemnitee of notice
of any pending or threatened Claim, such Indemnitee shall, if a claim in respect
thereof is to be made against Lessee, give notice thereof to Lessee. So long as
no Lease Event of Default is continuing, Lessee, at its own expense, may elect
to assume the defense of any such Claim through
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its own counsel, which shall be subject to the reasonable approval of the
Required Participants, on behalf of the Indemnitee (with full right of
subrogation to the Indemnitee's rights and defenses). Lessee must indicate its
election to assume such defense by written notice to the Indemnitee within 90
days following receipt of Indemnitee's notice of the Claim, or in the case of a
third party claim which requires a shorter time for response then within such
shorter period as specified in the Indemnitee's notice of Claim provided that
such Indemnitee has given Lessee notice thereof. If Lessee denies liability or
fails to respond to the notice within the time period set forth above, the
Indemnitee may defend or compromise the Claim as it deems appropriate without
prejudice to any of Indemnitee's rights hereunder and with no further obligation
to inform Lessee of the status of the Claim and no right of Lessee to approve or
disapprove any actions taken in connection therewith by the Indemnitee. If
Lessee shall have elected to assume the defense of any such Claim, then upon the
request of Lessee, the Indemnitee requesting payment of indemnity under Section
7.1(a) or Section 7.8 shall promptly furnish Lessee with copies of any records
or documents pertaining to the matter to be indemnified and, to the extent known
by such Indemnitee, a reasonably detailed explanation of the circumstances
giving rise to the claim of indemnification and the determination of the amount
of the requested indemnity payment. Upon payment in full to Indemnitee of any
indemnity pursuant to Section 7.1(a) or Section 7.8, Lessee shall be subrogated
to any right of Indemnitee in respect of the matter against which such indemnity
has been paid. If Lessee shall have elected to assume the defense of any such
Claim, upon the written request at any time and from time to time of Lessee,
Indemnitee shall, at the expense of Lessee, take such reasonable actions and
execute such documents as are necessary or reasonably appropriate to assist
Lessee in the preservation and enforcement against third parties of Lessee's
right of subrogation hereunder. The Indemnitee may employ separate counsel at
its expense in any such Claim and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the Indemnitee
unless the Indemnitee shall have been advised by its counsel that there exists a
conflict of interest in such counsel's representation of the Indemnitee and the
Lessee, it being understood, however, that Lessee shall not, in connection with
any one action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) for the Indemnitees, and such firm
shall be designated in writing by the Indemnitees. All fees and expenses shall
be paid periodically as incurred. Lessee shall not be liable for any settlement
of any such Claim effected without its consent
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unless Lessee shall elect in writing not to assume the defense thereof in which
case the Indemnitee, without waiving any rights to indemnification hereunder,
may defend such Claim and enter into any good faith settlement thereof without
the prior written consent of Lessee. Lessee shall not, without the prior written
consent (not to be unreasonably withheld) of the Indemnitee, effect any
settlement of any such Claim unless such settlement includes an unconditional
release of the Indemnitee from all liabilities that are the subject of such
Claim. The parties agree to cooperate in any defense or settlement of any such
Claim and to give each other reasonable access to all information relevant
thereto subject to appropriate confidentiality agreements. The parties will
similarly cooperate in the prosecution of any claim or lawsuit against any third
party.
SECTION 7.2. General Tax Indemnity.
(a) Tax Indemnity. Lessee shall pay on an after-tax basis, and
on written demand shall indemnify and hold each Indemnitee harmless from and
against, any and all Taxes, howsoever imposed, on or with respect to any
Indemnitee, the Premises or any portion thereof, Lessee or any sublessee or user
of the Premises, by the United States or by any state or local government or
other taxing authority in the United States, or by any taxing authority outside
the United States, in connection with or in any way relating to: (i) the
acquisition, mortgaging, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership,
possession, rental, lease, sublease, repossession, maintenance, repair,
alteration, modification, addition, substitution, storage, transfer of title,
redelivery, use, financing, refinancing, operation, condition, purchase,
repurchase, sale, return or other application or disposition of all or any part
of the Premises or the imposition of any Lien (or incurrence of any liability to
refund or pay over any amount as a result of any Lien) thereon, (ii) Basic Rent
or Supplemental Rent or the receipts or earnings arising from or received with
respect to the Premises or any part thereof, or any interest therein or any
applications or dispositions thereof, (iii) any other amount paid or payable
pursuant to the Certificates or any other Operative Documents, the property or
the income or other proceeds with respect to the property held in the Trust
Estate, (iv) the Premises or any part thereof or any interest therein, (v) all
or any of the Operative Documents, any other documents contemplated thereby and
any amendments and supplements thereto, and (vi) otherwise with respect to or in
connection with the transactions contemplated by the Operative Documents or the
enforcement thereof; provided, however, that the indemnification
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obligation of this Section 7.2(a) shall not apply to: (1) Taxes (other than
Taxes that are sales, use, rental, value added or similar Taxes) based upon or
measured by the Indemnitee's gross or net income, gross or net receipts or that
are in the nature of, or are imposed with respect to, capital, net worth, excess
profits, accumulated earnings, capital gains, franchise or conduct of business
of such Indemnitee (other than Taxes imposed as a result of Lessee's or
Guarantor's activities in, or the location of the Premises or any portion
thereof in, the jurisdiction imposing such Taxes, any gross receipts (or
similar) Tax imposed by any county in which any Site is located, or any Taxes
described in Section 7.3 resulting from changes in law or regulation) (except in
the case of gross or net income Taxes, to the extent necessary so that payments
under this Section 7.2 are made to an Indemnitee on a Grossed-Up Basis within
the meaning of Section 7.6); (2) sales, use, rental or similar Taxes (other than
any Taxes imposed as a result of Lessee's or Guarantor's activities in, or the
location of the Premises or any portion thereof in, the jurisdiction imposing
such Taxes); and (3) Taxes that result from (x) a voluntary transfer or other
voluntary disposition by the Indemnitee or any of its Affiliates of all or any
portion of its interest in the Premises, the Trust Estate, any Indemnitee, the
Certificates, the Operative Documents (other than a transfer or disposition
resulting from (A) an Indemnitee's exercise of remedies under the Lease during
the occurrence and continuation of an Event of Default, (B) the Lessee's
exercise of the Sale Option or Purchase Option under the Lease or (C) any other
transfer to Lessee or Guarantor under the Operative Documents) or (y) an
involuntary transfer or other involuntary disposition by the Indemnitee or any
of its Affiliates of all or any part of an interest in the Premises, the Trust
Estate, any Indemnitee, the Certificates, the Operative Documents (other than
any such transfer or disposition that occurs while a Lease Event of Default has
occurred and is continuing) in connection with any bankruptcy or other
proceeding for the relief of debtors in which an Indemnitee or any of its
Affiliates is the debtor or any foreclosure by a creditor of an Indemnitee or
any of its Affiliates that is in each case unrelated to the transactions
contemplated by the Operative Documents; (4) Taxes (other than those imposed in
order to Gross-Up) imposed on or against or payable by such Indemnitee to the
extent of the excess of such Taxes over the amount of such Taxes that would have
been imposed and indemnified hereunder had there not been a transfer by the
original Indemnitee (from which such Indemnitee derives its interest) of any
interest in the Premises, the Certificates, the Trust Estate, any Indemnitee or
the Operative Documents, unless
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such transferee acquired its interest during the occurrence and continuation of
a Lease Event of Default or as the result of the substitution of the Certificate
Trustee; (5) Taxes imposed with respect to any period (except during the
occurrence and continuance of an Event of Default) after the expiration or
earlier termination of the Lease (but not to the extent attributable to events
occurring on or prior to such date); (6) Taxes resulting from (x) the gross
negligence, willful misconduct or fraud of the Indemnitee or any of its
Affiliates (except to the extent attributable to an Indemnitee by reason of the
execution of any of the Operative Documents), (y) the inaccuracy or breach of a
representation, warranty under the Operative Documents or of the covenant set
forth in Section 6.2(a) hereof or (z) any Liens, in the case of any Indemnitee,
attributable to such Indemnitee or any of its Affiliates; (7) Taxes imposed on
the Agent in its individual capacity with respect to any fees received by it
payable to the Agent for services rendered; (8) Taxes to the extent resulting
from or measured by income, assets, activities, or other matters of or relating
to the Indemnitee or any of its Affiliates that are unrelated to the
transactions contemplated by the Operative Documents; (9) any interest,
penalties or additions to Tax that result from the failure of an Indemnitee to
file any return properly and timely, unless such failure is caused by the
failure of the Lessee to fulfill its obligations, if any, under this Agreement
with respect to such return; and (10) provided that such Indemnitee did not
acquire its interest in the Operative Documents while an Event of Default was
continuing, Taxes that would not have been imposed but for the Indemnitee or any
of its Affiliates having its tax residence, place of business, status of
organization, place of management or controls, permanent establishment or other
presence in the taxing jurisdiction (unless such tax residence, place of
business, status of organization, place of management or control, permanent
establishment or other presence results from the presence or activities of the
Lessee in such jurisdiction).
(b) Contests. Lessee shall pay on or before the time or times
prescribed by law any Taxes that the Lessee is liable for hereunder (except any
Taxes excluded by the proviso to Section 7.2(a)). If any claim or claims is or
are made against any Indemnitee for any Tax which is subject to indemnification
as provided in Section 7.2(a), Indemnitee shall as soon as practicable, but in
no event more than 30 days after receipt of formal written notice of the Tax or
proposed Tax, notify Lessee and if, in the reasonable opinion of Lessee and (in
the case of any Tax on gross or net income which may reasonably be expected to
exceed $100,000 in the aggregate) tax counsel reasonably acceptable to the
Indemnitee, there exists a reasonable basis to contest such Tax which satisfies
the requirements of ABA Formal Opinion 85-352 (and
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if the provisos of the definition of "Permitted Contest" continue to be
satisfied and so long as no Lease Event of Default exists), Lessee at its
expense may, to the extent permitted by Applicable Laws and Regulations and
provided that it has acknowledged in writing its liability for the Tax at issue
if the contest is not successful, contest such Tax, and subsequently may appeal
any adverse determination (other than to the United States Supreme Court), in
the appropriate administrative and legal forums; provided, that in all other
circumstances, upon notice from Lessee to such Indemnitee that there exists a
reasonable basis to contest any such Tax which satisfies the requirements of ABA
Formal Opinion 85-352 (as supported by an opinion of tax counsel to Lessee
reasonably acceptable to the Indemnitee), the Indemnitee, at Lessee's expense,
shall contest any such Tax (so long as the provisos of the definition of
"Permitted Contest" continue to be satisfied and so long as no Lease Event of
Default exists and, in the case of a Tax on gross or net income, the amount of
the Tax exceeds $100,000). Lessee shall pay all expenses incurred by the
Indemnitee in contesting any such Tax (including, without limitation, all
reasonable attorneys' and accountants' fees), upon demand by the Indemnitee.
Lessee shall have the right to participate in the conduct of any proceedings
controlled by the Indemnitee to the extent that such participation by such
Person does not interfere with the Indemnitee's control of such contest and
Lessee shall in all events be kept informed, to the extent practicable, of
material developments relative to such proceedings. The Indemnitee shall have
the right to participate in the conduct of any proceedings controlled by Lessee
to the extent that such participation by such Person does not interfere with
Lessee's control of such contest, and the Indemnitee shall in all events be kept
informed, to the extent practicable, of material developments relative to such
proceedings. The Indemnitees agree that a contested claim for which Lessee would
be required to make a reimbursement payment hereunder will not be settled or
compromised without Lessee's prior written consent unless the provisos of the
definition of "Permitted Contest" would not continue to be satisfied or the
Indemnitee waives its right to indemnification hereunder and repays the Taxes
advanced by the Lessee as a non-interest bearing loan by the Lessee to such
Indemnitee (as provided below) with interest at the Overdue Rate from the date
of payment until receipt thereof by the Lessee. Indemnitee shall endeavor to
settle or compromise any such contested claim in accordance with written
instructions received from Lessee; provided, that (x) Lessee on or before the
date the Indemnitee executes a settlement or compromise pays the contested Tax
to the extent agreed upon or makes an indemnification payment to the Indemnitee
in an amount acceptable to the Indemnitee; and (y) the settlement or compromise
does not, in the reasonable opinion of the Indemnitee
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materially adversely affect the right of the Certificate Trustee or such
Indemnitee to receive Rent or the Lease Balance or any other payment pursuant to
the Operative Documents, or involve a material risk of sale, forfeiture or loss
of the Premises or any interest therein or any matter described in the provisos
to the definition of "Permitted Contest". The failure of an Indemnitee to
contest timely a claim against it for any Tax which is subject to
indemnification under Section 7.2(a) and for which it has an obligation to
Lessee to contest under this Section 7.2(b) in the manner required by Applicable
Laws and Regulations where Lessee has timely requested that such Indemnitee
contest such claim shall relieve Lessee of its obligations to such Indemnitee
under Section 7.2(a) with respect to such claim only to the extent such failure
results in the loss of an effective contest. If Applicable Laws and Regulations
require the payment of a contested Tax as a condition to, or regardless of, its
being contested, and Lessee chooses to contest such Tax or to direct the
Indemnitee to contest such Tax in accordance with this Section, then Lessee
shall provide the Indemnitee with the funds to pay such Tax, such provision of
funds to be deemed a non-interest bearing loan by Lessee to the Indemnitee to be
repaid by any recovery of such Tax from such contest and any remaining unpaid
amount not recovered to offset Lessee's obligation to indemnify the Indemnitee
for such Tax. Lessee shall indemnify the Indemnitee on a Grossed-Up Basis in
accordance with Section 7.6 for and against any adverse consequences of any such
interest-free loan. In the event that the Indemnitee receives a refund (or like
adjustment) in respect of any Tax for which the Indemnitee has been reimbursed
by Lessee, the Indemnitee shall promptly remit the amount of such refund (or
like adjustment), plus any interest received thereon, to Lessee, net of all
costs and expenses incurred by such Indemnitee; provided, however, that the
Indemnitee shall not be required to remit any amount pursuant to this sentence
in excess of the amounts previously paid by Lessee to, or on behalf of, such
Indemnitee with respect to such Tax pursuant to this Article VII, plus any
interest received thereon.
(c) Payments. Any Tax indemnifiable under Section 7.2(a) shall
be paid by Lessee directly when due to the applicable taxing authority if direct
payment is practicable and permitted. If direct payment to the applicable taxing
authority is not permitted or is otherwise not made, any amount payable to an
Indemnitee pursuant to Section 7.2(a) shall be paid within thirty days after
receipt of a written demand therefor from such Indemnitee accompanied by a
written statement describing in reasonable detail the amount so payable, but not
before the date that the relevant Taxes are due. Any payments made pursuant to
Section 7.2(a) directly to the Indemnitee entitled thereto or
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Lessee, as the case may be, shall be made in immediately available funds at such
bank or to such account as specified by the payee in written directions to the
payor, or, if no such direction shall have been given, by check of the payor
payable to the order of the payee by certified mail, postage prepaid at its
address as set forth in this Participation Agreement. Upon the request of any
Indemnitee with respect to a Tax that Lessee is required to pay, Lessee shall
furnish to such Indemnitee the original or a certified copy of a receipt for
Lessee's payment of such Tax or such other evidence of payment as is reasonably
acceptable to such Indemnitee.
(d) Reports. If any report, return or statement is required to
be filed with respect to any Taxes that are subject to indemnification under
Section 7.2(a), Lessee shall, if Lessee is permitted by Applicable Laws and
Regulations, timely prepare and file such report, return or statement; provided,
however, that if Lessee is not permitted by Applicable Laws and Regulations to
file any such report, return or statement, Lessee will promptly so notify the
appropriate Indemnitee, in which case the Indemnitee, at Lessee's expense, will
file any such report after preparation thereof by Lessee.
(e) Calculation of Payments. Any payment that the Lessee shall
be required to make to or for the account of any Indemnitee with respect to any
Tax that is subject to indemnification under this Section 7.2 shall be paid on a
Grossed- Up Basis under Section 7.6 of this Agreement. If an Indemnitee or any
Affiliate of such Indemnitee who files any tax return on a combined,
consolidated, unitary or similar basis with such Indemnitee shall actually
realize any saving of any Tax not indemnifiable by the Lessee pursuant to the
Operative Documents (by way of credit (including any foreign tax credit),
deduction, exclusion from income or otherwise) by reason of any amount with
respect to which the Lessee has indemnified such Indemnitee pursuant to this
Section 7.2, and such tax saving was not taken into account in determining the
amount payable by the Lessee on account of such indemnification, such Indemnitee
shall pay to the Lessee, so long as no Lease Event of Default shall have
occurred and be continuing (but shall be required to make such payment at such
time as the Lease Event of Default shall have been cured or at the time the
Lessee shall have fulfilled all of its obligations arising upon such Lease Event
of Default), within 10 days after such Indemnitee shall have actually realized
such tax saving, the amount of such saving, together with the amount of any tax
saving resulting from any payment pursuant to this sentence (provided that such
payments by such Indemnitee shall not exceed the amount of the payments made by
Lessee to or for such Indemnitee which gave rise to such savings and payment by
such Indemnitee).
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(f) Refund. If an Indemnitee shall receive a refund of (or
receive a credit against or any other current reduction in, any Tax not
indemnified by the Lessee under this Section 7.2, in respect of) all or part of
any Taxes which the Lessee shall have paid on behalf of such Indemnitee or for
which the Lessee shall have reimbursed, advanced funds to or indemnified such
Indemnitee (or would have received such a refund, credit or reduction but for a
counterclaim or other claim not indemnified by the Lessee hereunder (a "deemed
refund")), within 10 days of such receipt (or, in the case of a deemed refund,
within 30 days of the final determination of such deemed refund), such
Indemnitee shall pay or repay to the Lessee an amount equal to the amount of
such refund or deemed refund, plus any net tax benefit (taking into account any
Taxes incurred by such Indemnitee by reason of the receipt of such refund,
credit or reduction or deemed refund) realized by such Indemnitee as a result of
any payment by such Indemnitee made pursuant to this sentence (provided that
such payments by such Indemnitee shall not exceed the amount of the payments
made by Lessee to or for such Indemnitee which gave rise to such refund and
payment by such Indemnitee). If, in addition to such refund, credit or reduction
or deemed refund, as the case may be, such Indemnitee shall receive (or would
have received but for a counterclaim or other claim not indemnified by the
Lessee hereunder) an amount representing interest on the amount of such refund,
credit or reduction, or deemed refund, as the case may be, such Indemnitee shall
pay to the Lessee within 10 days of such receipt or, in the case of a deemed
refund, within 10 days of the final determination of such deemed refund, that
proportion of such interest that shall be fairly attributable to Taxes paid,
reimbursed or advanced by the Lessee prior to the receipt of such refund or
deemed refund.
(g) Non-Parties. If an Indemnitee is not a party to this
Agreement, the Lessee may require the Indemnitee to agree in writing, in a form
reasonably acceptable to the Lessee, to the terms of this Section 7.2 prior to
making any payment to such Indemnitee under this Section 7.2.
(h) Verification. The results of all computations required under
this Section 7.2, together with a statement describing in reasonable detail the
manner in which such computations were made, shall be delivered to the Lessee in
writing. If the Lessee so requests within 30 days after receipt of such
computations, any determination shall be reviewed by a nationally recognized
independent public accounting firm mutually acceptable to the relevant
Indemnitee and the Lessee who shall be asked to verify, after consulting with
the Lessee and the relevant Indemnitee, whether the relevant Indemnitee's
computations are
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correct, and to report its conclusions to both the Lessee and the relevant
Indemnitee. Subject to satisfactory confidentiality agreements, the relevant
Indemnitee and the Lessee hereby agree to provide such accountants with all
information and materials as shall be reasonably necessary or desirable in
connection herewith. The fees of the accountants in verifying an adjustment
pursuant to this Section 7.2 shall be paid by the Lessee, unless such
verification discloses an error adverse to the Lessee in an amount greater than
5% of the amount of the indemnity payment as determined by the accounting firm,
in which case such fees shall be paid by the relevant Indemnitee. Any
information provided to such accountants by any Person shall be and remain the
exclusive property of such Person and shall be deemed by the parties to be (and
the accountants will confirm in writing that they will treat such information
as) the private, proprietary and confidential property of such Person, and no
Person other than such Person and the accountants shall be entitled thereto, and
all such materials shall be returned to such Person. Such accounting firm shall
be requested to make its determination within 30 days of the Lessee's request to
such accounting firm for review. In the event such independent public accounting
firm shall determine that such computations are incorrect, then such firm shall
determine what it believes to be the correct computations. The computations of
the independent public accounting firm shall be final, binding and conclusive
upon, the Lessee and the relevant Indemnitee and the Lessee shall not have any
right to inspect the books, records, tax returns or other documents of or
relating to the relevant Indemnitee to verify such computations or for any other
purpose. The parties hereby agree that the independent public accounting firm's
sole responsibility shall be to verify the computation of any amounts payable
under this Section 7.2 and that matters of interpretation of this Agreement and
the other Operative Documents are not within the scope of such independent
public accounting firm's responsibilities.
(i) Restructuring For Withholding Taxes. Each party covered by
this Section 7.2 agrees to use reasonable efforts to investigate alternatives
for reducing any withholding Taxes that are indemnified against hereunder or
imposed on Rent (whether or not indemnifiable hereunder) and to use reasonable
efforts to reduce any withholding Taxes that are indemnified against hereunder,
including, without limitation, negotiating in good faith to relocate or
restructure the Advance (which relocation or restructuring shall be at the
Lessee's expense), but no Party shall be obligated to take any such action as
such Party determines will be adverse to its business or financial or commercial
interests.
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(j) Tax Ownership. Each Indemnitee represents and warrants that
it will not, prior to the termination of the Lease, claim ownership of (or any
tax benefits, including depreciation, with respect to) the Improvements for any
income tax purposes (unless required to do so by an Authority), it being
understood that it is the intention of all parties to this transaction that the
Lessee is and will remain the owner of the Premises for such income tax purposes
until the termination of the Lease.
SECTION 7.3. Withholding Tax Exemption. At least five (5) Business Days
prior to the first date on which any payment is due under any Note or
Certificate for the account of any Participant not organized or incorporated
under the laws of the United States or a state thereof, such Participant agrees
that it will have delivered to each of Lessee, Certificate Trustee and Agent,
two duly completed copies of United States Internal Revenue Service Form 1001 or
4224, certifying in either case that such Participant is entitled to receive
payments of Interest or Yield and a return of principal on the Certificate
Amount and its Loans, as applicable, including Capitalized Interest or
Capitalized Yield, as applicable, under the Operative Documents without
deduction or withholding of any United States Federal income taxes. Each
Participant which so delivers Form 1001 and Form W-8 or delivers Form 4224 and
Form W-9 further undertakes to deliver to each of Lessee, Certificate Trustee
and Agent two additional copies of such form (or a successor form) on or before
the date that such form expires (currently, three successive calendar years for
Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the
occurrence of any event requiring a change in the most recent forms so delivered
by it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by Lessee, Certificate Trustee and Agent in each case
certifying that such Participant is entitled to receive payments under the
Operative Documents without deduction or withholding of any United States
Federal income taxes, unless an event (including any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Participant from duly completing and delivering any such form with
respect to it and such Participant advises Lessee, Agent and Certificate Trustee
that it is not capable of receiving payments without any withholding of United
States Federal income tax.
SECTION 7.4. Increased Costs. If any change in, or the introduction,
adoption, effectiveness, interpretation, reinterpretation or phase-in of, any
law or regulation, directive, guideline, decision or request (whether or not
having the force of law) of any court, central bank regulator or other Authority
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("Change in Law") imposes, modifies, affects or deems applicable any reserve,
special deposit, capital adequacy or other requirement required or expected to
be maintained by any Participant directly or by its parent company (including,
without limitation, any reserve requirements specified under regulations issued
from time to time by the Board of Governors of the Federal Reserve System and
then applicable to assets or liabilities consisting of and including
"Eurocurrency Liabilities" as defined in Regulation D of such Board of
Governors), or shall impose on any Participant (or its LIBOR Office) or on the
London interbank market any other condition or any tax, duty or other charge
with respect to or otherwise affecting the maintenance of its Loan principal or
Certificate Amounts on a LIBO Rate basis, and such Participant determines (in
its sole and absolute discretion) that the rate of return on it or its parent's
capital as a consequence of the Funding made by such Participant hereunder to
pay its share of the Advance is reduced to a level below that which such
Participant or its parent could have achieved but for the occurrence of any such
circumstances, then, in any such case, upon written notification from time to
time by such Participant to Certificate Trustee and Lessee, Lessee shall, within
five (5) Business Days following receipt of the statement referred to in the
next sentence, pay to Certificate Trustee, as Supplemental Rent, additional
amounts sufficient to compensate such Participant or its parent for such
reduction in rate of return (on an after-tax basis), which amounts shall
thereupon be paid directly by Certificate Trustee to such Participant; provided,
however, that the liability of Lessee to compensate or reimburse any Participant
for increased costs resulting from a circumstance described in this Section 7.4
prior to the first demand by such Participant for such compensation or
reimbursement shall be limited to those increased costs incurred in the 180-day
period preceding the date of such demand. A statement of a Participant as to any
such additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
Lessee. In determining such amount, each Participant shall use any method of
averaging or attribution that it (in its reasonable discretion) shall deem
applicable. Each Participant shall use reasonable efforts (including reasonable
efforts to change its LIBOR Office) to avoid or minimize any amounts which might
otherwise be payable pursuant to this Section 7.4; provided, however, that such
efforts shall not be deemed by such Participant, in its sole discretion, to be
disadvantageous to it. In the event that such efforts are insufficient to avoid
or minimize such amounts that might be payable pursuant to this Section 7.4,
then such Participant (the "Affected Participant") shall use its reasonable
efforts to transfer to any other Participant (which itself is not then an
Affected Participant) its Notes and Certificates in compliance with
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the restrictions on transfer in this Agreement; provided, however, that such
transfer shall not be deemed by such Affected Participant, in its sole
discretion, to be disadvantageous to it (other than the economic disadvantage of
ceasing to be a Participant). In the event that the Affected Participant is
unable, or otherwise is unwilling, so to transfer its rights and obligations,
Lessee may designate an alternate financial institution to purchase the Affected
Participant's Notes and Certificates and, subject to the provisions of Sections
7.5 and 6.3, the Affected Participant shall transfer its rights and obligations
to such alternate financial institution and such alternate financial institution
shall become a Participant hereunder; provided that the costs of such transfer
to either another Participant or an alternate financial institution shall be
borne by Lessee.
SECTION 7.5. Funding Losses. Lessee shall pay to Certificate Trustee, as
Supplemental Rent, such amounts as may be necessary to reimburse any Participant
for any loss or expense (including, without limitation, any administration
costs) incurred (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such
Participant to make, continue or maintain any portion of its investment in any
Note or Certificate on a LIBO Rate basis) as a result of any payment of all or
any portion of the Lease Balance for any reason on a date other than a Payment
Date, including, without limitation, by reason of acceleration (the amount of
such loss or expense is called the "Break Funding Amount"). Any Participant
shall promptly notify Certificate Trustee and Agent in writing of the amount of
any claim under this Section 7.5, the reason or reasons therefor and the
additional amount required fully to compensate such Participant for such loss or
expense. Such written notice (which shall include calculations in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
Lessee.
SECTION 7.6. Gross Up. If an Indemnitee shall not be entitled to a
corresponding and equal deduction with respect to any payment or Tax which
Lessee is required to pay or reimburse under any other provision of this Article
VII (each such payment or reimbursement under this Article VII, an "original
payment") and which original payment constitutes income to such Indemnitee when
accrued or received, then Lessee shall pay to such Indemnitee on demand the
amount of such original payment on a grossed-up basis such that, after
subtracting all Taxes imposed on such Indemnitee with respect to such grossed-up
payment by Lessee (including any Taxes otherwise excluded by Section 7.2(b) and
assuming for this purpose that such Indemnitee was subject to taxation at the
highest
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Federal and applicable, state and local marginal rates applicable to widely held
corporations for the year in which such income is taxable), such amount (i.e.,
the grossed-up payment minus the taxes thereon) shall be equal to the original
payment to be received or reimbursed (net of any credits, deductions or other
tax benefits then actually recognized that arise from the payment by such
Indemnitee of any amount, including taxes, for which the payment to be received
is made) ("Grossed-Up Basis").
SECTION 7.7. Premises Indemnity. In the event that (a) Lessee elects
the Sale Option; and (b) after paying to Certificate Trustee, for the benefit of
the Participants, any amounts due under Article XXII of the Lease, the Lease
Balance shall not have been reduced to zero, then Lessee shall promptly pay over
to Certificate Trustee on the Lease Expiration Date the shortfall unless Lessee
delivers a report from an appraiser selected by the Required Participants in
form and substance satisfactory to the Required Participants and using approved
methods satisfactory to the Required Participants which establishes that the
reasons for the actual Fair Market Value of the Premises as of the Lease
Expiration Date being less than the Fair Market Value anticipated for such date
in the Appraisals delivered pursuant to Section 3.3(a)(v) was not due to any of
the following events, circumstances or conditions, whether or not permitted
under the Lease: (i) the failure to maintain the Premises as required by the
Lease and the other Operative Documents, and in at least as good a condition as
it was in on the Completion Date for such Site, ordinary wear and tear excepted;
(ii) the carrying out of or the failure to undertake any modifications,
improvements or Alterations (including the Financed Improvements) whether or not
permitted pursuant to the Operative Documents; (iii) any change or modification
to the Plans and Specifications following the earlier of (x) the Document
Closing Date and (y) the delivery of the Plans and Specifications pursuant to
Section 3.3(a), whether or not permitted pursuant to the Operative Documents,
(iv) the existence of any environmental condition at or affecting the Premises
whether or not such condition existed on the initial Advance Date; (v) any
defect, exception, easement, restriction or other encumbrance on or title to for
the Premises whether or not created or existing on the initial Advance Date;
(vi) the dependence of the Premises on any improvement or facility not fully
located on the Premises (except for government-provided utilities existing and
benefitting the Premises as of the date hereof the benefits of which are lost
for reasons other than the fault of Lessee and which could not have been
retained through the exercise by Lessee of commercially reasonable efforts to
keep such utilities in place); or (vii) any other cause or condition within the
power of Lessee to control or affect other than ordinary wear and tear.
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SECTION 7.8. Environmental Indemnity. Without limitation of the other
provisions of this Article VII, Lessee hereby agrees to indemnify, hold harmless
and defend each Indemnitee from and against any and all Claims (including
without limitation third party claims for personal injury or real or personal
property damage and any Claim for which Certificate Trustee has liability
pursuant to Article VII of the Loan Agreement), losses, damages, liabilities,
fines, penalties, charges, administrative and judicial proceedings (including
informal proceedings) and orders, judgments, remedial action, requirements,
enforcement actions of any kind, and all reasonable and documented costs and
expenses incurred in connection therewith (including reasonable and documented
attorneys' and/or paralegals' fees and expenses), including all costs incurred
in connection with any investigation or monitoring of Premises conditions or any
clean-up, remedial, removal or restoration work by any federal, state or local
government agency, arising in whole or in part, out of
(a) the presence on, under or around the Premises or any portion
thereof of any Hazardous Materials, or any releases or discharges of any
Hazardous Materials on, under, from, onto or around the Premises or any portion
thereof,
(b) any activity, including, without limitation, construction
(including construction of the Financed Improvements), carried on or undertaken
on or off the Premises or any portion thereof, and whether by Lessee or any of
its Affiliates or any predecessor in title or any employees, agents, sublessees,
contractors or subcontractors of Lessee, any of its Affiliates or any
predecessor in title, or any other Persons (including such Indemnitee), in
connection with the handling, treatment, removal, storage, decontamination,
clean-up, transport or disposal of any Hazardous Materials that at any time are
located or present on, under or around or that at any time migrate, flow,
percolate, diffuse or in any way move onto or under the Premises or any portion
thereof,
(c) loss of or damage to any property or the environment arising
from or in any way related to the Premises or Lessee or any of its Affiliates
(including, without limitation, clean-up costs, response costs, remediation and
removal costs, cost of corrective action, costs of financial assurance, fines
and penalties and natural resource damages), or death or injury to any Person,
and all expenses associated with the protection of wildlife, aquatic species,
vegetation, flora and fauna, and any mitigative action required by or under
Environmental Laws, in each case arising from or in any way related to the
Premises, Lessee, any of its Affiliates or the Overall Transaction or any
portion thereof,
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(d) any claim concerning lack of compliance with Environmental
Laws, or any act or omission causing an environmental condition that requires
remediation or would allow any Authority to record a Lien against the Premises
or any portion thereof, or
(e) any residual contamination on or under any of the Premises,
or affecting any natural resources, and any contamination of any property or
natural resources arising in connection with the generation, use, handling,
storage, transport or disposal of any such Hazardous Materials, in each case
arising from or in any way related to the Premises, Lessee, any of its
Affiliates, or the Overall Transaction or any portion thereof, and irrespective
of whether any of such activities were or will be undertaken in accordance with
Applicable Laws and Regulations.
Notwithstanding the foregoing provisions of this Section 7.8, (x) Lessee shall
not be obligated to indemnify an Indemnitee under this Section 7.8 for any Claim
to the extent that it is attributable to any of the following: (i) Taxes
assessed against or loss of tax benefits and the cost and expense of tax
controversies incurred by such Indemnitee (whether or not indemnified by Lessee
under Section 7.2, other than a payment necessary to make payments under this
Section 7.8 on an after-tax basis; (ii) the gross negligence or willful
misconduct of such Indemnitee; (iii) the breach by such Indemnitee of its
representations and warranties in Section 4.2, 4.3, or 4.4, as the case may be
or the breach by an Indemnitee of its covenant in Section 6.2(a) hereof; and
(iv) any Claim resulting from the imposition of any Certificate Trustee Lien for
which such Indemnitee is responsible for the discharge thereof; and (y) during
the Construction Period Lessee shall not be obligated to indemnify a Lender or
Certificate Purchaser under this Section 7.8 for any Claim to the extent that it
is attributable to acts, events or circumstances occurring during, and not
attributable to or constituting acts, events or circumstances occurring prior
to, the Construction Period, provided that this clause (y)shall not limit the
obligations of Lessee to indemnify Certificate Trustee for any such Claim for
which Certificate Trustee has liability pursuant to Article VII of the Loan
Agreement.
SECTION 7.9. Limitation on Recourse Liability During Construction
Period. Notwithstanding any other provision set forth in this Participation
Agreement or any of the other Operative Documents, upon a Construction Agency
Event of Default with respect to a Site which relates solely to a Nonrelated
Construction Event or a Lease Event of Default which relates solely to a
Nonrelated Construction Event, unless and until the Completion Date for such
Site has occurred, Lessee shall not be required to pay more than the
Construction Recourse Amount for such Site on a recourse basis
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with respect to any damages (which shall include Construction Breakage Costs and
amounts payable by Construction Agent as Default Completion Costs) which relate
to or arise from any such Nonrelated Construction Event; provided, however, that
the foregoing limitation shall not apply to any Claim under any indemnity in any
Operative Document, nor shall the foregoing in any way limit any remedy of
Lessor or any Participant or any liability of Lessee as a consequence of such
Nonrelated Construction Event with respect to any Site as to which the
Completion Date has occurred.
ARTICLE VIII
AGENT
SECTION 8.1. Appointment of Agent; Powers and Authorization to Take
Certain Actions.
(a) Each Participant irrevocably appoints and authorizes State
Street Bank and Trust Company to act as its agent hereunder, with such powers as
are specifically delegated to Agent by the terms hereof, together with such
other powers as are reasonably incidental thereto. Each Participant authorizes
and directs Agent to, and Agent agrees for the benefit of the Participant, that,
on the Document Closing Date and each Advance Date it will accept the documents
described in Article III of this Participation Agreement. Agent accepts the
agency hereby created applicable to it and agrees to receive all payments and
proceeds pursuant to the Operative Documents and disburse such payments or
proceeds in accordance with the Operative Documents. Agent shall have no duties
or responsibilities except those expressly set forth in the Loan Agreement and
this Participation Agreement. Agent shall not be responsible to any Participant
(or to any other Person): (i) for any recitals, statements, representations or
warranties of any party contained in the Loan Agreement, this Participation
Agreement, or in any certificate or other document referred to or provided for
in, or received by any of them under, the Operative Documents, other than the
representations and warranties made by Agent in Section 4.4, or (ii) for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
the Mortgaged Property or the title thereto (subject to Agent's obligations
under Section 4.4) or of the Loan Agreement or any other document referred to or
provided for therein or (iii) for any failure by any Lessee, Certificate Trustee
or any other third party (other than Agent) to perform any of its obligations
under any Operative Document. Agent may employ agents, trustees or
attorneys-in-fact, may vest any of them with any property, title, right or power
deemed necessary for the purposes of such appointment and shall not be
responsible for the negligence or
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misconduct of any of them selected by it with reasonable care. Except as
provided for at Section 8.1(c) below, neither Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder, or in connection herewith.
(b) Agent shall not have any duty or obligation to manage,
control, use, operate, store, lease, sell, dispose of or otherwise deal with the
Premises, any Mortgaged Property or any lease, or to otherwise take or refrain
from taking any action under, or in connection with, this Participation
Agreement or any related document to which Agent is a party, except as expressly
provided by the terms hereof, and no implied duties of any kind shall be read
into any Operative Document against Agent. The permissive right of Agent to take
actions enumerated in this Participation Agreement or any other Operative
Document shall never be construed as a duty, unless Agent is instructed or
directed to exercise, perform or enforce one or more rights by the Required
Participants (provided that Agent has received indemnification reasonably
satisfactory to it). Subject to Section 8.1(c) below, no provision of the
Operative Documents shall require Agent to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its
obligations under the Operative Documents, or in the exercise of any of its
rights or powers thereunder. It is understood and agreed that the duties of
Agent are ministerial in nature.
(c) Except as specifically provided herein, Agent is acting
hereunder solely as agent and, except as specifically provided herein, is not
responsible to any party hereto in its individual capacity, except with respect
to any claim arising from Agent's gross negligence or willful misconduct, or its
negligence in the handling of funds or any breach of a representation or
covenant made in its individual capacity.
(d) Agent may accept deposits from, lend money to and otherwise
deal with Lessee or any of its Affiliates with the same rights as it would have
if it were not the named Agent hereunder.
SECTION 8.2. Reliance. Agent may rely upon, and shall not be bound or
obligated to make any investigation into the facts or matters stated in, any
certificate, notice or other communication (including any communication by
telephone, telecopy, telex, telegram or cable) reasonably believed by it to be
genuine and correct and to have been made, signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by Agent with due care
(including any expert selected by Agent to
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aid Agent in any calculations required in connection with its duties under the
Operative Documents).
SECTION 8.3. Action Upon Instructions Generally. Subject to Sections 8.4
and 8.6, upon written instructions of the Required Participants, Agent shall, on
behalf of the Participants, give such notice or direction, exercise such right,
remedy or power hereunder or in respect of the Premises, and give such consent
or enter into such amendment to any document to which it is a party as Agent as
may be specified in such instructions. Agent shall deliver to each Participant a
copy of each notice, report and certificate received by Agent pursuant to the
Operative Documents. Agent shall have no obligation to investigate or determine
whether there has been a Lease Event of Default or a Lease Default. Agent shall
not be deemed to have notice or knowledge of a Lease Event of Default or Lease
Default unless a Responsible Officer of Agent is notified in writing of such
Lease Event of Default or Lease Default; provided that Agent shall be deemed to
have been notified in writing of any failure of Lessee to pay Rent in the
amounts and at the times set forth in Article IV of the Lease. If Agent receives
notice of a Lease Event of Default, Agent shall give prompt notice thereof, at
Lessee's expense, to each Participant. Subject to Sections 8.4, 8.6 and 9.5,
Agent shall take action or refrain from taking action with respect to such Lease
Event of Default as directed by the Required Participants or, in the case of a
Payment Default, as directed by any Participant; provided that, unless and until
Agent receives such directions, Agent may refrain from taking any action with
respect to such Lease Event of Default or Payment Default. Prior to the date the
Lease Balance shall have become due and payable by acceleration pursuant to
Section 18.1 of the Lease, the Required Participants may deliver written
instructions to Agent to waive, and Agent shall waive pursuant thereto, any
Lease Event of Default and its consequences; provided that in the absence of
written instructions from all Participants, Agent shall not waive any: (i)
Payment Default, or (ii) covenant or provision which, under Section 9.5, cannot
be modified or amended without the consent of all Participants. As to any
matters not expressly provided for by this Participation Agreement, Agent shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder in accordance with instructions signed by the Required Participants
and such instructions of the Required Participants and any action taken or
failure to act pursuant thereto shall be binding on each Participant.
SECTION 8.4. Indemnification. Each Participant shall reimburse and hold
Agent harmless, ratably in accordance with its Commitment at the time the
indemnification is required to be given, (but only to the extent that any such
indemnified amounts have not
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in fact been paid to Agent by, or on behalf of, Lessee in accordance with
Section 7.1) from any and all claims, losses, damages, obligations, penalties,
liabilities, demands, suits, judgments, or causes of action, and all legal
proceedings, and any reasonable costs or expenses in connection therewith,
including allocated charges, costs and expenses of internal counsel of Agent and
all other reasonable attorneys' fees and expenses incurred by Agent, in any way
relating to or arising in any manner out of: (i) any Operative Document, the
enforcement hereof or thereof or the consummation of the transactions
contemplated thereby, or (ii) instructions from the Required Participants
(including, without limitation, the costs and expenses that Lessee is obligated
to and does not pay hereunder, but excluding normal administrative costs and
expenses incident to the performance by Agent of its agency duties hereunder
other than materially increased administrative costs and expenses incurred as a
result of a Lease Event of Default); provided that no Participant shall be
liable for any of the foregoing to the extent they arise from (a) the gross
negligence or willful misconduct of Agent, (b) the inaccuracy of any
representation or warranty or breach of any covenant given by Agent in Section
4.4 or in the Loan Agreement, (c) in the case of Agent's handling of funds, the
failure to act with the same care as Agent uses in handling its own funds or (d)
any taxes, fees or other charges payable by Agent based on or measured by any
fees, commissions or compensation received by it for acting as Agent in
connection with the transactions contemplated by the Operative Documents.
SECTION 8.5. Independent Credit Investigation. Each Participant by
entering into this Participation Agreement agrees that it has, independently and
without reliance on Agent or Arranger or any other Participant and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of Lessee and its own decision to enter into this Participation
Agreement and each of the other Operative Documents to which it is a party and
that it will, independently and without reliance upon Agent, Arranger or any
other Participant and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking action under this Participation Agreement and any related documents to
which it is a party. Agent shall not be required to keep itself informed as to
the performance or observance by Lessee of any other document referred to
(directly or indirectly) or provided for herein or to inspect the properties or
books of Lessee. Except for notices or statements which Agent is expressly
required to give under this Participation Agreement and for notices, reports and
other documents and information expressly required to be furnished to Agent
alone (and not also to each Participant and the
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Certificate Trustee, it being understood that Agent shall forward copies of same
to each Participant and the Certificate Trustee) hereunder or under any other
Operative Document, Agent shall not have any duty or responsibility to provide
any Participant with copies of notices or with any credit or other information
concerning the affairs, financial condition or business of Lessee (or any of its
Affiliates) that may come into the possession of Agent or any of its Affiliates.
SECTION 8.6. Refusal to Act. Except for notices and actions expressly
required of Agent hereunder and except for the performance of its covenants in
Section 4.4, Agent shall in all cases be fully justified in failing or refusing
to act unless (a) it is indemnified to its reasonable satisfaction by the
Participants against any and all liability and reasonable expense which may be
incurred by it by reason of taking or continuing to take any such action
(provided that such indemnity shall be subject to each of the limitations set
forth at Section 8.4, including clauses (a) through (d) of Section 8.4, it being
understood that no action taken by Agent in accordance with the instructions of
the Required Participants shall be deemed to constitute any such matter) and (b)
it is reasonably satisfied that such action is not contrary to any Operative
Document or to any Applicable Laws and Regulations.
SECTION 8.7. Resignation or Removal of Agent; Appointment of Successor.
Subject to the appointment and acceptance of a successor Agent as provided
below, Agent may resign at any time by giving notice thereof to each Certificate
Trustee and Lessee or may be removed at any time by written notice from the
Required Participants. Upon any such resignation or removal, the Required
Participants at the time of the resignation or removal shall have the right to
appoint (so long as no Lease Event of Default is continuing, with the prior
written consent of Lessee) a successor Agent which shall be a financial
institution having a combined capital and surplus of not less than $500,000,000.
If, within 30 calendar days after the retiring Agent's giving of notice of
resignation or receipt of a written notice of removal, a successor Agent is not
so appointed and does not accept such appointment, then the retiring or removed
Agent may appoint a successor Agent and transfer to such successor Agent all
rights and obligations of the retiring Agent. Such successor Agent shall be a
financial institution having combined capital and surplus of not less than
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Agent and the retiring or removed Agent shall be discharged from duties
and
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<PAGE> 82
obligations as Agent thereafter arising hereunder and under any related
document. If the retiring Agent does not appoint a successor, any Participant
shall be entitled to apply to a court of competent jurisdiction for such
appointment, and such court may thereupon appoint a successor to act until such
time, if any, as a successor shall have been appointed as above provided.
SECTION 8.8. Separate Agent. The Required Participants may, and if they
fail to do so at any time when they are so required, Agent may, for the purpose
of meeting any legal requirements of any jurisdiction in which the Premises or
Mortgaged Property may be located, appoint one or more individuals or
corporations either to act as co-agent jointly with Agent or to act as separate
agent of all or any part of the Mortgaged Property, and vest in such individuals
or corporations, in such capacity, such title to such Mortgaged Property or any
part thereof, and such rights or duties as Agent may consider necessary or
desirable. Agent shall not be required to qualify to do business in any
jurisdiction where it is not now so qualified. Agent shall execute, acknowledge
and deliver all such instruments as may be required by any such co-agent or
separate agent more fully confirming such title, rights or duties to such
co-agent or separate agent. Upon the acceptance in writing of such appointment
by any such co-agent or separate agent, it, she or he shall be vested with such
interest in the Mortgaged Property or any part thereof, and with such rights and
duties, not inconsistent with the provisions of the Operative Documents, as
shall be specified in the instrument of appointment, jointly with Agent (except
insofar as local law makes it necessary for any such co-agent or separate agent
to act alone), subject to all terms of the Operative Documents. Any co-agent or
separate agent, to the fullest extent permitted by legal requirements of the
relevant jurisdiction, at any time, by an instrument in writing, shall
constitute Agent its attorney-in-fact and agent, with full power and authority
to do all acts and things and to exercise all discretion on its behalf and in
its name. If any co-agent or separate agent shall die, become incapable of
acting, resign or be removed, the interest in the Mortgaged Property and all
rights and duties of such co-agent or separate agent shall, so far as permitted
by law, vest in and be exercised by Agent, without the appointment of a
successor to such co-agent or separate agent.
SECTION 8.9. Termination of Agency. The agency created hereby shall
terminate upon the final disposition by Agent of all Mortgaged Property at any
time subject hereto and the final distribution by Agent of all monies or other
property or proceeds received pursuant to the Lease in accordance with their
terms; provided, that at such time Lessee shall have complied fully with all the
terms hereof.
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SECTION 8.10. Compensation of Agent. Lessee shall pay Agent its
reasonable fees, costs and expenses for the performance of Agent's obligations
hereunder (including the reasonable fees and expenses of its counsel).
SECTION 8.11. Limitations. It is expressly understood and agreed by and
among the parties hereto that, except as otherwise provided herein or in the
other Operative Documents: (a) this Participation Agreement and the other
Operative Documents to which Agent is a party are executed by Agent, not in its
individual capacity (except with respect to the representations and covenants of
Agent in Section 4.4), but solely as Agent under the Operative Documents in the
exercise of the power and authority conferred and vested in it as such Agent;
(b) each and all of the undertakings and agreements herein made on the part of
Agent are each and every one of them made and intended not as personal
undertakings and agreements by Agent, or for the purpose or with the intention
of binding Agent personally, but are made and intended for the purpose of
binding only the Mortgaged Property unless expressly provided otherwise; (c)
actions to be taken by Agent pursuant to its obligations under the Operative
Documents may, in certain circumstances, be taken by Agent only upon specific
authority of the Participants; (d) nothing contained in the Operative Documents
shall be construed as creating any liability on Agent, individually or
personally, or any incorporator or any past, present or future subscriber to the
capital stock of, or stockholder, officer or director, employee or agent of,
Agent to perform any covenants either express or implied contained herein, all
such liability, if any, being expressly waived by the other parties hereto and
by any Person claiming by, through or under them; and (e) so far as Agent,
individually or personally, is concerned, the other parties hereto and any
Person claiming by, through or under them shall look solely to the Mortgaged
Property and Lessee for the performance of any obligation under any of the
instruments referred to herein; provided, however, that nothing in this Section
8.11 shall be construed to limit in scope or substance the general corporate
liability of Agent in respect of its gross negligence or willful misconduct,
negligence in the handling of funds or for those representations, warranties and
covenants of Agent in its individual capacity set forth herein or in any of the
other agreements contemplated hereby.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties
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provided for in the Operative Documents, and the parties' obligations under any
and all thereof, shall survive the execution and delivery and the termination or
expiration of this Agreement and any of the Operative Documents, the transfer of
the interest in the Premises as provided herein or in any other Operative
Documents (and shall not be merged into any deed, ground lease or any other
conveyance or transfer document), any disposition of any interest of Certificate
Trustee in the Premises, the purchase and sale of the Notes or Certificates,
payment therefor and any disposition thereof and shall be and continue in effect
notwithstanding any investigation made by any party hereto or to any of the
other Operative Documents and the fact that any such party may waive compliance
with any of the other terms, provisions or conditions of any of the Operative
Documents.
SECTION 9.2. No Broker, etc. Except for Lessee's dealing with Security
Pacific Leasing Corporation, as Arranger, each of the parties hereto represents
to the others that it has not retained or employed any arranger, broker, finder
or financial advisor to act on its behalf in connection with this Agreement, nor
has it authorized any arranger, broker, finder or financial adviser retained or
employed by any other Person so to act, nor has it incurred any fees or
commissions to which Certificate Trustee, Agent or any Participant might be
subjected by virtue of their entering into the transactions contemplated by this
Agreement. Security Pacific Leasing Corporation's sole compensation for acting
hereunder other than as an Arranger is the receipt of the amounts, including
reimbursement of expenses, provided for in the Operative Documents, and the
Arrangement Fee. Any party who is in breach of this representation shall
indemnify and hold the other parties harmless from and against any liability
arising out of such breach of this representation.
SECTION 9.3. Notices. Unless otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be deemed to have been given: (i) in the case of notice by letter,
the earlier of when delivered to the addressee by hand or courier if delivered
on a Business Day and, if not delivered on a Business Day, the first Business
Day thereafter or on the third Business Day after depositing the same in the
mails, registered or certified mail, postage prepaid, return receipt requested,
and (ii) in the case of notice by facsimile or bank wire, when receipt is
confirmed if delivered on a Business Day and, if not delivered on a Business
Day, the first Business Day thereafter, addressed as provided on Schedule II
hereto, or to such other address as any of the parties hereto may designate by
written notice.
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SECTION 9.4. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same agreement.
SECTION 9.5. Amendments. No Operative Document nor any of the terms
thereof may be terminated, amended, supplemented, waived or modified without the
written agreement or consent of Certificate Trustee, Agent, Lessee and the
Required Participants; provided, however, that Section 3.2(d) and Section 9.15
hereof may not be terminated, amended, supplemented, waived or modified without
the written agreement or consent of the Arranger; and provided, further, that
such termination, amendment, supplement, waiver or modification shall require
the written agreement or consent of each Participant if such termination,
amendment, supplement, waiver or modification would:
(a) modify any of the provisions of this Section 9.5, change the
definition of "Required Participants", or modify or waive any provision of any
Operative Document requiring action by the Required Participants or all of the
Participants, or release any collateral (except in connection with a transaction
permitted by the Operative Documents or approved by the Required Participants);
(b) reduce the amount or change the time of payment of any
amount of principal owing or payable under any Note, Certificate or Interest or
Yield owing or payable on any Note or Certificate, modify any of the provisions
of Article III of the Loan Agreement or Article III of the Trust Agreement, or
modify the definition of "Interest Rate" or "Yield Rate";
(c) modify, amend, waive or supplement any of the provisions of
Sections 11.1(b), 11.1(d), 13.1, 13.2, 13.6, 16.1, 17(a), 17(c) (to the extent
such Section 17(c) relates to Sections 11.1(b) and 11.1(d) of the Lease), 17(d),
17(g), 17(h)(to the extent such Section 17(h) relates to provisions of the
Construction Agency Agreement listed below in this Section 9.5(c)), 17(j) and
17(k) of the Lease, the provisions of Section 5.2(b) hereof, or the provisions
of Sections 2.7(a), 2.7(e), 2.7(g),2.7(j), 2.8, 5.1(a), 5.1(b), 5.1(c),
5.1(e)(to the extent such Section 51(e) relates to Sections 11.1(b) and 11.1(d)
of the Lease), 5.1(h) and 5.1(i) of the Construction Agency Agreement;
(d) reduce any of the obligations of Guarantor under, or waive
any of the provisions of, the Guarantee;
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<PAGE> 86
(e) reduce, modify, amend or waive any indemnities in favor of
any Participant;
(f) reduce the amount or change the time of payment of Basic
Rent, the Lease Balance, Sales Recourse Amount or the Construction Recourse
Amount.
(g) modify any provision of any Operative Document that
expressly requires the unanimous consent of the Participants;
(h) consent to modification, amendment or waiver releasing
Lessee from its obligations to pay Basic Rent, the Lease Balance, Sale Proceeds
or the Sales Recourse Amount or changing the absolute and unconditional
character of such obligations;
(i) permit the creation of any Lien on the Trust Estate or any
part thereof except as permitted by the Operative Documents, or deprive any
Participant of the benefit of the security interest and lien secured by the
Mortgaged Property or the Trust Estate in a manner not generally applicable to
the other Participants; or
(j) terminate, modify, waive, amend, or supplement any part of
Section 3.2.
SECTION 9.6. Headings, etc. The Table of Contents and headings of the
various Articles and Sections of this Agreement are for convenience of reference
only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
SECTION 9.7. Parties in Interest. Except as expressly provided herein,
none of the provisions of this Agreement is intended for the benefit of any
Person except the parties hereto, their successors and permitted assigns.
SECTION 9.8. Governing Law. THIS AGREEMENT HAS BEEN DELIVERED IN, AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF, THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS
PRINCIPLES OF SUCH STATE(EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS
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LAW), EXCEPT THAT THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIEN ON A
LEASED PROPERTY TO THE EXTENT REQUIRED BY APPLICABLE LAW SHALL BE GOVERNED BY
THE LAWS OF THE JURISDICTION IN WHICH SUCH LEASED PROPERTY IS LOCATED.
SECTION 9.9. Payment of Transaction Costs and Other Costs.
(a) Transaction Costs. As and when any portion of Transaction
Costs becomes due and payable, such Transaction Costs shall be paid by Lessee as
Supplemental Rent; provided, that with respect to Transaction Costs directly
attributable or allocated to any Site which are due and payable before the
Completion Date for such Site, Lessee's obligation to pay such Transaction Costs
on a recourse basis is subject to the provisions of Section 7.9. Before the
Completion Date for such Site, Lessee shall, upon receiving funds sufficient to
pay such Transaction Costs, promptly make payment of such Transaction Costs to
the Person or Persons entitled to payment upon presentation to Lessee of bills
or invoices for the amount of such payment.
(b) Continuing Expenses. The continuing fees, expenses and
disbursements (including reasonable counsel fees) of (i) Certificate Trustee, as
Lessor under the Lease and as trustee under the Trust Agreement with respect to
the administration of the Trust Estate and (ii) Agent under the Operative
Documents, shall be allocated on a pro rata basis in proportion to the
Commitments for each Site and shall be included in Advance Requests and paid for
out of Advances before the Completion Date for each Site and, following the
Completion date for any such Site, paid directly by Lessee as Supplemental Rent.
(c) Amendments, Supplements and Appraisal. Without limitation of
the foregoing, from and after the Completion Date for any Site, Lessee agrees to
pay to the Participants, Certificate Trustee and Agent all costs and expenses
(including reasonable legal fees and expenses of special counsel to Agent and
Certificate Trustee and the document counsel for the Participants) incurred by
any of them in connection with: (i) the considering, evaluating, investigating,
negotiating and entering into or giving or withholding of any amendments or
supplements or waivers or consents with respect to any Operative Document; (ii)
any Casualty, Condemnation, Event of Loss, Event of Taking or termination of the
Lease or any other Operative Document; (iii) the negotiation and documentation
of any restructuring or "workout," whether or not consummated, of any Operative
Document; (iv) the enforcement of the rights or remedies under the Operative
Documents; (v) any transfer by Certificate Trustee or a Participant of any
interest in the Operative Documents during the continuance of a Lease Event of
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<PAGE> 88
Default; or (vi) any Advance Date. It is understood and agreed that any event or
circumstance giving rise to any of the foregoing costs and expenses shall not be
considered an Unrelated Event.
SECTION 9.10. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 9.11. Limited Liability of Certificate Trustee. The parties
hereto agree that the Certificate Trustee, in its individual capacity, shall
have no personal liability whatsoever to Lessee, Agent, the Participants or any
of their respective successors and assigns for any Claim based on or in respect
of this Agreement or any of the other Operative Documents or arising in any way
from the transactions contemplated hereby or thereby; provided, however, that
the Certificate Trustee shall be liable in its individual capacity (a) for its
own willful misconduct or gross negligence (or negligence in the handling of
funds) and, to each Participant for the breach of its obligations to the
Participants in respect of the Trust Agreement and the Trust Estate, (b) for
liabilities that may result from the incorrectness of any representation or
warranty expressly made by it in its individual capacity in Section 4.4 or a
breach of its covenant in Section 6.2(a) hereof, or (c) for any Tax based on or
measured by any fees, commission or compensation received by it for actions
contemplated by the Operative Documents. The Certificate Trustee (in its
individual capacity and as Lessor, Borrower and Certificate Trustee) shall have
no responsibility for construction of the Financed Improvements or for the
accuracy, sufficiency or adequacy of any of the information or documents
submitted in connection with each Advance or upon Completion of the Financed
Improvements.
SECTION 9.12. Liabilities of the Participants. No Participant shall have
any obligation to any other Participant or to Lessee, Certificate Trustee or
Agent with respect to the transactions contemplated by the Operative Documents
except those obligations of such Participant expressly set forth in the
Operative Documents or except as set forth in the instruments delivered in
connection therewith, and no Participant shall be liable for performance by any
other party hereto of such other party's obligations under the Operative
Documents except as otherwise so set forth.
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SECTION 9.13. Submission to Jurisdiction; Waivers.
(a) Each party hereto irrevocably and unconditionally:
(i) submits for itself and its property in any legal
action or proceeding relating to this Agreement or any other Operative
Document, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the United States
District Court for the Southern District of New York and of any New York
state court sitting in the borough of Manhattan, and appellate courts
from any thereof;
(ii) consents that any such action or proceedings may be
brought to such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action
or proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth on Schedule II or at
such other address of which the other parties hereto shall have been
notified pursuant to Section 9.3; and
(iv) agrees that nothing herein shall affect the right
to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
(b) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THE OPERATIVE
DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 9.14. Reproduction of Documents. This Agreement, all documents
constituting an Appendix, Schedule or Exhibit hereto, and all documents relating
hereto received by a party hereto, including, without limitation: (a) consents,
waivers and modifications that may hereafter be executed; (b) documents received
by the Participants or Certificate Trustee in connection with the receipt and/or
acquisition of the Premises; and (c) financial statements, certificates, and
other information previously or hereafter furnished to Certificate Trustee,
Agent or any Participant may be reproduced by the party receiving the same
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by any photographic, photostatic, microfilm, micro-card, miniature photographic
or other similar process. Each of the parties hereto agrees and stipulates that,
to the extent permitted by law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by such party in the regular course of business) and that,
to the extent permitted by law, any enlargement, facsimile, or further
reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 9.15. Role of Security Pacific Leasing Corporation. Each party
hereto acknowledges hereby that it is aware of the fact that Security Pacific
Leasing Corporation has acted as an "arranger" with respect to the transactions
contemplated by the Operative Documents. The parties hereto acknowledge and
agree that Arranger and its Affiliates, including Bank of America National Trust
and Savings Association, have not made any representations or warranties
concerning, and that they have not relied upon Arranger as to, the tax,
accounting or legal characterization or validity of (i) the Operative Documents
or (ii) any aspect of the Overall Transaction. The parties hereto acknowledge
and agree that Arranger has no duties, express or implied, under the Operative
Documents in its capacity as Arranger. The parties hereto further agree that
Section 2.7, Section 3.2(d), Section 8.5, Section 9.2, the first proviso in the
first sentence of Section 9.5, Section 9.9(a) and this Section 9.15 are for the
express benefit of Arranger, and Arranger shall be entitled to rely thereon as
if it were a party hereto.
[SIGNATURE PAGES FOLLOW]
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PARTICIPATION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
Lessee: DEL MONTE CORPORATION, as Lessee
By:
----------------------------
Name Printed:
Title:
<PAGE> 92
PARTICIPATION AGREEMENT
Guarantor: DEL MONTE CORPORATION, as Guarantor
By:
----------------------------
Name Printed:
Title:
<PAGE> 93
PARTICIPATION AGREEMENT
Certificate Trustee: State Street Bank and Trust Company of California, N.A.,
not in its individual capacity except as expressly stated herein, but solely as
Certificate Trustee.
By:
----------------------------
Name: Mark Henson
Title: Assistant Vice President
<PAGE> 94
PARTICIPATION AGREEMENT
Agent: State Street Bank and Trust Company,
not in its individual capacity except as
expressly stated herein, but solely as Agent.
By:
----------------------------
Name Printed:
Title:
<PAGE> 95
PARTICIPATION AGREEMENT
Certificate Purchasers: , as Certificate Purchaser
By:
----------------------------
Name Printed:
Title:
<PAGE> 96
PARTICIPATION AGREEMENT
Lenders:
as Lender
By:
----------------------------
Name Printed:
Title:
<PAGE> 1
EXHIBIT 11.1
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER WEIGHTED AVERAGE COMMON SHARE(a)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Basic(b)
Earnings:
Net income (loss) $ 104 $ (58) $ 5
Preferred stock dividends (82) (70) (5)
---------- ---------- ----------
Net income (loss) attributable
to common shares $ 22 $ (128) $ --
========== ========== ==========
Shares:
Weighted average number of common
shares outstanding 75,047,353 61,703,436 31,619,642
========== ========== ==========
Basic earnings per common share $ 0.29 $ (2.07) $ 0.01
========== ========== ==========
</TABLE>
(a) See accompanying notes to June 30, 1996, 1997, and 1998 consolidated
financial statements.
(b) This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11).
Page 1
<PAGE> 1
EXHIBIT 12.1
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS TO FIXED CHARGES
(Dollars In Millions)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated pre-tax income
(loss) ............................. $ 11 $ 15 $ 135 $ (16) $ 6 $ 0 $ (11)
Interest expense ..................... 61 76 67 52 77 17 21
Interest portion of rent expense ..... 9 11 9 11 12 5 5
----- ----- ----- ----- ----- ----- -----
Earnings ........................... $ 81 $ 102 $ 211 $ 47 $ 95 $ 22 $ 15
===== ===== ===== ===== ===== ===== =====
Interest expense ..................... $ 61 $ 76 $ 67 $ 52 $ 77 $ 17 $ 21
Interest portion of rent
expense(a) ......................... 9 11 9 11 12 5 5
----- ----- ----- ----- ----- ----- -----
Fixed charges ...................... $ 70 $ 87 $ 76 $ 63 $ 89 $ 22 $ 26
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges.... 1.2x 1.2x 2.8x N/A 1.1x 1.0x N/A
Surplus (deficiency) of earnings
available to cover fixed charges.... $ 11 $ 15 $ 135 $ (16) $ 6 $ 0 $ (11)
</TABLE>
(a) Interest portion of rent expense is assumed equal to 33% of operating
lease and rental expense for the period.
<PAGE> 1
EXHIBIT 23.1
Conformed Copy
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated August 29, 1996 (except for Note R, as to which
the date is June 29, 1998, and the third paragraph of Note O, as to which the
date is July 22, 1998), in Post-Effective Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-48235) and related Prospectus of Del Monte Foods
Company.
/s/ Ernst & Young LLP
San Francisco, California
December 22, 1998
<PAGE> 1
EXHIBIT 23.2
Conformed Copy
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Del Monte Foods Company:
We consent to the use of our report dated July 24, 1998 with respect to Del
Monte Foods Company included herein and to the reference to our firm under the
headings "Selected Consolidated Financial Data" and "Experts" in the
Registration Statement (Form S-1) and related Prospectus of Del Monte Foods
Company.
/s/ KPMG Peat Marwick LLP
San Francisco, California
December 22, 1998
<PAGE> 1
EXHIBIT 23.3
Conformed Copy
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Del Monte Foods Company
We consent to the inclusion in the registration statement on Form S-1 of
Del Monte Foods Company of our report dated March 16, 1998, with respect to the
combined balance sheets of Contadina (a division of Nestle USA, Inc.) as of
December 18, 1997 and December 31, 1996, and the related statements of
operations, divisional equity, and cash flows for the period January 1, 1997 to
December 18, 1997 and for the year ended December 31, 1996, which report appears
in the Form 8-K/A of Del Monte Foods Company dated March 19, 1998.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
December 22, 1998
