<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-48235
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
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: [ ]
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.
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<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;
Additional Information
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................. Principal and Selling Stockholders
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 and Selling
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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued July 24, 1998
19,118,000 Shares
DEL MONTE FOODS COMPANY
COMMON STOCK
[DEL MONTE LOGO]
------------------------
OF THE 19,118,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY,15,295,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 3,823,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." OF THE
19,118,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 14,706,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 4,412,000 SHARES ARE BEING SOLD BY CERTAIN
STOCKHOLDERS OF THE COMPANY (THE "SELLING STOCKHOLDERS"). THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE BY THE SELLING STOCKHOLDERS. SEE
"PRINCIPAL AND SELLING STOCKHOLDERS." AT THE REQUEST OF THE COMPANY, THE
UNDERWRITERS HAVE RESERVED FOR SALE, AT THE INITIAL PUBLIC OFFERING PRICE, UP TO
955,900 SHARES OF COMMON STOCK, WHICH MAY BE OFFERED TO DIRECTORS, OFFICERS,
EMPLOYEES, RETIREES AND RELATED PERSONS OF THE COMPANY. ANY RESERVED SHARES THAT
ARE NOT SO PURCHASED WILL BE OFFERED BY THE UNDERWRITERS TO THE GENERAL PUBLIC
ON THE SAME BASIS AS THE OTHER SHARES OF COMMON STOCK OFFERED HEREBY. PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES OF COMMON STOCK OF
THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
PER SHARE WILL BE BETWEEN $16 AND $18. SEE "UNDERWRITERS" FOR A DISCUSSION OF
THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE AND THE PACIFIC EXCHANGE UNDER THE SYMBOL "DLM."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR
RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Per Share................................ $ $ $ $
Total(3)................................. $ $ $ $
</TABLE>
- ---------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses of the offering payable by the Company
estimated at $6,200,000.
(3) The Company and the Selling Stockholders have granted the U.S.
Underwriters an option, exercisable within 30 days of the date hereof,
to purchase up to an aggregate of 2,867,700 additional shares of Common
Stock at the price to public, less underwriting discounts and
commissions, solely for the purpose of covering overallotments, if any.
If the U.S. Underwriters exercise such option in full, the total price
to public, underwriting discounts and commissions, proceeds to Company
and proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriters."
------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to the approval of
certain legal matters by Brown & Wood LLP, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1998 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y. against payment therefor in immediately available funds.
MORGAN STANLEY DEAN WITTER
BANCAMERICA ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
BT ALEXS BROWN
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
, 1998
<PAGE> 4
[PHOTOGRAPHS DEPICTING COLLAGES OF COMPANY PRODUCTS TO BE INSERTED ON
INSIDE FRONT COVER AND INSIDE BACK COVER PAGES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE SHARES OF
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE SHARES OF COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE
TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY ANY UNDERWRITER THAT WOULD PERMIT
A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER
THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES
ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND
TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE COMMON STOCK AND THE
DISTRIBUTION OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. ii
Forward-Looking Statements............ ii
Prospectus Summary.................... 1
Risk Factors.......................... 11
Recent Developments................... 17
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Unaudited Pro Forma Financial Data.... 20
Selected Consolidated Financial
Data................................ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Corporate History..................... 58
Management............................ 60
Principal and Selling Stockholders.... 69
Certain Relationships and Related
Transactions........................ 72
Description of Capital Stock.......... 74
Description of Certain Indebtedness... 76
Certain U.S. Tax Consequences to
Non-U.S. Holders.................... 79
Shares Eligible for Future Sale....... 80
Underwriters.......................... 82
Legal Matters......................... 85
Experts............................... 85
Index to Financial Statements......... F-1
</TABLE>
------------------------
Del Monte(R) and Contadina(R) are the principal registered trademarks of
the Company. The Company's other trademarks include Fruit Cup(R), FreshCut(TM),
Snack Cups(R), Fruit Naturals(R), Orchard Select(R), Fruit Smoothie Blenders(TM)
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 ("ACNielsen"), an independent market
research firm. Such data is made publicly available by ACNielsen at prescribed
rates. Market share data for canned vegetables and solid tomato products include
only those categories in which the Company competes. Such 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. Market share data for canned solid tomato products is pro forma for
both Del Monte (as defined herein) and Contadina (as defined herein) sales.
i
<PAGE> 6
AVAILABLE INFORMATION
Del Monte is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Del Monte has filed with
the Commission a Registration Statement on Form S-1 (the "Registration
Statement," which term shall encompass all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder,
covering the shares of Common Stock being offered hereby (the "Offering"). This
Prospectus does not contain all the information set forth in the Registration
Statement. For further information with respect to Del Monte and the 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 such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the document or matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, and the reports, proxy statements and other
information filed by Del Monte with the Commission can be inspected and copied
at the public reference facilities maintained by 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 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
("GAAP"). 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.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Unaudited Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performances or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
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." These forward-looking statements speak only as of the date of this
Prospectus. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
ii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless the context otherwise
requires, "Del Monte" means Del Monte Foods Company, a Delaware corporation, and
the "Company" means Del Monte and its consolidated subsidiaries. References
herein to fiscal years and quarters are to the Company's fiscal year (which ends
on June 30) and related fiscal quarters (which end on the last Sunday of
September, December and March). References to the "Contadina Acquisition" are to
the Company's acquisition of certain assets comprising Nestle USA, Inc.'s
("Nestle") U.S. business of manufacturing and marketing certain canned tomato
products ("Contadina"). Unless otherwise indicated, all information in this
Prospectus reflects (i) an increase in the number of authorized shares to 500
million shares of Common Stock and to 2 million shares of preferred stock and
(ii) a 191.542-for-one stock split of the existing shares of Common Stock and
assumes no exercise of the U.S. Underwriters' overallotment option. See
"Description of Capital Stock."
THE COMPANY
GENERAL
The Company, a branded marketer of premium quality, nutritious food
products, is the largest producer and distributor of canned vegetables and
canned fruit in the United States, with pro forma net sales of $1.1 billion and
$1.4 billion for the nine months ended March 31, 1998 and the fiscal year ended
June 30, 1997, respectively. Management believes that the Company's principal
brand, Del Monte, which has been in existence since 1892, has the highest
unaided brand awareness of any canned food brand in the United States. Del Monte
brand products are found in substantially all 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 products category and establishes a strong
presence for the Company in the branded paste-based tomato products category.
See "Business -- Company Products."
The Company sells its products to national grocery chains and wholesalers
through a nationwide sales network consisting primarily of independent food
brokers. The Company's direct sales force also sells to warehouse club stores,
selected 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 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. See "Business -- Sales, Marketing and Distribution."
The Company operates 15 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. See "Business -- Supply and
Production."
In April 1997, the Company completed a recapitalization (the
"Recapitalization") as a result of which Texas Pacific Group, a private
investment group, obtained a controlling interest in the Company. Under a new
senior management team introduced in connection with the Recapitalization, the
Company began implementing a new business strategy designed to increase sales
and improve operating margins by: (i) increasing market share and distribution
of high margin value-added products; (ii) introducing product and packaging
innovations; (iii) increasing penetration of high growth distribution channels,
such as supercenters and
1
<PAGE> 8
warehouse clubs; (iv) achieving cost savings through investments in new and
upgraded production equipment and plant consolidations; and (v) completing
strategic acquisitions.
COMPETITIVE STRENGTHS
Management believes that the following elements contribute to the Company's
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 Company's business strategy.
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte brand
name, which has been in existence since 1892, is one of the leading brand
names 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, an established national brand with a strong
reputation for quality. For the 52 weeks ended March 28, 1998, the Company's
19.5% market share of canned vegetables was larger than the combined market
shares of the Company's two largest branded competitors, and its 41.9% 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 16.3% market share in the high margin solid segment of the canned tomato
market for the 52 weeks ended March 28, 1998. See "Business -- Company
Products."
<TABLE>
<CAPTION>
MARKET SHARE FOR THE 52 WEEKS ENDED MARCH 28, 1998
--------------------------------------------------------
MARKET NEXT LEADING BRANDED
CATEGORY POSITION(a) PERCENTAGE Competitor's Percentage(a)
-------- ------------- ---------- ---------------------------
<S> <C> <C> <C>
Canned vegetables......................... #1 19.5% 13.2% (Green Giant)
Canned fruit.............................. #1 41.9% 11.4% (Libby's)
Canned solid tomato products(b)........... #1 16.3% 11.2% (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 products and packaging alternatives
and in engineering efficient food processing operations. These capabilities
are leveragable 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 benefits from many
long-term relationships with experienced, geographically diverse growers who
work with the Company to maximize yields of raw product. 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, management believes that the
Company is one of the lowest cost producers of canned vegetables, fruit and
tomatoes in the United States. See "Business -- Company Products" and
"Business -- Supply and Production."
- - PREFERRED SUPPLIER STATUS -- Competitive pressures in the retail food industry
are causing many retailers to prefer large suppliers such as the Company that
are able to provide consumer-favored brands, full product lines and
sophisticated inventory and category management programs. Del Monte
anticipated this trend and has developed proprietary software tools to assist
its customers and promote sales of its products. Del Monte's proprietary
category management system is designed to address retailers' efforts to
maximize profitability of shelf space dedicated to canned food categories. A
substantial majority of the Company's customers that have employed Del Monte's
category management system have increased the relative amount of shelf space
dedicated to the Company's products as compared to competing products. The
Company's proprietary vendor-managed inventory software allows Del Monte to
manage directly its customers' inventories of the Company's products. This
inventory management software is designed to reduce customers' overhead costs
and to enable them to achieve lower average inventory levels while enhancing
the Company's opportunities to sell its products. Retailers also rely on Del
Monte's in-depth knowledge as the leading branded marketer in the canned
fruit, vegetable and tomato categories, and they
2
<PAGE> 9
seek the Company's advice on marketing and promoting these categories.
Finally, Del Monte has strong, well-developed relationships with all major
participants in the retail grocery trade. The Company believes that these
relationships will become increasingly important as consolidation among
grocery retailers continues. The Company is seeking to use 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, in order to become the preferred supplier in its product
categories. See "Business -- Sales, Marketing and Distribution."
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company's extensive
sales and distribution network is responsible for the distribution of finished
goods to over 2,400 customer destinations nationwide. This network enables the
Company to compete with other national brands and regional competitors, and to
introduce new products on a regional or national basis. The Company operates
six strategically located distribution centers offering customers a variety of
services, including electronic data interchange and direct store shipments.
Management believes that the Company's distribution system makes an important
contribution to the Company's success and provides the Company with a
competitive advantage over regional and private label competitors. See
"Business -- Sales, Marketing and Distribution."
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, the
Company's Chief Executive Officer and Chief Operating Officer, respectively,
are veteran senior managers with extensive food industry experience. Mr.
Wolford has 30 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 25 years of experience in the food
industry, 23 of which were 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 with minimal capital investment. See "Management."
BUSINESS STRATEGY
Following the consummation of the Recapitalization in 1997, the Company
implemented a new business strategy designed to increase sales and improve
operating margins. The key elements of this new business strategy are discussed
below.
- - 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 products, such as
its specialty fruits and vegetables, diced tomatoes and its Fruit Cup line,
where the Company has historically had either low market share or low
household penetration relative to its overall category position.
- - FOCUS ON CONSUMPTION-DRIVEN MARKETING STRATEGY -- To enhance its ability to
leverage its brand equity, 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 the
distribution of free-standing coupon inserts, and has established clearly
differentiated product positioning that emphasizes the Company's premium
quality. The Company increased spending on consumer promotions from $12
million in fiscal 1996 to $46 million in fiscal 1997 and anticipates that its
consumer spending in fiscal 1998 and 1999 will be generally consistent with
levels of consumer spending in fiscal 1997. The Company has also improved the
effectiveness of its trade promotion strategy. The Company has implemented
performance-based programs under which trade spending, which consists of the
costs of promotional activities with grocery chains and other customers, such
as special displays, discounts and advertisements, is managed based on
retailers' sales of the Company's products to consumers rather than on
purchases 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.
3
<PAGE> 10
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
emphasizing new higher margin products and line extensions designed to
leverage the Company's presence in its current product categories and to
capitalize on its food technology expertise. The Company has successfully
introduced flavored diced tomatoes, two lines of flavored canned fruit,
Orchard Select, a premium fruit product packaged in glass, and Fruit Smoothie
Blenders, a flavored fruit drink. These products extend the Company's
traditional product lines and appeal to consumers' demands 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 -- Changes in the
retail grocery environment have resulted in substantial growth of alternative
retailers such as warehouse clubs, mass merchandisers and supercenters. 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. In addition, vendors in this category generally are
attracted to large, technologically sophisticated suppliers such as the
Company that have the ability to meet their stringent inventory and shelf
management requirements. Based on internal estimates and the broad range of
products supplied by the Company to such retailers, the Company believes it is
currently the leading supplier of canned vegetables and fruit to Wal-Mart's
Sam's Club, and is a major supplier to PriceCostco. Based on such estimates,
the Company also believes it is currently the leading supplier of canned
vegetables, fruit and solid tomato products as a group to 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 (as
defined below)) from 6.9% in 1995 to 10.2% in 1997 and 10.0% for the nine
months ended March 31, 1998. Management's strategy is to improve profitability
through the implementation of capital projects that offer rapid returns on
investment, and through plant consolidations and increased operating
efficiencies. The Company has announced 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. The Company continually evaluates its
production facilities and believes that further consolidations may be
warranted in the future. In addition, the Company plans to continue to invest
in new, state-of-the-art production equipment to increase production
efficiencies and strengthen its position as a low cost producer.
- - COMPLETE STRATEGIC ACQUISITIONS -- The Company will pursue strategic
acquisitions when there are opportunities to leverage 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 in new 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 also recently
announced an agreement with Nabisco, Inc. ("Nabisco") to reacquire rights to
the Del Monte brand in South America and to purchase Nabisco's canned fruits
and vegetables business in Venezuela (the "Del Monte South America
Acquisition"). See "Recent Developments." 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. With the
exception of the Del Monte South America Acquisition, 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 defined herein). 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.
4
<PAGE> 11
Following the Offering, TPG Partners, L.P. ("TPG Partners") and certain of
its affiliates (with TPG Partners, "TPG") will own approximately 46.7% of the
Common Stock (approximately 43.0% if the U.S. Underwriters' overallotment option
is exercised in full) and will have the power to influence substantially and
possibly to control the management and policies of the Company, as well as the
determination of matters requiring stockholder approval. TPG is part of Texas
Pacific Group, which was founded by David Bonderman, James G. Coulter and
William S. Price, III 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.
Del Monte, a Delaware corporation, maintains its principal executive office
at One Market, San Francisco, California 94105, and its telephone number is
(415) 247-3000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company.............................................. 14,706,000 shares
The Selling Stockholders................................. 4,412,000 shares
Total................................................. 19,118,000 shares(1)
Common Stock offered in:
United States offering................................... 15,295,000 shares
International offering................................... 3,823,000 shares
Total................................................. 19,118,000 shares(1)
Common Stock to be outstanding after the Offering.......... 50,196,461 shares(1)
Use of proceeds............................................ Del Monte intends to use the net
proceeds from the Offering to repay or
redeem certain outstanding
indebtedness and preferred stock.
The Company will not receive any of
the proceeds from the sale of shares
of Common Stock by the Selling
Stockholders. See "Use of Proceeds."
Proposed New York Stock Exchange and Pacific Exchange
symbol................................................... DLM
Risk factors............................................... For a discussion of certain risks that
should be considered by prospective
investors, 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>
- ---------------
(1) Assumes the U.S. Underwriters' overallotment option is not exercised.
5
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
In April 1997, the Company completed the Recapitalization. The cash funding
requirements for the Recapitalization aggregated $809 million and were funded
primarily through a combination of an equity investment by TPG and certain other
investors, bank financing and other indebtedness. See "Description of Certain
Indebtedness" and Notes D and E to the audited consolidated financial statements
of the Company as of and for the year ended June 30, 1997 appearing elsewhere
herein.
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, and therefore a reduction in
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. The Contadina Acquisition was accounted
for 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
presented below as of June 30, 1995, 1996 and 1997 and for the years then ended
and as of March 31, 1998 and for the nine months then ended were derived from
the audited consolidated financial statements of the Company. The summary
historical consolidated financial data presented below as of March 31, 1997 and
for the nine months then ended was derived from the unaudited interim financial
statements of the Company. Such historical financial information should be read
in conjunction with the consolidated financial statements of the Company and the
related notes thereto included elsewhere in this Prospectus. The unaudited pro
forma statements of operations information was prepared by the Company as if the
Contadina Acquisition, the Recapitalization and related financings had occurred
as of July 1, 1996 and should be read in conjunction with the pro forma
financial information set forth under "Unaudited Pro Forma Financial Data." The
unaudited pro forma statements of operations information does not purport to
represent what the Company's results of operations actually would have been if
the Contadina Acquisition and the Recapitalization had occurred as of the date
indicated or what such results will be for any future periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
---------------------------------------------- -------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
-------------------------------- ----------- ----------------------- -----------
1995 1996 1997 1997 1997 1998 1998
------ ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<CAPTION>
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales(a)............................. $1,527 $1,305 $1,217 $ 1,373 $936 $ 968 $ 1,060
Cost of products sold(a)................. 1,183 984 819 953(b) 634 655(b) 726(b)
------ ------ ------ ---------- ---- ---------- ----------
Gross profit............................. 344 321 398 420 302 313 334
Selling, advertising, administrative and
general expense(a)..................... 264 239 327(c) 361 235 249 274
Acquisition expenses..................... -- -- -- -- -- 7 7
------ ------ ------ ---------- ---- ---------- ----------
Operating income......................... 80 82 71 59 67 57 53
Interest expense......................... 76 67 52 93 37 58 72
Loss (gain) on sale of divested
assets(d).............................. -- (123) 5 5 5 -- --
Other (income) expense(e)................ (11) 3 30 30 -- (1) (1)
------ ------ ------ ---------- ---- ---------- ----------
Income (loss) before income taxes,
minority interest, extraordinary item
and cumulative effect of accounting
change................................. 15 135 (16) (69) 25 -- (18)
Provision for income taxes............... 2 11 -- -- 2 -- --
Minority interest in earnings of
subsidiary............................. 1 3 -- -- -- -- --
------ ------ ------ ---------- ---- ---------- ----------
Net income (loss) before extraordinary
item and cumulative effect of
accounting change...................... 12 121 (16) (69) 23 -- (18)
Extraordinary loss(f).................... 7 10 42 42 4 -- --
Cumulative effect of accounting
change(g).............................. -- 7 -- -- -- -- --
------ ------ ------ ---------- ---- ---------- ----------
Net income (loss)........................ 5 104 (58) (111) 19 -- (18)
Preferred stock dividends................ 71 82 70 5 70 4 4
------ ------ ------ ---------- ---- ---------- ----------
Net income (loss) attributable to common
shares(h).............................. $ (66) $ 22 $ (128) $ (116) $(51) $ (4) $ (22)
====== ====== ====== ========== ==== ========== ==========
Net loss per common share................ $ (3.37) $ (0.12) $ (0.65)
Weighted average number of shares
outstanding............................ 34,477,560 30,389,671 34,646,160
</TABLE>
6
<PAGE> 13
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
---------------------------------------------- -------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
-------------------------------- ----------- ----------------------- -----------
1995 1996 1997 1997 1997 1998 1998
------ ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<CAPTION>
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CERTAIN DATA AS ADJUSTED FOR THE
OFFERING:(i)
Interest expense(j)...................... $ 71 $ 54
Net income (loss)........................ (89) --
Net income (loss) per common share....... (1.77) 0.00
Weighted average number of shares
outstanding............................ 50,196,461 50,196,461
OTHER DATA:
Adjusted EBITDA (k)...................... $ 76 $ 92 $ 119 $ 85 $ 97
Adjusted EBITDA margin (k)............... 6.9% 8.6% 10.2% 9.5% 10.0%
Cash flows provided by operating
activities............................. $ 63 $ 60 $ 25 $ 26 $ 9
Cash flows provided by (used in)
investing activities................... (21) 170 37 39 (205)
Cash flows provided by (used in)
financing activities................... (44) (224) (63) (65) 195
Depreciation and amortization(l)......... 35 26 24 $ 30 18 20 $ 23
Capital expenditures..................... 24 16 20 30 12 15 20
SELECTED RATIOS:
Ratio of earnings to fixed charges(m).... 1.2x 2.8x -- -- 1.5x 1.0x --
Deficiency of earnings to cover fixed
charges(m)............................. -- -- $ 16 $ 69 -- -- $ 18
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------------------------------- ----------------------------------------
AS
ACTUAL ACTUAL ADJUSTED(I)
-------------------------------- ----------------------- --------------
1995 1996 1997 1997 1998 1998
------ ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 99 $ 209 $ 118 $ 186 $ 220 $ 168
Total assets........................................ 960 736 667 739 928 914
Total debt, including current maturities............ 576 373 610 310 770 608
Redeemable preferred stock.......................... 215 213 32 213 32 --
Stockholders' deficit............................... (393) (288) (398) (243) (354) (163)
</TABLE>
Note: Financial data under the columns marked "restated" reflect the information
from the Company's restated financial statements.
- ---------------
(a) In fiscal 1997, merchandising allowances primarily relating to in-store
displays, store advertising and store coupons, which previously were
recorded as cost of products sold, have been reclassified to selling
expense. Such merchandising allowances totaled $106 million, $100 million,
$143 million and $101 million in the fiscal years ended June 30, 1995,
1996 and 1997 and the nine months ended March 31, 1997, respectively. In
addition, certain military distributor allowances, which previously were
treated as a reduction in net sales, have been reclassified to selling
expense. Such military distributor allowances amounted to $1 million, $1
million, $2 million and $2 million in fiscal years ended June 30, 1995,
1996 and 1997 and the nine months ended March 31, 1997, respectively. All
financial information has been restated to conform to this presentation.
(b) For the pro forma fiscal year ended June 30, 1997 and the historical nine
months ended March 31, 1998, includes $4 million and $2 million,
respectively, of inventory step-up as part of the purchase price
allocation relating to the Contadina Acquisition. For the pro forma nine
months ended March 31, 1998, excludes $2 million of inventory step-up as
part of the purchase price allocation relating to the Contadina
Acquisition.
(c) In connection with the Recapitalization, which was consummated on April
18, 1997, expenses of approximately $25 million were incurred primarily
for management incentive payments and, in part, for severance payments.
(d) In November 1995, the Company sold its pudding business for $89 million,
net of $4 million of related transaction fees. The sale resulted in 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, net of $2 million of related transaction fees. The sale
resulted in a gain of $52 million. In the fiscal quarter ended December
1996, the Company sold its Mexican, Central American and Carribean
subsidiaries (collectively "Del Monte Latin America"). The combined sales
price of $50 million,
7
<PAGE> 14
reduced by $2 million of related 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 1995, other income includes the Company's receipt of proceeds of
a $30 million letter of credit, reduced by $4 million of related
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, $22 million
of expenses were incurred in conjunction with the Recapitalization,
primarily for legal, investment advisory and management fees.
(f) 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, capitalized debt issue costs of $7
million were written off and accounted for 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, $42 million
of expenses related to the early retirement of debt and to the
Recapitalization was charged to net income. In September 1996, the Company
repurchased outstanding debt, in conjunction with which capitalized debt
issue costs of $4 million, net of a discount on such debt, were written
off and accounted for as an extraordinary loss. 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 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 SFAS No. 121 resulted in a charge to fiscal
1996 net earnings of $7 million.
(h) 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.
(i) Adjusted to give effect to the issuance by the Company of 14,706,000
shares offered hereby assuming an initial public offering price of $17.00
per share, the use of net proceeds therefrom and the Refinancing (as
defined herein) to fund the repayment of $257 million of long-term debt
and the redemption of preferred stock and a corresponding reduction in
fixed charges at the beginning of the respective 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 the Offering and the
Refinancing.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 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..................... 7.82% $267 $20 7.68% $262 $15
Tranche A of Term Loan Facility............... 7.82 150 12 8.13 135 9
Tranche B of Term Loan Facility............... 8.57 150 13 8.61 149 10
DMC Notes..................................... 12.25 98 12 12.25 98 9
Del Monte Notes............................... 12.50 84 11 12.50 94 9
--- ---
Pro forma interest expense.................. 68 52
Pro forma amortization of deferred financing
costs....................................... 3 2
--- ---
Total pro forma interest expense............ $71 $54
=== ===
</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.
(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
8
<PAGE> 15
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. Adjusted EBITDA should not be
considered in isolation from, and 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 of
one-time charges or credits. For fiscal 1995, Adjusted EBITDA excludes $26
million received in connection with a terminated transaction, $4 million
paid by the Company to terminate its alliance with PCP (as defined herein)
and $7 million related to the termination of a management equity plan. 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 the nine months ended March 31, 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 the nine months ended March 31,
1998 also include $7 million of expenses incurred in connection with the
Contadina Acquisition and $2 million of inventory step-up due to the
purchase price allocation related to the Contadina Acquisition. Adjusted
EBITDA margin is calculated as Adjusted EBITDA as a percentage of net
sales (excluding net sales of Divested Operations of $417 million, $233
million and $48 million for the years ended June 30, 1995, 1996 and 1997,
respectively, and $43 million for the nine months ended March 31, 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 1995, 1996 and 1997.
Depreciation and amortization exclude amortization of $4 million and $3
million of deferred debt issuance costs in the nine-month periods ended
March 31, 1997 and 1998, respectively. Pro forma depreciation and
amortization exclude amortization of $5 million and $3 million of pro
forma deferred debt issuance costs for fiscal 1997 and for the nine-month
period ended March 31, 1998, respectively.
(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.
9
<PAGE> 16
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, and summary financial data for the nine
months ended September 30, 1996 and 1997.
Contadina was not operated 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, the period ended December 18, 1997, and the nine-month periods ended
September 30, 1996 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JANUARY 1, 1997 SEPTEMBER 30,
YEAR ENDED THROUGH --------------
DECEMBER 31, 1996 DECEMBER 18, 1997 1996 1997
----------------- ----------------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.................................. $160 $162 $112 $108
Cost of products sold(a)................... 151 163 108 112
---- ---- ---- ----
Gross margin.......................... 9 (1) 4 (4)
Selling, advertising, administrative
and general expense(b)................... 20 26 19 19
---- ---- ---- ----
Operating loss............................. (11) (27) (15) (23)
Interest expense(c)........................ 6 6 4 4
---- ---- ---- ----
Net loss before taxes................. $(17) $(33) $(19) $(27)
==== ==== ==== ====
OTHER DATA:
Depreciation and amortization.............. $ 12 $ 13 $ 8 $ 8
Capital expenditures....................... 10 8 7 7
</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 and $3
million for each of the nine-month periods ended September 30, 1996 and
1997. Under a royalty agreement with Nestle S.A., royalties were charged
for the license of the Contadina trademarks. This expense will not be
incurred as part of the on-going operations of Contadina subsequent to the
date of the Contadina Acquisition. 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, $7 million, $5 million and $5 million for the year ended December
31, 1996, the period ended December 18, 1997, and the nine-month periods
ended September 30, 1996 and 1997, respectively. The Company believes that,
as part of on-going operations of Contadina subsequent to the Contadina
Acquisition, 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, advertising, 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, the period ended December 18, 1997, and the nine-month
periods ended September 30, 1996 and 1997, allocated marketing expense was
$8 million, $10 million, $7 million and $8 million, respectively. 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, $10
million, $7 million and $8 million for the year ended December 31, 1996,
the period ended December 18, 1997, and the nine-month periods ended
September 30, 1996 and 1997, respectively.
(c) Represents an allocation charged to Contadina by Nestle based on the
end-of-month working capital balance at an intercompany rate equal to 7%
for all periods.
10
<PAGE> 17
RISK FACTORS
Before purchasing the shares of Common Stock offered hereby, a prospective
investor should carefully consider all of the information in this Prospectus,
including the risk factors set forth below.
CONSEQUENCES TO HOLDERS OF COMMON STOCK OF COMPANY'S SUBSTANTIAL LEVERAGE
The Company is highly leveraged. On a pro forma basis, as of March 31,
1998, after giving effect to the application of the net proceeds of the Offering
and the Refinancing, the Company had approximately $1.1 billion of indebtedness
(including trade payables), and its stockholders' deficit was $163 million. This
amount includes, after giving effect to the application of the net proceeds of
the Offering, $82 million of notes issued in December 1997 in connection with
the Contadina Acquisition as to which the Company is concurrently making a
public exchange offer in which holders may exchange such notes for registered
debt securities with substantially identical terms. In addition, subject to the
restrictions contained in the Company's indebtedness, the Company and its
subsidiaries may incur additional senior or other indebtedness from time to time
to finance acquisitions or capital expenditures or for other general corporate
purposes. As a result of seasonal working capital requirements, the Company's
borrowings fluctuate significantly during the year, generally peaking in
September and October. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to the holders of the Common Stock, including, but not limited to,
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be impaired; (ii) a significant portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Company for its operations; (iii) significant amounts of the Company's
borrowings will be at variable rates of interest, which could result in higher
interest expense; (iv) the terms of the Company's indebtedness contain financial
and/or restrictive covenants, the failure to comply with which may result in an
event of default which, if not cured or waived, could have a material adverse
effect on the Company; (v) the Company may be substantially more leveraged than
certain of its competitors, which may place the Company at a competitive
disadvantage; and (vi) the Company's substantial degree of leverage may limit
its flexibility to adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a downturn in
general economic conditions or its business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Certain Indebtedness."
The Company's ability to make scheduled payments or to refinance its debt
obligations will depend upon its future financial and operating performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, certain of which are beyond its control. There can be no
assurance that the Company's operating results, cash flow and capital resources
will be sufficient for payment of its indebtedness in the future. In the absence
of such operating results and resources, the Company could face substantial
liquidity problems and might be required to dispose of material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that the Company could
realize therefrom. In addition, because the Company pays interest on certain of
its indebtedness at floating rates, an increase in interest rates could
adversely affect, among other things, the Company's ability to meet its debt
service obligations. If the Company is unable to service its indebtedness, it
will be forced to adopt an alternative strategy that may include actions such as
reducing or delaying planned expansion and capital expenditures, selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all.
COMPETITION
While many companies compete in the domestic canned vegetable, fruit and
tomato product categories, only a small number of well-established companies
operate on both a national and a regional basis with single
11
<PAGE> 18
or multiple branded product lines. The Company faces substantial competition
throughout its product lines from these and other companies. Certain of these
competitors have greater financial resources and flexibility than the Company.
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. While no single private label
competitor has greater market share than the Company in its principal product
categories, for the 52 weeks ended March 28, 1998, private label competition as
a group represented 43.8%, 39.7% and 30.7% of canned vegetable, fruit and solid
tomato product sales, respectively. Furthermore, the Company cannot predict the
pricing or promotional actions by its competitors or their effects on the
Company's ability to market and sell its products. There can be no assurance
that the Company's sales volume or market shares would not be adversely affected
by negative consumer reaction to its higher prices. The categories of the canned
food industry in which the Company competes have in the past been affected by
processing over-capacity. Although the Company believes that recent
consolidation among certain participants in those categories may result in
capacity rationalization, there can be no assurance that the Company's results
will not be adversely affected by industry over-capacity in the future or that
crop supply levels will not change so as to create an imbalance of supply and
demand in future periods.
RISKS RELATING TO IMPLEMENTATION OF BUSINESS STRATEGY
The Company's ability to implement its business strategy and improve its
operating results will depend in part on its ability to realize substantial cost
savings through operating efficiencies and to achieve additional penetration and
market share for its high margin products. No assurance can be given that the
Company will be able to achieve such goals or that, in implementing cost saving
measures, it will not impair its ability to respond rapidly or efficiently to
changes in the competitive environment. In such circumstances, the Company's
results of operations and financial condition could be materially adversely
affected.
The Company's strategy also depends on its ability to increase distribution
of its products through warehouse clubs, such as Wal-Mart's Sam's Clubs and
PriceCostco, and mass merchandisers, such as Wal-Mart Supercenters. The Company
does not enter into long-term agreements with these entities, which make
purchases depending on their inventory levels. If the Company's relationship
with any of these entities should deteriorate, such entity could immediately
cease purchases of the Company's products. The loss of such sales and resulting
possible adverse market perception could materially adversely affect the
Company's results of operations and financial condition.
Although the Company intends to pursue strategic acquisitions, completion
of any 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. There can be
no assurance as to whether, or the terms on which, the lenders under the Bank
Financing would grant such consent. In addition, to the extent that the Company
completes strategic acquisitions, it will be subject to risks associated with
the integration of the acquired businesses into the Company's operations,
including the integration of personnel, production and financial and information
systems. The timing and number of acquisitions could increase the difficulty in
addressing these risks. Failure of the Company to integrate any acquired
business adequately could adversely affect the Company's results of operations
and financial condition.
RISKS RELATING TO CONTADINA
Contadina was not operated 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. Financial information presented herein
concerning Contadina has of necessity required estimation by the Company, and no
assurance can be given that results of the acquired business for these periods,
if the business had been operated as an independent entity, would not vary
materially.
The Contadina Acquisition has been accounted for using the purchase method.
This accounting treatment requires all purchased assets to be recorded on the
Company's books based upon their fair value.
12
<PAGE> 19
Accordingly, the inventory of Contadina acquired in the Contadina Acquisition
was recorded on the Company's books at fair value (generally higher than the
recorded cost). The Company expects to report a lower gross margin upon future
sales of the revalued inventory.
The full benefits of the acquisition of Contadina's assets will require
coordination of operations, the implementation of appropriate operational,
financial and management systems and controls in order to operate effectively
and efficiently, and the integration of the Contadina business into the
Company's administrative, finance and marketing organizations. This will require
substantial attention from the Company's management team. The diversion of
management attention, as well as any other difficulties which may be encountered
in the transition and integration process, could have an adverse impact on the
revenue and operating results of the Company. In addition, there can be no
assurance that the Company will be successful in integrating the operations of
Contadina, or that any planned benefits will be realized.
SEVERE WEATHER CONDITIONS AND NATURAL DISASTERS
Severe weather conditions and natural disasters, such as floods, droughts,
frosts, earthquakes or pestilence, may affect the supply of one or more of the
Company's products. For example, the Company's peach and pear growing regions
experienced a compressed summer 1997 harvesting season due to adverse weather.
This shortened time frame for harvesting caused an increase in the use of cold
storage for peaches and pears until processing capacity became available. In
addition, smaller fruit size lowered raw product recoveries and cooler weather
than normal resulted in late plantings for some vegetables, lower field yields
and lower recoveries. Furthermore, competing manufacturers of canned vegetable,
fruit or tomato products may be affected differently depending on the location
of their principal sources of supply. If the supply of any of the Company's
products is adversely affected by weather conditions, there can be no assurance
that the Company will be able to obtain sufficient supplies from other sources.
In particular, the Company's tomato and fruit production is concentrated in the
San Joaquin Valley of California. In the winter and spring of 1997-98, certain
areas in California, including some of the Company's growing regions, have
experienced substantial rainfall as a result of the "El Nino" phenomenon. The
Company believes that the 1998 California fruit and tomato harvests and raw
product recoveries are likely to be somewhat reduced as a result of these
weather conditions and that the Company is likely to incur increased cost of
products sold. Such circumstances may also adversely affect the Company's sales
volumes and inventory levels. Historically, significant weather-related
shortages in fruit, vegetable and tomato harvests have resulted in price
increases that have offset increases in raw product costs and reductions in
sales volumes. While the Company believes that the overall effects of the El
Nino phenomenon will not be material to its financial condition and results of
operations, no assurance can be given that the Company will be able to achieve
price increases sufficient to offset any reduction in sales volume or increase
in its cost of products sold.
SEASONALITY OF PRODUCTION AND SALES
The Company is not a continuous manufacturer, but has a production period
that is limited to approximately three to four months during the summer each
year. As a result, the Company's working capital requirements are also seasonal
and are most significant in the first and second fiscal quarters. If the Company
were to experience an unexpected plant shutdown or any other interference with
its production schedule, the Company's results of operations and financial
condition could be materially adversely affected.
The Company's historical net sales have exhibited seasonality, with the
second and third fiscal quarters having the highest net sales, principally due
to increased sales during the holiday period in the United States extending from
November through December, as well as in anticipation of the Easter holiday. Net
sales in the first fiscal quarter have historically been affected principally by
lower levels of promotional activity and the availability of fresh produce.
Although the Company believes that these seasonal fluctuations are relatively
predictable and that the Company's sources of liquidity are adequate to ensure
the availability of working capital, there can be no assurance that seasonal
trends in the Company's business will not adversely affect the Company's results
of operations or financial condition in the future.
13
<PAGE> 20
DIFFICULTY IN COMPLYING WITH GOVERNMENTAL REGULATIONS; LIABILITIES ASSOCIATED
WITH ENVIRONMENTAL COMPLIANCE
As a result of its agricultural, food processing and canning activities,
the Company is subject to certain 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 can
be no assurance that such will be the case or that the Company will not be
identified as a PRP at additional sites in the future or that additional
remediation requirements will not be imposed on properties currently or
previously owned or operated by the Company. In addition, there can be no
assurance that other sites to which the Company has sent waste will not be
identified for investigation or proposed for listing under CERCLA or similar
state laws. In addition, 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, and there can be no
assurance that the effect of such actions and any future actions on the
availability and use of pesticides would not have a material adverse impact on
the Company's financial position or results of operations. See
"Business -- Governmental Regulation" and "-- Environmental Compliance."
CONTROL BY TPG
After giving effect to the Offering, TPG will own approximately 46.7%
(approximately 43.0% if the U.S. Underwriters' overallotment option is exercised
in full) of the outstanding Common Stock. Following the Offering, it is expected
that TPG will continue to use its significant interest in the Common Stock to
influence substantially and possibly to control the management and policies of
the Company, as well as the determination of matters requiring stockholder
approval. See "Certain Relationships and Related Transactions" and "Description
of Capital Stock." The concentration of beneficial ownership of Del Monte may
also have the effect of delaying, deterring or preventing a change in control of
Del Monte, may discourage bids for the Common Stock at a premium over the market
price of the Common Stock and may otherwise adversely affect the market price of
the Common Stock. See "-- Anti-Takeover Provisions."
The Company currently has, and will continue to have, contractual
relationships with TPG, including a Transaction Advisory Agreement (as defined
herein) and a Management Advisory Agreement (as defined herein), each relating
to certain services to be provided by TPG to the Company. See "Certain
Relationships and Related Transactions."
RESTRICTIVE DEBT COVENANTS
The Company is subject to a number of significant covenants under its
indebtedness that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
repay other indebtedness or amend other debt instruments, pay dividends, create
liens on assets, enter into capital leases, make investments, loans or advances,
make acquisitions, engage in mergers or consolidations, make capital
expenditures, engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. In addition, under the terms of the
proposed amendment of the Bank Financing, the Company will be required to comply
with specified financial ratios and tests, minimum net worth, minimum fixed
charge coverage and maximum leverage ratios. Substantially all of the assets of
the Company have been pledged to secure the indebtedness of the Company. See
"Description of Certain Indebtedness."
Compliance with such restrictions could impair the Company's ability to
fund its capital expenditures on a timely basis. Moreover, the Company's ability
to comply with such covenants may be affected by events beyond its control,
including prevailing economic, financial and industry conditions. The breach of
any of such
14
<PAGE> 21
covenants could result in a default, which would permit the acceleration of such
indebtedness and the termination of the commitments of the Company's senior
lenders to make further extensions of credit. Such senior lenders could also
foreclose against collateral securing indebtedness owed them. If the Company's
obligations under the Bank Financing were accelerated and the lenders'
commitments terminated, the Company would be required to repay all amounts
outstanding under the Bank Financing and would have no credit facility available
to finance its seasonal working capital or other cash requirements. As a result,
particularly if lenders were to foreclose on the Company's assets, the Company's
business prospects, results of operations and financial condition would be
materially and adversely affected.
BRAND RISK
The Company has licensed the Del Monte brand name to various unaffiliated
companies internationally and, for certain products, within the United States.
The common stock and certain debt securities of one licensee, Fresh Del Monte
Produce N.V., are publicly traded in the United States. Acts or omissions by
these unaffiliated companies may adversely affect the value of the Del Monte
brand name or the trading prices for the Common Stock. In addition, press and
other third party announcements or rumors relating to any of these licensees may
adversely affect the market prices for the Common Stock and demand for the
Company's products, even though the events announced or rumored may not relate
to the Company, which in turn could materially adversely affect the Company's
results of operations and financial condition. See "Business -- Intellectual
Property."
LACK OF DIVIDENDS
Del Monte has not declared or paid any cash or other dividends on its
shares of Common Stock and does not expect to pay dividends for 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 indebtedness limit the ability
of the Company's subsidiaries to distribute to the Company any cash or other
assets, which could limit the ability of Del Monte to pay dividends to holders
of Common Stock. In addition, future borrowings by the Company's subsidiaries
can be expected to contain further restrictions or prohibitions on the payment
of dividends by such subsidiaries to Del Monte. See "Dividend Policy" and
"Description of Certain Indebtedness."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and although application has been made to list the Common Stock on the
New York Stock Exchange, there can be no assurance that an active trading market
for the Common Stock will develop or be sustained if it develops or that the
market price for the Common Stock will not decline below the public offering
price set forth on the cover page of this Prospectus. The initial public
offering price of the Common Stock will be determined by negotiation between the
Company, the Selling Stockholders and the Underwriters and may not be indicative
of the market price of the Common Stock following the Offering. See
"Underwriters." The market price of the Common Stock could be subject to
significant fluctuations in response to various factors and events, including
the liquidity of the market for the Common Stock, differences between the
Company's actual financial or operating results and those expected by investors
and analysts, changes in analysts' recommendations or projections, pricing and
competition in the canned fruit and vegetable industry, new statutes or
regulations or changes in interpretations of existing statutes and regulations
affecting the Company's business, changes in general market conditions and broad
market fluctuations.
DILUTION; BENEFIT TO EXISTING STOCKHOLDERS
The assumed initial public offering per share price of the Common Stock is
$17.00 (the midpoint of the range specified on the cover page of this
Prospectus), and the deficit in net tangible book value per share of Common
Stock at March 31, 1998 was $(10.43). Purchasers of Common Stock in the Offering
will experience immediate and substantial dilution of $20.27 per share of Common
Stock from the initial public offering price, and the deficit in net tangible
book value per share of Common Stock after the Offering will be $(3.27) per
share. See "Dilution."
15
<PAGE> 22
As part of its business strategy, the Company continuously reviews
acquisition opportunities. Although the Company anticipates that any acquisition
would be funded with debt, the Company could elect to pay a portion of the
consideration for an acquisition in shares of the Common Stock. Depending on the
terms of the transaction, the issuance of additional Common Stock could result
in dilution to existing holders of the Common Stock, including purchasers of the
Common Stock in the Offering.
POTENTIAL ADVERSE IMPACT ON STOCK PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Following the Offering, Del Monte will have outstanding 50,196,461 shares
of Common Stock (assuming no exercise of the U.S. Underwriters' overallotment
option). Of these, the 19,118,000 shares offered hereby will be freely
transferable by persons other than "affiliates" of the Company without
restriction or further registration under the Securities Act. Substantially all
of the remaining 31,078,461 outstanding shares of Common Stock will be owned by
TPG and certain other current stockholders of Del Monte and will be "restricted
securities." These "restricted" shares of Common Stock 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, or in the private institutional market, subject to
compliance with the requirements of Rule 144A under the Securities Act. Future
sales of shares of Common Stock by TPG or such other stockholders or the
perception that such sales could occur, could adversely affect prevailing market
prices for the shares of Common Stock. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS
Certain provisions of Del Monte's Certificate of Incorporation (the
"Certificate of Incorporation") and bylaws, including the provisions providing
for (i) the issuance of blank check preferred stock by the Board of Directors
without stockholder approval; (ii) classification of the Board of Directors;
(iii) a requirement that general meetings of stockholders be called only by a
majority of the Board of Directors or by the Chairman of the Board; (iv) a
prohibition on stockholder action through written consents; and (v) advance
notice requirements for stockholder proposals and nominations, may have the
effect of delaying, deferring or preventing a change of control of Del Monte
without further action by the stockholders, may discourage bids for the Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of, and the voting and other rights of the holders of,
the Common Stock. See "Description of Capital Stock -- Certain Certificate of
Incorporation and Bylaw Provisions."
In addition, the indentures relating to certain indebtedness of the Company
provide that upon the occurrence of a change of control (in each case, as
defined therein), each holder of such notes will, under certain circumstances,
have the right to require that the Company repurchase all of such holder's notes
in cash at a premium to the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of such repurchase. In addition, a change
of control would constitute an event of default under the Company's proposed
amendment and restatement of the Bank Financing, which could have a material
adverse effect on the Company. These provisions could delay, deter or prevent a
takeover attempt. See "Description of Certain Indebtedness."
16
<PAGE> 23
RECENT DEVELOPMENTS
On July 14, 1998, the Company announced an agreement with Nabisco to
reacquire rights to the Del Monte brand in South America and to purchase
Nabisco's canned fruits and vegetables business in Venezuela. The Venezuela
business, with 1997 sales of $17 million, includes Venezuela's largest processed
fruit, vegetable and specialty products operation. 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 1989. See "Corporate
History."
USE OF PROCEEDS
Assuming an initial public offering price of $17.00 per share, the net
proceeds to Del Monte from its sale of shares of Common Stock in the Offering
(after deducting applicable underwriting discounts and commissions and estimated
offering expenses payable by Del Monte) are estimated to be approximately $230
million (approximately $252 million if the U.S. Underwriters' overallotment
option is exercised in full). The Company will not receive any of the net
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
Del Monte intends to use the net proceeds of the Offering and $60 million from
its Revolving Credit Facility (as defined herein) as follows: (i) approximately
$129 million to repay indebtedness under its senior secured term loan facility
(the "Term Loan Facility"); (ii) $46 million to redeem a portion of its senior
discount notes (the "Del Monte Notes"), including $2 million of accrued
interest; (iii) $61 million to redeem a portion of its senior subordinated notes
(the "DMC Notes"), including $9 million of accrued interest; (iv) $41 million to
redeem its Series A Redeemable Preferred Stock (the "Series A Preferred Stock"),
including $3 million of unamortized discount, $5 million of accreted dividends
and $1 million of redemption premium; and (v) $13 million to pay certain
repayment and redemption premiums in connection with the redemption of the Del
Monte Notes and the DMC Notes. The Term Loan Facility, the Del Monte Notes and
the DMC Notes mature and bear interest at the rates specified under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Financing Activities -- 1997
Activity -- Bank Financing" and "Description of Certain Indebtedness." The net
proceeds from the issuance of the Del Monte Notes were used by the Company to
finance a portion of the Contadina Acquisition.
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 therefor. Del Monte has not declared or paid any
cash or other dividends on its shares of 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 -- Lack of Dividends" and "Description of Certain Indebtedness."
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<PAGE> 24
CAPITALIZATION
The following table sets forth the actual unaudited capitalization of the
Company at March 31, 1998 and as adjusted to give effect to the sale of
14,706,000 shares of Common Stock by the Company, assuming an initial public
offering price of $17.00 per share, and the application of the estimated net
proceeds to be received by 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 consolidated financial
statements and the notes thereto of the Company included herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED
------ --------------
(IN MILLIONS)
<S> <C> <C>
Total debt:
Revolving Credit Facility(1).............................. $ 68 $131
Term Loan Facility........................................ 429 300
12 1/4% Senior Subordinated Notes of DMC(2)............... 147 95
12 1/2% Senior Discount Notes of Del Monte(3)............. 126 82
---- ----
Total debt............................................. 770 608
---- ----
Redeemable Preferred Stock(4)............................... 32 --
Stockholders' equity:
Common Stock, $.01 par value; 1,000,000 shares authorized
and 182,431 shares issued and outstanding, actual; and
500,000,000 shares authorized and 50,196,461 shares
issued and outstanding, as adjusted(5)(6).............. -- --
Paid-in capital........................................... 173 403
Retained deficit(7)....................................... (527) (566)
---- ----
Total stockholders' deficit............................ (354) (163)
---- ----
Total capitalization.............................. $448 $445
==== ====
</TABLE>
- ---------------
(1) The total capacity under the Revolving Credit Facility as of March 31, 1998
was $350 million. See "Description of Certain Indebtedness." The amount, as
adjusted, reflects $63 million of additional borrowings under the Revolving
Credit Facility, including $3 million to pay fees incurred in connection
with the Refinancing.
(2) Excludes $9 million of accrued interest payable.
(3) Excludes $2 million of accrued interest payable.
(4) Net of unamortized discount of $3 million and excludes accreted dividends
aggregating approximately $5 million as of March 31, 1998.
(5) Excludes 1,838,995 shares reserved for issuance pursuant to the Company's
management share option plan. See "Management" and "Description of Capital
Stock."
(6) The actual number of shares of Common Stock at March 31, 1998 does not
reflect the 191.542-for-one stock split of the existing shares of Common
Stock or the increase in the number of authorized shares of Common Stock to
500 million shares.
(7) As adjusted reflects a $16 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, $5 million in
dividends paid, $3 million write-off of unamortized discount relating to the
preferred shares redeemed and $1 million in other expenses incurred in the
Refinancing.
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<PAGE> 25
DILUTION
The deficit in net tangible book value of the Company at March 31, 1998 was
approximately $(370) million or $(10.43) per share of Common Stock. Without
taking into account any changes in the deficit in net tangible book value
attributable to operations after March 31, 1998, after giving effect to the sale
of the shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $17.00 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 March 31, 1998
would have been $(164) million, or $(3.27) per share of Common Stock (assuming
no exercise of the U.S. Underwriters' overallotment option). This represents an
immediate reduction in the deficit in net tangible book value of $7.16 per share
of Common Stock to the existing stockholders, including TPG, and an immediate
dilution of $20.27 per share of Common Stock to new investors in shares of
Common Stock in the Offering. The following table illustrates such per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $17.00
Deficit in net tangible book value per share of Common Stock
before the Offering(1).................................... (10.43)
Reduction in deficit in net tangible book value per share of
Common Stock attributable to new investors(2)............. 7.16
-------
Pro forma deficit in net tangible book value per share of
Common Stock after the Offering........................... (3.27)
------
Dilution per share to new investors(3)...................... $20.27
======
</TABLE>
- ---------------
(1) Deficit in net tangible book value per share is determined by dividing the
Company's audited net deficit in tangible book value (total tangible assets
less total liabilities) of approximately $(370) million at March 31, 1998 by
the aggregate number of shares of Common Stock outstanding at March 31,
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.
19
<PAGE> 26
UNAUDITED PRO FORMA FINANCIAL DATA
On April 18, 1997, the Company completed the Recapitalization. In
connection with the Recapitalization, the Company repaid substantially all of
its funded debt obligations existing immediately before the Recapitalization. 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, and therefore a reduction in
the purchase price to a total of $195 million. The following Unaudited Pro Forma
Statements of Operations were prepared by the Company as if the Contadina
Acquisition, the Recapitalization and related financings had occurred as of July
1, 1996. The Unaudited Pro Forma Statements of Operations do not purport to
represent what the Company's results of operations actually would have been if
the Contadina Acquisition and the Recapitalization had occurred as of the dates
indicated or what such 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 and the
accompanying notes thereto appearing elsewhere in this Prospectus.
Contadina was not operated 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, the period ended December 18, 1997 and the nine-month periods ended
September 30, 1996 and 1997. Due to the limited information available to the
Company, the Company has prepared the Unaudited Pro Forma Statement of
Operations for the year ended June 30, 1997 using Contadina historical financial
information for the 12-month period ended September 30, 1997 derived from the
audited financial statements for the year ended December 31, 1996 appearing
elsewhere in this Prospectus and unaudited financial data for the nine-month
periods ended September 30, 1996 and 1997 appearing under "Summary Historical
Financial Data of Contadina." The Unaudited Pro Forma Statement of Operations
for the nine-month period ended March 31, 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 nine-month
period ended March 31, 1998). Such 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 -- Risks Relating to Contadina."
20
<PAGE> 27
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
DEL MONTE CONTADINA(a)(b) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
(RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................ $ 1,217 $156 $ -- $ 1,373
Cost of products sold (excluding 819 155 (25)(c) 949
inventory step-up).................
Inventory step-up (d)................ -- -- 4 4
----------- ---- ---- -----------
Gross profit....................... 398 1 21 420
Selling, advertising, administrative 327(e) 20 14(e) 361
and general expense................
----------- ---- ---- -----------
OPERATING INCOME (LOSS).............. 71 (19) 7 59
Interest expense..................... 52 6 35(f) 93
Loss on sale of divested assets...... 5 -- -- 5
Other expense........................ 30(g) -- -- 30
----------- ---- ---- -----------
LOSS BEFORE INCOME TAXES AND (16) (25) (28) (69)
EXTRAORDINARY ITEM.................
Provision for income taxes........... -- -- -- --
----------- ---- ---- -----------
LOSS BEFORE EXTRAORDINARY ITEM....... (16) $(25) $(28) (69)
==== ====
Preferred stock dividends............ 70 5
----------- -----------
Loss before extraordinary item $ (86) $ (74)
attributable to common shares(h)...
=========== ===========
Loss before extraordinary item per $ (1.40) $ (2.16)
common share.......................
Weighted average number of shares 61,703,436 34,477,560
outstanding (i)....................
OTHER DATA:
Depreciation and amortization (j).... $ 24 $ 30
Capital expenditures................. 20 30
</TABLE>
See accompanying notes.
21
<PAGE> 28
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
---------------------------- PRO FORMA
DEL MONTE CONTADINA(a)(b) ADJUSTMENTS PRO FORMA
---------- --------------- ----------- -----------
(RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net sales..................................... $ 968 $ 92 $ -- $ 1,060
Cost of products sold......................... 655 91 (18)(c) 728
Inventory step-up(d).......................... -- -- (2) (2)
---------- ---- ---- -----------
Gross profit............................. 313 1 20 334
Selling, advertising, administrative and 249 13 12(e) 274
general expense.............................
Acquisition expenses.......................... 7 -- -- 7
---------- ---- ---- -----------
OPERATING INCOME (LOSS)....................... 57 (12) 8 53
Interest expense.............................. 58 3 11(f) 72
Other income.................................. (1) -- -- (1)
---------- ---- ---- -----------
INCOME (LOSS) BEFORE INCOME TAXES............. -- (15) (3) (18)
Provision for income taxes.................... -- -- -- --
---------- ---- ---- -----------
INCOME (LOSS)................................. -- $(15) $ (3) (18)
==== ====
Preferred stock dividends..................... 4 4
---------- -----------
Loss attributable to common shares (h)........ $ (4) $ (22)
========== ===========
Loss per common share......................... $ (0.12) $ (0.65)
Weighted average number of shares 30,389,671 34,646,160
outstanding (i).............................
OTHER DATA:
Depreciation and amortization (j)............. $ 20 $ 23
Capital expenditures.......................... 15 20
</TABLE>
See accompanying notes.
22
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The Unaudited Pro Forma Statements of Operations reflect the adjustments
for the Contadina Acquisition, the Recapitalization and related financings as if
such events had occurred as of July 1, 1996.
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, and therefore a reduction in 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, approximately $7
million of acquisition-related expenses were incurred.
The Contadina 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 that include
values based on independent appraisals and management estimates. These estimates
may be subject to adjustment to reflect actual amounts, primarily in the case of
accrued liabilities. Any subsequent adjustments are expected to occur by the
1998 fiscal year-end and are not expected to be material. Allocation of the $195
million purchase price is as follows: inventory $95 million, prepaid expenses $5
million, property, plant and equipment $84 million, intangibles $16 million and
accrued liabilities $5 million.
(a) The historical financial information for Contadina for the 12-month period
ended September 30, 1997 was derived from the audited financial statements
appearing elsewhere in this Prospectus and unaudited financial data
appearing under "Summary Historical and Financial Data of Contadina." The
historical financial data provided to the Company includes certain allocated
expenses for functions and services provided by Nestle. Such allocated
expenses are comprised of, 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 and
interest expense. The additional operating cost allocations were $25 million
and $17 million, and the interest allocations were $6 million and $3 million
for the 12-month period ended September 30, 1997 and the nine-month period
ended March 31, 1998, respectively.
(b) Represents the historical revenue and expenses of Contadina from October 1,
1996 through September 30, 1997 and July 1, 1997 through December 18, 1997
for the Unaudited Pro Forma Statements of Operations for the year ended June
30, 1997 and the nine months ended March 31, 1998, respectively. As
described in note (a) above, pro forma statement of operations data for the
12-month period ending September 30, 1997 for Contadina has been derived
using Contadina's results of operations for the nine-month periods ended
September 30, 1996 and 1997 and the year ended December 31, 1996.
Contadina's results of operations for the period from July 1, 1997 to
September 30, 1997 are accordingly presented in both the pro forma statement
of operations for the year ended June 30, 1997 and the pro forma statement
of operations for the nine months ended March 31, 1998. Net sales included
in both periods amount to $37 million, and the net loss included in both
periods is $8 million. There were no significant transactions or unusual
events occurring during the three-month period ended September 30, 1997, nor
were there any significant transactions or unusual events omitted by not
including the period from July 1, 1996 to September 30, 1996.
23
<PAGE> 30
(c) Adjustment to cost of products sold reflects the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
1997 1998
---------- ------------
(IN MILLIONS)
<S> <C> <C>
Reclassification of Contadina trade promotion
costs............................................. $(14) $(13)
Reduction in depreciation expense arising from fair
value adjustment for property, plant and equipment
acquired.......................................... (6) (2)
Elimination of royalties to Nestle S.A. for
trademark license................................. (5) (3)
---- ----
$(25) $(18)
==== ====
</TABLE>
Trade promotion costs for Contadina were reclassified from cost of products
sold to selling, advertising, general and administrative 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, advertising, general and
administrative expense which treatment is more representative of the
continuing costs associated with the use of the Contadina trademark.
(d) Represents the cost of products sold related to the sales of the inventory
acquired from Contadina which was written-up by the Company to estimated
fair value as part of the preliminary purchase price allocation relating to
the Contadina Acquisition.
(e) Adjustment to selling, advertising, administrative and general expense
reflects the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
1997 1998
---------- ------------
(IN MILLIONS)
<S> <C> <C>
Reclassification of Contadina trade promotion
costs............................................. $ 14 $ 13
Elimination of amortization of Nestle goodwill...... (1) (1)
Amortization of intangible acquired................. 1 --
---- ----
$ 14 $ 12
==== ====
</TABLE>
Selling, advertising, administrative and general expense for the year ended
June 30, 1997 includes $25 million of one-time charges incurred in
connection with the Recapitalization primarily for management incentive
payments and, in part, for severance payments.
24
<PAGE> 31
(f) Represents adjustments 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 NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 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......... 7.82% $ 220 $18 7.68% $ 228 $13
Tranche A of Term Loan Facility... 7.82 200 16 8.13 197 12
Tranche B of Term Loan Facility... 8.57 230 20 8.61 249 15
DMC Notes......................... 12.25 150 18 12.25 150 15
Del Monte Notes................... 12.50 129 16 12.50 145 14
--- ---
Pro forma interest expense...... 88 69
Pro forma amortization of deferred
financing costs................. 5 3
--- ---
Total pro forma interest
expense....................... $93 $72
=== ===
</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.
(g) For the year ended June 30, 1997, includes $22 million of one-time expenses
incurred in connection with the Recapitalization.
(h) Loss before extraordinary items attributable to common shares for the year
ended June 30, 1997, and loss attributable to common shares for the
nine-month period ended March 31, 1998, reflect the deduction for the cash
and in-kind dividends for the period on redeemable preferred stock.
(i) The weighted average number of shares outstanding reflects the
191.542-for-one stock split of the shares of Common Stock, which was
declared by Del Monte on July 22, 1998.
(j) Historical depreciation and amortization exclude amortization of $5 million
and $3 million of deferred debt issue costs for fiscal 1997 and for the
nine-month period ended March 31, 1998, respectively. Pro forma depreciation
and amortization excludes amortization of $5 million and $3 million of pro
forma deferred debt issue costs for fiscal 1997 and for the nine-month
period ended March 31, 1998, respectively.
25
<PAGE> 32
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 four-year period ended June 30, 1996 and the balance sheet
data as of June 30, 1993, 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 year ended June
30, 1997 and the nine months ended March 31, 1998, and the balance sheet data as
of June 30, 1997 and March 31, 1998, have been derived from consolidated
financial statements of the Company audited by KPMG Peat Marwick LLP,
independent auditors. The selected consolidated financial data presented below
as of March 31, 1997 and the nine months then ended was derived from the
unaudited interim financial statements of the Company. The financial data
presented below as of March 31, 1997 and for the nine 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, 1997. Operating results for the nine months ended March 31,
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 related notes and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(a).......................... $ 1,556 $ 1,500 $ 1,527 $ 1,305 $ 1,217 $ 936 $ 968
Cost of products sold(a).............. 1,213 1,208 1,183 984 819 634 655
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.......................... 343 292 344 321 398 302 313
Selling, advertising, administrative
and general expense(a).............. 286 225 264 239 327(b) 235 249
Special charges(c).................... 140 -- -- -- -- -- --
Acquisition expenses.................. -- -- -- -- -- -- 7
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)............... (83) 67 80 82 71 67 57
Interest expense...................... 68 61 76 67 52 37 58
Loss (gain) on sale of divested
assets(d)........................... (13) (13) -- (123) 5 5 --
Other (income) expense(e)............. 4 8 (11) 3 30 -- (1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes,
minority interest, extraordinary
item and cumulative effect of
accounting change................... (142) 11 15 135 (16) 25 --
Provision for income taxes............ 10 3 2 11 -- 2 --
Minority interest in earnings of
subsidiary.......................... 8 5 1 3 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary
item and cumulative effect of
accounting change................... (160) 3 12 121 (16) 23 --
Extraordinary loss(f)................. -- -- 7 10 42 4 --
Cumulative effect of accounting
change(g)........................... 28 -- -- 7 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)..................... (188) 3 5 104 (58) 19 --
Preferred stock dividends............. 52 61 71 82 70 70 4
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to
common shares(h).................... $ (240) $ (58) $ (66) $ 22 $ (128) $ (51) $ (4)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common share.... $ (2.99) $ (0.75) $ (0.85) $ 0.29 $ (2.07) $ (0.69) $ (0.12)
Weighted average number of shares
outstanding(i)...................... 80,370,353 77,915,263 76,671,294 75,047,353 61,703,436 73,332,621 30,389,671
</TABLE>
26
<PAGE> 33
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gross margin(a)........................... 22.0% 19.5% 22.5% 24.6% 32.7% 32.3% 32.3%
Adjusted EBITDA:(j)
EBIT.................................... $ (74) $ 72 $ 91 $ 202 $ 36 $ 62 $ 58
Depreciation and amortization(k)........ 59 35 35 26 24 18 20
EBITDA of Divested Operations........... (50) (39) (35) (22) -- -- --
Special charges(c)...................... 140 -- -- -- -- -- --
Asset write-down/impairment(l).......... -- 1 -- -- 7 -- --
Loss (gain) on sale of Divested
Operations(d)......................... (13) (13) -- (123) 5 5 --
Terminated transactions(m).............. -- 1 (22) -- -- -- --
Benefit costs(n)........................ -- 6 7 -- -- -- 10
Headcount reduction and relocation(o)... -- -- -- 9 -- -- --
Recapitalization
expenses(b)(e)........................ -- -- -- -- 47 -- --
Expenses of Contadina Acquisition(p).... -- -- -- -- -- -- 7
Contadina inventory
write-up(p)........................... -- -- -- -- -- -- 2
--------- --------- --------- --------- --------- -------- ----------
Adjusted EBITDA....................... $ 62 $ 63 $ 76 $ 92 $ 119 $ 85 $ 97
========= ========= ========= ========= ========= ======== ==========
Adjusted EBITDA margin(j)................. 5.4% 5.7% 6.9% 8.6% 10.2% 9.5% 10.0%
Cash flows provided by operating
activities.............................. $ 61 $ 28 $ 63 $ 60 $ 25 $ 26 $ 9
Cash flows provided by (used in) investing
activities.............................. (2) 55 (21) 170 37 39 (205)
Cash flows provided by (used in) financing
activities.............................. (55) (83) (44) (224) (63) (65) 195
Capital expenditures...................... 34 36 24 16 20 12 15
SELECTED RATIOS:
Ratio of earnings to fixed charges(q)..... -- 1.2x 1.2x 2.8x -- 1.5x 1.0x
Deficiency of earnings to cover fixed
charges(q).............................. $ 142 -- -- -- $ 16 -- --
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 92 $ 88 $ 99 $ 209 $ 118 $ 186 $ 220
Total assets.................................. 1,066 936 960 736 667 739 928
Total debt, including current maturities...... 624 569 576 373 610 310 770
Redeemable preferred stock.................... 216 215 215 213 32 213 32
Stockholders' deficit......................... (385) (384) (393) (288) (398) (243) (354)
</TABLE>
Note: Financial data under the columns marked "restated" reflect the information
from the Company's restated financial statements.
- ---------------
(a) In fiscal 1997, merchandising allowances primarily relating to in-store
displays, store advertising and store coupons, which previously were
recorded as a cost of products sold, have been reclassified to selling
expense. Such merchandising allowances totaled $113 million, $67 million,
$106 million, $100 million, $143 million and $101 million in the fiscal
years ended June 30, 1993, 1994, 1995, 1996 and 1997, and the nine months
ended March 31, 1997, respectively. In addition, certain military
distributor allowances, which previously were treated as a reduction in net
sales, have been reclassified to selling expense. Such military distributor
allowances amounted to $1 million, $1 million, $1 million, $1 million, $2
million and $2 million in fiscal years ended June 30, 1993, 1994, 1995,
1996 and 1997, and the nine months ended March 31, 1997, respectively. All
financial information has been restated to conform to this presentation.
(b) In connection with the Recapitalization, which was consummated on April 18,
1997, expenses of approximately $25 million were incurred primarily for
management incentive payments and, in part, for severance payments.
27
<PAGE> 34
(c) In June 1993, the Company recorded special charges of $140 million, which
included $115 million for permanent impairment of acquisition-related
intangible assets, including goodwill, and $25 million for facility
consolidations.
(d) The Company sold its equity investment in Del Monte International in the
fiscal quarter ended March 31, 1993 and recognized a $13 million gain. 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
related transaction fees. The sale resulted in a gain of $71 million. In
March 1996, the Company sold its 50.1% ownership interest in Del Monte
Philippines for $100 million, net of $2 million of related 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 related transaction
expenses, resulted in a loss of $5 million.
(e) In fiscal 1995, other income includes the Company's receipt of proceeds of
a $30 million letter of credit, reduced by $4 million of related
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, $22 million of
expenses were incurred in conjunction with the Recapitalization, primarily
for legal, investment advisory and management fees.
(f) 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, capitalized debt issue costs of $7 million were
written off and accounted for 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, $42 million of expenses related
to the early retirement of debt and to the Recapitalization was charged to
net income. In September 1996, the Company repurchased outstanding debt, in
conjunction with which capitalized debt issue costs of $4 million, net of a
discount on such debt, were written off and accounted for as an
extraordinary loss. 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.
(g) Effective July 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions." The Company
elected to recognize this change in accounting on the immediate recognition
basis. The cumulative effect of adopting SFAS No. 106 resulted in a charge
to fiscal 1993 net earnings of $28 million. 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.
(h) 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.
(i) For each period, the weighted average number of shares outstanding reflects
the 191.542-for-one stock split, which was declared by Del Monte on July
22, 1998.
(j) 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. Adjusted EBITDA should not be considered in isolation from, and
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
28
<PAGE> 35
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 $402
million, $399 million, $417 million, $233 million and $48 million for the
years ended June 30, 1993, 1994, 1995, 1996 and 1997, respectively, and $43
million for the nine months ended March 31, 1997).
(k) Depreciation and amortization exclude amortization of $8 million, $5
million, $5 million, $5 million and $5 million of deferred debt issuance
costs for fiscal 1993, 1994, 1995, 1996 and 1997, respectively.
Depreciation and amortization exclude amortization of $4 million and $3
million of deferred debt issuance costs in the nine-month periods ended
March 31, 1997 and 1998, respectively.
(l) 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, respectively.
(m) 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 PCP.
(n) 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 the nine months ended March 31,
1998, one-time and non-cash charges include $3 million of stock
compensation and related benefit expense and $7 million of severance and
benefit costs.
(o) In fiscal 1996, other one-time charges include $3 million for relocation
costs and $6 million of costs associated with a significant headcount
reduction.
(p) For the nine months ended March 31, 1998, one-time charges include of $7
million of acquisition-related expenses incurred in connection with the
Contadina Acquisition and $2 million of inventory step-up due to the
purchase price allocation related to the Contadina Acquisition.
(q) 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.
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<PAGE> 36
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 nine-month periods ended March 31, 1997 and 1998, and the three-year
period ended June 30, 1997. This discussion should be read in conjunction with
the unaudited consolidated financial statements for the nine-month period ended
March 31, 1997 and the audited consolidated financial statements of the Company
for the nine-month period ended March 31, 1998 and for the three-year period
ended June 30, 1997, including the notes thereto, 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.
See "Prospectus Summary -- Summary Historical Financial Data of Contadina" and
"Unaudited Pro Forma Financial Data." The Company also recently announced an
agreement with Nabisco to reacquire rights to the Del Monte brand in South
America and to purchase Nabisco's canned fruits and vegetables business in
Venezuela. See "Recent Developments."
In addition to diversifying further the Company's revenue base, the
Contadina Acquisition will expand the Company's processing scale, which the
Company believes will result in production cost efficiencies. Moreover, among
the facilities acquired by the Company is a state-of-the-art manufacturing
facility at Hanford, California. As part of its efforts to consolidate
production, tomato production at the Company's Modesto, California facility is
expected to be transferred to Hanford following the summer 1998 pack. The
Modesto facility would then be converted to a fruit processing facility and
would assume the production currently conducted at the Company's San Jose and
Stockton facilities in California, which are expected to be closed after the
summer 1999 and 2000 packs, respectively. It is anticipated 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, 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 N to the consolidated financial statements for the nine-month period ended
March 31, 1998. The Company is continuing to evaluate its production facilities
and believes that further consolidations may be appropriate. In conjunction with
the purchase price allocation relating to the Contadina Acquisition, the Company
has stepped up the value of the purchased inventory. Such step-up is estimated
to be $4 million.
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,
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<PAGE> 37
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 5.1 percentage points of market share during 1997, 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 and 0.1 of a percentage point of market share during fiscal
1997. 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. The Company plans to
continue to emphasize its status as a price leader and, in 1997, in connection
with the Recapitalization, 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
product and packaging innovations; (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 production 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 Yorkshire Dried Fruits and Nuts, Inc.
("Yorkshire") 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 $ 15(a)
1995 -- 47
Del Monte Philippines ................. 1996 100(b) 102(b)
1995 -- 142
Del Monte Latin America................ 1997 48(c) 17(c)
1996 -- 55
1995 -- 65
PCP.................................... 1996 -- 26(d)
1995 --(d) 124(d)
Yorkshire.............................. 1997 --(e) 31(e)
1996 -- 35
1995 -- 39
</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 (the "FTC") 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 Yorkshire expired in June 1997.
31
<PAGE> 38
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 NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
------------------------------ ------------------------
1995 1996 1997 1997 1998
------ ------ ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Net sales....................... 100% 100% 100% 100% 100%
Cost of products sold........... 78 76 67 68 68
--- --- ----- ------ ------
Gross profit.................... 22 24 33 32 32
Selling, advertising,
administrative and general
expense and other expense..... 17 18 27 25 26
--- --- ----- ------ ------
Operating income................ 5% 6% 6% 7% 6%
=== === ===== ====== ======
Interest expense................ 5% 5% 4% 4% 6%
=== === ===== ====== ======
</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>
FISCAL YEAR NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Canned vegetables(a)................... $ 441 $ 402 $ 437 $336 $358
Canned fruit(a)........................ 394 367 431 335 343
Tomato products(a)..................... 211 217 229 168 211
Canned pineapple(a).................... 66 72 65 50 50
Other(b)............................... 219 89 41 33 6
------ ------ ------ ---- ----
Subtotal domestic............ 1,331 1,147 1,203 922 968
Latin America.......................... 65 55 17 17 --
Philippines............................ 180 142 -- -- --
Intercompany sales..................... (49) (39) (3) (3) --
------ ------ ------ ---- ----
Total net sales.............. $1,527 $1,305 $1,217 $936 $968
====== ====== ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Canned vegetables(a)................... 29% 31% 36% 36% 37%
Canned fruit(a)........................ 26 28 35 36 35
Tomato products(a)..................... 14 16 19 18 22
Canned pineapple(a).................... 4 6 5 5 5
Other(b)............................... 14 7 4 3 1
--- --- --- ---- ----
Subtotal domestic............ 87 88 99 98 100
Latin America.......................... 4 4 1 2 --
Philippines............................ 12 11 -- -- --
Intercompany sales..................... (3) (3) -- -- --
--- --- --- ---- ----
Total........................ 100% 100% 100% 100% 100%
=== === === ==== ====
</TABLE>
- ---------------
(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.
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<PAGE> 39
(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. Net sales in the first fiscal quarter have
historically been affected by lower levels of promotional activity, the
availability of fresh produce and other factors. 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.
During the early 1990s, the markets for the Company's principal canned
vegetable and fruit products were in a position of stable demand and excess
supply. This excess supply primarily resulted from overplanting and abundant
harvests of raw product, combined with processing over-capacity. During such
periods of industry oversupply, pressure was placed on absolute volumes and
gross margins. The Company, as well as certain of its competitors, implemented
vegetable plant closures in an attempt to reduce processing over-capacity. 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. These conditions
have had very little impact on the Company's supply of product available for
sale, however, since carry-in inventories were adequate to cover shortfalls from
the summer 1997 harvest.
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 Company
believes that the 1998 California fruit and tomato harvests and raw product
recoveries are likely to
33
<PAGE> 40
be somewhat reduced as a result of these weather conditions and that the Company
is likely to incur increased cost of products sold. Such circumstances may also
adversely affect the Company's sales volumes and inventory levels. Historically,
significant weather-related shortages in fruit, vegetable and tomato harvests
have resulted in price increases that have offset increases in raw product costs
and reductions in sales volumes. While the Company believes that the overall
effects of the El Nino phenomenon will not be material to its financial
condition and results of operations, no assurance can be given that the Company
will be able to achieve price increases sufficient to offset any reduction in
sales volume or increase in its cost of products sold.
NINE MONTHS ENDED MARCH 31, 1998 VS. NINE MONTHS ENDED MARCH 31, 1997
Contadina Acquisition
On December 19, 1997, the Company completed the Contadina Acquisition for a
total of $197 million, comprised of a base price of $177 million and 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, and therefore a reduction in
the purchase price to a total of $195 million. The Contadina Acquisition also
included the assumption of certain liabilities of approximately $5 million,
consisting principally of liabilities in respect of reusable packaging
materials, employee benefits and product claims. Results of operations for the
nine months ended March 31, 1998 include $7 million of acquisition expenses
related to the Contadina Acquisition. The Contadina Acquisition was accounted
for using the purchase method of accounting. See "Prospectus Summary -- Summary
Historical Financial Data of Contadina," "Unaudited Pro Forma Financial Data"
and "-- Liquidity and Capital Resources -- Financing Activities -- 1998
Activity -- Contadina Acquisition."
Net Sales
Consolidated net sales for the nine months ended March 31, 1998 increased
by $32 million, or 3.4%, from the nine months ended March 31, 1997 due to higher
sales across all businesses and the Contadina Acquisition. Net sales, after
adjusting for the effect of the Divested Operations, were $968 million for the
nine months ended March 31, 1998 as compared to $893 million for the nine months
ended March 31, 1997, an increase of $75 million or 8.4%. Fruit volume and net
sales increased slightly for the nine months ended March 31, 1998 as compared to
the nine months ended March 31, 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 in the nine months ended March 31, 1998 were partially offset
by volume and sales declines in the foodservice business. The vegetable business
experienced an increase of 6.3% and 6.5% in sales volumes and net sales,
respectively, for the nine months ended March 31, 1998 as compared to the nine
months ended March 31, 1997. The increase in sales volumes and net sales for the
vegetable business has been affected by the Company's use of an effective mix of
targeted trade and consumer promotions in addressing competitive discounting by
other manufacturers. The tomato business also experienced an increase in sales
volumes and net sales for the nine months ended March 31, 1998 as compared to
the nine months ended March 31, 1997, primarily due to the Contadina
Acquisition.
Cost of Products Sold and Gross Profit
Gross margin was 32.3% for both of the nine-month periods ended March 31,
1997 and 1998. Gross margin (excluding the Divested Operations) was 32.3% and
33.5% for the nine months ended March 31, 1998 and 1997, respectively. Costs
increased for the nine months ended March 31, 1998 as compared to the comparable
prior period. However, these increased costs were offset in part by a favorable
sales mix of higher margin products. Increased costs for the nine months ended
March 31, 1998 reflect primarily an increase in processing costs caused by a
compressed harvesting season for fruit which resulted in the increased use of
cold storage until processing capacity became available. Also affecting costs
were reduced plantings for some vegetables and lower fruit raw product
recoveries due to adverse weather conditions. Adverse harvesting conditions did
not materially affect the Company's supply of product available for sale,
however, since inventory balances at the end of fiscal 1997 were adequate to
cover shortfalls in production in fiscal 1998. In
34
<PAGE> 41
addition, $2 million of inventory step-up resulting from the purchase price
allocation related to the Contadina Acquisition has been included in cost of
products sold.
Selling, Advertising, Administrative and General Expense
Selling, advertising, administrative and general expense as a percentage of
net sales (excluding the Divested Operations) was 25.7% and 26.0% for the nine
months ended March 31, 1998 and 1997, respectively. Selling, advertising,
administrative and general expense for the nine months ended March 31, 1998
increased to $249 million from $235 million for the nine months ended March 31,
1997. The Company addressed competitive discounting in the marketplace in its
vegetable and tomato businesses by increasing spending on an effective mix of
targeted trade and consumer promotions. In addition, in the third quarter of
fiscal 1998, the Company recorded accruals of $7 million for severance and
related benefit costs of employees to be terminated in connection with a plant
consolidation plan. As previously disclosed, management has implemented a plan
to consolidate the Company's manufacturing operations.
Interest Expense
The 56.8% increase in interest expense for the nine months ended March 31,
1998 as compared to the nine months ended March 31, 1997 was due primarily to
higher outstanding debt balances resulting from the Recapitalization, which
occurred in the fourth quarter of fiscal 1997.
Provision for Income Taxes
There was no provision for income taxes for the nine months ended March 31,
1998 as compared to a provision of $2 million for the nine months ended March
31, 1997 because of the utilization of net operating loss carryforwards for
which no benefit has been recognized and because of a change in the valuation
allowance.
Net Income
Net income for the nine months ended March 31, 1998 decreased by $19
million as compared to the nine months ended March 31, 1997. The decrease in net
income was primarily due to the plant consolidation severance accrual of $7
million and the increase in interest expense over the comparable prior period.
THREE YEARS ENDED JUNE 30, 1997
Net Sales
Consolidated net sales for fiscal 1996 decreased $222 million or 15% from
the prior year due to lower volumes in domestic operations. Net sales for the
domestic operations, (excluding the Divested Operations) were $1,072 million for
fiscal 1996 as compared to $1,110 million for fiscal 1995, a decrease of $38
million or 3%. The Company increased retail fruit and vegetable prices; however,
these price increases were not immediately followed by the competition and
resulted in lower sales volumes as compared to the prior year. In fiscal 1996,
the Company's market share for Del Monte brand vegetables was 20.4% versus 24.1%
for the previous year, and the Company's market share for Del Monte brand fruit
was 35.5% versus 38.8% for the previous year. 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
brand vegetable
35
<PAGE> 42
products was 20.3% versus 20.4% in the previous year, while the Company's market
share for Del Monte brand fruit products was 40.5% compared to 35.5% for the
previous 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 period. This decrease was primarily due to the
significant Mexican peso devaluation.
Cost of Products Sold and Gross Profit
Gross margin was 22.5%, 24.6% and 32.7% in fiscal 1995, 1996 and 1997,
respectively. Domestic gross margin (excluding the Divested Operations) was
26.4%, 26.4% and 33.8% in fiscal 1995, 1996 and 1997, respectively. Higher
selling prices, changes in marketing strategy and relatively stable costs
resulted in significantly higher gross profit margin than in prior years. In
fiscal 1996, higher manufacturing costs were offset by price increases across
all major product lines.
Del Monte Philippines' gross margins were 11.8% and 17.4% in fiscal 1995
and 1996, respectively. Gross margins for Del Monte Latin America were 23.8% and
24.3% in fiscal 1995 and 1996, respectively. The increases in fiscal 1996
resulted primarily from opportunistic price increases due to inflationary
conditions in Mexico with a lag in increases of cost of goods sold due to
seasonal packing.
Selling, Advertising, Administrative and General Expense
Selling, advertising, administrative and general expense as a percentage of
net sales (excluding the Divested Operations) was 21.2%, 19.8% and 27.5% in
fiscal 1995, 1996 and 1997, respectively. Selling, advertising, administrative
and general expense for fiscal 1997 increased significantly due to the
Recapitalization and the change in marketing strategy. Expenses incurred
primarily for management incentive payments and, in part, for severance payments
incurred related to the Recapitalization were 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, $6 million and $5 million for fiscal 1995, 1996
and 1997, respectively. Research and development spending in fiscal 1995, 1996
and 1997 remained focused on strategic spending to maintain the existing
business and to develop product line extensions.
Interest Expense
The 12% decrease in interest expense for fiscal 1996 compared to fiscal
1995 resulted from lower net borrowings under the Company's revolving credit
facility and lower outstanding debt balances resulting in part from the sale of
the Divested Operations. Interest expense decreased 22% in fiscal 1997 compared
to fiscal 1996. This decrease was due to the lower outstanding debt balances
during the first nine months of fiscal 1997 (before the Recapitalization).
Other (Income) Expense
Other income for fiscal 1995 reflects the Company's receipt of the proceeds
of a $30 million letter of credit (reduced by $4 million of related transaction
expenses) as a result of the termination of the merger agreement with Grupo
Empacador de Mexico, S.A. de C.V. in September 1994. Other expense for fiscal
1997 increased due to $22 million of expenses incurred in the Recapitalization
(primarily legal, investment advisory and management fees). Also included in
fiscal 1997 other expense is $7 million relating to the recognition of an other
than temporary impairment of a long-term equity investment. Such impairment was
recognized as a result of the deteriorating financial condition of the investee
company, the lack of payment of dividends by such company over a 15-month period
and the planned sale of such company in connection with which its majority
investors ascribed no value to the Company's equity investment.
36
<PAGE> 43
Provision for Income Taxes
The tax provision increased to $11 million in fiscal 1996 from $2 million
in fiscal 1995 primarily due to alternative minimum tax and state income tax as
a result of the sales of divested assets in fiscal 1996. There was no tax
provision in fiscal 1997 compared to a provision of $11 million in fiscal 1996.
This decrease was primarily due to the expenses of the Recapitalization. As of
June 30, 1997, the Company had $84 million in net operating loss carryforwards
for tax purposes, which will expire between 2008 and 2012.
Extraordinary Loss
In June 1995, the Company refinanced its then-outstanding revolving credit
facility, term loan and senior notes. The net proceeds of the pudding business
sale and proceeds of the Del Monte Philippines sale were used for the early
retirement of debt. In conjunction with this early debt retirement, in the
second and fourth quarters of fiscal 1996, $5 million in capitalized debt issue
costs were written off and $5 million primarily related to a prepayment premium
were charged to income, both of which have been accounted for as an
extraordinary item. In conjunction with the debt retirement, capitalized debt
issue costs of $7 million were written off and accounted for as an extraordinary
loss as required by generally accepted accounting principles. In conjunction
with an exchange offer, capitalized debt issue costs of approximately $4
million, net of a discount, were charged to net income in fiscal 1997 and
accounted for as an extraordinary loss. In conjunction with the refinancing of
debt that occurred at the time of the Recapitalization, previously capitalized
debt issue costs of approximately $19 million and a note premium and a term loan
make-whole aggregating $19 million were charged to fiscal 1997 net income and
accounted for 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 1996 increased by $99 million from fiscal 1995 due to
the $123 million gain on sale of the Company's pudding business and Del Monte
Philippines in fiscal 1996. Net income for fiscal 1997 decreased by $162 million
as compared to fiscal 1996 primarily due to expenses associated with the
Recapitalization of $85 million and loss on the sale of Del Monte Latin America
of $5 million in fiscal 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1996, the AICPA Accounting Standards Executive Committee issued
Statement of Position ("SOP") No. 96-1 "Environmental Remediation Liabilities."
The SOP provides guidance with respect to the recognition, measurement and
disclosure of environmental remediation liabilities. SOP No. 96-1 is required to
be adopted for fiscal years beginning after December 15, 1996. The Company has
adopted SOP 96-1 for the first quarter of fiscal year 1998 and, based on current
circumstances, does not believe the effect of adoption will be material.
The Financial Accounting Standards Board (the "FASB") recently issued SFAS
No. 129, "Disclosure of Information about Capital Structure"; SFAS No. 130,
"Reporting Comprehensive Income"; SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information"; and SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The Company believes the
effect of adoption of these statements will not be material.
YEAR 2000
In the first quarter of fiscal 1998, the Company contracted with its
information services outsourcing provider, Electronic Data Systems Corporation
("EDS"), to implement substantially all of the Company's Year 2000 compliance
project. EDS maintains and operates most of the Company's software applications
and
37
<PAGE> 44
also owns and operates a significant portion of the related hardware. The
Company's compliance project is expected to be completed by June 1999. The total
cost of the project is not material to the Company's expected cash outlays and
is being funded through operating cash flow. The Company is expensing all costs
associated with these system changes as the costs are incurred. The Company is
also conducting inquiries regarding the Year 2000 compliance programs of its key
suppliers and selected customers. No assurance can be given that the Company's
suppliers and customers will all be Year 2000 compliant. The Company cannot
predict to what extent its operations may be adversely affected if they are not
compliant.
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. See Note D to the Company's
consolidated financial statements as of and for the nine months ended March 31,
1998. In connection with the Offering, the Company plans to amend the terms of
the Bank Financing, 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, which, in turn, are subject
to prevailing economic conditions and to financial, business and other factors,
some of which are beyond its 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 such
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. There can be no assurance as
to whether, or the terms on which, the lenders under the Bank Financing would
grant such consent.
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."
Cash provided by operating activities in the nine months ended March 31,
1998 was $9 million as compared to $26 million for the same period in fiscal
1997. The increase in inventories (excluding the acquired Contadina inventory)
at March 31, 1998 from June 30, 1997 reflects the seasonal inventory buildup.
The increase in accounts payable and accrued expenses from June 30, 1997 to
March 31, 1998 primarily reflects accrued expenses resulting from higher levels
of trade and consumer promotions and accruals remaining from the peak production
period. As of March 31, 1998, $68 million was outstanding under the Revolving
Credit Facility, compared to $82 million at June 30, 1997.
Cash provided by operating activities decreased by $3 million in fiscal
1996 over fiscal 1995 primarily due to a decrease in inventories and in accounts
receivable offset by a decrease in accounts payable and accrued
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<PAGE> 45
expenses. The decrease in inventories resulted from high carry-over inventories
from fiscal 1995 versus low inventory levels at the end of fiscal 1996 due to a
tight industry supply of certain inventory items. The decrease in accounts
receivable resulted primarily from a decrease in sales activity during June 1996
as compared to June 1995. The decrease in accounts payable and accrued expenses
was due primarily to a decrease in amounts payable to PCP due to the termination
of a joint venture at the end of fiscal 1995 and a decrease in marketing
accruals due to a change in marketing strategy during fiscal 1996. Also
affecting accrued expenses in fiscal 1996 was a charge to an accrual established
in fiscal 1993 to implement multi-year cost savings measures. The decrease
occurred as costs associated with fiscal 1996 consolidation efforts were charged
to this accrual. In fiscal 1997, cash provided by operations decreased by $35
million over fiscal 1996 primarily due to various expenses associated with the
Recapitalization, as well as an increase in inventories due to lower sales
volume during the year than anticipated.
Investing Activities
The increase of $191 million in cash provided by investing activities in
fiscal 1996 versus fiscal 1995 and 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 the sale of Del Monte Latin America ($48 million).
Capital expenditures for fiscal 1997 were $20 million including
approximately $1 million for environmental compliance. The Company expects that
capital expenditures during fiscal 1998 will be approximately $35 million as the
Company implements a new program which is intended to generate cost savings by
introducing new equipment that would result in general production efficiencies.
Approximately $15 million of such amount had been spent through March 1998. The
Company also plans an aggregate of approximately $136 million of additional
capital expenditures through 2001, of which $54 million, $58 million and $24
million is expected to be spent in fiscal 1999, 2000 and 2001, respectively. In
fiscal 1999, the Company intends to spend approximately $28 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 $32 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 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. Capital expenditures are expected to be funded from
internally generated cash flows and by borrowing from available financing
sources.
Financing Activities -- 1998 Activity
The Refinancing. In connection with the Offering, the Company plans to
amend the terms of the Bank Financing (the "Refinancing"). A copy of the
proposed form of the Second Amended and Restated Credit Agreement is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. For
a description of the terms of the Bank Financing, as it is proposed to be
amended, see "Description of Certain Indebtedness."
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 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
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<PAGE> 46
previously existing Term B loan. Such additional amortization will begin 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, with Del Monte being 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 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 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. The interest rates
applicable to amounts outstanding under the Term Loan A and the Revolving Credit
Facility are currently, at the Company's option, either (i) the base rate (the
higher of .50% above the Federal Funds Rate and the bank's reference rate) plus
1.00% or (ii) the reserve adjusted offshore rate plus 2.00%. 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 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.
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<PAGE> 47
The terms of the Company's indebtedness contain restrictive covenants. See
"Description of Certain Indebtedness." The Company is in compliance with all
such covenants.
Financing Activities -- 1996 Activity
The increase in net cash used in financing activities of $180 million in
fiscal 1996 as compared to fiscal 1995 reflects a lower balance under the
Revolving Credit Facility at year-end 1996 versus 1995 and higher net pay-down
of long-term debt. The higher payments on the Revolving Credit Facility and
long-term debt were due to cash available from the Company's sales of the
pudding business and Del Monte Philippines. In connection with the early debt
repayment a prepayment penalty of $5 million was charged to income and recorded
as an extraordinary loss. Included in other financing activities in fiscal 1996
was a deposit of $30 million of Del Monte Philippines sale proceeds into a
collateral account until agreement was reached with the term lenders as to final
application.
PENSION FUNDING
As described more fully in Note F to the audited consolidated financial
statements of the Company as of and for the year ended June 30, 1997, 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 Recapitalization, the Company has 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 will also contribute a minimum of $15 million in calendar 1998, of which
$10 million has been paid, $9 million in calendar 1999, $8 million in calendar
2000 and $8 million in calendar 2001, for a total of $55 million. The agreement
provides that the contributions required to be made in 1999, 2000 and 2001 will
be secured by a $20 million letter of credit to be obtained by the Company prior
to August 31, 1998, which date will be extended until June 15, 1999 upon the
consummation of the Refinancing. The contribution required to be made in 1998
will be paid prior to any scheduled amortization under the Bank Financing in
excess of $1 million, and the Company has agreed not to make voluntary
prepayments of the loans under the Bank Financing prior to making the
contribution required to be made in 1998 or prior to obtaining the letter of
credit.
TAX NET OPERATING LOSS CARRYFORWARDS
As of June 30, 1997, the Company had $84 million in net operating loss
carryforwards, 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 ("Polly Peck"). In January
1990, an investor group led by Merrill Lynch & Co. ("ML&Co.") purchased the
Company and certain of its subsidiaries from RJR Nabisco for $1.5 billion (the
"RJR Nabisco Sale"). Following such sale, the Company divested several of its
non-core businesses and all of its foreign operations.
The Company, a branded marketer of premium quality, nutritious food
products, is the largest producer and distributor of canned vegetables and
canned fruit in the United States, with pro forma net sales of $1.1 billion and
$1.4 billion for the nine months ended March 31, 1998 and the fiscal year ended
June 30, 1997, respectively. Management believes that the Company's principal
brand, Del Monte, which has been in existence since 1892, has the highest
unaided brand awareness of any canned food brand in the United States. Del Monte
brand products are found in substantially all 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. See "-- Company
Products."
The Company sells its products to national grocery chains and wholesalers
through a nationwide sales network consisting primarily of independent food
brokers. The Company's direct sales force also sells to warehouse club stores,
selected 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 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. See "-- Sales, Marketing and Distribution."
The Company operates 15 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. See "-- Supply and Production."
The Company owns a number of registered and unregistered trademarks that it
uses in conjunction with its business, including the trademarks Del Monte, Fruit
Cup, FreshCut, Snack Cups, Fruit Naturals, Orchard Select, Fruit Smoothie
Blenders, Del Monte Lite and Contadina. 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 ("Kikkoman"),
affiliates of RJR Nabisco, and Yorkshire. None of the licensees is an affiliate
of the Company, other than Yorkshire with respect to which the Company owns 20%
of the common stock. See "Risk Factors -- Brand Risk" and "-- Intellectual
Property."
In April 1997, the Company completed the Recapitalization as a result of
which Texas Pacific Group, a private investment group, obtained a controlling
interest in the Company. Under a new senior management team introduced in
connection with the Recapitalization, the Company began implementing a new
business strategy designed to increase sales and improve operating margins, by:
(i) increasing market share and distribution of high margin value-added
products; (ii) introducing product and packaging innovations;
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<PAGE> 49
(iii) increasing penetration of high growth distribution channels, such as
supercenters and warehouse clubs; (iv) achieving cost savings through
investments in new and upgraded production equipment and plant consolidations;
and (v) completing strategic acquisitions.
COMPETITIVE STRENGTHS
Management believes that the following elements contribute to the Company's
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 Company's business strategy.
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte
brand name, which has been in existence since 1892, is one of the leading
brand names 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, an established national brand with a
strong reputation for quality. For the 52 weeks ended March 31, 1998, the
Company's 19.5% market share of canned vegetables was larger than the
combined market shares of the Company's two largest branded competitors, and
its 41.9% 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 16.3% market share in the high margin solid segment
of the canned tomato market for the 52 weeks ended March 31, 1998. See
"-- Company Products."
<TABLE>
<CAPTION>
MARKET SHARE FOR 52 WEEKS ENDED
MARCH 28, 1998
------------------------------------------------------
MARKET NEXT LEADING BRANDED
CATEGORY POSITION(a) PERCENTAGE COMPETITOR'S PERCENTAGE(a)
-------- ----------- ---------- --------------------------
<S> <C> <C> <C>
Canned vegetables........................ #1 19.5% 13.2% (Green Giant)
Canned fruit............................. #1 41.9% 11.4% (Libby's)
Canned solid tomato products(b).......... #1 16.3% 11.2% (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 products and packaging alternatives
and in engineering efficient food processing operations. These capabilities
are leveragable 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 benefits from
many long-term relationships with experienced, geographically diverse growers
who work with the Company to maximize yields of raw product. 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, management believes
that the Company is one of the lowest cost producers of canned vegetables,
fruit and tomatoes in the United States. See "-- Company Products" and
"-- Supply and Production."
- - PREFERRED SUPPLIER STATUS -- Competitive pressures in the retail food
industry are causing many retailers to prefer large suppliers such as the
Company that are able to provide consumer-favored brands, full product lines
and sophisticated inventory and category management programs. Del Monte
anticipated this trend and has developed proprietary software tools to assist
its customers and promote sales of its products. Del Monte's proprietary
category management system is designed to address retailers' efforts to
maximize profitability of shelf space dedicated to canned food categories. A
substantial majority of the Company's customers that have employed Del
Monte's category management system have increased the relative amount of
shelf space dedicated to the Company's products as compared to competing
products. The Company's proprietary vendor-managed inventory software allows
Del Monte to manage directly its customers' inventories of the Company's
products. This inventory management software is designed to reduce customers'
overhead costs and to enable them to achieve lower average inventory levels
while
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enhancing the Company's opportunities to sell its products. Retailers also
rely on Del Monte'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, Del Monte has
strong, well-developed relationships with all major participants in the
retail grocery trade. The Company believes that these relationships will
become increasingly important as consolidation among grocery retailers
continues. The Company is seeking to use 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. See "-- Sales, Marketing
and Distribution."
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company's extensive
sales and distribution network is responsible for the distribution of
finished goods to over 2,400 customer destinations nationwide. This network
enables the Company to compete with other national brands and regional
competitors, and to introduce new products on a regional or national basis.
The Company operates six strategically located distribution centers offering
customers a variety of services, including electronic data interchange and
direct store shipments. Management believes that the Company's distribution
system makes an important contribution to the Company's success and provides
the Company with a competitive advantage over regional and private label
competitors. See "-- Sales, Marketing and Distribution."
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, the
Company's Chief Executive Officer and Chief Operating Officer, respectively,
are veteran managers with extensive food industry experience. Mr. Wolford has
30 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 25 years of experience,
23 of which were with 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. See "Management."
BUSINESS STRATEGY
Following the consummation of the Recapitalization in 1997, the Company
implemented a new business strategy designed to increase sales and improve
operating margins. The key elements of this new business strategy are discussed
below.
- - 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 products, such
as its specialty fruits and vegetables, diced tomatoes and its Fruit Cup
line, where the Company has historically had either low market share or low
household penetration relative to its overall category position.
- - FOCUS ON CONSUMPTION-DRIVEN MARKETING STRATEGY -- To enhance its ability to
leverage its brand equity, 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 the
distribution of free-standing coupon inserts, and has established clearly
differentiated product positioning that emphasizes the Company's premium
quality. The Company increased spending on consumer promotions from $12
million in fiscal 1996 to $46 million in fiscal 1997 and anticipates that its
consumer spending in fiscal 1998 and 1999 will be generally consistent with
levels of consumer spending in fiscal 1997. The Company has also improved the
effectiveness of its trade promotion strategy. The Company has implemented
performance-based programs under which trade spending, which consists of the
costs of promotional activities with grocery chains and other customers, such
as special displays, discounts and advertisements, is managed based on
retailers' sales of the Company's products to consumers rather than on
purchases
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<PAGE> 51
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.
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
emphasizing new higher margin products and line extensions designed to
leverage the Company's presence in its current product categories and to
capitalize on its food technology expertise. The Company has successfully
introduced flavored diced tomatoes, two lines of flavored canned fruit,
Orchard Select, a premium fruit product packaged in glass, and Fruit Smoothie
Blenders, a flavored fruit drink. These products extend the Company's
traditional product lines and appeal to consumers' demands 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 -- Changes in the
retail grocery environment have resulted in substantial growth of alternative
retailers such as warehouse clubs, mass merchandisers and supercenters. 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. In addition, vendors in this category generally are
attracted to large, technologically sophisticated suppliers such as the
Company that have the ability to meet their stringent inventory and
shelf-management requirements. Based on internal estimates and the broad
range of products supplied by the Company to such retailers, the Company
believes it is currently the leading supplier of canned vegetables and fruit
to Wal-Mart's Sam's Club, and is a major supplier to PriceCostco. Based on
such estimates, the Company also believes it is currently the leading
supplier of canned vegetables, fruit and solid tomato products as a group to
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 10.2% in 1997 and 10.0% for the nine months ended March 31,
1998. Management's strategy is to improve profitability through the
implementation of capital projects that offer rapid returns on investment,
and through plant consolidations and increased operating efficiencies. The
Company has announced 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. The Company continually evaluates its production
facilities and believes that further consolidations may be warranted in the
future. In addition, the Company plans to continue to invest 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, which 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 leverage 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 in new 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 also recently
announced an agreement with Nabisco to reacquire rights to the Del Monte
brand in South America and to purchase Nabisco's canned fruits and vegetables
business in Venezuela. See "Recent Developments." 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. With the exception of the Del Monte South America Acquisition, no
agreement, understanding or arrangement has been reached, however, with
respect to any such acquisition. The Company believes that any
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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.
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. Over the last ten years,
the industry has experienced consolidation 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 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.
Pricing and innovation in the canned food segments in which the Company
competes are typically led by branded food manufacturers. A majority of market
share in these categories is, however, attributable to private label
manufacturers based on statistical information compiled by ACNielsen. The
Company believes that the private label segment has historically been highly
fragmented among regional producers seeking to compete principally based on
price, although 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 March 28, 1998, private label
manufacturers as a group represented 43.8%, 39.7% and 30.7% of canned vegetable,
fruit and solid tomato product sales, respectively. 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, which 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 cover
higher raw product costs and 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 a result, the
Company experienced an anticipated volume loss and market share decline. In the
case of its fruit operations, 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 a higher level than that
experienced prior to the price increases. In the case of its vegetable
operations, the Company's market share has stabilized at a level lower than its
share prior to the price increases. See "Risk Factors -- Competition" 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.
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<PAGE> 53
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 NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
1997 1998
--------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Vegetables (a)....................................... $ 437 32% $ 358 34%
Fruit(a)............................................. 431 31 343 32
Tomato products(a)(b)................................ 385 28 303 29
Pineapple(a)......................................... 65 5 50 5
Other(c)............................................. 55 4 6 --
------ --- ------ ---
Total(b)................................... $1,373 100% $1,060 100%
====== === ====== ===
</TABLE>
- ---------------
(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 $156 million and $92 million of sales of tomato products by
Contadina, on a pro forma basis, for the fiscal year ended June 30, 1997 and
the nine months ended March 31, 1998, respectively.
(c) Includes pickles, dried fruit and certain other retail products, as well as
sales of Divested Operations.
Vegetables
Based on internal estimates using data compiled by ACNielson 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
1997. 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 $780 million or
approximately 65% of fiscal 1997 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 $237
million or approximately 17% of fiscal 1997 canned vegetable supermarket case
sales. The specialty segment, comprised of asparagus, zucchini, baby beets and a
variety of corn and bean offerings, represents $284 million or approximately 12%
of fiscal 1997 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 1997. During the 52
weeks ended March 28, 1998, Del Monte brand vegetable products enjoyed an
average premium of 20c (44%) per item over private label products and the
Company held a 19.5% 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 March 28, 1998, held a 23.2% market share in green beans, a
18.6% market share in corn and a 16.1% market share in peas. The Company also is
the branded
47
<PAGE> 54
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 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................................................... 19.5%
Green Giant (Pillsbury)..................................... 13.2%
Libby's (Seneca)............................................ 3.6%
Stokely (Chiquita).......................................... 2.3%
Freshlike (Dean Foods)...................................... 2.0%
All private label combined.................................. 43.8%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended March 28, 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
1997. 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, which 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 1997. The pineapple
segment is discussed separately below.
Major fruit accounted for sales by retailers of $624 million in fiscal
1997. Sales by retailers of Del Monte brand major fruit products totaled $291
million in fiscal 1997. For the 52 weeks ended March 28, 1998, the Company was
the branded share leader with a 41.9% 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 67% 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 71% and 65% of grocery outlets, respectively. Mandarin oranges and cherries
are distributed in 30% 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 planning
national distribution of its Orchard Select, a premium fruit product packaged in
glass. The Company is also test marketing a new flavored fruit drink, Fruit
Smoothie Blenders, to expand its presence into the beverage aisle. 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.
48
<PAGE> 55
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 8c
(9%) 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
the Libby's and S&W brands.
MAJOR FRUIT MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 41.9%
Libby's (Tri-Valley)........................................ 11.4%
All private label combined.................................. 39.7%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended March 28, 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 1997 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 canned solid tomato products, which
are generally higher margin tomato products and are 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......................................... 16.3%
Hunt's (ConAgra)............................................ 11.2%
S&W (Tri Valley Growers).................................... 5.1%
All private label combined.................................. 30.7%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended March 28, 1998 (based on equivalent
cases).
With the Contadina Acquisition, the Company has strengthened its position
in the branded paste-based tomato products categories in which it competes. The
Company markets its spaghetti, pasta 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
49
<PAGE> 56
paste 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 March 28, 1998 of 4.2% in spaghetti sauce and 5.6% in tomato sauce), it is
the largest branded competitor in the solid tomato segment with a market share
of 16.3% for the 52 weeks ended March 28, 1998. Hunt's, the next largest branded
processor, possessed a 11.2% share of the solid tomato segment for this period.
In other key categories, for the 52 weeks ended March 28, 1998, Heinz was the
market leader in ketchup with a 46.2% market share, and Hunt's was the leader in
tomato sauce with a 35.2% 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."
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 1997. 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 84% of
pineapple product sold is packed in juice, with the remaining 16% packed in
heavy syrup. Size offerings include the 20 oz. size, which accounts for 74% of
category sales. Other sizes offered include the 8 oz. and 15 oz. varieties.
The Company's retail pineapple line consists of sliced, chunk, crushed and
juice products in a variety of container sizes. In addition to sales by
retailers, which totaled $35 million in fiscal 1997, the Company sells a
significant amount of juice concentrate and crushed pineapple through the food
ingredients channel and also sells pineapple solids and juice products to
foodservice customers.
The Company is the second leading brand of canned pineapple, with a 14.3%
market share for the 52 weeks ended March 28, 1998. Dole is the industry leader
with a market share of 44.6%. Private label and foreign pack brands comprise the
low-price segment of this category and hold market shares of 28.3% and 11.6%,
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................................................... 14.3%
Dole........................................................ 44.6%
Foreign pack................................................ 11.6%
All private label combined.................................. 28.3%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended March 28, 1998 (based on equivalent
cases).
50
<PAGE> 57
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 a guaranteed supply of quality pineapple with 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 which 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, although its 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 J to the Company's
consolidated financial statements for the nine months ended March 31, 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.
Fifteen 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> 58
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
Arlington, WI..................... Peas, Corn and Sauerkraut 209,000
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 January 1998, the Company announced a four-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. Tomato production currently taking place at the Modesto plant is
expected to be transferred to the Company's newly acquired state-of-the-art
facility in Hanford in 1999. The Modesto location would then be converted to a
fruit processing plant allowing production currently processed at the San Jose
plant to be transferred to Modesto. At the end of the production season in 2000,
the Company is also expected to close its Stockton fruit plant and transfer
production from that plant to Modesto. 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.
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 which the Company has agreed to
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 such
requirements for any reason, the Company is entitled to purchase the excess from
another supplier. In addition, after September 1998, the Company is entitled to
seek a competitive bid for up to 50% of its requirements. Price levels were
originally set based on the Company's costs of self-manufactured containers.
Price changes under the contract
52
<PAGE> 59
reflect changes in the manufacturer's costs. Upon any extension of the
agreement, the parties have agreed to negotiate in good faith the amount of
Silgan's margin. 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
(or any extension). 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 1997, accounted for 67% of the
Company's total net sales. The Company retains its brokers through a
standardized retail grocery brokerage agreement, and brokers are typically paid
at a percentage of collected sales, generally 2.5%, which percentage 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 1997, this group accounted for 12% of the Company's
total net sales. Foodservice, food ingredients, private label and military and
export sales are accomplished through both direct sales and brokers and, during
fiscal 1997, 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.
Consumer advertising and promotion support are used, 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
allows 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> 60
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, and no single customer
accounted for more than 10% of fiscal 1997 sales. The Company's 15 largest
customers during fiscal 1997 represented approximately 47.8% 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 -- Competition" 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 1995, 1996 and
1997, R&D expenditures (net of revenue for services to third parties) were $6
million, $6 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 March 31, 1998, the Company had approximately 2,550 full-time employees.
In addition, approximately 10,900 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. One
collective bargaining agreement expires in calendar 1999. The remaining
agreements expire in calendar 2000, 2001 and 2002.
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<PAGE> 61
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, Snack
Cups, Fruit Cup, FreshCut, Fruit Naturals, Orchard Select, Fruit Smoothie
Blenders, Del Monte Lite and Contadina. These trademarks are important to the
Company because brand name recognition is a key factor in the success of the
Company's products. The current 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 approximately 12 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 2002 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 currently 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 can be no assurance that the means taken by the
Company to protect the secrecy of its seed varieties will be sufficient to
protect their secrecy or that others will not 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 such a 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 plant variety protection
certificate generally runs for 20 years from the date of 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 such
licenses, the Company is generally entitled to reimbursement from the licensees
of certain of its expenses in maintaining the registrations relating to such
intellectual property. In particular, with respect to all food and beverage
products other than fresh fruits, vegetables and produce, affiliates of RJR
Nabisco hold the rights to use Del Monte trademarks in Canada and South America;
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, Yorkshire 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. See "Risk Factors -- Brand Risk."
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.
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
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<PAGE> 62
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 can be no assurance 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 such environmental 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
currently remediating conditions resulting from the release of petroleum from
underground storage tanks ("USTs"). 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, there can be no assurance that investigation and
remediation of environmental conditions will not 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 the Company's financial condition or results of operations.
The Company has been notified by governmental authorities and private
claimants that it is a PRP or may otherwise be potentially responsible for
environmental investigation and remediation costs at certain contaminated 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
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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. There
can be no assurance that the Company will not 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 1995 through fiscal 1997,
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 1998 and 1999 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 the Company's financial
position or results of operations.
PROPERTIES
As of December 31, 1997, the Company operated 15 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.
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CORPORATE HISTORY
DMC was acquired in 1979 by the predecessor of RJR Nabisco. 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 ML&Co. and capitalized by ML&Co. 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 were retained by RJR Nabisco, 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, which, 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 -- Brand Risk" 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, and applied
substantially all of the proceeds from such 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 such 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 is
required to 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
Yorkshire 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 Yorkshire. Following the expiration of a
standstill agreement in July 1996, the Company granted a right of first refusal
to Yorkshire to acquire the Company's equity interest in Yorkshire, and
Yorkshire Foods, Inc., the parent of Yorkshire ("YFI"), granted a right of
co-sale to the Company in the event that YFI proposed to sell its equity
interest in Yorkshire.
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
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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 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. Such 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, with Del Monte being 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
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.
Following the Offering, TPG will own approximately 46.7% of the Common
Stock (approximately 43.0% if the U.S. Underwriters' overallotment option is
exercised in full) and will have the power to influence substantially and
possibly to control the management and policies of the Company, as well as the
determination of matters requiring stockholder approval. TPG is part of Texas
Pacific Group, which was founded by David Bonderman, James G. Coulter and
William S. Price, III 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. Such
individuals hold the same positions with DMC. Each director will hold office
until the next annual meeting of shareholders or until his successor has been
elected and qualified. 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..................... 53 Chief Executive Officer; Director
Wesley J. Smith........................ 51 Chief Operating Officer; Director
Timothy G. Bruer....................... 41 Director
Al Carey............................... 46 Director
Patrick Foley.......................... 66 Director
Brian E. Haycox........................ 56 Director
Denise M. O'Leary...................... 40 Director
William S. Price, III.................. 42 Director
Jeffrey A. Shaw........................ 34 Director
David L. Meyers........................ 52 Executive Vice President,
Administration and Chief Financial
Officer
Glynn M. Phillips...................... 60 Executive Vice President, Sales
Brent D. Bailey........................ 45 Executive Vice President, Marketing
Thomas E. Gibbons...................... 50 Senior Vice President and Treasurer
William J. Spain....................... 56 Senior Vice President, Technology
Richard L. French...................... 41 Senior Vice President and Chief
Accounting Officer
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
became President of SRB, Inc., which provides management services to TPG and its
affiliated companies, in 1997. 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., certain of its subsidiaries and Favorite Brands
International, 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 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 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 the Chief Operating Officer of Frito-Lay, Inc., a division 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 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 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 1993.
Prior to joining TPG, Mr. Shaw was a principal of Acadia Partners, L.P., an
investment partnership 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
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.
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.
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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.
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.
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 (the "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). The Compensation 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. The directors on the
Audit Committee 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.
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EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company for fiscal
years 1995, 1996 and 1997 to each individual serving as its Chief Executive
Officer during fiscal 1997 and to each of the four other most highly compensated
executive officers of the Company as of the end of fiscal 1997, and to one
executive officer whose employment terminated prior to the end of fiscal 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(3)
---------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITIONS FISCAL YEAR SALARY(1) BONUS COMP.(2) PAYOUTS COMP.(4)
- ---------------------------- ----------- --------- ------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Wolford(5)....... 1997 $100,641 $ -- $ -- $-- $ 251,196
Chief Executive Officer
Brian E. Haycox............. 1997 602,404 -- 73,471 -- 5,323,303
Co-Chairman/Co-CEO(6) 1996 420,673 -- 247,780 -- 8,052
Paul H. Mullan.............. 1997 602,404 -- 221,940 -- 5,288,452
Co-Chairman/Co-CEO(7) 1996 420,673 -- 817,978 -- 8,052
David L. Meyers............. 1997 286,000 159,400 -- 421,000 2,959,771
Executive Vice President, 1996 273,000 143,000 55,386 421,000 11,242
Administration & CFO 1995 302,500 -- 145,954 421,000 9,786
Glynn M. Phillips........... 1997 239,118 118,300 -- 280,000 1,974,454
Executive Vice President, 1996 225,750 118,250 -- 280,000 9,206
Sales
1995 158,907 -- -- 280,000 52,724
Thomas E. Gibbons........... 1997 183,458 59,900 -- 210,000 115,829
Senior Vice President and 1996 175,600 63,900 -- 54,600 4,717
Treasurer 1995 161,703 53,600 -- 50,400 4,728
William J. Spain............ 1997 147,917 49,500 -- 162,000 115,766
Senior Vice President, 1996 139,167 49,700 -- 42,100 4,417
Technology 1995 126,542 40,700 -- 38,900 4,024
David M. Little(8).......... 1997 250,250 -- -- 421,000 3,363,581
Executive Vice President, 1996 286,650 150,150 -- 421,000 10,660
Worldwide Operations 1995 309,500 -- -- 421,000 10,302
</TABLE>
- ---------------
(1) Reflects actual base earnings for the fiscal year specified.
(2) Fiscal 1995 reflects certain perquisites, including moving expenses for Mr.
Meyers ($129,838). Fiscal 1996 reflects certain perquisites, including
relocation related expenses for Mr. Haycox ($243,092) and Mr. Mullan
($812,333); moving expenses for Mr. Meyers ($33,091) and company car
($15,500). Fiscal 1997 reflects certain perquisites, including relocation
related taxes for Mr. Haycox ($57,005) and Mr. Mullan ($198,955).
(3) Reflects payments under the Company's Old MEP (as defined below) and Long
Term Incentive Plan.
(4) For fiscal 1995: Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Meyers $4,500; Mr. Gibbons $4,500; Mr. Spain $3,796; Mr. Little
$4,500, Company paid term life premiums -- Mr. Meyers $1,960; Mr. Phillips
$2,724; Mr. Gibbons $228; Mr. Spain $228; Mr. Little $2,080, a sign-on bonus
for Mr. Phillips $50,000, amount paid under the nonqualified Additional
Benefits Plan -- Mr. Meyers $3,326; Mr. Little $3,722. For fiscal 1996:
Company contributions to the Del Monte Corporation Savings Plan -- Mr.
Haycox $4,500; Mr. Mullan $4,500; Mr. Meyers $4,500; Mr. Phillips $4,500;
Mr. Gibbons $4,500; Mr. Spain $4,200; Mr. Little $4,500, Company paid term
life premiums -- Mr. Haycox $3,552; Mr. Mullan $3,552; Mr. Meyers $3,407;
Mr. Phillips $4,706; Mr. Gibbons $217; Mr. Spain $217; Mr. Little $2,428,
amount paid under the nonqualified Additional Benefits Plan -- Mr. Meyers
$3,335; Mr. Little $3,732. For fiscal 1997: Company contributions to the Del
Monte Corporation Savings Plan -- Mr. Haycox $4,800; Mr. Mullan $5,738; Mr.
Meyers $4,500; Mr. Phillips $4,500; Mr. Gibbons $4,500; Mr. Spain $4,437;
Mr. Little $3,003; Company paid term life premiums --
63
<PAGE> 70
Mr. Wolford $1,196; Mr. Haycox $13,057; Mr. Mullan $10,657; Mr. Meyers
$4,198; Mr. Phillips $5,325; Mr. Gibbons $217; Mr. Spain $217; Mr. Little
$2,739, amount paid under the nonqualified Additional Benefits Plan -- Mr.
Meyers $4,130; Mr. Little $4,567, amount paid due to termination for Mr.
Haycox $393,874; Mr. Mullan $360,485; Mr. Little $406,329, amounts under the
New MEP (as defined below) paid April 1997 -- Mr. Haycox $4,911,572; Mr.
Mullan $4,911,572; Mr. Meyers $2,946,943; Mr. Phillips $1,964,629; Mr.
Gibbons $111,112; Mr. Spain $111,112; Mr. Little $2,946,943. For Mr.
Wolford, the fiscal 1997 amount includes a consulting fee of $250,000 paid
in December 1997 for the period prior to April 18, 1997.
(5) Mr. Wolford became Chief Executive Officer as of April 18, 1997.
(6) Mr. Haycox's employment as Co-Chairman/Co-CEO terminated as of April 18,
1997.
(7) Mr. Mullan's employment as Co-Chairman/Co-CEO terminated as of April 18,
1997.
(8) Mr. Little's employment as Executive Vice President, Worldwide Operations
terminated as of April 30, 1997.
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 Recapitalization.
In connection with the 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............................................... $4,911,572
Mr. Mullan............................................... 4,911,572
Mr. Little............................................... 2,946,943
Mr. Meyers............................................... 2,946,943
Mr. Phillips............................................. 1,964,629
Other officers(1)........................................ 2,000,016
</TABLE>
- ---------------
(1) Other officers include Messrs. Gibbons and Spain and 16 other senior
officers.
Messrs. Meyers, Little 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, Little and Phillips were paid
installment payments of the Old MEP awards in the amounts of $421,000, $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, $421,000 and $280,000,
respectively, for fiscal 1997. The Company paid 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
64
<PAGE> 71
determined by comparing actual financial performance compared to target goals
and subject to a percentage payout schedule. Mr. Gibbons received fiscal 1995
and fiscal 1996 awards of $50,400 and $54,600, respectively. Mr. Gibbons
received the final fiscal 1997 award in the amount of $210,000 at the time of
the Recapitalization. Mr. Spain received fiscal 1995 and fiscal 1996 awards of
$38,900 and $42,100, respectively. Mr. Spain received the final fiscal 1997
award in the amount of $162,000 at the time of the 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. Little -- 50%, Mr.
Meyers -- 50%, Mr. Phillips -- 50%, Mr. Gibbons -- 30% and Mr. Spain -- 30%. Mr.
Haycox and Mr. Mullan were not eligible for the AIAP for fiscal 1996 or fiscal
1997. Mr. Wolford was not eligible for the AIAP for fiscal 1997. Mr. Little
received his fiscal 1997 AIAP payment of $150,150 at the time of his termination
as of April 30, 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.
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. Pursuant to this plan, options for 1,736,520 shares of Common Stock
have been granted to eligible employees to date. 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 as the Del Monte Foods Company 1998 Stock Option
Plan by the Board of Directors on April 24, 1998 and approved in final form by
the Compensation Committee 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 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 such Awards. As of June 3, 1998, no Awards had been made 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.
65
<PAGE> 72
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
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 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.
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<PAGE> 73
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. Phillips.................................. 2002 28,260
Mr. Meyers.................................... 2010 179,742
Mr. Gibbons................................... 2012 178,762
Mr. Spain..................................... 2007 104,915
</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 1997, the Company had employment
agreements with each of Messrs. Haycox, Mullan, Meyers, Little, Phillips,
Gibbons and Spain. The following summaries of the material provisions of the
employment agreements with Messrs. Haycox and Mullan (each, a "CEO Agreement"
and collectively, the "CEO Agreements"), the employment agreements with Messrs.
Meyers and Little (each, an "EVP Employment Agreement" and collectively, the
"EVP Employment Agreements") 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 employment of Messrs.
Haycox and Mullan pursuant to the CEO Agreements was terminated effective as of
April 18, 1997. The employment of Mr. Little pursuant to his EVP Employment
Agreement was terminated effective as of April 30, 1997. The employment
agreements of Messrs. Meyers, Phillips, Gibbons and Spain have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
The CEO Agreements provided for an initial term ending on December 31,
1997. Under the terms of the CEO Agreements, if an executive is terminated for
any reason other than for cause, if he resigns for good reason or if his
employment is terminated upon a sale of the Company, he shall be entitled to a
lump sum payment, within ten days of his termination, equal to the base salary
that he would have earned through December 31, 1997. The executive will also
receive any amounts due under the MEP, and will continue to participate in any
employee benefit plans and programs maintained by the Company until the earlier
of (i) December 31, 1997, or (ii) such time as he is covered by comparable
programs of a subsequent employer.
Each of the EVP Employment Agreements is for an indefinite term and
contains virtually identical terms. Specifically, each EVP Employment Agreement
provides that if the executive's employment terminates for any reason other than
for cause or if the executive resigns for good reason, 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: (a) the
executive's highest annual base salary in effect during the 12-month period
prior to such termination or resignation and (b) 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 or if Mr. Phillips resigns for good reason, 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
67
<PAGE> 74
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 (a) Mr. Phillips' highest annual rate of base salary in effect during
the 12-month period prior to such termination or resignation, and (b) the target
award 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 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.
Messrs. Gibbons' and Spain's employment agreement is similar to that of Mr.
Phillips except that it does not require Messrs. Gibbons or Spain to execute an
agreement not to compete or disclose confidential information in order to
receive severance payments over an 18-month period.
On March 16, 1998, Del Monte entered into employment agreements with Mr.
Wolford and Mr. Smith (the "Wolford/Smith Employment Agreements") as Chief
Executive Officer and Chief Operating Officer, respectively. Copies of the
Wolford/Smith Employment Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The Wolford/Smith
Employment Agreements are for an indefinite term. Under the terms of the
Wolford/Smith Employment 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 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.
DIRECTORS' COMPENSATION
Under Company policy, Messrs. Bruer, Carey, 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 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 "Management -- 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.
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<PAGE> 75
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of June 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;" (iv) by all executive officers and directors as a group; and (v)
the Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(A) SHARES OFFERING(B)
NAME AND ADDRESS OF ----------------------- BEING -----------------------
BENEFICIAL OWNER NUMBER PERCENT(C) OFFERED NUMBER PERCENT(C)
------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
TPG Partners, L.P.................. 24,682,809(d) 69.5% 3,372,053 21,310,756 42.5%
201 Main Street, Suite 2420
Fort Worth, TX 76102
TPG Parallel I, L.P................ 2,459,828(d) 6.9 336,050 2,123,778 4.2
201 Main Street, Suite 2420
Forth Worth, TX 76102
399 Venture Partners, Inc.......... 2,490,046 7.0 -- 2,490,046 5.0
399 Park Avenue, 14th Floor
New York, NY 10043
Richard W. Boyce................... 148,828(e) 0.4 -- 148,828 0.3
Richard G. Wolford................. 636,111(f) 1.8 -- 636,111 1.3
Wesley J. Smith.................... 636,111(f) 1.8 -- 636,111 1.3
Timothy G. Bruer................... -- -- -- -- --
Al Carey........................... 1,532(g) 0.0 -- 1,532 0.0
Patrick Foley...................... 2,873(g) 0.0 -- 2,873 0.0
Brian E. Haycox.................... 4,214(g) 0.0 -- 4,214 0.0
Denise M. O'Leary.................. 2,873(g) 0.0 -- 2,873 0.0
William S. Price, III.............. --(d) -- -- -- --
Jeffrey A. Shaw.................... -- -- -- -- --
David L. Meyers.................... 199,587(h) 0.6 -- 199,587 0.4
Glynn M. Phillips.................. 48,652(i) 0.1 -- 48,652 0.1
Thomas E. Gibbons.................. 33,328(j) 0.1 -- 33,328 0.1
William J. Spain................... 13,983(j) 0.0 -- 13,983 0.0
All executive officers and
directors as a group (14
persons)......................... 28,870,729(k) 78.1 3,708,103 25,162,626 48.7
Vencap Investment Pte Ltd.......... 1,335,239 3.8 182,414 1,152,825 2.3
255 Shoreline Drive, Suite 600
Redwood City, CA 94065
BT Investment Partners............. 957,710 2.7 130,838 826,872 1.6
130 Liberty Street
New York, NY 10006
Westar Capital..................... 957,710 2.7 130,838 826,872 1.6
949 South Coast Drive, Suite 650
Costa Mesa, CA 92626
BankAmerica Investment
Corporation...................... 861,939 2.4 117,754 744,185 1.5
231 South LaSalle Street, 7th
Floor
Chicago, IL 60697
TCW/Crescent Mezzanine Partners,
L.P.............................. 421,149 1.2 57,535 363,614 0.7
11100 Santa Monica Blvd, Suite
2000
Los Angeles, CA 90025
</TABLE>
69
<PAGE> 76
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(a) SHARES OFFERING(b)
NAME AND ADDRESS OF ----------------------- BEING -----------------------
BENEFICIAL OWNER NUMBER PERCENT(c) OFFERED NUMBER PERCENT(c)
------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Squam Lake Investors II, L.P....... 191,542 0.5% 26,168 165,374 0.3%
Two Copley Place
Boston, MA 02116
Sunapee Securities, Inc............ 191,542 0.5 26,168 165,374 0.3
Two Copley Place
Boston, MA 02116
TCW/Crescent Mezzanine Trust....... 128,241 0.4 17,520 110,721 0.2
11100 Santa Monica Blvd, Suite
2000
Los Angeles, CA 90025
MIG Partners III................... 95,771 0.3 13,084 82,687 0.2
231 South LaSalle Street, 7th
Floor
Chicago, IL 60697
TCW/Crescent Mezzanine
Investment Partners, L.P........... 11,554 0.0 1,579 9,975 0.0
11100 Santa Monica Blvd, Suite
2000
Los Angeles, CA 90025
</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 U.S. 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) In each case, includes 569,071 shares issuable upon exercise of options.
(g) Messrs. Carey, Foley and Haycox and Ms. O'Leary have elected to receive
shares of Common Stock in lieu of cash for their directors' fees. See
"-- Directors' Compensation."
(h) Includes 151,701 shares issuable upon exercise of options.
(i) Includes 29,497 shares issuable upon exercise of options.
(j) In each case, includes 12,067 shares issuable upon exercise of options.
(k) 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 (l) above.
Each of the Selling Stockholders has granted the U.S. Underwriters an
option to purchase up to the additional number of shares of Common Stock set
forth following its name solely to cover overallotments: TPG Partners, L.P.,
1,123,958 shares; TPG Parallel I, L.P., 112,011 shares; Vencap Investment Pte
Ltd, 60,801 shares; BT Investment Partners, 43,610 shares; Westar Capital,
43,610 shares; BankAmerica Investment Corporation, 39,249 shares; TCW/Crescent
Mezzanine Partners, L.P., 19,178 shares; Squam Lake Investors II, L.P., 8,722
shares; Sunapee Securities Inc., 8,722 shares; TCW/Crescent Mezzanine Trust,
5,840 shares; MIG Partners III, 4,361 shares; and TCW/Crescent Mezzanine
Investment Partners, L.P., 526 shares. The Company has also granted the U.S.
Underwriters an option to purchase up to 1,397,112 additional shares of Common
Stock but such option from the Company is exercisable (in whole or in part) by
the U.S. Underwriters only if the U.S. Underwriters have exercised all of the
options granted by the Selling Stockholders.
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<PAGE> 77
The 35,490,461 shares of Common Stock issued to and owned by TPG and other
existing stockholders prior to the Offering were originally acquired in
connection with the 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 $250 million, or $17.00 per share,
for the 14,706,000 shares of Common Stock offered by Del Monte hereby (assuming
an initial public offering price of $17.00 per share). Accordingly, TPG and
other existing stockholders will benefit from an appreciation of $7.16 per share
of Common Stock (approximately $254 million in the aggregate) in the value of
their shares of Common Stock as a result of the Offering (assuming an initial
public offering price of $17.00 per share and no exercise of the U.S.
Underwriters' overallotment option). Moreover, because the Selling Stockholders
are offering 4,412,000 shares of Common Stock in the Offering and are expected
to receive net proceeds of approximately $71 million (assuming an initial public
offering price of $17.00 per share and no exercise of the U.S. Underwriters
overallotment option), they will be able to realize, in part, the gain described
above. See "Dilution."
71
<PAGE> 78
CERTAIN RELATIONSHIPS AND RELATED 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 $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. Such indemnification
may not extend to actions arising under the U.S. federal securities laws. The
Management Advisory Agreement makes available the resources of TPG 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
Management Advisory Agreement does not specify a minimum number of TPG personnel
who must provide such services or the individuals who must provide them, nor
does it require that a minimum amount of time be spent by such personnel on
Company matters. 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 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
arm's-length transaction with an unaffiliated third party.
In connection with the Recapitalization, the Company also entered into a
ten-year agreement dated April 18, 1997 (the "Transaction Advisory Agreement")
with TPG pursuant to which 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,
which included assistance in connection with the evaluation of the fairness of
the Recapitalization and the valuation of the Company in connection therewith.
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 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 any
indebtedness, preferred stock or similar items assumed (or remaining
outstanding). The Transaction Advisory Agreement includes indemnification
provisions similar to those in the Management Advisory Agreement, which
provisions also 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. In connection with
the Offering, TPG expects to receive approximately $4 million as compensation
for its services as financial advisor. In management's opinion, the fees
provided for under the Transaction 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.
Also in connection with the Recapitalization, Del Monte and the holders of
the Common Stock, including TPG and 399 Venture Partners, Inc. ("399 Venture
Partners"), an affiliate of one of the Company's bank lenders, entered into a
stockholders' agreement dated as of April 18, 1997 (the "Stockholders'
Agreement"). 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.
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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 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 March 31, 1998, these loans bore interest at a
rate of 5.62%, which rate is adjusted semi-annually, and are evidenced by
promissory notes which 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, although 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 the Offering, TPG will have the power to influence
substantially and possibly to control the management and policies of the
Company, as well as the determination of 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 of which this
Prospectus is a part.
COMMON STOCK
The Certificate of Incorporation authorizes the issuance of an aggregate of
500,000,000 shares of Common Stock. Upon consummation of the Offering, of those
authorized shares of Common Stock, 50,196,461 shall have been validly issued,
fully paid and nonassessable. Prior to the consummation of the 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 shares 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 the shares 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 the shares 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 of Directors of Del Monte.
PREFERRED STOCK
The Certificate of Incorporation authorizes the issuance of an aggregate of
2,000,000 shares of preferred stock. Upon consummation of the 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
shares 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 shares 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 of Directors of Del Monte 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 the Offering, there were approximately 37,253
shares of Series A Preferred Stock outstanding. The Company intends to use a
portion of the proceeds of the Offering to redeem such 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 loan agreements. 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 will be
required to 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 will 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 will not
have any voting rights with respect thereto, except for such rights as are
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 currently holds approximately 1,315 shares of
the approximately 37,253 shares of Series A Preferred Stock outstanding.
WARRANTS
In connection with the Recapitalization, the Company issued warrants to
purchase at any time prior to the expiration thereof, at an exercise price of
$0.01 per share, subject to adjustment in certain circumstances involving
dilutive transactions, approximately 547,262 shares of Common Stock. The Company
issued the warrants, together with shares of its preferred stock, to TPG and
other investors for $35 million in a private placement in accordance with
Section 4(2) of the Securities Act. All such warrants have been exercised. Under
the Stockholders' Agreement and the Registration Rights Agreement, the Company
has agreed to register under the Securities Act the resale of the Common Stock
received upon exercise of the warrants in certain circumstances.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The Certificate of Incorporation provides for the Board of Directors of Del
Monte to be divided into three classes, as nearly equal in number as possible,
serving staggered terms. Approximately one-third of the Board of Directors will
be elected each year. See "Management." 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 of Directors 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.
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 of Directors or by
the Chairman of the Board. Stockholders are not permitted to call a general
meeting or to require the Board of Directors to call a general meeting.
The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before a general meeting of stockholders of Del Monte, including
proposed nominations of persons for election to the Board of Directors.
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 of Directors 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 of Directors 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 of which this Prospectus forms a
part.
BANK FINANCING
The Bank Financing consists of the Revolving Credit Facility and the Term
Loan Facility. In connection with the Offering, the Company plans to amend the
terms of the Bank Financing pursuant to a Second Amended and Restated Credit
Agreement, a copy of the proposed form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Borrowings under
the amended and restated Bank Financing will be syndicated among a group of
banks, which will be led by Bank of America National Trust and Savings
Association and Bankers Trust Company.
The principal anticipated terms of the Bank Financing, as amended, are
summarized below. Such summaries do not purport to be complete and remain
subject to change pending the execution of the Second Amended and Restated
Credit Agreement. The Company anticipates that such Agreement will be executed
on or prior to the closing of the Offering and that such closing will be a
condition to the initial borrowings thereunder.
Revolving Credit Facility
The amended Revolving Credit Facility will provide for revolving loans in
an aggregate amount of $400 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 amended Revolving Credit Facility will be 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 amended
Revolving Credit Facility will be at DMC's option, either (i) the Base Rate (as
defined) plus 0.50% (the "Applicable Base Rate Margin") or (ii) the reserve
adjusted Offshore Rate (as defined) plus 1.50% (the "Applicable Offshore Rate
Margin"). In addition, DMC will be required to pay to lenders under the amended
Revolving Credit Facility a commitment fee (the "Commitment Fee") of 0.375%,
payable quarterly in arrears, on the unused portion of such Revolving Credit
Facility. DMC will also be required to pay to lenders under the Revolving Credit
Facility letter of credit fees (collectively, the "Letter of Credit Fees") of
1.25% for trade letters of credits and 1.75% for all other 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.
Term Loan Facility
The amended Term Loan Facility will consist of amortizing term loans in an
aggregate amount of $300 million, consisting of a $150 million Tranche A term
loan and a $150 million Tranche B term loan. Interest rates per annum applicable
to the Tranche A term loan will be, at DMC's option, either (i) the Base Rate
plus 0.50%, or (ii) the Offshore Rate plus 1.50%. Interest rates applicable to
the Tranche B term loan will, at DMC's option, either (i) the Base Rate plus
0.875% or (ii) the Offshore Rate plus 1.875%. Additionally, under the terms of
the amended Bank Financing, interest rates applicable to both the Tranche A and
Tranche B term loans will be subject to quarterly adjustment upon attainment of
certain levels of the Senior Debt Ratio.
Amortization/Prepayment
Under the amended Bank Financing, (i) the amended Revolving Credit Facility
will terminate in approximately six years; (ii) the amended Tranche A term loan
will mature in approximately six years; and (iii) the amended Tranche B term
loan will mature in approximately eight years, in each case, after the closing
of the transactions contemplated by the Refinancing. Commencing on September 30,
1999, amortization payments on the amended Tranche A term loan will be required
in quarterly amounts of $7.5 million.
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Also commencing on September 30, 1999, amortization payments on the amended
Tranche B term loan will be required for 24 consecutive quarters in quarterly
amounts of $375,000 and thereafter, commencing on September 30, 2005, in four
quarterly installments of $141 million.
Guarantees and Collateral
Del Monte will guarantee DMC's obligations under the amended Bank
Financing. DMC's obligations will be secured by substantially all personal
property of DMC. Del Monte's guarantee will be secured by a pledge of the stock
of DMC. DMC's obligations also will be secured by first priority liens on
certain of its unencumbered real property fee interests.
Covenants
Pursuant to the terms of the amended Bank Financing, DMC will be required
to meet certain financial tests, certain of which are set forth below. In
addition, DMC will covenant 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 that will apply under
the amended Bank Financing (capitalized terms have the meanings set forth in the
amended 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
1.75 times through March 26, 2000, increasing over specified periods to 2.0
times at June 30, 2002 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 4.25 times through March 28, 1999, decreasing over specified periods to
3.0 times at June 30, 2002 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 4.75
times through June 30, 1999, decreasing at specified dates to 4.0 times at June
30, 2002 and thereafter.
Maximum Capital Expenditures. The aggregate amount of all Capital
Expenditures by the Company for any fiscal year may not exceed $45 million at
June 30, 1998, varying during specified periods to $40 million at June 30, 2001
and thereafter.
Minimum Adjusted Net Worth. The Company may not permit the Net Worth at any
time plus Subordinated Debt Proceeds at such time plus $300 million to be less
than $200 million plus 80% of Cumulative Consolidated Net Income for any
computation period.
Events of Default
The amended Bank Financing will contain customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-defaults, certain events of bankruptcy and insolvency, ERISA
judgment 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.
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
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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 March 4, 1998, Del Monte filed a registration statement with the
Commission in contemplation of an exchange offer whereby the Original Del Monte
Notes will be exchanged into the Del Monte Notes, which will be 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 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, 1998, 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, 1998, 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
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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 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 the Offering, there has been no public market for the shares of
Common Stock. There can be no assurance that an active trading market for the
shares of Common Stock will develop or will continue if it develops. Further,
Del Monte cannot predict the effect, if any, of sales under Rule 144 or Rule
144A 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 the Offering could adversely affect the market price of
the shares of Common Stock prevailing from time to time.
Upon completion of the Offering, Del Monte will have 50,196,461 shares of
Common Stock outstanding (assuming no exercise of the U.S. Underwriters'
overallotment option). Of these shares, the 19,118,000 shares sold in the
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 (an "Affiliate"), which
shares will be subject to the resale limitations of Rule 144 adopted under the
Securities Act ("Rule 144"). Substantially all of the remaining outstanding
shares of Common Stock will be owned by TPG and certain 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 the Company 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
501,964 shares immediately after the 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 such 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.
Rule 144A under the Securities Act ("Rule 144A") would allow the existing
stockholders of Del Monte to sell their current holdings of shares of Common
Stock to qualified institutional buyers (as defined in such Rule), and would
permit resales among such institutions, without regard to any volume or other
restrictions. There can be no assurance that Rule 144A will not have an adverse
effect on the liquidity and trading price of the Common Stock in the public
market.
80
<PAGE> 87
REGISTRATION RIGHTS AGREEMENTS
Under a registration rights agreement (the "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. In the event that the Company
registers shares of Common Stock held by TPG, the Company would also be required
to register pursuant to the Stockholders' Agreement 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.
81
<PAGE> 88
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,
BancAmerica Robertson Stephens, Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are acting
as U.S. Representatives, and the International Underwriters named below, for
whom Morgan Stanley & Co. International Limited, BancAmerica Robertson Stephens,
Bear, Stearns International Limited, BT Alex. Brown International, a division of
Bankers Trust International PLC, and Donaldson, Lufkin & Jenrette International
are acting as International Representatives, have severally agreed to purchase,
and Del Monte and the Selling Stockholders have 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.........................
BancAmerica Robertson Stephens............................
Bear, Stearns & Co. Inc...................................
BT Alex. Brown Incorporated...............................
Donaldson, Lufkin & Jenrette Securities Corporation.......
----------
Subtotal............................................... 15,295,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited................
BancAmerica Robertson Stephens............................
Bear, Stearns International Limited.......................
BT Alex. Brown International, a division of Bankers Trust
International PLC......................................
Donaldson, Lufkin & Jenrette Securities International.....
----------
Subtotal............................................... 3,823,000
----------
Total............................................. 19,118,000
==========
</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
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 U.S.
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.
82
<PAGE> 89
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 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 (the "U.K. Regulations"); (ii) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
and the U.K. Regulations 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 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 and the Selling Stockholders have 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 2,867,700 additional shares of
83
<PAGE> 90
Common Stock, at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Company's portion of such
option (relating to 1,397,112 shares) is exercisable, in whole or in part, only
if all of the Selling Stockholders' portion of such option (relating to
1,470,588 shares) is exercised. See "Principal and Selling Stockholders." The
U.S. Underwriters may exercise such option solely for the purpose of covering
overallotments, if any, made in connection with the 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 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.
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.
Application has been made to list the shares of Common Stock on the New
York Stock Exchange and the Pacific Exchange under the symbol "DLM."
Each of Del Monte, TPG and certain other stockholders of the Company 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 the
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 the 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, which may include Bank of
America National Trust and Savings Association, an affiliate of BancAmerica
Robertson Stephens, and Bankers Trust Company, an affiliate of BT Alex. Brown
Incorporated, may receive in the aggregate an amount greater than 10% of the net
proceeds of the 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 of which this Prospectus forms a part.
84
<PAGE> 91
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.
DIRECTED SHARE PROGRAM
At the request of Del Monte, the Underwriters have reserved for sale, at
the initial offering price, up to 955,900 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 the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
among Del Monte, the Selling Stockholders 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 Preliminary
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 for the year then ended, and as of March 31, 1998, and for the nine months
then ended, appearing in this Prospectus and Registration Statement have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, and
as of June 30, 1996, and for each of the two years in the period ended June 30,
1996, by Ernst & Young LLP, independent certified public accountants, 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.
85
<PAGE> 92
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, 1996 and 1997....... F-3
Consolidated Statements of Operations -- Years ended June
30, 1995, 1996 and 1997................................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit) -- Years ended June 30, 1995, 1996 and 1997..... F-5
Consolidated Statements of Cash Flows -- Years ended June
30, 1995, 1996 and 1997................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Auditors.............................. F-27
Report of Independent Auditors.............................. F-28
Consolidated Balance Sheets -- March 31, 1997 (unaudited)
and March 31, 1998........................................ F-29
Consolidated Statements of Operations -- Nine-month Periods
ended March 31, 1997 (unaudited) and March 31, 1998....... F-30
Consolidated Statement of Stockholders' Equity
(Deficit) -- Nine-month Period ended March 31, 1998....... F-31
Consolidated Statements of Cash Flows -- Nine-month Periods
ended March 31, 1997 (unaudited)
and March 31, 1998........................................ F-32
Notes to Consolidated Financial Statements.................. F-33
CONTADINA (A DIVISION OF NESTLE USA, INC.)
Independent Auditors' Report................................ F-51
Combined Balance Sheets at December 31, 1996 and December
18, 1997.................................................. F-52
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-53
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-54
Notes to Combined Financial Statements for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-55
</TABLE>
F-1
<PAGE> 93
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 the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year 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. The accompanying financial statements
of Del Monte Foods Company and subsidiaries as of June 30, 1996 and for each of
the years in the two-year period ended June 30, 1996 were audited by other
auditors whose report, dated August 29, 1996, except for Note M, as to which the
date is July 22, 1998, and Note N, as to which the date is June 29, 1998, on
those statements included an explanatory paragraph that described the change in
the Company's method of accounting for impairment of long-lived assets and for
long-lived assets to be disposed of discussed in Note A to the financial
statements.
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 1997 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 the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Francisco, California
August 22, 1997, except for Note N,
as to which the date is June 29,
1998, and Note M, as to which the
date is July 22, 1998
F-2
<PAGE> 94
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 6 $ 5
Restricted cash........................................... 30 --
Trade accounts receivable, net of allowance............... 98 67
Other receivables......................................... 8 2
Inventories............................................... 304 339
Prepaid expenses and other current assets................. 13 9
---- ----
Total current assets.............................. 459 422
Property, plant and equipment, net........................ 247 222
Other assets.............................................. 30 23
---- ----
Total assets...................................... $736 $667
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $200 $220
Short-term borrowings..................................... 43 82
Current portion of long-term debt......................... 7 2
---- ----
Total current liabilities......................... 250 304
Long-term debt.............................................. 323 526
Other noncurrent liabilities................................ 236 203
Redeemable common stock ($.01 par value per share,
316,044,300 shares authorized; issued and outstanding:
30,529,113 at June 30, 1996).............................. 2 --
Redeemable preferred stock ($.01 par value per share,
32,493,000 shares authorized; issued and outstanding:
17,300,041 at June 30, 1996; aggregate liquidation
preference: $579)......................................... 213 --
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding:
35,000 at June 30, 1997; aggregate liquidation preference:
$35)...................................................... -- 32
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 325,621,400
shares authorized; issued and outstanding: 42,803,508
in 1996).............................................. -- --
Common stock ($.01 par value per share, 500,000,000
shares authorized;
issued and outstanding: 26,815,880 in 1997).......... -- --
Paid-in capital........................................ 3 129
Retained earnings (deficit)............................ (265) (527)
Cumulative translation adjustment...................... (26) --
---- ----
Total stockholders' equity (deficit).............. (288) (398)
---- ----
Total liabilities and stockholders' equity........ $736 $667
==== ====
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 95
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Net sales........................................... $ 1,527 $ 1,305 $ 1,217
Cost of products sold............................... 1,183 984 819
----------- ----------- -----------
Gross profit...................................... 344 321 398
Selling, advertising, administrative and general
expense........................................... 264 239 327
----------- ----------- -----------
Operating income.................................. 80 82 71
Interest expense.................................... 76 67 52
Loss (gain) on sale of divested assets (Note B)..... -- (123) 5
Other (income) expense (Note D)..................... (11) 3 30
----------- ----------- -----------
Income (loss) before income taxes, minority
interest, extraordinary item and cumulative
effect of accounting change.................... 15 135 (16)
Provision for income taxes.......................... 2 11
Minority interest in earnings of subsidiary......... 1 3 --
----------- ----------- -----------
Income (loss) before extraordinary item and
cumulative effect of accounting change......... 12 121 (16)
Extraordinary loss from refinancing of debt and
early debt retirement............................. 7 10 42
Cumulative effect of accounting change.............. -- 7 --
----------- ----------- -----------
Net income (loss)......................... $ 5 $ 104 $ (58)
=========== =========== ===========
Net income (loss) attributable to common shares..... $ (66) $ 22 $ (128)
=========== =========== ===========
Weighted average numbers of shares outstanding...... 76,671,294 75,047,353 61,703,436
=========== =========== ===========
Income (loss) per common share:
Income (loss) before extraordinary item and
cumulative effect of accounting change............ $ (0.76) $ 0.52 $ (1.40)
Extraordinary loss from early debt retirement....... (0.09) (0.14) (0.67)
Cumulative effect of accounting change.............. -- (0.09) --
----------- ----------- -----------
Net income (loss) per common share.................. $ (0.85) $ 0.29 $ (2.07)
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 96
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, 1994............ $-- $ 3 $(1) $(374) $(12) $(384)
Repurchase of shares................ -- -- -- -- -- --
Net income.......................... -- -- -- 5 -- 5
Cumulative translation adjustment... -- -- -- -- (14) (14)
--- ---- --- ----- ---- -----
Balance at June 30, 1995............ -- 3 (1) (369) (26) (393)
Repayment of notes receivable from
stockholders...................... -- -- 1 -- -- 1
Repurchase 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 loss (as restated).............. -- -- -- (58) -- (58)
Cumulative translation adjustment... -- -- -- -- 26 26
--- ---- --- ----- ---- -----
Balance at June 30, 1997 (as
restated)......................... $-- $129 $-- $(527) $ -- $(398)
=== ==== === ===== ==== =====
</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, 1994............ -- 41,768,032 -- 4,788,550 46,556,582
Repurchase of shares.......... -- (642,241) -- -- (642,241)
---------- ----------- ------ ---------- -----------
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
========== =========== ====== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 97
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1995 1996 1997
------- ------- -------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 5 $ 104 $ (58)
Adjustments to reconcile net income (loss) to net cash
flows:
Extraordinary loss from early debt retirement.......... 7 10 42
Cumulative effect of accounting change................. -- 7 --
Loss (gain) on sale of divested assets................. -- (123) 5
Loss on sales of assets................................ 3 2 3
Depreciation and amortization.......................... 40 31 29
Minority interest in earnings of subsidiary............ 1 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................... (37) 33 24
Inventories............................................ (21) 11 (48)
Prepaid expenses and other current assets.............. 3 (2) 3
Other assets........................................... 4 1 6
Accounts payable and accrued expenses.................. 25 (28) 29
Other non-current liabilities.......................... 33 14 (10)
------- ------- -------
Net cash provided by operating activities......... 63 60 25
Investing activities:
Capital expenditures................................... (24) (16) (20)
Proceeds from sales of fixed assets.................... 3 4 9
Proceeds from sales of divested assets................. -- 182 48
------- ------- -------
Net cash provided by (used in) investing
activities...................................... (21) 170 37
Financing activities:
Short-term borrowings.................................. 1,901 1,276 1,137
Payment on short-term borrowings....................... (1,867) (1,354) (1,098)
Proceeds from long-term borrowings..................... 188 -- 582
Principal payments on long-term debt................... (238) (108) (407)
Deferred debt issuance costs........................... (24) (2) (26)
Prepayment penalty..................................... -- (5) (20)
Payments to previous shareholders for cancellation of
stock................................................ -- -- (422)
Issuance of common and preferred stock................. -- -- 161
Specific Proceeds Collateral Account................... -- (30) 30
Dividends paid to minority shareholders................ (1) -- --
Other.................................................. (3) (1) --
------- ------- -------
Net cash used in financing activities............. (44) (224) (63)
Effect of exchange rate changes on cash and cash
equivalents............................................... 3 (8) --
------- ------- -------
Net change in cash and cash equivalents........... 1 (2) (1)
Cash and cash equivalents at beginning of year.............. 7 8 6
------- ------- -------
Cash and cash equivalents at end of year.......... $ 8 $ 6 $ 5
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 98
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(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") purchased the Del Monte processed foods division of RJR Nabisco, Inc.
effective January 9, 1990 ("the Acquisition"). The Company operates in one
business segment: the manufacturing and marketing of processed foods, primarily
canned vegetables, fruits 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.
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 cancelled and were converted into the
right to receive common stock of the surviving corporation. All other shares of
DMFC stock were cancelled 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 are stated at historical cost. In
connection with the Merger, DMC repaid substantially all of its funded debt
obligations existing immediately before the closing of the Merger.
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.
Restricted Cash: Restricted cash at June 30, 1996 represents a portion of
the proceeds from the Company's sale of its 50.1% interest in Del Monte Pacific
Resources Limited ("Del Monte Philippines"), a joint venture operating primarily
in the Philippines, which were deposited into the Specific Proceeds Collateral
Account until agreement was reached with the Term Loan lenders as to final
application of the funds (see Note B). These funds were used to repurchase
outstanding PIK Notes in September 1996.
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.
F-7
<PAGE> 99
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 equipment and leasehold
amortization was $34, $26 and $24 for the years ended June 30, 1995, 1996 and
1997, respectively.
Revenue Recognition: Revenue from sales of product, and related cost of
product 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 takes place. Advertising expense
was $8, $5 and $6 for the years ended June 30, 1995, 1996 and 1997,
respectively.
Research and Development: Research and development costs are included as a
component of "Selling, advertising, administrative and general expense."
Research and development costs charged to operations were $6, $6 and $5 for the
years ended June 30, 1995, 1996 and 1997, respectively.
Foreign Currency Translation: For the Company's operations in countries
where the functional currency is other than the U.S. dollar, asset and liability
accounts were translated at the rate in effect at the balance sheet date, and
revenue and expense accounts were translated at the average rates during the
period. Translation adjustments were reflected as a separate component of
stockholders' equity.
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.
Fair Value of Financial Instruments: The carrying amount of the Company's
financial instruments, which primarily include cash, 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
Subordinated Notes, approximate their fair value. At June 30, 1997, the fair
value of the Subordinated Notes was $161, as estimated based on quoted market
prices from dealers.
The fair value of the interest rate swap agreements at June 30, 1997 was
$(1). 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.
Net Income (Loss) per Common Share: The Company has adopted the provision
of Statement of Financial Accounting Standards No. 128. Net income (loss) per
common share is computed by dividing net income (loss) attributable to common
shares by the weighted average number of common and redeemable common shares
outstanding during the period (Note E). 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.
Minority Interest: Minority interest represents the minority shareholders'
proportionate share of the earnings of Del Monte Philippines, a consolidated
subsidiary.
F-8
<PAGE> 100
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 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.
Reclassification: Beginning in the fourth quarter of fiscal 1997,
merchandising allowances primarily relating to in-store displays, store
advertising and store coupons, which previously were recorded as a cost of
products sold, have been reclassified to selling expense. Such merchandising
allowances totaled $106, $100 and $143 in the fiscal years ended June 30, 1995,
1996, and 1997, respectively. Due to the nature of the Company's trade promotion
programs and the required performance associated with such programs, the
classification of these costs as selling expense rather than as a cost of
products sold is appropriate. The Company believes that this presentation is
widely practiced in the industry. In addition, certain military distributor
allowances, which previously were treated as a reduction in net sales, have been
reclassified to selling expense. Such military distributor allowances amounted
to $1, $1 and $2 in fiscal years ended June 30, 1995, 1996 and 1997,
respectively. All financial information has been restated to conform to this
presentation.
NOTE B -- 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 sales price for
PDM is subject to adjustment based on the final balance sheet. The amount of any
adjustment to the purchase price is currently in dispute but is not expected to
be material. In addition, the purchasers have alleged, among other things, that
the Company breached the purchase agreement 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. The Company does not believe that this claim will have a material
adverse effect on the Company's financial position or results of operations (see
Note H). 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
Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales............................................... $65 $55 $17
Costs and expenses...................................... 62 50 17
--- --- ---
Income from operations before income taxes.............. 3 5 --
Provision for income taxes.............................. 1 1 --
--- --- ---
Income from Latin American operations................... $ 2 $ 4 $--
=== === ===
</TABLE>
F-9
<PAGE> 101
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 N).
The following results of the Del Monte Philippines operations are included
in the Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------
1995 1996
---- ----
<S> <C> <C>
Net sales................................................... $142 $102
Costs and expenses.......................................... 141 97
---- ----
Income from operations before income taxes.................. 1 5
Provision for income taxes.................................. -- 2
---- ----
Income from operations...................................... $ 1 $ 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. ("Kraft") for $89, net of $4 of related transaction expenses. The sale
resulted in the recognition of a $71 gain, reduced by $2 of taxes.
The following results of the pudding business are included in the
Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------
1995 1996
---- ----
<S> <C> <C>
Net sales................................................... $47 $15
Costs and expenses.......................................... 33 11
--- ---
Income from operations...................................... $14 $ 4
=== ===
</TABLE>
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.
F-10
<PAGE> 102
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C>
Trade Accounts Receivable:
Trade..................................................... $ 99 $ 68
Allowance for doubtful accounts........................... (1) (1)
----- -----
Total trade accounts receivable................... $ 98 $ 67
===== =====
Inventories:
Finished product.......................................... $ 198 $ 239
Raw materials and supplies................................ 12 13
Other, principally packaging material..................... 94 87
----- -----
Total inventories................................. $ 304 $ 339
===== =====
Property, Plant and Equipment:
Land and land improvements................................ $ 44 $ 37
Buildings and leasehold improvements...................... 98 93
Machinery and equipment................................... 240 233
Construction in progress.................................. 9 10
----- -----
391 373
Accumulated depreciation.................................. (144) (151)
----- -----
Property, plant and equipment, net................ $ 247 $ 222
===== =====
Other Assets:
Deferred debt issue costs................................. $ 26 $ 19
Other..................................................... 10 4
----- -----
36 23
Accumulated amortization.................................. (6) --
----- -----
Total other assets................................ $ 30 $ 23
===== =====
Accounts Payable and Accrued Expenses:
Accounts payable -- trade................................. $ 76 $ 79
Marketing and advertising................................. 39 59
Payroll and employee benefits............................. 18 17
Current portion of accrued pension liability.............. 13 12
Current portion of other noncurrent liabilities........... 22 19
Other..................................................... 32 34
----- -----
Total accounts payable and accrued expenses....... $ 200 $ 220
===== =====
Other Noncurrent Liabilities:
Accrued postretirement benefits........................... $ 140 $ 145
Accrued pension liability................................. 48 26
Self-insurance liabilities................................ 12 15
Other..................................................... 36 17
----- -----
Total other noncurrent liabilities................ $ 236 $ 203
===== =====
</TABLE>
F-11
<PAGE> 103
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE D -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings under revolving credit agreements at June 30, 1996
and 1997 were $43 and $82, respectively. Unused amounts under the revolving
credit agreements at June 30, 1996 and 1997 totaled $328 and $242, respectively.
On April 18, 1997, the Company completed the 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.
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 .50% above the Federal Funds Rate and the bank's reference
rate) plus 1.25% or (ii) the reserve adjusted offshore rate plus 2.25% (8.25% at
June 30, 1997). 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% (8.875%
at June 30, 1997).
The Company is required to pay the lenders under the Revolving Credit
Facility a commitment fee of 0.50% 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 1.75% per year for commercial letters of credit and
2.25% 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. Upon
attainment of certain leverage ratios, the base rate margin, offshore rate
margin, as well as the commitment fees and letter of credit fees will be
adjusted. At June 30, 1997, a balance of $26 was outstanding on these letters of
credit.
In addition, on April 18, 1997, the Company issued senior subordinated
notes (the "Unregistered Notes") with an aggregate principal amount of $150 and
received gross proceeds of $147. The Unregistered Notes accrue interest at
12.25% per year, payable semiannually in cash on each April 15 and October 15.
These Unregistered Notes are guaranteed by DMFC and mature on April 15, 2007.
The Unregistered 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. The Unregistered
Notes were issued with registration rights requiring the Company to exchange the
Unregistered Notes for new notes (the "Subordinated Notes") registered under the
Securities Act of 1933, as amended. The form and terms of the Subordinated Notes
are substantially the same as the Unregistered Notes, except that there is no
restriction on the transfer thereof. The Company filed a registration statement
on Form S-4 with respect to the Unregistered Notes on June 12, 1997, which
became effective on June 24, 1997. The exchange of the Unregistered Notes for
the Subordinated Notes was completed on July 31, 1997.
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
F-12
<PAGE> 104
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Term Loan................................................... $ 68 $380
Subordinated Debt........................................... 243 --
Subordinated Notes.......................................... -- 147
Senior Secured Notes........................................ 13 --
Other....................................................... 6 1
---- ----
330 528
Less Current Portion........................................ 7 2
---- ----
$323 $526
==== ====
</TABLE>
At June 30, 1997, scheduled maturities of long-term debt in each of the
next five fiscal years and thereafter will be as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2
1999........................................................ 32
2000........................................................ 36
2001........................................................ 42
2002........................................................ 47
Thereafter.................................................. 372
----
531
Less discount............................................... 3
----
$528
====
</TABLE>
The Term Loan and Revolver are collateralized by security interests in
certain of the Company's assets. At June 30, 1997, total assets that are not
pledged to secure the Debt are less than 10% of the Company's total consolidated
assets. At June 30, 1997, assets totaling $639 were pledged as collateral for
approximately $462 of short-term borrowings and long-term debt.
The Subordinated 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, 1997.
In June 1995, the Company refinanced its then-existing revolving credit
agreement, term loan and Senior Secured Floating Rate Notes. In conjunction with
the refinancing, capitalized debt issue costs of $7 were charged to fiscal 1995
income and were accounted for as an extraordinary item.
At June 30, 1996, a balance of $29 was outstanding on letters of credit.
Letter of credit fees were 2.25% per year for commercial letters of credit and
2.75% per year for all other letters of credit with an additional fee of 0.50%
to the bank issuing such letters of credit. The Company paid a commitment fee to
maintain the lines of credit equal to 0.50% of the unused balance.
F-13
<PAGE> 105
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
At June 30, 1996, the then-existing term loan consisted of three
components. A $31 amortizing component was due in quarterly installments with an
interest rate of LIBOR plus 3.25%. The second component of this loan of $30 and
the third component of $7 were non-amortizing with interest fixed at 11.11% and
LIBOR plus 4.75%, respectively. At June 30, 1996, the interest rate on the $31
component was 8.75% and on the $7 component was 10.25%.
The Senior Secured Notes carried an interest rate of 18%, 14% payable in
cash and 4% payable in-kind in Secondary Notes, at the Company's option.
Interest payments were due quarterly.
Subordinated Debt consisted of Subordinated Guaranteed Payment-in-Kind
Notes ("PIK Notes"). Interest accrued at 12.25% per year and was generally
payable through the issuance of additional PIK Notes. The payment of such
interest in additional PIK Notes since issuance resulted in an increase in the
principal amount outstanding of such indebtedness.
In August 1996, the Company offered to redeem (the "Exchange Offer") a
portion of its outstanding PIK Notes for a cash payment and exchange the
remaining PIK Notes for new Senior Subordinated Guaranteed Pay-in-Kind Notes due
2002 (the "1996 PIK Notes"). On September 11, 1996, the Company repurchased PIK
Notes in an aggregate amount of $102 for a cash payment of $100 and,
concurrently, exchanged essentially all remaining PIK Notes for 1996 PIK Notes
in an aggregate amount of $156. In addition, the $13 Senior Secured Notes
outstanding were repaid. Funding for the Exchange Offer was accomplished through
the application of $30 from the Specific Proceeds Collateral Account held by the
then-existing term lenders, additional borrowing in an aggregate amount of $55
under the then-existing term loan, and borrowing of approximately $36 from the
then-existing revolving credit facility. In conjunction with the Exchange Offer,
capitalized debt issue costs of approximately $4, net of a discount on the PIK
Notes, have been charged to net income in fiscal 1997 and accounted for as an
extraordinary loss.
The Company made cash interest payments of $44, $30 and $24 for the years
ended June 30, 1995, 1996 and 1997, 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 5.875%. The incremental effect on interest expense for 1997 was
insignificant. 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 interest rate swap
agreements. However, the Company does not anticipate nonperformance by the
counterparties.
NOTE E -- 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 cancelled, and were converted into the
right to receive new DMFC common stock. All other shares of DMFC stock were
cancelled and were converted into the right to receive
F-14
<PAGE> 106
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 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 has
outstanding 26,815,880 shares of Common Stock, and 35,000 shares of Preferred
Stock. TPG and certain of its affiliates or partners hold 20,925,580 shares of
DMFC's Common Stock, continuing shareholders of DMFC hold 2,729,857 shares of
such stock, and other investors hold 3,160,443 shares. TPG and certain of its
affiliates hold 17,500 outstanding shares of Series A Preferred Stock, and TCW
Capital Investment Corporation holds 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 has a 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 (exercisable after October 17, 1997) to purchase, at a nominal exercise
price, shares of DMFC Common Stock representing 2% of the 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 is
reflected as redeemable preferred stock.
The two series of preferred stock have 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.
Stockholders' equity at June 30, 1996 included the following classes of
common stock, $.01 par value per share:
<TABLE>
<CAPTION>
SHARES ISSUED AND
CLASS SHARES AUTHORIZED OUTSTANDING
----- ----------------- -----------------
<S> <C> <C>
A.......................................... 191,542,000 38,014,958
B.......................................... 28,731,300 --
E.......................................... 105,348,100 4,788,550
----------- ----------
325,621,400 42,803,508
=========== ==========
</TABLE>
Redeemable common and redeemable preferred stock at June 30, 1996 consisted
of the following:
Redeemable non-voting common stock ($.01 par value per share):
<TABLE>
<CAPTION>
SHARES ISSUED AND
CLASS SHARES AUTHORIZED OUTSTANDING
----- ----------------- -----------------
<S> <C> <C>
C.......................................... 105,348,100 1,322,214
D.......................................... 105,348,100 19,629,799
F.......................................... 105,348,100 9,577,100
----------- ----------
316,044,300 30,529,113
=========== ==========
</TABLE>
F-15
<PAGE> 107
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Redeemable preferred stock ($.01 par value per share):
<TABLE>
<CAPTION>
SHARES ISSUED AND
SERIES SHARES AUTHORIZED OUTSTANDING
------ ----------------- -----------------
<S> <C> <C>
A Cumulative (issuable in subseries A1 and
A2)........................................ 16,523,000 8,336,795
B Cumulative................................. 3,616,000 1,602,845
C Cumulative................................. 2,900,000 1,522,353
D Cumulative................................. 1,454,000 1,356,955
E Cumulative................................. 5,000,000 3,328,002
F Cumulative................................. 3,000,000 1,153,091
---------- ----------
32,493,000 17,300,041
========== ==========
</TABLE>
The Company declared dividends for the following series of redeemable
preferred stock:
<TABLE>
<CAPTION>
DIVIDEND RATE PER SHARE
YEAR ENDED JUNE 30,
-----------------------
SERIES 1995 1996 1997
------ ----- ----- -----
<S> <C> <C> <C>
A1................................................ $3.80 $3.81 $1.92
B................................................. $3.87 $3.87 $1.95
D................................................. $3.93 $3.94 $1.98
E................................................. $3.93 $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,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Additional shares...................... 1,564,117 1,824,999 1,027,406
Total par value........................ $ 0.016 $ 0.018 $ 0.010
</TABLE>
In the Recapitalization, all of the redeemable preferred stock issued prior
to April 18, 1997 was either cancelled and converted into the right to receive
new DMFC common stock or cancelled and converted into the right to receive cash
consideration as set forth in the Merger Agreement.
F-16
<PAGE> 108
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item and
cumulative effect of accounting change........... $ 12 $ 121 $ (16)
Preferred stock dividends........................... (71) (82) (70)
----------- ----------- -----------
Numerator for basic and diluted earning (loss) per
share -- income (loss) attributable to common
shares before extraordinary items and cumulative
effect of accounting change...................... $ (59) $ 39 $ (86)
=========== =========== ===========
Denominator for basic and diluted earnings (loss) per
common share -- weighted-average shares............. 76,671,294 75,047,353 61,703,436
=========== =========== ===========
Basic and diluted income (loss) per common share
before extraordinary item and cumulative effect of
accounting change................................... $ (0.76) $ 0.52 $ (1.40)
=========== =========== ===========
Extraordinary loss.................................... $ 7 $ 10 $ 42
=========== =========== ===========
Extraordinary loss per common share................... $ (0.09) $ (0.14) $ (0.67)
=========== =========== ===========
Cumulative effect of accounting change................ -- $ 7 --
=========== =========== ===========
Cumulative effect of accounting change per common
share............................................... -- $ (0.09) --
=========== =========== ===========
</TABLE>
For the period from April 18, 1997 to June 30, 1997, since the effect of
inclusion of potentially dilutive securities in the denominator of diluted loss
per share was antidilutive, 547,262 warrants were excluded from the computation.
NOTE F -- 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 expected to be earned in the
future. Del Monte's defined benefit retirement plans have been 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.
F-17
<PAGE> 109
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The following table sets forth the pension plans' funding status and
amounts recognized on the Company's balance sheet:
<TABLE>
<CAPTION>
JUNE 30,
--------------
1996 1997
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(265) $(269)
===== =====
Accumulated benefit obligation.............................. $(270) $(274)
===== =====
Projected benefit obligation for services rendered to
date...................................................... $(277) $(279)
Plan assets at fair value................................... 245 276
----- -----
Projected benefit obligation in excess of plan assets....... (32) (3)
Unrecognized net actuarial gain............................. (27) (34)
Unrecognized prior service income........................... (2) (1)
----- -----
Accrued pension cost recognized in the consolidated balance
sheet..................................................... $ (61) $ (38)
===== =====
</TABLE>
The components of net periodic pension cost for the years ended June 30,
1995, 1996 and 1997 for all defined benefit plans are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1995 1996 1997
---- -------- ----
<S> <C> <C> <C>
Service cost for benefits earned during period.............. $ 4 $ 4 $ 3
Interest cost on projected benefit obligation............... 22 21 21
Actual return on plan assets................................ (31) (32) (35)
Net amortization and deferral............................... 11 11 13
---- ---- ----
Net periodic pension cost................................... $ 6 $ 4 $ 2
==== ==== ====
</TABLE>
Significant rate assumptions used in determining net periodic pension cost
and related pension obligations are as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate used in determining projected benefit
obligation................................................ 7.75% 8.0% 7.75%
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 each of the years ended June 30, 1995,
1996 and 1997 were $4. 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 $3, $2, and $1 for the years ended June 30, 1995, 1996, and 1997,
respectively.
The Company provided retirement benefits under various arrangements to
substantially all employees in foreign locations who were not covered under the
above plans. Generally, benefits under these arrangements were based on years of
service and levels of salary. The majority of the Company's foreign plans were
commonly referred to as termination indemnities. The plans provided employees
with retirement benefits in accordance with programs mandated by the governments
of the countries in which such employees worked. The expense and related
liabilities associated with these arrangements were recorded by the Company
based on established formulas, with funding generally occurring when employees
ceased active service.
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.
F-18
<PAGE> 110
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Net periodic postretirement benefit cost for the fiscal years 1995, 1996
and 1997 included the following components:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $ 2 $ 2 $ 1
Interest cost............................................... 9 9 9
Amortization of prior service cost.......................... -- -- (1)
Amortization of actuarial losses (gains).................... -- (3) (3)
Curtailment gain............................................ -- (4) --
--- --- ---
Net periodic postretirement benefit cost.................... $11 $ 4 $ 6
=== === ===
</TABLE>
The Company amortizes unrecognized gains and losses at the end of the
fiscal year over the expected remaining service of active employees. The
curtailment gain results from a reduction in personnel in fiscal 1996. The
following table sets forth the plans' combined status reconciled with the amount
included in the consolidated balance sheet:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees.......................................... $ 85 $ 80
Fully eligible active plan participants................... 16 11
Other active plan participants............................ 18 13
---- ----
119 104
Unrecognized prior service cost........................... -- 10
Unrecognized gain......................................... 30 38
---- ----
Accrued postretirement benefit cost....................... $149 $152
==== ====
</TABLE>
For fiscal years 1996 and 1997, the weighted average annual assumed rate of
increase in the health care cost trend is 13.33% and 12.42%, respectively, 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, 1997 by $10 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $1.
The discount rate used in determining the accumulated postretirement
benefit obligation as of June 30, 1997 was 7.75%. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation as of
June 30, 1996 was 8.32%.
F-19
<PAGE> 111
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE G -- PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
---- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Income (loss) before minority interest and taxes:
Domestic........................................... $2 $106 $(58)
Foreign............................................ 6 12 1
-- ---- ----
$8 $118 $(57)
== ==== ====
Income tax provision (benefit)
Current:
Federal......................................... $-- $ 5 $ --
Foreign and state............................... 1 6 --
-- ---- ----
Total current................................... 1 11 --
-- ---- ----
Deferred:
Federal......................................... -- -- --
Foreign and state............................... 1 -- --
-- ---- ----
Total deferred.................................. 1 -- --
-- ---- ----
$2 $ 11 $ --
== ==== ====
</TABLE>
Pre-tax income for foreign operations includes income of all operations
located outside the United States, some of which are currently subject to U.S.
taxing jurisdictions.
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------------
1996 1997
---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C>
Deferred tax assets:
Post employment benefits.................................. $ 53 $ 53
Pension expense........................................... 24 16
Workers' compensation..................................... 7 8
Leases and patents........................................ 5 4
State income taxes........................................ -- 14
Other..................................................... 20 24
Net operating loss and tax credit carryforward............ 16 33
---- -----
Gross deferred tax assets.............................. 125 152
Valuation allowance.................................... (92) (122)
---- -----
Net deferred tax assets................................ 33 30
Deferred tax liabilities:
Depreciation.............................................. 30 30
Other..................................................... 3 --
---- -----
Gross deferred liabilities............................. 33 30
---- -----
Net deferred tax asset................................. $ -- $ --
==== =====
</TABLE>
F-20
<PAGE> 112
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The net change in the valuation allowance for the years ended June 30, 1996
and 1997 was a decrease of $33 and an increase of $30, respectively. The Company
believes that, based on a history of tax losses and the related absence of
recoverable prior taxes through net operating loss carryback, it is more likely
than not that the net operating losses and the deferred tax assets will not be
realized. Therefore, a full valuation allowance in the amount of $122 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,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes (benefit) computed at the statutory U.S.
federal income tax rates.................................. $2 $42 $(19)
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) --
-- --- ----
Provision for income taxes.................................. $2 $11 $ --
== === ====
</TABLE>
As of June 30, 1997, the Company had operating loss carryforwards for tax
purposes available from domestic operations totaling $84 which will expire
between 2008 and 2012.
Extraordinary losses from refinancing of debt and early debt retirement and
the cumulative effect of change in accounting principle did not have any tax
effect due to the Company's current tax position.
The Company made income tax payments of $3, $5 and $4 for the years ended
June 30, 1995, 1996 and 1997, respectively.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment and office and plant
facilities. At June 30, 1997, 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>
1998........................................................ $14
1999........................................................ 13
2000........................................................ 12
2001........................................................ 9
2002........................................................ 6
Thereafter.................................................. 41
---
$95
===
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of $7
due through 2016 under noncancelable subleases.
Rent expense was $32, $28, and $32 for fiscal years ended June 30, 1995,
1996, and 1997, 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 $68,
F-21
<PAGE> 113
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
$54, and $114 for the years ended June 30, 1995, 1996, and 1997, respectively.
The Company also has commitments to purchase certain finished goods.
At June 30, 1997, aggregate future payments under such purchase commitments
(priced at the June 30, 1997 estimated cost) are estimated as follows:
<TABLE>
<S> <C>
1998........................................................ $ 68
1999........................................................ 56
2000........................................................ 44
2001........................................................ 33
2002........................................................ 26
Thereafter.................................................. 60
----
$287
====
</TABLE>
In addition, the Company expects to purchase $46 in fiscal 1998 under the
supply agreement for pineapple products entered into in conjunction with the
sale of the Del Monte Philippines operations (see Note B).
Effective August 13, 1993, DMC sold its dried fruit and snack operations to
Yorkshire Dried Fruits and Nuts, Inc., ("YDFNI"). In connection with this asset
sale, DMC entered into certain agreements with YDFNI which, among other things,
grant YDFNI the right to use certain Del Monte trademarks. Under these
agreements, as a service to, and for the benefit of YDFNI, DMC purchased and
resold certain of the former DMC dried fruit and snack products. This resale
agreement was terminated by the Company as of June 30, 1997.
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 in fiscal 1997 amounted to $134. 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.
In May 1992, DMC entered into an exclusive supply agreement (the
"Agreement") with Pacific Coast Producers ("PCP"), a canned fruit and tomato
processor, to purchase substantially all of PCP's tomato and fruit production
commencing July 1, 1992. PCP continued to own and operate its production
facilities, as well as purchase raw products via its established grower network.
The Agreement was to expire in June 1998 with optional successive five-year
extensions. Total payments under the Agreement for the twelve months ended June
30, 1995 were $186.
The Federal Trade Commission ("FTC") conducted an investigation to
determine whether the supply arrangement was in violation of certain U.S.
antitrust laws. In January 1995, the Company and PCP agreed to terminate their
supply and purchase option agreements in settlement of the FTC investigation. In
response to the Company's actions, the FTC issued a final consent order on April
18, 1995. A consent agreement does not constitute an admission of any violation
of law. The option and supply agreements were terminated in late fiscal 1995. As
a condition of the termination, the Company was required to make a termination
payment of $4 to PCP.
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 functions for all domestic
operations. Payments under the terms of the agreement are based on scheduled
F-22
<PAGE> 114
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
monthly base charges subject to various adjustments such as system usage and
inflation. Total payments for the twelve months ended June 30, 1995, 1996, and
1997 were $16, $16, and $18, respectively. The agreement expires in November
2002 with optional successive one-year extensions.
At June 30, 1997, base charge payments under the agreement are as follows:
<TABLE>
<S> <C>
1998........................................................ $14
1999........................................................ 14
2000........................................................ 13
2001........................................................ 13
2002........................................................ 13
Thereafter.................................................. 6
---
$73
===
</TABLE>
Del Monte has a concentration of labor supply in employees working under
union collective bargaining agreements, which represent approximately 75% of its
hourly and seasonal work force. Of these represented employees, 7% of employees
are under agreements that will expire in 1998.
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. The purchasers have claimed
damages in excess of $10 as a result of these alleged breaches. 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 have
been held in escrow and will 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. Separately, the
purchasers claim that they are entitled to receive from the Company as a
purchase price adjustment an additional approximately $2 pursuant to provisions
of the purchase agreement. The Company does not believe that these claims, in
the aggregate, will have a material adverse effect on the Company's financial
position or results of operations.
NOTE I -- FOREIGN OPERATIONS AND GEOGRAPHIC DATA
The Company's earnings have historically been derived in part from foreign
operations. As of November 1996, all of these operations had been sold.
Transfers between geographic areas have been accounted for as intercompany
sales, and transfer prices have been based generally on negotiated contracts.
F-23
<PAGE> 115
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,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net Sales:
United States.......................................... $1,331 $1,147 $1,203
Philippines............................................ 180 142 --
Latin America.......................................... 65 55 17
Transfer between geographic areas...................... (49) (39) (3)
------ ------ ------
Total net sales................................ $1,527 $1,305 $1,217
====== ====== ======
Operating income (loss):
United States.......................................... $ 64 $ 65 $ 71
Philippines............................................ 11 12 --
Latin America.......................................... 5 5 --
------ ------ ------
Total operating income......................... $ 80 $ 82 $ 71
====== ====== ======
Assets:
United States.......................................... $ 754 $ 701 $ 667
Philippines............................................ 164 -- --
Latin America.......................................... 42 35 --
------ ------ ------
Total assets................................... $ 960 $ 736 $ 667
====== ====== ======
Liabilities of the Company's operations located in
foreign countries...................................... $ 128 $ 7 $ --
====== ====== ======
</TABLE>
NOTE J -- DEL MONTE CORPORATION
DMC is directly-owned and wholly-owned by DMFC. In the fiscal years ended
June 30, 1996 and 1997, DMC and DMC's subsidiaries accounted for 100% of the
consolidated revenues and net earnings of the Company. In the fiscal year ended
June 30, 1995, DMC and DMC's subsidiaries accounted for all of the consolidated
revenues and net earnings of the Company except for proceeds recorded by DMFC
from a $30 letter of credit related to the termination of an Agreement and Plan
of Merger (see Note K). As of June 30, 1996 and 1997, the Company's sole asset,
other than intercompany receivables from DMC, was the stock of DMC. The Company
had no subsidiaries other than DMC and DMC's subsidiaries, and had no direct
liabilities other than intercompany payables to DMC. The Company is separately
liable under various guarantees of indebtedness of DMC, which guarantees of
indebtedness are full and unconditional.
NOTE K -- TERMINATION OF AGREEMENT AND PLAN OF MERGER
On June 27, 1994 the Company entered into an Agreement and Plan of Merger
with Grupo Empacador de Mexico, S.A. de C.V., and CCP Acquisition Company of
Maryland, Inc. (the "Purchasers"). The Purchasers 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 Agreement and Plan
of Merger provided that the Company was entitled to terminate the Agreement and
Plan of Merger 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,
the Company terminated the Agreement and Plan of Merger in accordance with its
terms.
F-24
<PAGE> 116
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Pursuant to the Agreement and Plan of Merger, the Purchasers caused a $30
letter of credit (the "Letter of Credit") to be issued by Banco Union, S.A., a
Mexican bank affiliated with Mr. Cabal, and confirmed by Midland Bank plc, New
York Branch, in favor of the Company. Under the terms of the Agreement and Plan
of Merger, the Company was entitled to draw under the Letter of Credit if the
effective date of the Proposed Acquisition failed to occur on or prior to
September 19, 1994. Because the Proposed Acquisition did not close by September
19, 1994, on September 20, 1994 the Company drew $30 under the Letter of Credit.
This amount, net of $4 of related transaction expenses, is included in "Other
(income) expense". The cash was applied to the repayment of indebtedness then
outstanding under the Company's revolving credit agreement.
NOTE L -- 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 $0.5 and 0.05%
of the budgeted consolidated net sales of the Company. 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 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 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
arm's-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 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. TPG also is entitled to
receive fees up to 1.5% of the "transaction value" for each subsequent
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
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 arm's-length transaction with an
unaffiliated third party.
NOTE M -- SUBSEQUENT EVENT
In connection with the Company's proposed public offering of shares of its
Common Stock, on July 22, 1998, the Company declared 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 have been retroactively
adjusted to give effect to the Stock Split.
F-25
<PAGE> 117
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE N -- 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 B). 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-26
<PAGE> 118
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, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended June 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Del Monte Foods Company and subsidiaries at June 30, 1996, and the consolidated
results of their operations and their cash flows for the years ended June 30,
1996 and 1995 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 N, as to which the date is
June 29, 1998, and Note M, as to which the date is
July 22, 1998
F-27
<PAGE> 119
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 March 31, 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the nine-month period 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 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 financial position of
Del Monte Foods Company and subsidiaries as of March 31, 1998 and the
consolidated results of their operations and their cash flows for the nine-month
period then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Francisco, California
May 1, 1998, except for Note O,
as to which the date is June 29,
1998, and the third paragraph of
Note M, as to which the
date is July 22, 1998
F-28
<PAGE> 120
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1998
----------- ----------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6 $ 4
Restricted cash........................................... 2 --
Trade accounts receivable, net of allowance............... 84 104
Other receivables......................................... 3 5
Inventories............................................... 381 467
Prepaid expenses and other current assets................. 4 10
----- ------
Total current assets.............................. 480 590
Property, plant and equipment, net.......................... 229 298
Intangibles................................................. 16
Other assets................................................ 30 24
----- ------
Total assets...................................... $ 739 $ 928
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 236 $ 278
Short-term borrowings..................................... 42 68
Current portion of long-term debt......................... 16 24
----- ------
Total current liabilities......................... 294 370
Long-term debt.............................................. 252 678
Other noncurrent liabilities................................ 221 202
Redeemable common stock ($.01 par value per share,
316,044,300 shares authorized; issued and outstanding:
30,529,113 at March 31, 1997)............................. 2 --
Redeemable preferred stock ($.01 par value per share,
32,493,000 shares authorized; issued and outstanding:
18,327,449 at March 31, 1997; aggregate liquidation
preference: $649)......................................... 213 --
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding 37,253
at March 31, 1998; aggregate liquidation preference
$40)...................................................... -- 32
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 325,621,400 shares
authorized; issued and outstanding: 42,803,508 at March
31, 1997).............................................. -- --
Common stock ($.01 par value per share, 500,000,000 shares
authorized; issued and outstanding: 34,943,199 at March
31, 1998).............................................. -- --
Paid-in capital........................................... 3 173
Retained earnings (deficit)............................... (246) (527)
----- ------
Total stockholders' equity (deficit).............. (243) (354)
----- ------
Total liabilities and stockholders' equity........ $ 739 $ 928
===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-29
<PAGE> 121
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
------------- ----------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $ 936 $ 968
Cost of products sold....................................... 634 655
---------- ----------
Gross profit........................................... 302 313
Selling, advertising, administrative and general expense.... 235 249
Acquisition expenses........................................ -- 7
---------- ----------
Operating income....................................... 67 57
Interest expense............................................ 37 58
Loss on sale of divested assets............................. 5 --
Other income................................................ -- (1)
---------- ----------
Income before income taxes and extraordinary item...... 25 --
Provision for income taxes.................................. 2 --
---------- ----------
Income before extraordinary item....................... 23 --
Extraordinary loss from early debt retirement............... 4 --
---------- ----------
Net income............................................. $ 19 $ --
========== ==========
Net loss attributable to common shares...................... $ (51) $ (4)
========== ==========
Weighted average number of shares outstanding............... 73,332,621 30,389,671
========== ==========
Loss per common share:
Loss before extraordinary item......................... $ (0.64) $ (0.12)
Extraordinary loss from early debt retirement.......... (0.05) --
---------- ----------
Net loss per common share......................... $ (0.69) $ (0.12)
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-30
<PAGE> 122
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOTES TOTAL
RECEIVABLE RETAINED STOCKHOLDERS'
COMMON COMMON PAID-IN FROM EARNINGS EQUITY
SHARES STOCK CAPITAL STOCKHOLDERS (DEFICIT) (DEFICIT)
---------- ------ ------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 (as
restated).................. 26,815,880 -- 129 -- (527) (398)
Issuance of shares........... 8,127,319 -- 44 -- -- 44
Net income (as restated)..... -- -- -- -- -- --
---------- ---- ---- ---- ----- -----
Balance at March 31, 1998 (as
restated).................. 34,943,199 $ -- $173 $ -- $(527) $(354)
========== ==== ==== ==== ===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-31
<PAGE> 123
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
----------- ----------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net income................................................ $ 19 $ --
Adjustments to reconcile net income to net cash flows:
Extraordinary loss from early debt retirement.......... 4 --
Loss on sale of divested assets........................ 5 --
Loss (gain) on sales of assets......................... -- 1
Depreciation and amortization.......................... 22 23
Other.................................................. -- 2
Changes in operating assets and liabilities net of
effect of acquisition:
Accounts receivable.................................. 7 (40)
Inventories.......................................... (90) (24)
Prepaid expenses and other current assets............ 7 3
Other assets......................................... -- (1)
Accounts payable and accrued expenses................ 44 46
Other non-current liabilities........................ 8 (1)
----- -----
Net cash provided by operating activities............ 26 9
Investing activities:
Capital expenditures................................... (12) (15)
Proceeds from sales of assets.......................... 1 5
Proceeds from sales of divested assets................. 50 --
Acquisition of business................................ -- (195)
----- -----
Net cash provided by (used in) investing
activities.......................................... 39 (205)
Financing activities:
Short-term borrowings.................................. 929 261
Payment on short-term borrowings....................... (930) (275)
Proceeds from long-term borrowings..................... 55 176
Principal payments on long-term debt................... (140) (2)
Deferred debt issuance costs........................... (7) (7)
Issuance of common and preferred stock................. -- 42
Specific Proceeds Collateral Account................... 28 --
----- -----
Net cash provided by (used in) financing
activities.......................................... (65) 195
Net change in cash and cash equivalents.............. -- (1)
Cash and cash equivalents at beginning of period............ 6 5
----- -----
Cash and cash equivalents at end of period........... $ 6 $ 4
===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-32
<PAGE> 124
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER 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, fruits 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. The Company reports its
financial results on a July 1 to June 30 fiscal year basis.
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.
F-33
<PAGE> 125
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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 equipment and leasehold
amortization was $20 for the nine-month period ended March 31, 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 products 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 takes place. Advertising expense
was $1 for the nine months ended March 31, 1998.
Research and Development: Research and development costs are included as a
component of "Selling, advertising, administrative and general expense."
Research and development costs charged to operations were $4 for the nine-month
period ended March 31, 1998.
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.
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 March 31, 1998, the fair value of the Senior Subordinated Notes was $170 and
of the Senior Discount Notes was $153, as estimated based on quoted market
prices from dealers.
The fair value of the interest rate swap agreements at March 31, 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.
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 income (loss) attributable to common
shares by the weighted average number of common and redeemable common shares
outstanding during the period. 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.
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.
F-34
<PAGE> 126
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE B -- ACQUISITION
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, employee benefits and
product claims. In connection with the Contadina Acquisition, approximately $7
of acquisition-related expenses were incurred.
The Contadina 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 subject to adjustment to actual amounts, primarily in the area of accrued
liabilities. Any subsequent adjustments are expected to occur by fiscal year end
and are not expected to be material. Allocation of the $195 purchase price is as
follows: inventory $95, prepaid expenses $5, property, plant and equipment $84,
intangibles $16 and accrued liabilities $5.
Results of operations of the Contadina Acquisition are included in the
Consolidated Statement of Operations for March 31, 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>
NINE MONTHS ENDED
MARCH 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Net sales............................................ $1,064 $1,060
Operating income..................................... 64 53
Net income (loss) before extraordinary item.......... 4 (16)
Net income (loss).................................... $ -- $ (16)
====== ======
Net loss attributable to common shares............... $ (70) $ (20)
====== ======
Loss per share....................................... $(0.95) $(0.57)
====== ======
</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.
F-35
<PAGE> 127
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1998
----------- ----------
(UNAUDITED) (RESTATED)
<S> <C> <C>
Trade Accounts Receivable:
Trade..................................................... $ 85 $105
Allowance for doubtful accounts........................... (1) (1)
---- ----
Total trade accounts receivable................... $ 84 $104
==== ====
Inventories:
Finished product.......................................... $317 $390
Raw materials and supplies................................ 6 12
Other, principally packaging material..................... 58 65
---- ----
Total inventories................................. $381 $467
==== ====
Property, Plant and Equipment:
Land and land improvements................................ $ 43 $ 41
Buildings and leasehold improvements...................... 94 106
Machinery and equipment................................... 230 304
Construction in progress.................................. 11 15
---- ----
378 466
Accumulated depreciation.................................. (149) (168)
---- ----
Property, plant and equipment, net................ $229 $298
==== ====
Intangible Assets:
Trademark................................................. $ -- $ 16
Accumulated amortization.................................. -- --
---- ----
Intangible assets, net............................ $ -- $ 16
==== ====
Other Assets:
Deferred debt issue costs................................. $ 26 $ 26
Other..................................................... 11 --
---- ----
37 26
Accumulated amortization.................................. 7 2
---- ----
Total other assets................................ $ 30 $ 24
==== ====
Accounts Payable and Accrued Expenses:
Accounts payable--trade................................... $ 58 $ 67
Marketing and advertising................................. 71 84
Payroll and employee benefits............................. 17 18
Current portion of accrued pension liability.............. 13 12
Current portion of other noncurrent liabilities........... 22 15
Accrued production costs.................................. 31 34
Other..................................................... 24 48
---- ----
Total accounts payable and accrued expenses....... $236 $278
==== ====
Other Noncurrent Liabilities:
Accrued postretirement benefits........................... $142 $144
Accrued pension liability................................. 40 18
Self-insurance liabilities................................ 16 8
Other..................................................... 23 32
---- ----
Total other noncurrent liabilities................ $221 $202
==== ====
</TABLE>
F-36
<PAGE> 128
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE D -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings under the revolving credit agreement at March 31,
1998 were $68. Unused amounts under the revolving credit agreement at March 31,
1998 totaled $282.
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. If the Company does not comply with its
obligations under the Registration Rights Agreement, the Company will be
required to pay an additional 0.5% 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 the 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
conjunction with the Recapitalization, $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% (7.8750%
at March 31, 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%
(8.6875% at March 31, 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
March 31, 1998, a balance of $26 was outstanding on these letters of credit.
F-37
<PAGE> 129
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1998
----------- ----
(UNAUDITED)
<S> <C> <C>
Term Loan........................................... $112 $429
Subordinated Debt................................... 155 --
Senior Subordinated Notes........................... -- 147
Senior Discount Notes............................... -- 126
Other............................................... 1 --
---- ----
268 702
Less current portion................................ 16 24
---- ----
$252 $678
==== ====
</TABLE>
At March 31, 1998, scheduled maturities of long-term debt in each of the
next five fiscal years and thereafter will be as follows:
<TABLE>
<S> <C>
4(th) Quarter 1998.......................................... $ 1
1999........................................................ 32
2000........................................................ 37
2001........................................................ 42
2002........................................................ 47
2003........................................................ 52
Thereafter.................................................. 598
----
809
Less discount on notes...................................... 107
----
$702
====
</TABLE>
The Term Loan and Revolver are collateralized by security interests in
certain of the Company's assets. At March 31, 1998, total assets that are not
pledged to secure debt are less than 10% of the Company's total consolidated
assets. At March 31, 1998, assets totaling $875 were pledged as collateral for
approximately $497 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
F-38
<PAGE> 130
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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 March 31, 1998.
The Company made cash interest payments of $48 for the nine months ended
March 31, 1998.
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 6.3750% and received a weighted
average rate of 5.6875%. The incremental effect on interest expense for the nine
months ended March 31, 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 interest rate swap agreements. However, the Company does not anticipate
nonperformance by the counterparties.
NOTE E -- 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 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
F-39
<PAGE> 131
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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
is reflected as redeemable preferred stock.
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 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 $4 for the nine months
ended March 31, 1998 consisting of $1 of additional shares issued and $3 of
accretion of liquidation value.
NOTE F -- EARNINGS PER SHARE
The following table set forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Numerator:
Income before extraordinary item.......... $ 23 $ --
Preferred stock dividends................. (70) (4)
----------- -----------
Numerator for basic and diluted earnings
per share -- loss attributable to
common stock before extraordinary
item................................... $ (47) $ (4)
=========== ===========
Denominator:
Denominator for basic and diluted earnings
per share -- weighted-average shares... 73,332,621 30,389,671
=========== ===========
Basic and diluted loss per common share
before extraordinary item................. $ (0.64) $ (0.12)
=========== ===========
</TABLE>
Since the effect of inclusion of potentially dilutive securities in the
denominator of the diluted loss per share was antidilutive, 547,262 warrants and
774,979 weighted average options were excluded from the computation for the
period ended March 31, 1998.
F-40
<PAGE> 132
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE G -- 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 grant. 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 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. These options terminate 10 years from the date of
grant and vest monthly on a proportionate basis over four years.
<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 March 31, 1998.............................. $5.22 1,838,995
Exercisable at March 31, 1998.............................. $5.22 298,806
Available for grant at March 31, 1998...................... $5.22 94,813
</TABLE>
The weighted-average remaining contractual life for the above options is
9.1 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 with an exercise price 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
F-41
<PAGE> 133
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
SFAS 123, results in a pro forma net income of zero and a pro forma loss per
common share of $(0.13) for the nine months ended March 31, 1998.
The Del Monte Foods Company 1998 Stock Option Plan (the "1998 Stock Option
Plan") was approved on April 24, 1998. Under the 1998 Stock Option Plan, grants
of incentive and nonqualified stock options ("Options"), stock appreciation
rights ("SARs") and stock bonuses (together with Options and SARs, "Awards")
representing 3,064,672 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. No Awards have been made under the 1998 Stock Option
Plan.
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 March 31, 1998,
454,146 shares of the Company's common stock were 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 all stock plans
for the nine months ended March 31, 1998 was $2.
NOTE H -- 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.
F-42
<PAGE> 134
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The following table sets forth the pension plans' funding status and
amounts recognized on the Company's balance sheet at March 31, 1998:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(279)
=====
Accumulated benefit obligation.............................. $(287)
=====
Projected benefit obligation for services rendered to
date...................................................... $(294)
Plan assets at fair value................................... 298
-----
Plan assets in excess of projected benefit obligation....... 4
Unrecognized net actuarial gain............................. (33)
Unrecognized prior service income........................... (1)
-----
Accrued pension cost recognized in the consolidated balance
sheet..................................................... $ (30)
=====
</TABLE>
The components of net periodic pension cost for the nine months ended March
31, 1998 for all defined benefit plans are as follows:
<TABLE>
<S> <C>
Service cost for benefits earned during period.............. $ 2
Interest cost on projected benefit obligation............... 16
Actual return on plan assets................................ (32)
Net amortization and deferral............................... 13
----
Net periodic pension cost................................... $ (1)
====
</TABLE>
Significant rate assumptions used in determining net periodic pension cost
and related pension obligations at March 31, 1998 are as follows:
<TABLE>
<S> <C>
Discount rate used in determining projected benefit
obligation................................................ 7.0%
Rate of increase in compensation levels..................... 5.0
Long-term rate of return on assets.......................... 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 nine-month period ended March 31,
1998 was $5. 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 nine-month period ended March 31, 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 for the nine months ended March
31, 1998 included the following components:
<TABLE>
<S> <C>
Service cost................................................ $ 1
Interest cost............................................... 6
Amortization of prior service cost.......................... (1)
Amortization of actuarial losses (gains).................... (2)
---
Net periodic postretirement benefit cost.................... $ 4
===
</TABLE>
F-43
<PAGE> 135
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER 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 at March 31, 1998:
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Current retirees.......................................... $ 86
Fully eligible active plan participants................... 11
Other active plan participants............................ 15
----
112
Unrecognized prior service cost........................... 9
Unrecognized gain......................................... 31
----
Accrued postretirement benefit cost....................... $152
====
</TABLE>
For the nine months ended March 31, 1998, the weighted average annual
assumed rate of increase in the health care cost trend is 12.42%, 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 March 31, 1998 by $11 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 March 31, 1998 was 7.00%.
NOTE I -- PROVISION FOR INCOME TAXES
The provision for income taxes at March 31, 1998 consists of the following:
<TABLE>
<S> <C>
Income before taxes (restated).............................. $ --
=====
Income tax provision(benefit)
Current:
Federal................................................ $ --
State.................................................. --
-----
Total current............................................. --
-----
Deferred:
Federal................................................ --
State.................................................. --
-----
Total deferred............................................ --
-----
$ --
=====
</TABLE>
F-44
<PAGE> 136
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Significant components of the Company's deferred tax assets and liabilities
as of March 31, 1998 are as follows (restated):
<TABLE>
<S> <C>
Deferred tax assets:
Post employment benefits.................................. $ 53
Pension expense........................................... 14
Purchase accounting....................................... 7
Inventory valuation....................................... 8
Workers' compensation..................................... 4
Interest expense.......................................... 2
Intangibles............................................... 7
State income taxes........................................ 14
Other..................................................... 19
Net operating loss and tax credit carry forward........... 29
-----
Gross deferred tax assets.............................. 157
Valuation allowance.................................... (122)
-----
Net deferred tax assets................................ 35
Deferred tax liabilities:
Depreciation.............................................. 30
Other..................................................... 5
-----
Gross deferred liabilities............................. 35
-----
Net deferred tax asset................................. $ --
=====
</TABLE>
There has been no net change in the valuation allowance for the nine months
ended March 31, 1998. 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
deferred tax assets will not be realized. Therefore, a full valuation allowance
in the amount of $122 has been recorded.
The differences between the provision for income taxes and income taxes
computed at the statutory U.S. federal income tax rates for the nine months
ended March 31, 1998 are explained as follows:
<TABLE>
<S> <C>
Income taxes (benefit) computed at the statutory U.S.
federal income tax rates.................................. $ --
State taxes, net of federal benefit......................... --
Realization of prior years' net operating losses and tax
credits................................................... --
----
Provision for income taxes.................................. $ --
====
</TABLE>
As of March 31, 1998, the Company had operating loss carryforwards for tax
purposes available from domestic operations totaling $72 which will expire
between 2008 and 2012.
The Company made no income tax payments for the nine months ended March 31,
1998.
F-45
<PAGE> 137
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE J -- COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment and office and plant
facilities. At March 31, 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>
4th Quarter 1998............................................ $ 3
1999........................................................ 14
2000........................................................ 13
2001........................................................ 11
2002........................................................ 6
2003........................................................ 5
Thereafter.................................................. 37
----
$ 89
====
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of $6
due through 2016 under noncancelable subleases. Rent expense was $28 for the
nine months ended March 31, 1998. 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 $68 for the nine months
ended March 31, 1998. The Company also has commitments to purchase certain
finished goods.
At March 31, 1998, aggregate future payments under such purchase
commitments (priced at the March 31, 1998 estimated cost) are estimated as
follows:
<TABLE>
<S> <C>
4th Quarter 1998............................................ $ 6
1999........................................................ 63
2000........................................................ 51
2001........................................................ 40
2002........................................................ 38
2003........................................................ 34
Thereafter.................................................. 78
----
$310
====
</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 $11 during
the fourth quarter of fiscal 1998 and $44 in fiscal 1999 under the supply
agreement for pineapple products entered into in conjunction with the sale of
the Del Monte Philippines operations. During the nine months ended March 31,
1998, the Company purchased $33 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
F-46
<PAGE> 138
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
for foods and beverages in the United States. Purchases under the agreement
during the nine-month period ended March 31, 1998 amounted to $100. 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 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 nine months ended March 31, 1998 were $13. The
agreement expires in November 2002 with optional successive one year extensions.
At March 31, 1998, base charge payments under the agreement are as follows:
<TABLE>
<S> <C>
4th Quarter 1998............................................ $ 3
1999........................................................ 14
2000........................................................ 14
2001........................................................ 13
2002........................................................ 14
2003........................................................ 5
----
$ 63
====
</TABLE>
Del Monte has a concentration of labor supply in employees working under
union collective bargaining agreements, which represent approximately 84% of its
hourly and seasonal work force. Of these represented employees, 1% of employees
are under agreements that will expire during the remainder of calendar 1998, and
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.
F-47
<PAGE> 139
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE K -- DEL MONTE CORPORATION
DMC is directly-owned and wholly-owned by DMFC. For the nine months ended
March 31, 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 March 31, 1998, the Company's sole asset,
other than intercompany receivables from DMC, was the stock of DMC. The Company
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. The
Company is separately liable under various guarantees of indebtedness of DMC,
which guarantees of indebtedness are full and unconditional.
NOTE L -- 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 nine month period
ended March 31, 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 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 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
arm's-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
arm's-length transaction with an unaffiliated third party.
NOTE M -- PUBLIC OFFERING
The Company has 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") which is expected to occur during the fourth quarter of fiscal 1998.
The Company intends to use the net proceeds of the Offering to (i) repay a
portion of its borrowings outstanding under its Term Loan Facility; (ii) repay a
portion of its senior discount notes; (iii) redeem a portion of its senior
subordinated notes; and (iv) redeem all of its outstanding redeemable preferred
stock, including accreted dividends. In connection with the Offering, the
Company intends to amend
F-48
<PAGE> 140
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
its bank financing agreements and related debt covenants, among other things, to
increase the available revolving loans from an aggregate amount of $350 to $400,
to decrease the term loans from an aggregate amount of $429 to $300 and to
change certain provisions and definitions to reflect changes resulting from the
consummation of the Offering. In connection with the Offering, TPG expects to
receive approximately $4 as compensation for its services as financial advisor
in the Offering.
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.
In connection with the Company's proposed public offering of shares of its
Common Stock, on July 22, 1998, the Company declared 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 N -- 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 in selling, advertising, general and administrative
expenses. These costs relate to severance and benefit costs for 433 employees to
be terminated, which includes all salaried and regular employee groups at the
Stockton and San Jose facilities. No expenditures have been recorded against
this accrual as of March 31, 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
$35 as a result of these plant closures. These expenses include costs of $16
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, $7 in severance costs (as described above) and various other costs
totaling $12, 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. These charges will affect the
Company's results over a five-year period as follows: $10 in fiscal 1998
(including depreciation expense of $3), $12 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
will begin to be reflected in operations during the fourth quarter of fiscal
1998, consist primarily of buildings and of machinery and equipment, which will
become redundant due to the consolidation of the operations of the two fruit
processing plants and the consolidation of the operations of two tomato
processing plants. At March 31, 1998, the buildings at the San Jose facility had
remaining useful lives of approximately 22 years, which were reduced to two
years. 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.
F-49
<PAGE> 141
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE O -- RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its financial statements for the nine months ended
March 31, 1998. 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. 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 financial statements for the nine months ended March 31, 1998 have been
restated to include the $16 gain in retained earnings and 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>
AS REPORTED AS RESTATED
----------- -----------
<S> <C> <C>
Net income (loss) before extraordinary item.......... $ 2 $ --
Net income (loss).................................... 2 --
Net income (loss) attributable to common shares...... (2) (4)
Net income (loss) per common share................... (0.05) (0.12)
</TABLE>
F-50
<PAGE> 142
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-51
<PAGE> 143
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-52
<PAGE> 144
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-53
<PAGE> 145
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-54
<PAGE> 146
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-55
<PAGE> 147
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-56
<PAGE> 148
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-57
<PAGE> 149
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-58
<PAGE> 150
[DEL MONTE LOGO]
<PAGE> 151
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued July 24, 1998
19,118,000 Shares
DEL MONTE FOODS COMPANY
COMMON STOCK
[DEL MONTE LOGO]
------------------------
OF THE 19,118,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 3,823,000 SHARES
ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 15,295,000 SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." OF
THE 19,118,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 14,706,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 4,412,000 SHARES ARE BEING SOLD BY CERTAIN
STOCKHOLDERS OF THE COMPANY (THE "SELLING STOCKHOLDERS"). THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE BY THE SELLING STOCKHOLDERS. SEE
"PRINCIPAL AND SELLING STOCKHOLDERS." AT THE REQUEST OF THE COMPANY, THE
UNDERWRITERS HAVE RESERVED FOR SALE, AT THE INITIAL PUBLIC OFFERING PRICE, UP TO
955,900 SHARES OF COMMON STOCK, WHICH MAY BE OFFERED TO DIRECTORS, OFFICERS,
EMPLOYEES, RETIREES AND RELATED PERSONS OF THE COMPANY. ANY RESERVED SHARES THAT
ARE NOT SO PURCHASED WILL BE OFFERED BY THE UNDERWRITERS TO THE GENERAL PUBLIC
ON THE SAME BASIS AS THE OTHER SHARES OF COMMON STOCK OFFERED HEREBY. PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES OF COMMON STOCK OF
THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
PER SHARE WILL BE BETWEEN $16 AND $18. SEE "UNDERWRITERS" FOR A DISCUSSION OF
THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE AND THE PACIFIC EXCHANGE UNDER THE SYMBOL "DLM."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR
RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Per Share................................ $ $ $ $
Total(3)................................. $ $ $ $
</TABLE>
- ---------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses of the offering payable by the Company
estimated at $6,200,000.
(3) The Company and the Selling Stockholders have granted the U.S.
Underwriters an option, exercisable within 30 days of the date hereof,
to purchase up to an aggregate of 2,867,700 additional shares of Common
Stock at the price to public, less underwriting discounts and
commissions, solely for the purpose of covering overallotments, if any.
If the U.S. Underwriters exercise such option in full, the total price
to public, underwriting discounts and commissions, proceeds to Company
and proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriters."
------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to the approval of
certain legal matters by Brown & Wood LLP, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1998 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y. against payment therefor in immediately available funds.
MORGAN STANLEY DEAN WITTER
BA ROBERTSON STEPHENS INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
BT ALEXS BROWN INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
International
, 1998
<PAGE> 152
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..................................... 650,000
Transaction advisory expense................................ 3,750,000
Accounting fees and expenses................................ 600,000
Blue Sky fees and expenses.................................. 2,000
Printing and engraving expenses............................. 625,000
Registrar and transfer agent's fee.......................... 30,000
Miscellaneous............................................... 250,000
----------
Total............................................. $6,196,616
==========
</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> 153
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> 154
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.
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> 155
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 and stockholders 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
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> 156
<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> 157
<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> 158
<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 Retention Agreement between Del Monte Corporation and
William J. Spain, dated January 1, 1992
10.23 Del Monte Foods Company Non-Employee Directors and
Independent Contractors 1997 Stock Incentive Plan
10.24 Del Monte Foods Company 1998 Stock Incentive Plan
10.25 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
10.26 Supplemental Indenture, dated as of April 24, 1998, between
Del Monte Foods Company, as Guarantor, and Marine Midland
Bank, as Trustee
10.27 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
10.28 Commitment Letter dated April 15, 1998 to Del Monte
Corporation from BofA and Bankers Trust Company
10.29 Promissory Note of Richard Wolford
10.30 Promissory Note of Wesley Smith
10.31 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
10.32+ Form of Second Amended and Restated Credit Agreement
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 Second
Amended and Restated Credit 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.
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
II-7
<PAGE> 159
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> 160
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 4 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 July 24, 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, Amendment No. 4
to this registration statement has been signed by the following persons in the
capacities indicated on July 24, 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
/s/ PATRICK FOLEY* Director
- -----------------------------------------------------
Patrick Foley
</TABLE>
S-1
<PAGE> 161
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/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> 162
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement among Del Monte Foods Company
and the several underwriters and stockholders 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
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> 163
<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> 164
<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 Retention Agreement between Del Monte Corporation and
William J. Spain, dated January 1, 1992
10.23 Del Monte Foods Company Non-Employee Director and
Independent Contractor 1997 Stock Incentive Plan
10.24 Del Monte Foods Company 1998 Stock Incentive Plan
10.25 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
10.26 Supplemental Indenture, dated as of April 24, 1998, between
Del Monte Foods Company and Marine Midland Bank, as Trustee
10.27 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
10.28 Commitment Letter dated April 15, 1998 to Del Monte
Corporation from BofA and Bankers Trust Company
10.29 Promissory Note of Richard Wolford
10.30 Promissory Note of Wesley Smith
10.31 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
10.32+ Form of Second Amended and Restated Credit Agreement
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 Second
Amended and Restated Credit 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 1.1
[*****] SHARES
DEL MONTE FOODS COMPANY
COMMON STOCK, PAR VALUE $0.01 PER SHARE
UNDERWRITING AGREEMENT
[*****], 1998
<PAGE> 2
[*****] , 1998
Morgan Stanley & Co. Incorporated
BancAmerica Robertson Stephens
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
BancAmerica Robertson Stephens
Bear, Stearns International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
Donaldson, Lufkin & Jenrette Securities International
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 1QA
England
Dear Sirs and Mesdames:
Del Monte Foods Company, a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters (as defined below), and
certain stockholders of the Company (the "SELLING STOCKHOLDERS") named in
Schedule I hereto severally propose to sell to the several Underwriters, an
aggregate of [*****] shares of the Common Stock, par value $0.01 per share of
the Company (the "FIRM SHARES"), of which [*****] shares are to be issued and
sold by the Company and [*****] shares are to be sold by the Selling
Stockholders, each Selling Stockholder selling the amount set forth opposite
such Selling Stockholder's name in Schedule I hereto. The Company and the
Selling Stockholders are hereinafter sometimes collectively referred to as the
"SELLERS".
It is understood that, subject to the conditions hereinafter stated,
[*****] Firm Shares (the "U.S. FIRM SHARES") will be sold to the several U.S.
Underwriters named in Schedule II hereto (the "U.S. UNDERWRITERS") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and [*****] Firm Shares (the "INTERNATIONAL SHARES") will be sold to the several
International Underwriters named in Schedule III hereto (the "INTERNATIONAL
UNDERWRITERS") in connection with the
<PAGE> 3
offering and sale of such International Shares outside the United States and
Canada to persons other than United States and Canadian Persons.
Morgan Stanley & Co. Incorporated, BancAmerica Robertson Stephens, Bear,
Stearns & Co. Inc., BT Alex. Brown Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation shall act as representatives (the "U.S. REPRESENTATIVES")
of the several U.S. Underwriters, and Morgan Stanley & Co. International
Limited, BancAmerica Robertson Stephens, Bear, Stearns International Limited, BT
Alex. Brown International, a division of Bankers Trust International PLC, and
Donaldson, Lufkin & Jenrette Securities International shall act as
representatives (the "INTERNATIONAL REPRESENTATIVES") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the "UNDERWRITERS".
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional [*****] shares of its Common Stock, par
value $0.01 per share (the "COMPANY ADDITIONAL SHARES") if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf of
the U.S. Underwriters, the right to purchase such shares of common stock granted
to the U.S. Underwriters in Section 3 hereof. In addition, on the terms and
subject to the conditions in Section 3 hereof, the Selling Stockholders propose
to sell to the several U.S. Underwriters not more than an additional [*****]
shares of the Company's Common Stock, par value $0.01 per share (the "SELLING
STOCKHOLDERS' ADDITIONAL SHARES") if and to the extent that the U.S.
Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of common stock granted to the
U.S. Underwriters in Section 3 hereof. The Company Additional Shares and the
Selling Stockholders' Additional Shares are hereinafter collectively referred to
as the "ADDITIONAL SHARES". The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES". The shares of Common
Stock, par value $0.01 per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"COMMON STOCK".
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "PROSPECTUS". If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
2
<PAGE> 4
As part of the offering contemplated by this Agreement, Morgan Stanley &
Co. Incorporated ("MORGAN STANLEY") has agreed to reserve out of the Shares set
forth opposite its name on Schedule II to this Agreement, up to [*****] shares,
for sale to the Company's directors, officers, employees, retirees and related
persons of the Company (collectively, "PARTICIPANTS"), as set forth in the
Prospectus under the heading "Underwriters--Directed Share Program" (the
"DIRECTED SHARE PROGRAM"). The Shares to be sold by Morgan Stanley pursuant to
the Directed Share Program (the "DIRECTED SHARES") will be sold by Morgan
Stanley pursuant to this Agreement at the public offering price. Any Directed
Shares not orally confirmed for purchase by any Participants by the end of the
first business day after the date on which this Agreement is executed will be
offered to the public by Morgan Stanley as set forth in the Prospectus.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating
to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership
3
<PAGE> 5
or leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of the Company have been duly
and validly authorized and issued, are fully paid and non-assessable and are
owned directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be sold
by the Selling Stockholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its subsidiaries
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not described or
filed as required.
4
<PAGE> 6
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company
and its subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (2) the Company has
not purchased any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and customary dividends; and (3) there
has not been any material adverse change in the capital stock,
short-term debt or long-term debt of the Company and its consolidated
subsidiaries, except in each case as described in the Prospectus.
(o) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings
by the Company and its subsidiaries, in each case except as described in
the Prospectus.
(p) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names currently employed by them in connection with the business now
operated by them, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole.
(q) No material labor dispute with the employees of the Company
or any of its subsidiaries exists, except as described in the
Prospectus, or, to the knowledge of the Company or any of its
subsidiaries, is imminent; and the Company or any of its
5
<PAGE> 7
subsidiaries are not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufactures or contractors that could result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(r) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which they are engaged; neither the Company nor any such subsidiary
has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, except as described in the
Prospectus.
(s) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign authorities necessary to conduct their respective businesses,
and neither the Company nor any such subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, except as described in the
Prospectus.
(t) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(u) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(v) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's
general or specific authorizations;
6
<PAGE> 8
(2) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except as described in the Registration
Statement and the Prospectus.
(x) The Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program with
the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company, or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its
products.
2. Representations and Warranties of the Selling Stockholders. Each
of the Selling Stockholders represents and warrants to and agrees with each of
the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Stockholder and The Bank of New York, as Custodian, relating to the
deposit of the Shares to be sold by such Selling Stockholder (the
"CUSTODY AGREEMENT") and the Power of Attorney appointing certain
individuals as such Selling Stockholder's attorneys-in-fact to the
extent set forth therein, relating to the transactions contemplated
hereby and by the Registration Statement (the "POWER OF ATTORNEY") will
not contravene any provision of applicable law, or the certificate of
incorporation or by-laws of such Selling Stockholder (if such Selling
Stockholder is a corporation), or the certificate of limited
partnership, limited partnership agreement or other organizational
documents (if any) of such Selling Stockholder or any agreement or other
instrument binding upon such Selling Stockholder or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over such Selling Stockholder, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is
required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of such Selling Stockholder, except such as may be required by
the securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares.
(c) Such Selling Stockholder has, and on the Closing Date and any
Option Closing Date (as defined in Section 5) will have, valid title to
the Shares to be sold by
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<PAGE> 9
such Selling Stockholder and the legal right and power, and all
authorization and approval required by law, to enter into this
Agreement, the Custody Agreement and the Power of Attorney and to sell,
transfer and deliver the Shares to be sold by such Selling Stockholder.
(d) The Custody Agreement and the Power of Attorney have been
duly authorized, executed and delivered by such Selling Stockholder and
are valid and binding agreements of such Selling Stockholder.
(e) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear
of any security interests, claims, liens, equities and other
encumbrances.
(f) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph 2(f) only
apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Selling Stockholder
furnished to the Company in writing by such Selling Stockholder through
you expressly for use therein.
3. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at U.S.$[*****] a share (the
"PURCHASE PRICE") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the number of Firm Shares to be sold by such Seller as the number of Firm
Shares set forth in Schedules II and III hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company and the Selling
Stockholders agree to sell to the U.S. Underwriters the Company Additional
Shares and the Selling Stockholders' Additional Shares, respectively, and the
U.S. Underwriters shall have a one-time right to purchase, severally and not
jointly, up to [*****] Additional Shares from the Sellers at the Purchase Price.
The U.S. Representatives, on behalf of the U.S. Underwriters, may elect to
exercise the portion of such option to purchase the Company Additional Shares,
in whole or in part, only if the U.S. Representatives, on behalf of the U.S.
Underwriters, elect to exercise the portion of such option to purchase all of
the Selling Stockholders' Additional Shares. If the U.S. Representatives, on
behalf of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Sellers in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
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<PAGE> 10
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 5 hereof solely for the purpose of covering
overallotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule
II hereto opposite the name of such U.S. Underwriter bears to the total number
of U.S. Firm Shares, and each of the Sellers agrees, severally and not jointly,
to sell up to the number of Additional Shares set forth on Schedule IV opposite
the name of such Seller.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the 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 foregoing sentence shall not apply to (A) the Shares to
be sold hereunder, (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and which option, warrant or conversion feature
is described in the Prospectus, (C) the sale of any shares of Common Stock to
the Company or the purchase of any shares of Common Stock by the Company in
accordance with certain Stockholders' Agreements pursuant to the Company's
employee benefit plans or (D) 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 the offering of the Shares. In addition,
each Selling Stockholder, agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock which would cause the Company to file a
registration statement with the Commission prior to the expiration of such 180
day period.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
U.S.$[*****] a share (the "PUBLIC OFFERING PRICE") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$[*****] a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$[*****] a share, to any Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by
each Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at
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<PAGE> 11
10:00 a.m., New York City time, on [*****], 1998, or at such other time on the
same or such other date, not later than [*****], 1998, shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "CLOSING DATE".
Payment for any Additional Shares to be sold by each Seller shall be
made to such Seller in Federal or other funds immediately available in New York
City against delivery of such Additional Shares for the respective accounts of
the several U.S. Underwriters at 10:00 a.m., New York City time, on the date
specified in the notice described in Section 3 or at such other time on the same
or on such other date, in any event not later than [*****], 1998, as shall be
designated in writing by you. The time and date of such payment are hereinafter
referred to as the "OPTION CLOSING DATE".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act;
and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the
Prospectus.
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<PAGE> 12
(b) (i)The Underwriters shall have received on the Closing Date
a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in Section
6(a)(i) above and to the effect that the representations and
warranties of the Company contained in this Agreement are true
and correct as of the Closing Date and that the Company has
complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on
or before the Closing Date.
(ii) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date from each Selling
Stockholder signed by an officer of a corporation, a general
partner of a limited partnership, a member of a limited liability
company or a trustee of a trust from each Selling Stockholder
that is a corporation, limited partnership or trust,
respectively, to the effect that the representations and
warranties of each Selling Stockholder contained in Section 2 of
this Agreement are true and correct as of the Closing Date and
that each Selling Stockholder has complied with all of the
agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officer, general partner or trustee, as the case may be,
signing and delivering such certificate may rely upon the best of
his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Cleary, Gottlieb, Steen & Hamilton, outside counsel for the
Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(ii) the Company has corporate power to own its properties
and conduct its business as described in the Prospectus, and the
Company has corporate power to issue the Shares to be issued by
it in the Offering, to enter into the this Agreement and to
perform its obligations hereunder;
(iii) the Shares have been duly authorized by all necessary
corporate action of the Company, have been validly issued by the
Company and are fully paid and nonassessable; and the holders of
outstanding shares of capital stock of the Company are not
entitled to any preemptive or similar rights to subscribe for the
Shares under the Certificate of Incorporation or Bylaws of the
Company or the laws of the State of Delaware;
(iv) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company,
and this Agreement has been duly executed and delivered by the
Company;
(v) the issuance and sale of the Shares to the Underwriters
pursuant to this Agreement, and the performance by the Company of
its obligations in this Agreement and the Shares (A) do not
require any consent, approval,
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<PAGE> 13
authorization, registration or qualification of or with any
governmental authority of the United States or the State of New
York, except such as have been obtained or effected under the
Securities Act and the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (but such counsel need express no
opinion as to any consent, approval, authorization, registration
or qualification that may be required under state securities or
Blue Sky laws); and (B) do not result in a breach or violation of
any of the terms and provisions of, or constitute a default
under, the Certificate of Incorporation or Bylaws of the Company;
(vi) the statements made in the Prospectus under the
heading "Description of Capital Stock", insofar as such
statements purport to summarize certain provisions of the Common
Stock, the preferred stock of the Company, warrants to purchase
Common Stock and the Certificate of Incorporation and Bylaws of
the Company, provide a fair summary of such provisions;
(vii) the statements made in the Prospectus under the
heading "Certain U.S. Tax Consequences to Non-U.S. Holders",
insofar as such statements purport to summarize certain federal
income tax laws of the United States, constitute a fair summary
of the principal U.S. federal income tax consequences of an
investment in the Shares;
(viii) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as such term is defined in the Investment
Company Act of 1940, as amended; and
(ix) (A) the Registration Statement (except the financial
statements and schedules and other financial and statistical data
included therein, as to which such counsel need express no view),
at the time it became effective, and the Prospectus (except as
aforesaid), as of the date thereof, appeared on their face to be
appropriately responsive in all material respects to the
requirements of the Securities Act and the rules and regulations
of the Commission thereunder, and such counsel knows of no
contracts or other documents of a character required to be filed
as exhibits to the Registration Statement or required to be
described in the Registration Statement or the Prospectus that
are not so filed or described as required; (B) no information has
come to the attention of such counsel that causes it to believe
that the Registration Statement (except the financial statements
and schedules and other financial and statistical data included
therein, as to which such counsel need express no view), at the
time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and (C) no information has come to the attention of
such counsel that causes it to believe that the Prospectus
(except the financial statements and schedules and other
financial and statistical data included therein, as to which such
counsel need express no view), as of the date thereof or the
Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact
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<PAGE> 14
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of William R. Sawyers, Vice President, General Counsel and
Secretary of the Company, dated the Closing Date, to the effect that:
(i) the Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to be
so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a
whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, has
corporate power to own its property and to conduct its business
as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(iii) the shares of Common Stock (excluding the Shares)
outstanding prior to the issuance of the Shares to be sold by the
Company have been duly authorized and are validly issued and are
fully paid and non-assessable;
(iv) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized
and issued and are fully paid and non-assessable and are owned,
directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims, except as described in
the Prospectus;
(v) the issuance and sale of the Shares to be issued and
sold by the Company to the Underwriters pursuant to this
Agreement, and the performance by the Company of its obligations
in this Agreement and the Shares (A) will not contravene any
provision of applicable law that is material to the Company and
its subsidiaries, taken as a whole; (B) do not require any
consent, approval, authorization, registration or qualification
of or with any governmental authority that is material to the
Company and its subsidiaries, taken as a whole, except such as
have been obtained or effected under the Securities Act and the
Exchange Act (but such counsel need express no opinion as to any
consent, approval, authorization, registration or qualification
that may be required under state securities or Blue Sky laws);
and (C) do not result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
agreement or other instrument binding upon the Company or any of
its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, decree or
13
<PAGE> 15
order of any governmental body, agency or court having
jurisdiction over the Company or any of its subsidiaries;
(vi) the statements made (A) in the Prospectus under the
headings "Description of Certain Indebtedness" and "Shares
Eligible for Future Sale" and (B) in the Registration Statement
in Item 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred
to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings;
(vii) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which
the Company or any of its subsidiaries is a party or to which any
of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required; and
(viii) the Company and its subsidiaries (A) are in
compliance with any and all applicable Environmental Laws, (B)
have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their
respective businesses and (C) are in compliance with all terms
and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure
to comply with the terms and conditions of such permits, licenses
or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries,
taken as a whole.
(e) The Underwriters shall have received on the Closing Date an
opinion of [*****], counsel for the Selling Stockholders, dated the
Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders;
(ii) the execution and delivery by each Selling Stockholder
of, and the performance by such Selling Stockholder of its
obligations under, this Agreement and the Custody Agreement and
Powers of Attorney of such Selling Stockholder will not
contravene any provision of applicable law, or the certificate of
incorporation or by-laws of such Selling Stockholder (if such
Selling Stockholder is a corporation), or the certificate of
limited partnership, limited partnership agreement or other
organizational documents (if such Selling Stockholder is a
limited partnership), or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon such
Selling Stockholder or, to the best of such counsel's knowledge,
any judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Stockholder, and no
consent, approval, authorization or order of, or qualification
with, any
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<PAGE> 16
governmental body or agency is required for the performance by such
Selling Stockholder of its obligations under this Agreement or the
Custody Agreement or Power of Attorney of such Selling Stockholder,
except such as may be required by the Securities Act or the securities
or Blue Sky laws of the various states in connection with offer and sale
of the Shares;
(iii) each of the Selling Stockholders has valid title to the
Shares to be sold by such Selling Stockholder and the legal right and
power, and all authorization and approval required by law, to enter into
this Agreement and the Custody Agreement and Power of Attorney of such
Selling Stockholder and to sell, transfer and deliver the Shares to be
sold by such Selling Stockholder;
(iv) the Custody Agreement and the Power of Attorney of each
Selling Stockholder have been duly authorized, executed and delivered by
such Selling Stockholder and are valid and binding agreements of such
Selling Stockholder;
(v) delivery of the Shares to be sold by each Selling
Stockholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances to the Underwriters who have purchased such Shares in
good faith and without notice of any adverse claim (as such term is used
in the Uniform Commercial Code as in effect in the State of New York);
and
(vi) such counsel shall state that it (A) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not express
any belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) has no reason to believe that
(except for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief)
the Prospectus contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the statements set forth in this paragraph
6(e)(vi) only apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any
Selling Stockholder furnished to the Company in writing by such Selling
Stockholder through you expressly for use therein.
(f) The Underwriters shall have received on the Closing Date an
opinion of Brown & Wood LLP, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 6(c)(iii),
6(c)(iv), 6(c)(vi) and 6(c)(ix) above.
With respect to Section 6(c)(ix) above, Cleary, Gottlieb, Steen &
Hamilton and Brown & Wood LLP and with respect to Section 6(e)(vi)
above, [*****], may state that their opinion and belief are based upon
their participation in the preparation of the Registration
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<PAGE> 17
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without
independent check or verification, except as specified. With respect to
Section 6(e) above, [*****] may rely upon an opinion or opinions of
counsel for any Selling Stockholders and, with respect to factual
matters and to the extent such counsel deems appropriate, upon the
representations of each Selling Stockholder contained herein and in the
Custody Agreement and Power of Attorney of such Selling Stockholder and
in other documents and instruments; provided that (A) each such counsel
for the Selling Stockholders is satisfactory to your counsel, (B) a copy
of each opinion so relied upon is delivered to you and is in form and
substance satisfactory to your counsel, (C) copies of such Custody
Agreements and Powers of Attorney and of any such other documents and
instruments shall be delivered to you and shall be in form and substance
satisfactory to your counsel and (D) [*****] shall state in their
opinion that they are justified in relying on each such other opinion.
The opinions of Cleary, Gottlieb, Steen & Hamilton, William R.
Sawyers, Vice President, General Counsel and Secretary of the Company,
and [*****] described in Sections 6(c), 6(d) and 6(e) above (and any
opinions of counsel for any Selling Stockholder referred to in the
immediately preceding paragraph) shall be rendered to the Underwriters
at the request of the Company or one or more of the Selling
Stockholders, as the case may be, and shall so state therein.
(g) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from KPMG Peat Marwick LLP, independent public
accountants, and Ernst & Young LLP, independent auditors, containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier
than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force
and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
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<PAGE> 18
(a) To furnish to you, without charge, ten signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City,
without charge, prior to 10:00 a.m. New York City time on the business
day next succeeding the date of this Agreement and during the period
mentioned in Section 7(c) below, as many copies of the Prospectus and
any supplements and amendments thereto or to the Registration Statement
as you may reasonably request.
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the
Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to such
Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with
sales by an Underwriter or dealer, any event shall occur or condition
exist as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of counsel for the Underwriters, it is
necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare, file with the Commission and
furnish to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been
sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law. If, in accordance with the preceding
sentence, it shall be necessary to amend or supplement the Prospectus at
any time prior to the expiration of nine months after the first date of
the public offering of the Shares, the Company shall prepare, file and
furnish such amendment or supplement at its own expense. Thereafter, the
Underwriters shall bear the expense of preparing, filing and furnishing
any such amendment or supplement.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending June 30, 1999 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of
the Commission thereunder.
(f) In connection with the Directed Share Program, to ensure that
the Directed Shares will be restricted to the extent required by the
National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for
a period of three months following the date of the effectiveness of the
Registration Statement. Morgan Stanley will notify the Company as to
which
17
<PAGE> 19
Participants will need to be so restricted. The Company will direct the
transfer agent to place stop transfer restrictions upon such securities
for such period of time.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and counsel for the
Selling Stockholders in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., including any fees and disbursements of counsel
incurred on behalf of or disbursements by A.G. Edwards & Sons, Inc. ("A.G.
EDWARDS") in its capacity as "qualified independent underwriter", (v) all fees
and expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the NYSE and the Pacific Exchange, (vi) the
cost of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, (ix) all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program, and (x) all other
costs and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section 8. It is
understood, however, that except as provided in this Section 8, Section 9
entitled "Indemnity and Contribution", and the last paragraph of Section 11
below, the Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on resale of
any of the Shares by them and any advertising expenses connected with any offers
they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
18
<PAGE> 20
9. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages
and liabilities (including, without limitation, any reasonable legal or
other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages
or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(b) The Company agrees to indemnify and hold harmless Morgan
Stanley and each person, if any, who controls Morgan Stanley within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act ("MORGAN STANLEY ENTITIES"), from and against any and all
losses, claims, damages, liabilities and judgments (including, without
limitation, any reasonable legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim)
(i) caused by the failure of any Participant to pay for and accept
delivery of the shares which, immediately following the effectiveness of
the Registration Statement, were subject to a properly confirmed
agreement to purchase; or (ii) related to, arising out of, or in
connection with the Directed Share Program, provided that, the Company
shall not be responsible under this subparagraph (ii) for any losses,
claims, damages, liabilities or judgments (or expenses relating thereto)
that are finally judicially determined to have resulted from the bad
faith or gross negligence of Morgan Stanley Entities.
(c) The Company agrees to indemnify and hold harmless A.G.
Edwards and each person, if any, who controls A.G. Edwards within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act ("A.G. EDWARDS ENTITIES"), from and against any and all
losses, claims, damages, liabilities and judgments (including, without
limitation, any reasonable legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim)
related to, arising out of, or in connection with A.G. Edwards'
participation as a "qualified independent underwriter" within the
meaning of Rule 2720 of the National Association of Securities Dealers'
Conduct Rules in connection with the offering of the Shares, provided
that, the Company shall not be responsible under this Section 9(c) for
any losses, claims, damages, liabilities or judgments (or expenses
relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of A.G. Edwards
Entities.
19
<PAGE> 21
(d) Each Selling Stockholder agrees, severally and not jointly,
to indemnify and hold harmless (i) the Company, its directors, its
officers who sign the Registration Statement and each person, if any,
who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages
and liabilities (including, without limitation, any reasonable legal or
other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating
to such Selling Stockholder furnished in writing by or on behalf of such
Selling Stockholder expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(e) The Company agrees to indemnify and hold harmless each
Selling Stockholder and each person, if any, who controls each Selling
Stockholder within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation,
any reasonable legal or other expenses reasonably incurred in connection
with defending or investigating any such action or claim) caused by any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto),
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon
information relating to any Selling Stockholder furnished to the Company
in writing by such Selling Stockholder expressly for use therein.
(f) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the Company
or any Selling Stockholder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act from and against
any and all losses, claims, damages and liabilities (including, without
limitation, any reasonable legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented
if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein
a material fact required to be stated
20
<PAGE> 22
therein or necessary to make the statements therein not misleading, but
only with reference to information relating to such Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.
(g) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 9(a), 9(b), 9(c),
9(d), 9(e) or 9(f), such person (the "INDEMNIFIED PARTY") shall promptly
notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the reasonable
fees and expenses of more than one separate firm (in addition to any
local counsel) for all Underwriters and all persons, if any, who control
any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the reasonable
fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company
within the meaning of either such Section and (iii) the reasonable fees
and expenses of more than one separate firm (in addition to any local
counsel) for all Selling Stockholders and all persons, if any, who
control any Selling Stockholder within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they
are incurred. In the case of any such separate firm for the Underwriters
and such control persons of any Underwriters, such firm shall be
designated in writing by Morgan Stanley. In the case of any such
separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for the Selling
Stockholders and such control persons of any Selling Stockholders, such
firm shall be designated in writing by the Selling Stockholders holding
a majority of the outstanding shares of Common Stock held by the Selling
Stockholders considered as a group. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for
21
<PAGE> 23
any settlement of any proceeding effected without its written consent if
(i) such settlement is entered into more than 90 days after receipt by
such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are
the subject matter of such proceeding. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to
Section 9(b) hereof in respect of such action or proceeding, then in
addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses
of not more than one separate firm (in addition to any local counsel)
for Morgan Stanley and the Morgan Stanley Entities for the defense of
any losses, claims, damages and liabilities arising out of the Directed
Share Program, if the representation of Morgan Stanley or the Morgan
Stanley Entities by such separate firm for the indemnified parties with
respect to such defense relating to the Directed Share Program would be
inappropriate due to actual or potential differing interests between
Morgan Stanley or the Morgan Stanley Entities on the one hand and the
other indemnified parties on the other hand. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to
Section 9(c) hereof in respect of such action or proceeding, then in
addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses
of not more than one separate firm (in addition to any local counsel)
for A.G. Edwards and the A.G. Edwards Entities in their capacity as a
"qualified independent underwriter."
(h) To the extent the indemnification provided for in Section
9(a), 9(b), 9(c), 9(d), 9(e) or 9(f) is unavailable to an indemnified
party or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received
by the indemnifying party or parties on the one hand and the indemnified
party or parties on the other hand from the offering of the Shares or
(ii) if the allocation provided by clause 9(h)(i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 9(h)(i) above but also
the relative fault of the indemnifying party or parties on the one hand
and of the indemnified party or parties on the other hand in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers on the one
hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as
set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the
Sellers on the
22
<PAGE> 24
one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Sellers or
by the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute
pursuant to this Section 9 are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
(i) The Sellers and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to
in Section 9(h). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. Notwithstanding the
provisions of this Section 9, no Selling Stockholder shall be required
to indemnify or contribute any amount in excess of the net proceeds from
the offering of the Shares (before deducting expenses) received by such
Selling Stockholder, by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 9 are not exclusive and shall not limit any
rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
(j) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of
the Company and the Selling Stockholders contained in this Agreement
shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter, any
Selling Stockholder or any person controlling any Selling Stockholder,
or the Company, its officers or directors or any person controlling the
Company and (iii) acceptance of and payment for any of the Shares.
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the
23
<PAGE> 25
Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule II or Schedule III bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you, the
Company and the Selling Stockholders for the purchase of such Firm Shares are
not made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case either you or the relevant Sellers
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its
24
<PAGE> 26
obligations under this Agreement, the Sellers will reimburse the Underwriters or
such Underwriters as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the reasonable
fees and disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering contemplated
hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
25
<PAGE> 27
Very truly yours,
DEL MONTE FOODS COMPANY
By:
---------------------------------
Name:
Title:
The Selling Stockholders named in
Schedule I hereto, acting severally
By:
---------------------------------
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
BancAmerica Robertson Stephens
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Acting severally on behalf of
themselves and the several
Underwriters named in Schedule II
hereto.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------------
Name:
Title:
26
<PAGE> 28
Morgan Stanley & Co. International Limited
BancAmerica Robertson Stephens
Bear, Stearns International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
Donaldson, Lufkin & Jenrette Securities International
Acting severally on behalf of
themselves and the several
International Underwriters named
in Schedule III hereto
By: Morgan Stanley & Co. International Limited
By:
------------------------------------
Name:
Title:
27
<PAGE> 29
SCHEDULE I
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
SELLING STOCKHOLDER NUMBER OF FIRM
SHARES TO BE
SOLD
<S> <C>
TPG Partners, L.P....................................................
TPG Parallel I, L.P..................................................
Squam Lake Investors II, L.P.........................................
Sunapee Securities, Inc..............................................
MIG Partners III.....................................................
BankAmerica Investment Corporation...................................
Westar Capital.......................................................
TCW/Crescent Mezzanine Partners, L.P.................................
TCW/Crescent Mezzanine
Investment Partners, L.P..........................................
TCW/Crescent Mezzanine Trust.........................................
Vencap Investment Pte Ltd............................................
BT Investment Partners...............................................
-----------------
Total.........................................................
=================
</TABLE>
<PAGE> 30
SCHEDULE II
U.S. UNDERWRITERS
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM
SHARES TO BE
PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated....................................
BancAmerica Robertson Stephens.......................................
Bear, Stearns & Co. Inc..............................................
BT Alex. Brown Incorporated..........................................
Donaldson, Lufkin & Jenrette Securities Corporation..................
[NAMES OF OTHER U.S. UNDERWRITERS]...................................
-----------------
Total U.S. Firm Shares.......................................
=================
</TABLE>
<PAGE> 31
SCHEDULE III
INTERNATIONAL UNDERWRITERS
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM
SHARES TO BE
PURCHASED
<S> <C>
Morgan Stanley & Co. International Limited...........................
BancAmerica Robertson Stephens.......................................
Bear, Stearns International Limited..................................
BT Alex. Brown International, a division of Bankers Trust
International PLC................................................
Donaldson, Lufkin & Jenrette Securities International................
[NAMES OF OTHER INTERNATIONAL UNDERWRITERS]..........................
===================
Total International Firm Shares...................................
===================
</TABLE>
<PAGE> 32
SCHEDULE IV
<TABLE>
<CAPTION>
NAME OF SELLER MAXIMUM NUMBER OF
ADDITIONAL SHARES
TO BE SOLD
<S> <C>
Del Monte Foods Company...........................................
TPG Partners, L.P.................................................
TPG Parallel I, L.P...............................................
Squam Lake Investors II, L.P......................................
Sunapee Securities, Inc...........................................
MIG Partners III..................................................
BankAmerica Investment Corporation................................
Westar Capital....................................................
TCW/Crescent Mezzanine Partners, L.P..............................
TCW/Crescent Mezzanine
Investment Partners, L.P......................................
TCW/Crescent Mezzanine Trust......................................
Vencap Investment Pte Ltd.........................................
BT Investment Partners............................................
---------------------
Total.....................................................
=====================
</TABLE>
<PAGE> 33
EXHIBIT A
[FORM OF LOCK-UP LETTER]
[*****], 1998
Morgan Stanley & Co. Incorporated
BancAmerica Robertson Stephens
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
BancAmerica Robertson Stephens
Bear, Stearns International Limited
BT Alex. Brown International, a division of Bankers Trust International
PLC
Donaldson, Lufkin & Jenrette International
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") and Morgan Stanley & Co. International Limited ("MSIL")
propose to enter into an Underwriting Agreement (the "UNDERWRITING AGREEMENT")
with Del Monte Foods Company, a Delaware corporation (the "COMPANY") and certain
stockholders of the Company (the "SELLING STOCKHOLDERS") providing for the
public offering (the "PUBLIC OFFERING") by the several Underwriters, including
Morgan Stanley and MSIL (the "UNDERWRITERS") of [*****] shares (the "SHARES") of
the common stock, par value $0.01 per share, of the Company (the "COMMON
STOCK").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final U.S. and
International prospectuses relating to the Public Offering (the "Prospectuses"),
(1) 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 (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of
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<PAGE> 34
Common Stock, whether any such transaction described in clause (1) or (2) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement, (b) the
issuance by the Company of the shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date of the
Prospectuses and which option, warrant or conversion feature is described in the
Prospectuses, (c) if applicable, the sale of any shares of Common Stock to the
Company or the purchase of any shares of Common Stock by the Company in
accordance with the undersigned's Stockholders' Agreement pursuant to the
Company's employee benefit plans or (d) transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the Public Offering. In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectuses, make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock which would cause the Company to file a registration statement with the
Securities and Exchange Commission prior to the expiration of such 180 day
period.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to the Underwriting Agreement, the terms of which are subject to
negotiation between the Company, the Selling Stockholders and the Underwriters.
Very truly yours,
--------------------------------------
(Name)
--------------------------------------
(Address)
A-2
<PAGE> 1
EXHIBIT 10.32
================================================================================
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF JULY __, 1998
AMONG
DEL MONTE CORPORATION,
VARIOUS FINANCIAL INSTITUTIONS,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS ADMINISTRATIVE AGENT,
BANKERS TRUST COMPANY,
AS DOCUMENTATION AGENT,
AND
ABN AMRO BANK, N.V.,
THE BANK OF NOVA SCOTIA,
CITICORP USA, INC.,
THE FIRST NATIONAL BANK OF CHICAGO,
GENERAL ELECTRIC CAPITAL CORPORATION,
HARRIS TRUST & SAVINGS BANK
AND
COOPERATIEVE CENTRALE RAIFFEISEN -
BOERENLEENBANK B.A., NEW YORK BRANCH
AS CO-AGENTS
ARRANGED BY
BANCAMERICA ROBERTSON STEPHENS
================================================================================
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS............................... 2
1.1 Certain Defined Terms............................................... 2
1.2 Other Interpretive Provisions....................................... 43
1.3 Accounting Principles............................................... 44
1.4 Addition of Lenders; Adjustment of Percentages;
Reallocation of Loans...................................... 44
ARTICLE II
THE CREDITS............................... 46
2.1 Amounts and Terms of Commitments.................................... 46
(a) The Term A Credit................................... 46
(b) The Term B Credit................................... 46
(c) The Revolving Credit................................ 46
2.2 Loan Accounts....................................................... 47
2.3 Procedure for Borrowing............................................. 47
2.4 Conversion and Continuation Elections............................... 48
2.5 Swingline Loans..................................................... 50
2.6 Termination or Reduction of Revolving Commitments................... 52
2.7 Optional Prepayments................................................ 53
2.8 Mandatory Prepayments of Loans...................................... 54
2.9 Repayment........................................................... 58
(a) The Term A Credit................................... 58
(b) The Term B Credit................................... 58
(c) The Revolving Credit................................ 58
2.10 Interest........................................................... 58
2.11 Fees ........................................................... 59
(a) Arranger and Agency Fees............................ 59
(b) Commitment Fees..................................... 59
2.12 Computation of Fees and Interest................................... 59
2.13 Payments by the Company............................................ 60
2.14 Payments by the Lenders to the Administrative Agent................ 61
2.15 Sharing of Payments, Etc........................................... 61
ARTICLE III
THE LETTERS OF CREDIT.......................... 62
3.1 The Letter of Credit Subfacility.................................... 62
3.2 Issuance, Amendment and Extension of Letters of
Credit..................................................... 64
3.3 Risk Participations, Drawings and Reimbursements.................... 66
3.4 Repayment of Participations......................................... 68
3.5 Role of the Issuing Lender.......................................... 69
3.6 Obligations Absolute................................................ 70
3.7 Cash Collateral Pledge.............................................. 71
3.8 Letter of Credit Fees............................................... 71
3.9 Uniform Customs and Practice........................................ 72
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3.10 Non-Dollar Letters of Credit....................................... 72
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY.................. 74
4.1 Taxes ........................................................... 74
4.2 Illegality.......................................................... 76
4.3 Increased Costs and Reduction of Return............................. 77
4.4 Funding Losses...................................................... 78
4.5 Inability to Determine Rates........................................ 78
4.6 Certificates of Lenders............................................. 79
4.7 Substitution of Lenders............................................. 79
4.8 Survival ........................................................... 80
ARTICLE V
CONDITIONS PRECEDENT........................... 80
5.1 Conditions to Effectiveness. ...................................... 80
(a) Credit Agreement.................................... 80
(b) Resolutions and Incumbency.......................... 80
(c) Organization Documents; Good Standing............... 80
(d) Legal Opinions...................................... 81
(e) Notes............................................... 81
(f) Payment of Fees..................................... 81
(g) Confirmation........................................ 81
(h) Certificate......................................... 81
(i) Redemption and Cash Collateral Pledge
Agreement........................................... 82
(j) Parent Guaranty..................................... 82
(k) Other Documents..................................... 82
5.2 Additional Conditions to Restatement Date........................... 82
5.3 Conditions to All Credit Extensions................................. 82
(a) Notice, Application................................. 82
(b) Continuation of Representations and
Warranties.......................................... 82
(c) No Existing Default................................. 83
ARTICLE VI
REPRESENTATIONS AND WARRANTIES...................... 83
6.1 Corporate Existence and Power....................................... 83
6.2 Corporate Authorization; No Contravention........................... 83
6.3 Governmental Authorization.......................................... 84
6.4 Binding Effect...................................................... 84
6.5 Litigation.......................................................... 85
6.6 No Default.......................................................... 85
6.7 ERISA Compliance.................................................... 85
6.8 Use of Proceeds; Margin Regulations................................. 86
6.9 Title to Properties................................................. 86
6.10 Taxes ........................................................... 86
6.11 Financial Condition................................................ 87
6.12 Regulated Entities................................................. 87
6.13 No Burdensome Restrictions......................................... 88
6.14 Copyrights, Patents, Trademarks and Licenses, etc.................. 88
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6.15 Subsidiaries....................................................... 88
6.16 Insurance.......................................................... 89
6.17 Solvency, etc...................................................... 89
6.18 Real Property...................................................... 89
6.19 Swap Obligations................................................... 89
6.20 Senior Indebtedness................................................ 89
6.21 Environmental Warranties........................................... 90
6.22 Year 2000.......................................................... 91
6.23 Full Disclosure.................................................... 91
ARTICLE VII
AFFIRMATIVE COVENANTS.......................... 92
7.1 Financial Statements................................................ 93
7.2 Certificates; Other Information..................................... 94
7.3 Notices ........................................................... 95
7.4 Preservation of Corporate Existence, Etc............................ 96
7.5 Maintenance of Property............................................. 96
7.6 Insurance........................................................... 96
7.7 Payment of Obligations.............................................. 96
7.8 Compliance with Laws................................................ 97
7.9 Compliance with ERISA............................................... 97
7.10 Inspection of Property and Books and Records....................... 97
7.11 Interest Rate Protection........................................... 98
7.12 Environmental Covenant............................................. 98
7.13 Use of Proceeds.................................................... 98
7.14 Further Assurances................................................. 98
ARTICLE VIII
NEGATIVE COVENANTS........................... 100
8.1 Limitation on Liens................................................ 101
8.2 Disposition of Assets.............................................. 103
8.3 Consolidations and Mergers......................................... 104
8.4 Loans and Investments.............................................. 104
8.5 Limitation on Indebtedness......................................... 107
8.6 Transactions with Affiliates....................................... 108
8.7 Use of Proceeds.................................................... 108
8.8 Contingent Obligations............................................. 109
8.9 Joint Ventures..................................................... 109
8.10 Lease Obligations................................................. 110
8.11 Minimum Fixed Charge Coverage..................................... 110
8.12 Minimum Adjusted Net Worth........................................ 110
8.13 Maximum Senior Debt Ratio......................................... 111
8.14 Maximum Total Debt Ratio.......................................... 111
8.15 Maximum Capital Expenditures...................................... 111
8.16 Restricted Payments............................................... 112
8.17 ERISA .......................................................... 113
8.18 Limitations on Sale and Leaseback Transactions.................... 114
8.19 Limitation on Restriction of Subsidiary Dividends and
Distributions............................................. 114
8.20 Inconsistent Agreements........................................... 114
8.21 Change in Business................................................ 115
8.22 Amendments to Certain Documents................................... 115
8.23 Fiscal Year....................................................... 115
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8.24 Limitation on Issuance of Guaranty Obligations.................... 115
ARTICLE IX
EVENTS OF DEFAULT........................... 116
9.1 Event of Default................................................... 116
(a) Non-Payment........................................ 116
(b) Representation or Warranty......................... 116
(c) Specific Defaults.................................. 116
(d) Other Defaults..................................... 116
(e) Cross-Default...................................... 117
(f) Insolvency; Voluntary Proceedings.................. 117
(g) Involuntary Proceedings............................ 118
(h) ERISA.............................................. 118
(i) Monetary Judgments................................. 118
(j) Non-Monetary Judgments............................. 119
(k) Change of Control.................................. 119
(l) Guarantor Defaults................................. 119
(m) Collateral Documents, etc.......................... 119
9.2 Remedies .......................................................... 119
9.3 Rights Not Exclusive............................................... 120
ARTICLE X
THE AGENTS............................... 120
10.1 Appointment and Authorization..................................... 120
10.2 Delegation of Duties.............................................. 121
10.3 Liability of Administrative Agent................................. 121
10.4 Reliance by Administrative Agent.................................. 122
10.5 Notice of Default................................................. 122
10.6 Credit Decision................................................... 123
10.7 Indemnification of Agents......................................... 123
10.8 Administrative Agent in Individual Capacity....................... 124
10.9 Successor Administrative Agent.................................... 124
10.10 Withholding Tax.................................................. 125
10.11 Collateral Matters............................................... 127
ARTICLE XI
MISCELLANEOUS............................. 129
11.1 Amendments and Waivers............................................ 129
11.2 Notices .......................................................... 131
11.3 No Waiver; Cumulative Remedies.................................... 132
11.4 Costs and Expenses................................................ 132
11.5 Company Indemnification........................................... 133
11.6 Payments Set Aside................................................ 134
11.7 Successors and Assigns............................................ 134
11.8 Assignments, Participations, etc.................................. 134
11.9 Confidentiality................................................... 137
11.10 Set-off.......................................................... 138
11.11 Automatic Debits of Fees......................................... 138
11.12 Notification of Addresses, Lending Offices, Etc.................. 138
11.13 Counterparts..................................................... 139
11.14 Severability..................................................... 139
11.15 No Third Parties Benefited....................................... 139
11.16 Governing Law and Jurisdiction................................... 139
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11.17 Waiver of Jury Trial............................................. 139
11.18 Entire Agreement................................................. 140
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SCHEDULES
<TABLE>
<S> <C>
Pricing Schedule
Schedule 1.1 Commitments, Total Percentages, Revolving
Percentages, Term A Percentages, Term B
Percentages
Schedule 2.8 Assets Held For Sale
Schedule 6.5 Litigation
Schedule 6.11 Permitted Liabilities
Schedule 6.14 Material Intellectual Property
Schedule 6.15(a) Subsidiaries of the Company
Schedule 6.15(b) Equity Investments of the Company
Schedule 6.16 Insurance Matters
Schedule 6.18 Real Property
Schedule 6.21 Environmental Matters
Schedule 8.1 Liens
Schedule 8.5(d) Existing Indebtedness
Schedule 8.8 Contingent Obligations
Schedule 11.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Promissory Note
Exhibit E-1 Form of Security Agreement (Company and Parent)
Exhibit E-2 Form of Subsidiary Security Agreement
Exhibit F-1 Form of Amended and Restated Parent Guaranty
Exhibit F-2 Form of Subsidiary Guaranty
Exhibit G-1 Form of Parent Pledge Agreement
Exhibit G-2 Form of Company Pledge Agreement
Exhibit G-3 Form of Subsidiary Pledge Agreement
Exhibit H-1 Form of Company Solvency Certificate
Exhibit H-2 Form of Parent Solvency Certificate
Exhibit I-1 Form of Opinion of special counsel to the
Company, Parent and Mike Mac
Exhibit I-2 Form of Opinion of William R. Sawyers, General
Counsel to the Company, Parent and Mike Mac
Exhibit J [Reserved]
Exhibit K Form of Assignment and Acceptance
Exhibit L Form of Lender Certificate
Exhibit M Form of Borrowing Base Certificate
Exhibit N Form of Bailee's Consent
Exhibit O Form of Landlord's Consent
Exhibit P Form of Warehouseman's Consent
Exhibit Q Intercreditor Agreement
Exhibit R Form of Intellectual Property License
Exhibit S Form of Environmental Indemnity
Exhibit T Form of Confirmation
Exhibit U Form of Redemption and Cash Collateral Agreement
</TABLE>
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<PAGE> 8
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as
of July ___, 1998, among DEL MONTE CORPORATION, the several financial
institutions from time to time party to this Agreement, BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, as administrative agent for the Lenders, BANKERS
TRUST COMPANY, as documentation agent for the Lenders, and ABN AMRO BANK, N.V.,
THE BANK OF NOVA SCOTIA, CITICORP USA, INC., THE FIRST NATIONAL BANK OF CHICAGO,
GENERAL ELECTRIC CAPITAL CORPORATION, HARRIS TRUST & SAVINGS BANK and
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., NEW YORK BRANCH, as
co-agents for the Lenders.
W I T N E S S E T H:
WHEREAS, the Company, the Administrative Agent and the Lenders are
parties to that certain Amended and Restated Credit Agreement, dated as of
December 17, 1997 (the "Existing Credit Agreement"), which amended and restated
a Credit Agreement dated as of April 18, 1997 (the "Original Credit Agreement");
WHEREAS, concurrently with the initial extension of credit under this
Agreement the Company is offering to the public 19,118,000 shares of its common
stock (the "Offering");
WHEREAS, Parent will use the Net Cash Proceeds of the Offering to (i)
redeem all of the TPG Acquisition Preferred Stock (including accrued dividends
and redemption premium thereon) on the Restatement Date and (ii) make a capital
contribution of remaining balance of such Net Cash Proceeds to the Company;
WHEREAS, the Company will use a portion of such capital contribution
to prepay the term loans and revolving loans under the Existing Credit Agreement
and will deposit the balance of such capital contribution (after giving effect
to such prepayments) in the Cash Collateral Account as provided herein and the
Company may use the amounts on deposit in the Cash Collateral Account as
provided in the Redemption and Cash Collateral Agreement, including (i) to make
a distribution to Parent to enable Parent to redeem not more than 35% of the
aggregate principal amount of the Parent Discount Notes (including accrued
interest and any applicable redemption premium thereon) in accordance with the
Parent Discount Indenture and the Parent Discount Notes and (ii) to redeem not
more than 35% of the aggregate principal amount of the Subordinated Notes
(including accrued interest and any applicable redemption premium thereon) in
accordance with the Subordinated Indenture and the Subordinated Notes (each of
the redemptions in clauses (i) and (ii) of this recital and clause (i) of the
immediately preceding recital being a "Permitted Redemption");
<PAGE> 9
WHEREAS, the Company, the Administrative Agent and the Lenders desire
that the Existing Credit Agreement be amended and restated on the terms and
conditions set forth herein to, among other things, set forth the terms and
conditions under which the Lenders hereafter will extend credit to the Company;
it being the intention of the Company, the Administrative Agent and the Lenders
that this Agreement and the execution and delivery of any substituted promissory
notes not effect a novation of the obligations of the Company to the Lenders
under the Existing Credit Agreement but merely a restatement and, where
applicable, a substitution of the terms governing and evidencing such
obligations hereafter;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the Existing Credit Agreement is amended and
restated to read in its entirety, and the parties agree, as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. In this Agreement, including the foregoing
preamble and recitals, the following terms have the following meanings:
Account Debtor means any Person who is obligated to the
Company or any Domestic Subsidiary under, with respect to, or on
account of an Account Receivable.
Account Receivable means, with respect to any Person, any
right of such person to payment for goods sold or leased or for
services rendered, whether or not evidenced by an instrument or
chattel paper and whether or not yet earned by performance.
Acquired Indebtedness means mortgage Indebtedness or
Indebtedness with respect to capital leases of a Person existing at
the time such Person became a Subsidiary or assumed by the Company or
a Subsidiary in an Acquisition permitted hereunder (and not created or
incurred in connection with or in anticipation of such Acquisition);
provided that such Indebtedness is purchase money Indebtedness or
Indebtedness with respect to a capital lease, as the case may be, and
was incurred by such Person to finance the acquisition of property or,
in either case, such Indebtedness was incurred to refinance such
Indebtedness, and the principal amount of such Indebtedness does not
exceed the purchase price of such property.
Acquisition means any transaction or series of related
transactions for the purpose of, or resulting directly or
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indirectly in, (a) the acquisition of all or substantially all of the
assets of a Person, or of any business or division of a Person, (b)
the acquisition of in excess of 50% of the capital stock, partnership
interests, membership interests or equity of any Person, or otherwise
causing any Person to become a Subsidiary or (c) a merger or
consolidation or any other combination with another Person (other than
a Person that is a Subsidiary) provided that the Company or a
Subsidiary is the surviving entity.
Acquisition Prospect means each Person whose stock or assets
is intended to be acquired in an Acquisition permitted under
subsection 8.4(i) including, in each case, the assets and the
liabilities thereof.
Administrative Agent means BofA in its capacity as
administrative agent for the Lenders hereunder, and any successor
administrative agent arising under Section 10.9.
Affiliate means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. A Person shall be deemed to
control another Person if the controlling Person possesses, directly
or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the
ownership of voting securities or membership interests, by contract,
or otherwise. Without limiting the foregoing, any Person which is an
officer, director or shareholder of the Company, or a member of the
immediate family of any such officer, director or shareholder, shall
be deemed to be an Affiliate of the Company.
Agent-Related Persons means BofA and any successor
administrative agent arising under Section 10.9, BofA and any
successor Issuing Lender, BofA and any successor Swingline Lender,
together with their respective Affiliates (including the Arranger),
and the officers, directors, employees, agents and attorneys-in-fact
of such Persons and Affiliates.
Agent's Payment Office means the address for payments set
forth on Schedule 11.2 in relation to the Administrative Agent, or
such other address as the Administrative Agent may from time to time
specify.
Agents means the Administrative Agent, the
Documentation Agent and the Co-Agents.
Agreement means this Credit Agreement.
Agreement Currency - see subsection 3.10(f).
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Applicable Base Rate Margin - see the Pricing Schedule.
Applicable Offshore Rate Margin - see the Pricing
Schedule.
Arranger means BancAmerica Robertson Stephens, a Delaware
corporation.
Assets Held For Sale means assets of the Company and its
Subsidiaries listed on Schedule 2.8.
Assignee - see subsection 11.8(a).
Assignment and Acceptance - see subsection 11.8(a).
Attorney Costs means and includes all reasonable fees and
disbursements of any law firm or other external counsel and, without
duplication of effort, the allocated cost of internal legal services
and all reasonable disbursements of internal counsel.
Bailee's Consent means a document substantially in the form
of Exhibit N, with appropriate insertions, or such other form as shall
be acceptable to the Administrative Agent or Required Revolving
Lenders.
Bankruptcy Code means the Federal Bankruptcy Reform Act
of 1978 (11 U.S.C. Section101, et seq.).
Base Rate means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of
interest in effect for such day as publicly announced from time to
time by BofA in San Francisco, California as its "reference rate."
(The "reference rate" is a rate set by BofA based upon various factors
including BofA's costs and desired return, general economic conditions
and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above or below such announced rate.)
Any change in the reference rate announced by BofA shall take effect
at the opening of business on the day specified in the public
announcement of such change.
Base Rate Loan means a Loan that bears interest based on the
Base Rate.
BofA means Bank of America National Trust and Savings
Association, a national banking association.
Borrowing means a borrowing hereunder consisting of (a)
Revolving Loans, Term A Loans or Term B Loans of the same Type made to
the Company on the same day by the Lenders and, in the case of
Offshore Rate Loans, having the same Interest
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<PAGE> 12
Period, or (b) a Swingline Loan made to the Company by the Swingline
Lender, in each case pursuant to Article II.
Borrowing Base means an amount equal to the total of (a) 85%
of the unpaid amount (net of such reserves and allowances as the
Administrative Agent deems necessary in its sole reasonable discretion
and in accordance with its customary commercial lending practices) of
all Eligible Accounts Receivable plus (b) 70% of the value of all
Eligible Inventory consisting of finished goods (whether labeled or
unlabeled) or bulk tomato paste, valued at the lower of cost or market
(net of such reserves and allowances as the Administrative Agent deems
necessary in its sole reasonable discretion and in accordance with its
customary commercial lending practices) plus (c) 20% of the value of
all other Eligible Inventory, valued at the lower of cost or market
(net of such reserves and allowances as the Administrative Agent deems
necessary in its sole reasonable discretion and in accordance with its
customary commercial lending practices) plus (d) an amount equal to
(x) the aggregate cash purchase price paid by the Company and its
Subsidiaries (including related fees and expenses and amounts paid to
refinance Indebtedness in connection therewith but excluding the
amount of cash purchase price funded with the proceeds of capital
contributions to, or new equity sold by, the Company) in Acquisitions
permitted under subsection 8.4(i) minus (y) an amount equal to the
average calendar month end amount of the value of accounts receivable
and inventory of the business acquired in such Acquisition (to the
extent the same would have been eligible for inclusion in the
Borrowing Base assuming such Acquisition had occurred a year earlier)
for the year preceding such Acquisition, as it shall be reasonably
determined by a Responsible Officer, in each case multiplied by the
applicable advance rate, less (e) the net aggregate payables owing to
growers or other suppliers of crops or produce at such time, to the
extent that such payables are subject to statutory liens, trusts or
priority claims (provided, that if the Company is holding any
Inventory at premises leased by the Company or with a bailee or
warehouseman and with respect to which the Company shall not have
obtained a Landlord's Consent, Bailee's Consent or Warehouseman's
Consent, as applicable, the Company may request that a reserve equal
to all rent payable by the Company with respect to such property for
one year from the date of determination of the reserve (in the case of
leased premises) or such other reserve in respect of storage,
transportation and other charges as shall be acceptable to the
Administrative Agent or Required Revolving Lenders (in the case of
Inventory with a bailee or warehouseman) be established, in which case
such reserve shall be, if any Inventory located at such premises is to
be included in the Borrowing Base, deducted from the Borrowing Base
and such
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Inventory shall not, solely by virtue of clause (3) or clause (4) or
clause (6) of the definition of "Eligible Inventory," be deemed
ineligible) less (f) the Redemption Reserve.
Borrowing Base Certificate means a certificate substantially
in the form of Exhibit M.
Borrowing Date means any date on which a Borrowing occurs
under Section 2.3.
BTCo. means Bankers Trust Company, a New York banking
corporation.
Business Day means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco
are authorized or required by law to close and, if the applicable
Business Day relates to any Offshore Rate Loan, means such a day on
which dealings are carried on in the applicable offshore Dollar
interbank market.
Capital Adequacy Regulation means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
of any central bank or Governmental Authority in each case regarding
capital adequacy of any bank or of any Person controlling a bank.
Capital Expenditures means all expenditures which, in
accordance with GAAP, would be required to be capitalized and shown on
the consolidated balance sheet of the Company, but excluding
expenditures made in connection with the replacement, substitution or
restoration of assets to the extent financed (i) from insurance
proceeds (or other similar recoveries) paid on account of the loss of
or damage to the assets being replaced or restored or (ii) with awards
of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced.
Cash Collateral Account has the meaning specified in the
Redemption and Cash Collateral Agreement.
Cash Collateralize means to pledge and deposit with or
deliver to the Administrative Agent, for the benefit of the
Administrative Agent, the Issuing Lender and the Revolving Lenders, as
additional collateral for the L/C Obligations, cash or deposit account
balances pursuant to documentation in form and substance satisfactory
to the Administrative Agent and the Issuing Lender (which documents
are hereby consented to by the Lenders). Derivatives of such term
shall have corresponding meanings. The Company hereby
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grants the Administrative Agent, for the benefit of the Administrative
Agent, the Issuing Lender and the Revolving Lenders, a security
interest in all such cash and deposit account balances. Cash
collateral shall be maintained in blocked, non-interest bearing
deposit accounts at BofA.
Cash Equivalent Investments shall mean (i) securities issued
or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in
support thereof) having maturities of not more than three years from
the date of acquisition, (ii) marketable direct obligations issued by
any State of the United States of America or any local government or
other political subdivision thereof rated (at the time of acquisition
of such security) at least AA by Standard & Poor's Ratings Service, a
division of The McGraw- Hill Companies, Inc. ("S&P") or the equivalent
thereof by Moody's Investors Service, Inc. ("Moody's") having
maturities of not more than one year from the date of acquisition,
(iii) time deposits (including eurodollar time deposits), certificates
of deposit (including eurodollar certificates of deposit) and bankers'
acceptances of (x) any Lender or any Affiliate of any Lender, (y) any
commercial bank of recognized standing either organized under the laws
of the United States (or any State or territory thereof) or another
country (or a political subdivision thereof) which is a member of the
Organization for Economic Cooperation and Development and acting
through a branch or agency located in the United States, in either
case having capital and surplus in excess of $250,000,000 or (z) any
bank whose short-term commercial paper rating (at the time of
acquisition of such security) by S&P is at least A-1 or the equivalent
thereof (any such bank, an "Approved Bank"), in each case with
maturities of not more than six months from the date of acquisition,
(iv) commercial paper and variable or fixed rate notes issued by any
Lender or Approved Bank or by the parent company of any Lender or
Approved Bank and commercial paper and variable rate notes issued by,
or guaranteed by, any industrial or financial company with a
short-term commercial paper rating (at the time of acquisition of such
security) of at least A-1 or the equivalent thereof by S&P or at least
P-1 or the equivalent thereof by Moody's, or guaranteed by any
industrial company with a long-term unsecured debt rating (at the time
of acquisition of such security) of at least AA or the equivalent
thereof by S&P or at least Aa or the equivalent thereof by Moody's and
in each case maturing within one year after the date of acquisition
and (v) repurchase agreements with any Lender or any primary dealer
maturing within one year from the date of acquisition that are fully
collateralized by investment instruments that would otherwise be Cash
Equivalent Investments; provided that the terms of such repurchase
agreements comply with the
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<PAGE> 15
guidelines set forth in the Federal Financial Institutions
Examination Council Supervisory Policy -- Repurchase
Agreements of Depository Institutions With Securities
Dealers and Others, as adopted by the Comptroller of the
Currency on October 31, 1985.
CERCLA means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
CERCLIS means the Comprehensive Environmental Response
Compensation Liability Information System List.
Change of Control means (i)(A) any Person or group of related
persons for purposes of Section 13(d) of the Exchange Act (a "Group")
(other than TPG Partners or its Affiliates) shall become the owner,
directly or indirectly, beneficially or of record, of shares
representing 30% or more of the aggregate ordinary voting power
represented by the issued and outstanding capital stock (the "Voting
Stock") of the Parent and (B) TPG Partners and its Affiliates shall
beneficially own, directly or indirectly, in the aggregate a lesser
percentage of the Voting Stock of the Parent than such Person or
Group, (ii) the replacement of a majority of the Board of Directors of
the Parent over a two-year period from the directors who constituted
the Board of Directors of the Parent 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 of the Parent then still in
office who either were members of such Board of Directors at the
beginning of such period or whose election as a member of such Board
of Directors was previously so approved,(iii) the failure of the
Parent to own 100% of the issued and outstanding capital stock of the
Company free and clear of all Liens (other than Permitted Liens of the
type described in subsection 8.1(b), (c) or (g)),(iv) while any
Subordinated Notes or Exchange Notes are outstanding, any "Change of
Control" as defined in the Subordinated Indenture or, while any
Qualified Notes are outstanding, any "Change of Control" as defined in
any Qualified Indenture or any other similar event, regardless of how
designated, if the occurrence of such event would require the Company
to redeem or repurchase any Qualified Notes prior to their expressed
maturity or (v) while any Parent Discount Notes are outstanding, any
"Change of Control" as defined in the Parent Discount Indenture or in
any other instrument governing the Parent Discount Notes or, while any
Qualified Parent Notes are outstanding, any "Change of Control" as
defined in any Qualified Parent Indenture or any other similar event,
regardless of how designated, if the occurrence of such event would
require Parent, pursuant to any Qualified Parent Indenture, to redeem
or repurchase any Qualified Parent Notes prior to their expressed
maturity.
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<PAGE> 16
Closing Date means April 18, 1997.
Co-Agents means ABN Amro Bank, N.V., The Bank of Nova Scotia,
Citicorp USA, Inc., The First National Bank of Chicago, General
Electric Capital Corporation, Harris Trust & Savings Bank and
Cooperatieve Centrale Raiffeisen - Boerenleenbank B.A., New York
Branch in their capacities as
co-agents for the Lenders.
Code means the Internal Revenue Code of 1986.
Collateral means any property of Parent, the Company or any
Domestic Subsidiary upon which a security interest in favor of the
Administrative Agent for the benefit of the Lender Parties is
purported to be granted pursuant to any Collateral Document.
Collateral Document means the Security Agreements, each
Copyright Security Agreement, the Intellectual Property License, each
Trademark Security Agreement, each Patent Security Agreement, each
Pledge Agreement, each Mortgage, the Redemption and Cash Collateral
Agreement and any other document pursuant to which collateral securing
the liabilities of the Company, Parent or any Subsidiary under any
Loan Document is granted or pledged to the Administrative Agent for
the benefit of itself and the Lenders.
Commercial Letter of Credit means any Letter of Credit which
is drawable upon presentation of a sight draft and other documents
evidencing the sale or shipment of goods purchased by the Company in
the ordinary course of business.
Commitment means, as to each Lender, such Lender's Revolving
Commitment, Term A Commitment or Term B
Commitment, as applicable.
Commitment Fee Rate - see the Pricing Schedule.
Common Stock means the common stock, par value $1.00 per
share, of the Company.
Company means Del Monte Corporation, a New York corporation
and a Wholly-Owned Subsidiary of Parent.
Company Pledge Agreement means the Company Pledge Agreement,
dated as of the Closing Date, between the Company and the Agent, in
the form of Exhibit G-2.
Compliance Certificate means a certificate substantially in
the form of Exhibit C.
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<PAGE> 17
Computation Period means, except as otherwise expressly
provided herein, any period of four consecutive fiscal quarters and in
any case ending on the last day of a fiscal quarter.
Consolidated Net Income means, with respect to Parent and its
Subsidiaries for any period, the net income (or loss) of Parent and
its Subsidiaries on a consolidated basis for such period.
Notwithstanding the foregoing, "Consolidated Net Income" shall be
calculated without giving effect to any charges arising from any
purchase accounting valuation adjustments over historical cost of the
Person or assets acquired, as required or permitted by Accounting
Principles Board Opinion Nos. 16 and 17.
Contadina Acquisition means the acquisition by the Company in
December 1997 of the assets constituting the Contadina canned tomato
business of Nestle USA.
Contingent Obligation means, as to any Person, any direct or
indirect liability of such Person, whether or not contingent, with or
without recourse: (a) with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary
obligation") of another Person (the "primary obligor"), including any
obligation of such Person (i) to purchase, repurchase or otherwise
acquire such primary obligation or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any primary
obligation, or to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any primary
obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless
the holder of any primary obligation against loss in respect thereof
(each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument (other than any Letter of Credit) issued for the account of
such Person or as to which such Person is otherwise liable for
reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another
Person if the relevant contract or other related document or
obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether
delivery of such materials, supplies or other property is ever made or
tendered, or such services are ever performed or tendered; or (d) in
respect of any Swap Contract. The amount of any Contingent Obligation
shall, (1) in the case of Guaranty Obligations, be deemed equal to the
stated or determinable amount of the primary obligation in respect of
which such
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<PAGE> 18
Guaranty Obligation is made or, if not stated or if indeterminable,
the maximum reasonably anticipated liability in respect thereof, (2)
in the case of Swap Contracts, be equal to the Swap Termination Value
and (3) in the case of other Contingent Obligations, be equal to the
maximum reasonably anticipated liability in respect thereof.
Contractual Obligation means, as to any Person, any provision
of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or
by which it or any of its property is bound.
Conversion/Continuation Date means any date on which, under
Section 2.4, the Company (a) converts Loans of one Type to the other
Type or (b) continues as Offshore Rate Loans, but with a new Interest
Period, Offshore Rate Loans having Interest Periods expiring on such
date.
Copyright Security Agreement means a copyright security
agreement in the form attached to a Security Agreement.
Designated Proceeds - see subsection 2.8(a).
Documentation Agent means BTCo., in its capacity as
documentation agent for the Lenders.
Dollar Amount means, in relation to any Indebtedness (i)
denominated in Dollars, the amount of such Indebtedness, and (ii)
denominated in a currency other than Dollars, the Dollar Equivalent of
the amount of such Indebtedness on the last day of the immediately
preceding calendar month.
Dollar Equivalent means, in relation to an amount denominated
in a currency other than Dollars, the amount of Dollars which could be
purchased with such amount at the prevailing foreign exchange spot
rate.
Dollars and $ mean lawful money of the United States.
Domestic Subsidiary means each Subsidiary other than a
Foreign Subsidiary.
EBITDA means, as to any Person for any Computation
Period, the sum of
(a) Consolidated Net Income of such Person for such period
excluding, to the extent reflected in determining such Consolidated
Net Income, extraordinary gains and losses for such period,
plus
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<PAGE> 19
(b) to the extent deducted in determining Consolidated Net
Income and without duplication, Interest Expense, income tax expense,
depreciation and amortization (including amortization of goodwill and
other intangible assets) of such Person for such period, non-cash
charges and losses from sales of assets other than Inventory sold in
the ordinary course of business (provided, that in the event cash
expenditures are made in such Computation Period to reduce any
non-cash charge established in such Computation Period or a prior
Computation Period, such cash expenditures shall be deducted to
calculate EBITDA for such Computation Period),
minus
(c) to the extent reflected in determining Consolidated Net
Income and without duplication, non-cash credits and gains of such
Person from sales of assets other than Inventory sold in the ordinary
course of business (provided, that in the event cash payments are
received in such Computation Period to offset any non-cash credit
established in such Computation Period or a prior Computation Period,
such cash payments shall be added to calculate EBITDA for such
Computation Period),
plus
(d) in the case of Parent, to the extent deducted in
determining Consolidated Net Income of Parent and without duplication,
management incentive payments in connection with the DMFC
Recapitalization (as defined in the Existing Credit Agreement) and
other fees and expenses in connection with the DMFC Recapitalization
and the Contadina Acquisition;
provided that for purposes of calculating EBITDA of Parent for any
period, the EBITDA (as calculated pursuant to clauses (a), (b), (c)
and (d) above) of any Person, or attributable to any assets, acquired
by the Company or any Subsidiary during such period shall be included
on a pro forma basis for such period (assuming the consummation of
each such acquisition and the incurrence or assumption of any
Indebtedness in connection therewith occurred on the first day of such
period, but without any adjustment for expected cost savings or other
synergies) if (i) either (x) the audited consolidated balance sheet of
such acquired Person and its consolidated Subsidiaries as at the end
of the fiscal year of such Person preceding the acquisition of such
Person and the related audited consolidated statements of income,
stockholders' equity and cash flows for the such fiscal year have been
provided to the Administrative Agent and the Lenders and have been
reported on without a qualification arising from the scope of the
audit or a
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<PAGE> 20
"going concern" or like qualification or exception or (y) such other
financial information furnished to the Lenders with respect to such
period and such acquisition has been found acceptable by the Required
Lenders (it being acknowledged that the information provided with
respect to Nestle USA in connection with the Contadina Acquisition has
been found acceptable by the Required Lenders) and (ii) either (x) any
subsequent unaudited financial statements for such Person for the
period prior to the acquisition of such Person were prepared on a
basis consistent with such audited financial statements, have been
provided to the Administrative Agent and the Lenders and have been
reported on without a qualification arising from the scope of the
audit or a "going concern" or like qualification or (y) such other
financial information furnished to the Lenders with respect to such
period and such acquisition has been found acceptable by the Required
Lenders (it being acknowledged that the information provided with
respect to Nestle USA in connection with the Contadina Acquisition has
been found acceptable by the Required Lenders).
Effective Amount means, (a) with respect to any Revolving
Loans, Swingline Loans and Term Loans on any date, the aggregate
outstanding principal amount thereof after giving effect to any
Borrowings and prepayments or repayments of Revolving Loans, Swingline
Loans and Term Loans occurring on such date, and (b) with respect to
any outstanding L/C Obligations on any date (i) the amount of such L/C
Obligations on such date after giving effect to any Issuances of
Letters of Credit occurring on such date, (ii) the amount of any
undrawn Commercial Letters of Credit which have expired less than 15
days prior to such date and (iii) any other changes in the aggregate
amount of the L/C Obligations as of such date, including as a result
of any reimbursements of outstanding unpaid drawings under any Letter
of Credit or any reduction in the maximum amount available for drawing
under Letters of Credit taking effect on such date.
Eligible Account Receivable means an Account Receivable owing
to the Company or any Domestic Subsidiary which meets the following
requirements:
(1) it arises from the sale of goods or the rendering of
services by the Company or such Domestic Subsidiary; and if it arises
from the sale of goods, (i) such goods comply with such Account
Debtor's specifications (if any) and have been shipped to such Account
Debtor (other than "bill and hold" Accounts Receivable that are not
ineligible under clause (6)) and (ii) the Company has possession of,
or if requested by the Administrative Agent has delivered to the
Administrative Agent, shipping receipts evidencing such shipment;
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<PAGE> 21
(2) it (a) is subject to a perfected Lien in favor of the
Administrative Agent and (b) is not subject to any other assignment,
claim or Lien (other than Permitted Liens of the type described in
subsections 8.1(c) and (g) and statutory nonconsensual Liens in favor
of growers);
(3) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor with respect thereto, and is not
subject to any counterclaim, credit, allowance, discount, rebate or
adjustment by the Account Debtor with respect thereto, or to any claim
by such Account Debtor denying liability thereunder in whole or in
part, and such Account Debtor has not refused to accept any of the
goods which are the subject of such Account Receivable or offered or
attempted to return any of such goods (provided, that in the event any
counterclaim, credit, allowance, rebate or adjustment is asserted, or
discount is granted, the Account Receivable shall only be ineligible
pursuant to this clause (3) to the extent of the same);
(4) there is no Insolvency Proceeding by or against the
Account Debtor with respect thereto;
(5) the Account Debtor with respect thereto is a resident or
citizen of, and is located within, the United States or a province of
Canada in which the Personal Property Security Act is in effect,
unless (x) the sale of goods giving rise to such Account Receivable is
on letter of credit, banker's acceptance or other credit support terms
reasonably satisfactory to the Administrative Agent or (y) such
Account Receivable is payable by Plaza Provision, a Puerto Rico
corporation, or such other Account Debtors in Puerto Rico, or any
other territory or possession of the U.S. which has adopted Article 9
of the Uniform Commercial Code or as may be approved by the
Administrative Agent or Required Revolving Lenders;
(6) it is not an Account Receivable arising from a "sale on
approval," "sale or return," "consignment" or "bill and hold" or
subject to any other repurchase or return agreement (provided, that
"bill and hold" Accounts Receivable shall not be ineligible solely by
virtue of this clause (6) if subject to a written agreement reasonably
acceptable to the Administrative Agent or Required Revolving Lenders
to the effect that the related Account Debtor's payment obligation is
irrevocable);
(7) it is not an Account Receivable with respect to which
possession and/or control of the goods sold giving rise thereto is
held, maintained or retained by the Company or any Subsidiary (or by
any agent or custodian of the Company or any Subsidiary) for the
account of or subject to
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<PAGE> 22
further and/or future direction from the Account Debtor with
respect thereto;
(8) it arises in the ordinary course of business of the
Company or such Domestic Subsidiary;
(9) if the Account Debtor is the United States or any
department, agency or instrumentality thereof, the Company has
assigned its right to payment of such Account Receivable to the
Administrative Agent pursuant to the Assignment of Claims Act of 1940,
provided, however, that any Accounts Receivable arising out of
business conducted by the Company consistent with business conducted
prior to the Closing Date shall not be subject to this clause (9);
(10) if the Company or such Domestic Subsidiary maintains a
credit limit for an Account Debtor, the aggregate dollar amount of
Accounts Receivable due from such Account Debtor, including such
Account Receivable, does not exceed such credit limit (provided, that
(i) the Company may grant exceptions to such credit limits consistent
with past practice and in the ordinary course of business and (ii)
only the amount in excess of the credit limit shall be ineligible
under this clause (10));
(11) if the Account Receivable is evidenced by chattel paper
or an instrument, the originals of such chattel paper or instrument
shall have been endorsed and/or assigned and delivered to the
Administrative Agent in a manner reasonably satisfactory to the
Administrative Agent;
(12) such Account Receivable is not more than (a) 60 days
past the due date thereof or (b) 120 days past the original invoice
date thereof, in each case according to the original terms of sale;
(13) it is not an Account Receivable with respect to an
Account Debtor that is located in any jurisdiction which has adopted a
statute or other requirement with respect to which any Person that
obtains business from within such jurisdiction must file a business
activity report or make any other required filings in a timely manner
in order to enforce its claims in such jurisdiction's courts unless
such business activity report has been duly and timely filed or the
Company is exempt from filing such report and has provided the
Administrative Agent with satisfactory evidence of such exemption; and
(14) it is not owed by an Account Debtor if (x) 30% or more
of the aggregate Dollar amount of outstanding Accounts Receivable owed
at such time by such Account Debtor is classified as ineligible under
clause (12) of this definition or (y) the aggregate Dollar amount of
all
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<PAGE> 23
Accounts Receivable owed by the Account Debtor thereon exceeds 20% of
the aggregate amount of all Accounts Receivable at such time (but
only, in the case of this clause (y), to the extent of such excess).
An Account Receivable which is at any time an Eligible Account
Receivable, but which subsequently fails to meet any of the foregoing
requirements, shall forthwith cease to be an Eligible Account
Receivable. Further, with respect to any Account Receivable, if the
Administrative Agent or the Required Revolving Lenders at any time
hereafter determine in their reasonable discretion and in accordance
with its customary commercial lending practices that the prospect of
payment or performance by the Account Debtor with respect thereto is
materially impaired for any reason whatsoever, such Account Receivable
shall cease to be an Eligible Account Receivable after notice of such
determination is given to the Company.
Eligible Assignee means (i) an "accredited investor" as such
term is defined in Rule 501(a) of Regulation D under the Securities
Act of 1933 (other than the Company or an Affiliate of the Company),
(ii) a Lender, (iii) an Affiliate of a Lender (provided such Affiliate
is an "accredited investor") or (iv) any fund that invests in bank
loans that is managed by the same investment adviser as another Lender
that is such a fund (provided such assignee fund is an "accredited
investor").
Eligible Inventory means Inventory which meets the following
requirements:
(1) it (a) is subject to a perfected Lien in favor of the
Administrative Agent and (b) is not subject to any other assignment,
claim or Lien (other than Permitted Liens of the type described in
subsections 8.1(c) and (g) and statutory nonconsensual Liens in favor
of growers) (provided, that if the Company has not delivered any
Bailee's Consent, Warehouseman's Consent or Landlord's Consent but the
Administrative Agent has established adequate reserves in respect
thereof under the definition of "Borrowing Base" any claim or Lien of
the related bailee, warehouseman or landlord, if it is a Permitted
Lien, shall not cause the Inventory kept at such location to be
ineligible solely by virtue of this clause (1));
(2) it is (except as the Required Revolving Lenders may
otherwise consent in writing) salable;
(3) except as provided in clause (4) below or as the Required
Revolving Lenders may otherwise consent, it is in the possession and
control of the Company or the relevant Domestic Subsidiary and it is
stored and held in facilities
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<PAGE> 24
owned by the Company or the relevant Domestic Subsidiary or, if such
facilities are not so owned, leased to the Company or the relevant
Domestic Subsidiary and with respect to which the Administrative Agent
has received a Landlord's Consent (unless a reserve with respect
thereto has been established by the Administrative Agent in accordance
with the proviso in the definition of "Borrowing Base") (provided that
no Landlord's Consents shall be required with respect to Inventory
acquired in any Acquisition permitted under subsection 8.4(i) for the
first 60 days after the closing of such Acquisition);
(4) if it is in the possession or control of a bailee,
warehouseman or processor, the Administrative Agent is in possession
of a Bailee's Consent, Warehouseman's Consent or such other
agreements, instruments and documents as the Administrative Agent may
reasonably require in good faith, including warehouse receipts in the
Administrative Agent's name covering such Inventory (unless a reserve
with respect thereto has been established by the Administrative Agent
in accordance with the proviso in the definition of "Borrowing
Base")(provided that no Bailee's Consents shall be required with
respect to Inventory acquired in any Acquisition permitted under
subsection 8.4(i) for the first 60 days after the closing of such
Acquisition);
(5) it is not Inventory produced in violation of the Fair
Labor Standards Act and subject to the "hot goods" provisions
contained in Title 29 U.S.C. Section215;
(6) it is not subject to any agreement which would restrict
the Administrative Agent's ability to sell or otherwise dispose of
such Inventory (provided, that if the Company has not delivered any
Bailee's Consent, Warehouseman's Consent or Landlord's Consent and has
established adequate reserves in respect thereof under the definition
of "Borrowing Base", any agreement entered into in the ordinary course
of business with such bailee, warehouseman or landlord shall not
render the Inventory kept at such location to be ineligible solely by
virtue of this clause (6));
(7) it is located in the United States or in any territory or
possession of the United States that has adopted Article 9 of the
Uniform Commercial Code or as may be approved by the Administrative
Agent or Required Revolving Lenders;
(8) it is not "in transit" to the Company or the relevant
Domestic Subsidiary or held by the Company or the relevant Domestic
Subsidiary on consignment; and
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<PAGE> 25
(9) the Administrative Agent (or Required Revolving Lenders)
shall not have determined (which determination shall be effective upon
notice to the Company) in its (or their) reasonable discretion and in
accordance with its (or their) customary commercial lending practices
that it is unacceptable due to age, type, category, quality, quantity
and/or any other reason whatsoever.
Inventory which is at any time Eligible Inventory but which
subsequently fails to meet any of the foregoing requirements shall
forthwith cease to be Eligible Inventory.
Environmental Claims means all claims, however asserted, by
any Governmental Authority or other Person alleging potential
liability under any Environmental Law or responsibility for violation
of any Environmental Law, or for release or injury to the environment.
Environmental Indemnity means an unsecured environmental
indemnity in the form of Exhibit S in favor of the Administrative
Agent.
Environmental Laws means CERCLA, the Resource Conservation
and Recovery Act and all other federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes relating
to pollution or protection of public or employee health or the
environment, together with all administrative orders, consent decrees,
licenses, authorizations and permits of any Governmental Authority
implementing them.
ERISA means the Employee Retirement Income Security Act of
1974.
ERISA Affiliate means any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of
the Code for purposes of provisions relating to Section 412 of the
Code).
ERISA Event means: (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a substantial cessation of operations which is
treated as such a withdrawal; (c) a complete or partial withdrawal by
the Company or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate, the treatment of a Pension
Plan amendment as a termination under Section 4041 or 4041A of ERISA,
or the commencement of proceedings by the PBGC to terminate a Pension
Plan or
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<PAGE> 26
Multiemployer Plan; (e) an event or condition which might reasonably
be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
Pension Plan or Multiemployer Plan; or (f) the imposition of any
material liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon the Company
or any ERISA Affiliate.
Event of Default means any of the events or circumstances
specified in Section 9.1.
Excess Cash Flow means, for any period, the remainder
of
(a) EBITDA of Parent for such period (without giving effect
to any amount included in such EBITDA on a pro forma basis solely by
virtue of the proviso to the definition of "EBITDA"),
less
(b) the sum, without duplication, of
(i) repayments of principal of Term Loans pursuant
to Section 2.9, regularly scheduled principal payments
arising with respect to any other long-term Indebtedness of
the Company and its Subsidiaries, and the portion of any
regularly scheduled payments with respect to capital leases
allocable to principal, in each case made during such period,
plus
(ii) voluntary prepayments of the Term Loans
pursuant to Section 2.7 during such period (other than any
such voluntary prepayments to the extent that the same are
applied during such period to the scheduled unpaid principal
installments of the Term Loans in forward order of maturity
pursuant to Section 2.7),
plus
(iii) cash payments made in such period with respect
to Capital Expenditures,
plus
(iv) all federal, state, local and foreign income
taxes paid by the Company and its Subsidiaries during such
period,
plus
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<PAGE> 27
(v) cash Interest Expense of the Company and its
Subsidiaries during such period and, to the extent not
deducted in determining EBITDA of Parent, cash payments
(other than payments of principal) made by the Company in
connection with prepayments and repayments of Term Loans
under clauses (b)(i) and (b)(ii) above,
plus
(vi) cash dividends of the Company permitted under
subsection 8.16(f) made in such period,
plus
(vii) cash payments made by the Company and its
Subsidiaries in respect of pension liability, workers'
compensation and other post-employment benefits to the extent
such payments exceed book expenses for such items reflected
in the calculation of EBITDA, and
plus
(viii) cash payments made by Parent and its
Subsidiaries during such period in respect of fees and
expenses in connection with Acquisitions permitted under
subsection 8.4(i).
Exchange Act means the Securities Exchange Act of 1934.
Exchange Notes means the 12-1/4% Series B Senior Subordinated
Notes due April 15, 2007 of the Company to be issued pursuant to the
Subordinated Indenture in a principal amount equal to the then
outstanding principal amount of the Subordinated Notes exchanged, as
amended from time to time in accordance with Section 8.22.
Excluded Taxes - see the definition of "Taxes."
Existing Credit Agreement - see the recitals.
Federal Funds Rate means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York (including any such successor, "H.15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such
preceding Business Day, the rate for such day will be the arithmetic
mean as determined by the Administrative Agent of the rates for the
last transaction in overnight Federal funds arranged prior to 9:00
a.m. (New York City time) on that day by each of three leading brokers
of Federal funds
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transactions in New York City selected by the Administrative
Agent.
Fee Letter - see subsection 2.11(a).
Fixed Charge Coverage Ratio means, for the Computation Period
most recently ended on or before such date, the ratio of (a) EBITDA of
Parent for such Computation Period to (b) the sum of (i) Interest
Expense of Parent for such Computation Period (excluding, for purposes
of this definition, any Interest Expense attributable to the Parent
Discount Notes or any Qualified Parent Notes) and (ii) the scheduled
installments of principal of the Term Loans for such Computation
Period (excluding therefrom the last four scheduled installments of
principal of Term B Loans to the extent that such installments are
refinanced with Indebtedness maturing after, and having no mandatory
prepayments or sinking fund payments prior to, March 31, 2005 and
giving effect to any reduction of such scheduled installments by
virtue of the application of any prepayments or repayments made which
reduce scheduled installments pro rata or in inverse order of maturity
pursuant to Section 2.7 or 2.8); provided, however that with respect
to Computation Periods ending prior to June 30, 1999, Interest Expense
and scheduled installments of principal of the Term Loans shall be
measured from the period from July 1, 1998 through the end of any such
Computation Period and annualized as follows (x) with respect to the
Computation Period ending September 27, 1998, Interest Expense and
scheduled installments of principal on the Term Loans during such
Computation Period shall be multiplied by four, (y) with respect to
the Computation Period ending December 27, 1998, Interest Expense and
scheduled installments of principal on the Term Loans during such
Computation Period shall be multiplied by two and (z) with respect to
the Computation Period ending March 28, 1999, Interest Expense and
scheduled installments of principal on the Term Loans during such
Computation Period shall be multiplied by four-thirds.
Foreign Subsidiary shall mean each Subsidiary of the Company
organized under the laws of any jurisdiction other than the United
States or any state thereof.
FRB means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
Further Taxes means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings
or similar charges (including net income taxes and franchise taxes),
and all liabilities with respect thereto, imposed by any jurisdiction
on account of amounts
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paid or payable pursuant to Section 4.1, other than Excluded Taxes (as
defined below under the definition of "Taxes").
GAAP means generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of determination.
Governmental Authority means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
Guarantor means Parent and each Subsidiary that from time to
time executes and delivers a counterpart of the Subsidiary Guaranty.
Guaranty means the Parent Guaranty or the Subsidiary
Guaranty, as applicable.
Guaranty Obligation has the meaning specified in the
definition of Contingent Obligation.
Hazardous Material means
(a) any "hazardous substance", as defined by
CERCLA;
(b) any "hazardous waste", as defined by the
Resource Conservation and Recovery Act;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous or
toxic chemical, material or substance within the meaning of any other
Environmental Law.
Honor Date - see subsection 3.3(b).
Indebtedness of any Person means, without duplication: (a)
all indebtedness of such Person for borrowed money; (b) all
obligations issued, undertaken or assumed by such Person as the
deferred purchase price of property or services (other than trade
payables entered into and accrued
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expenses arising in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations
with respect to Surety Instruments; (d) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments; (e) all
indebtedness of such Person created or arising under any conditional
sale or other title retention agreement, or incurred as financing, in
either case with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale
of such property); (f) all obligations of such Person with respect to
capital leases; (g) all indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including Accounts
Receivable and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such
Indebtedness; and (h) all Guaranty Obligations of such Person in
respect of indebtedness or obligations of others of the kinds referred
to in clauses (a) through (g) above.
Indemnified Liabilities - see Section 11.5.
Indemnified Person - see Section 11.5.
Independent Auditor - see subsection 7.1(a).
Insolvency Proceeding means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of such Person's
creditors generally or any substantial portion of such creditors; in
each case undertaken under any U.S. Federal, State or foreign law,
including the Bankruptcy Code.
Intellectual Property - see Section 6.14.
Intellectual Property License means the Intellectual Property
License, substantially in the form of Exhibit R, between the Company
and the Administrative Agent dated as of the Closing Date.
Intercreditor Agreement means the Amended and Restated
Intercreditor Agreement, dated as of December 5, 1989, among certain
Creditors (as therein defined), a copy of which is attached hereto as
Exhibit Q.
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Interest Expense means as to any Person for any period the
consolidated interest expense of such Person and its Subsidiaries for
such period (including all imputed interest on capital leases)
excluding amortization or write-off of deferred financing costs.
Interest Payment Date means (i) as to any Offshore Rate Loan,
the last day of each Interest Period applicable to such Loan and, in
the case of any Offshore Rate Loan with a six-month Interest Period,
the three-month anniversary of the first day of such Interest Period,
and (ii) as to any Base Rate Loan, the last Business Day of each
fiscal quarter.
Interest Period means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending one, two, three or six
months thereafter, as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation; provided that:
(i) if any Interest Period would otherwise end on a
day that is not a Business Day, such Interest Period shall be
extended to the following Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such
Interest Period;
(iii) no Interest Period applicable to a Term A Loan
or a Term B Loan or any portion of any thereof shall extend
beyond any date upon which is due any scheduled principal
payment in respect of the Term A Loans or Term B Loans, as
applicable, unless the aggregate principal amount of Term A
Loans or Term B Loans, as applicable, represented by Base
Rate Loans, or by Offshore Rate Loans having Interest Periods
that will expire on or before such date, equals or exceeds
the amount of such principal payment; and
(iv) no Interest Period for any Revolving Loan shall
extend beyond the Revolving Termination Date.
Inventory means any and all of the goods of the Company
or a Domestic Subsidiary, wheresoever located, that are held
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for sale or held as raw materials, work in process or materials used
or consumed in the business of the Company or the applicable Domestic
Subsidiary.
IRS means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
Issuance Date - see subsection 3.1(a).
Issue means, with respect to any Letter of Credit, to issue
or amend such Letter of Credit; and the terms "Issued," "Issuing" and
"Issuance" have corresponding
meanings.
Issuing Lender means BofA in its capacity as issuer of one or
more Letters of Credit hereunder, together with any replacement letter
of credit issuer arising under subsection 10.1(b) or Section 10.9, or
any successor thereto acceptable to the Company, the Administrative
Agent and the predecessor Issuing Lender.
Joint Venture means a corporation, partnership, limited
liability company, joint venture or other similar legal arrangement
(whether created by contract or conducted through a separate legal
entity) which is not a Subsidiary of the Company or any of its
Subsidiaries and which is now or hereafter formed by the Company or
any of its Subsidiaries with another Person in order to conduct a
common venture or enterprise with such Person.
Judgment Currency - see subsection 3.10(f).
Landlord's Consent means a document substantially in the form
of Exhibit O, with appropriate insertions, or such other form as shall
be acceptable to the Administrative Agent or Required Revolving
Lenders.
L/C Advance means each Lender's participation in any L/C
Borrowing in accordance with its Revolving Percentage.
L/C Amendment Application means an application form for
amendment of an outstanding standby or commercial documentary letter
of credit as shall at any time be in use at the Issuing Lender, as the
Issuing Lender shall request.
L/C Application means an application form for issuances of a
standby or commercial documentary letter of credit as shall at any
time be in use at the Issuing Lender, as the Issuing Lender shall
request.
L/C Borrowing means an extension of credit resulting from a
drawing under any Letter of Credit which shall not
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have been reimbursed on the date when made nor converted into a
Borrowing of Revolving Loans under subsection 3.3(c).
L/C Commitment means the commitment of the Issuing Lender to
Issue, and the commitments of the Lenders severally to participate in,
Letters of Credit from time to time Issued or outstanding under
Article III, in an aggregate amount not to exceed on any date the
lesser of $70,000,000 and the amount of the aggregate amount of all
Revolving Commitments; it being understood that the L/C Commitment is
a part of the Revolving Commitments, rather than a separate,
independent commitment.
L/C Fee Rate -- see the Pricing Schedule.
L/C Obligations means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding,
plus (b) the amount of all unreimbursed drawings under all Letters of
Credit, including all outstanding L/C Borrowings.
L/C-Related Documents means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing
Lender's standard form documents for letter of credit issuances.
Lenders means the several financial institutions from time to
time party to this Agreement. References to the "Lenders" shall
include BofA in its capacity as the Issuing Lender and BofA in its
capacity as Swingline Lender; for purposes of clarification only, to
the extent that the Swingline Lender or the Issuing Lender may have
any rights or obligations in addition to those of the other Lenders
due to its status as Swingline Lender or Issuing Lender, its status as
such will be specifically referenced. For purposes of making any
determination with respect to Citicorp USA, Inc. under Section 4.2 or
4.3, "Lender" shall be deemed to include Citibank.
Lender Party means (i) any Lender or any Agent or (ii) any
Affiliate of any Lender that is party to a Swap Contract with the
Company.
Lending Office means, as to any Lender, the office or offices
of such Lender specified as its "Lending Office" or "Domestic Lending
Office" or "Offshore Lending Office", as the case may be, on Schedule
11.2, or such other office or offices as such Lender may from time to
time specify to the
Company and the Administrative Agent.
Letters of Credit means any letters of credit (whether
standby letters of credit or commercial documentary letters
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of credit) Issued by the Issuing Lender pursuant to Article
III.
Liabilities means (i) all Obligations owing by the Company,
Parent or any Subsidiary (including post-petition interest) and (ii)
all Permitted Swap Obligations (monetary or otherwise) of the Company
under any Swap Contract with a Lender Party (other than Swap Contracts
that, by their terms, are unsecured); provided, however, that the term
"Liabilities" shall not include any obligations arising under any
Environmental Indemnity.
Lien means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale
or other title retention agreement, the interest of a lessor under a
capital lease, or any financing lease having substantially the same
economic effect as any of the foregoing, but not including the
interest of a lessor under an operating lease).
Loan means an extension of credit by a Lender to the Company
under Article II or Article III in the form of a Revolving Loan, Term
Loan, Swingline Loan or L/C Advance. Each Revolving Loan and each Term
Loan may be divided into tranches which are Base Rate Loans or
Offshore Rate Loans (each a "Type" of Loan). For purposes of greater
clarity, a conversion of one Type of Loan to the other Type or the
continuation of an Offshore Rate Loan into a different Interest Period
is not the making of a "Loan" hereunder.
Loan Documents means this Agreement, any Notes, the Fee
Letter, the L/C-Related Documents, the Guaranties, the Collateral
Documents and all other documents delivered to the Administrative
Agent or any Lender in connection herewith or therewith.
Mandatory Prepayment Event - see subsection 2.8(a).
Margin Stock means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
Material Adverse Effect means: (a) a material adverse change
in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole; (b) a material
impairment of the ability of the Company, Parent or any Subsidiary to
perform any of its obligations under any Loan Document; (c) a material
adverse effect upon the legality, validity, binding effect
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or enforceability against the Company, Parent or any Subsidiary of any
Loan Document; or (d) a material adverse effect upon the Lien of any
Collateral Document or a material impairment of the rights, powers and
remedies of the Administrative Agent or any Lender under any Loan
Document.
Material Subsidiary means a Subsidiary of the Company that
meets any of the following criteria:
(i) the assets of such Subsidiary and its Subsidiaries exceed
3% of the consolidated assets (giving effect to intercompany
eliminations) of the Company and its Subsidiaries;
(ii) the revenues of such Subsidiary and its Subsidiaries for
any fiscal quarter exceed 3% of the consolidated revenues (giving
effect to intercompany eliminations) of the Company and its
Subsidiaries for such period; or
(iii) the investments of the Company and its other
Subsidiaries in and advances to such Subsidiary and its Subsidiaries
exceed 3% of the consolidated assets (giving effect to intercompany
eliminations) of the Company and its Subsidiaries.
Merger means the merger of TPG Acquisition with and into
Parent pursuant to the terms of the Merger Agreement.
Merger Agreement means the Agreement and Plan of Merger,
dated as of February 21, 1997, among TPG Partners, TPG Acquisition and
Parent, as amended and restated as of April 14, 1997, and as amended
from time to time in accordance with Section 8.22.
Mike Mac means Mike Mac IHC, Inc., a Delaware corporation and
a Subsidiary.
Mortgage means a mortgage, leasehold mortgage, deed of trust
or similar document granting a Lien on real property in appropriate
form for filing or recording in the applicable jurisdiction and
otherwise reasonably satisfactory to the Administrative Agent.
Multiemployer Plan means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, with respect to which the
Company or any ERISA Affiliate may have any liability.
Net Cash Proceeds means:
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(a) with respect to the sale, transfer, or other
disposition by the Company or any Subsidiary of any
asset (including any stock of any Subsidiary or any
Accounts Receivable pursuant to a Permitted Receivables
Facility), the aggregate cash proceeds (including cash
proceeds received by way of deferred payment of
principal pursuant to a note, installment receivable or
otherwise, but only as and when received) received by
the Company or any Subsidiary pursuant to such sale,
transfer or other disposition, net of (i) the direct
costs relating to such sale, transfer or other
disposition (including sales commissions and legal,
accounting and investment banking fees), (ii) taxes
paid or reasonably estimated by the Company to be
payable as a result thereof (after taking into account
any available tax credits or deductions and any tax
sharing arrangements), (iii) amounts required to be
applied to the repayment of any Indebtedness secured by
a Lien on the asset subject to such sale, transfer or
other disposition (other than the Loans) and (iv)
appropriate amounts to be provided by the Company or
any Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities
associated with such sale, transfer or other
disposition and retained by the Company or any
Subsidiary, as the case may be, after such sale,
transfer or other disposition, including pension and
other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under
any indemnification obligations associated with such
sale, transfer or other disposition; and
(b) with respect to any issuance of equity securities or Other
Debt, the aggregate cash proceeds received by the Company or
any Subsidiary pursuant to such issuance, net of the direct
costs relating to such issuance (including sales and
underwriter's commissions, private placement fees and legal,
accounting and investment banking fees).
Net Worth means Parent's consolidated stockholders' equity.
Non-Dollar Letter of Credit - see Section 3.10.
Note means a promissory note executed by the Company in favor
of a Lender pursuant to subsection 2.2(b), in substantially the form
of Exhibit D.
Notice of Borrowing means a notice in substantially the form
of Exhibit A.
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Notice of Conversion/Continuation means a notice in
substantially the form of Exhibit B.
Obligations means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document
owing by the Company, Parent or any Subsidiary to any Lender, the
Administrative Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or
contingent, due or to become due, or now existing or hereafter
arising; provided, that "Obligations" shall not include any
obligations under any Environmental Indemnity.
Offering - see the recitals.
Offshore Rate means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward, if necessary, to the next 1/16th
of 1%) determined by the Administrative Agent as follows:
Offshore Rate = IBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as
a decimal, rounded upward, if necessary, to the next 1/100th
of 1%) in effect on such day (whether or not applicable to
any Lender) under regulations issued from time to time by the
FRB for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum determined on the
basis of the rate for deposits in Dollars for a period equal
to such Interest Period commencing on the first day of such
Interest Period appearing on Page 3750 of the Telerate screen
as of 11:00 a.m., London time, two Business Days prior to the
beginning of such Interest Period. In the event that such
rate does not appear on Page 3750 of the Telerate Service (or
otherwise on such service), "IBOR" for purposes of this
definition shall be determined by the Administrative Agent as
the rate at which Dollar deposits in the approximate amount
of BofA's Offshore Rate Loan for such Interest Period would
be offered by BofA's Grand Cayman Branch, Grand Cayman B.W.I.
(or such other office as may be designated for such purpose
by BofA),
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to major banks in the offshore dollar interbank market at
their request at approximately 11:00 a.m. (New York City
time) two Business Days prior to the commencement of such
Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
Offshore Rate Loan means a Loan that bears interest based on
the Offshore Rate.
Organization Documents means, (a) for any domestic
corporation, the certificate or articles of incorporation, the bylaws,
any certificate of determination or instrument relating to the rights
of preferred shareholders of such corporation, any shareholder rights
agreement, and all applicable resolutions of the board of directors
(or any committee thereof) of such corporation and (b) for any foreign
corporation, the equivalent documents.
Original Credit Agreement - see the recitals.
Other Debt means debt securities of Parent, the Company and
its Subsidiaries, other than as expressly permitted by (i) Section 8.5
or, (ii) with respect to Parent, the Parent Guaranty.
Other Taxes means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, this Agreement or any other Loan Document.
Overnight Rate - see subsection 3.10(g).
Parent means Del Monte Foods Company, a Delaware
corporation.
Parent Discount Indenture means the indenture governing the
Parent Discount Notes, as amended from time to time in accordance with
Section 8.22.
Parent Discount Notes means the $230,000,000 aggregate face
amount of 12.5% Senior Discount Notes due 2007 of Parent.
Parent Discount Note Redemption Date means the date specified
in the notice of redemption sent out on the Restatement Date with
respect to the Permitted Redemption of the Parent Discount Notes,
which date, in any event, shall not be later than 60 days after the
Restatement Date.
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Parent Discount Note Redemption Price means the
"Redemption Price" (as defined in the Parent Discount
Indenture) applicable to the Permitted Redemption of the
Parent Discount Notes on the Parent Discount Note Redemption
Date.
Parent Guaranty means the amended and restated guaranty,
substantially in the form of Exhibit F-1, which will be executed by
Parent on the Restatement Date.
Parent Pledge Agreement means the Parent Pledge Agreement,
dated as of the Closing Date, between the Parent and the
Administrative Agent, in the form of Exhibit G-1.
Participant - see subsection 11.8(c).
Patent Security Agreement means a patent security agreement
in the form attached to a Security Agreement.
PBGC means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
Pension Plan means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA with respect to which the
Company or any ERISA Affiliate may have any liability other than a
Multiemployer Plan.
Permitted South American Acquisition means the Acquisition by
the South American Joint Venture Subsidiary of the Del Monte brand in
South America and the Venezuelan canned fruit and vegetable business
of Nabisco, Inc. for an aggregate consideration not to exceed
$33,000,000.
Permitted Liens - see Section 8.1.
Permitted Receivables Facility means any receivables
financing facility arrangement entered into by the Company providing
for the discount, sale or other transfer of its Accounts Receivable on
a nonrecourse basis for a transfer price at least equivalent to the
advance rate on such Accounts Receivable hereunder and otherwise on
terms and conditions (including repurchase provisions) satisfactory to
the Required Lenders.
Permitted Redemption - see the recitals.
Permitted Security Agreements means the Intellectual Property
Security Agreements and Assignments between the Company and Wafer
Limited and the Company and Del Monte Tropical Fruit Company, North
America, each dated December 5, 1989, the Intellectual Property
Security Agreement and Assignment dated as of January 9, 1990 between
the Company
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and Kikkoman Corporation, the Intellectual Property Security Agreement
and Assignment dated as of May 9, 1990 between the Company and Del
Monte Foods Limited, the Intellectual Property Security Agreement and
Assignment dated as of May 9, 1990 between the Company and Del Monte
International, Inc., and any other security agreements between the
Company and a licensee of Intellectual Property to secure the damages,
if any, of such licensee resulting from the rejection of the license
of such licensee in a bankruptcy, reorganization or similar proceeding
with respect to the Company; provided that each such Permitted
Security Agreement shall be subject to the Intercreditor Agreement.
Permitted Swap Obligations means all obligations (contingent
or otherwise) of the Company or any Subsidiary existing or arising
under Swap Contracts, provided that each of the following criteria is
satisfied: (a) such obligations are (or were) entered into by such
Person in the ordinary course of business for the purpose of directly
mitigating risks associated with liabilities, commitments or assets
held or reasonably anticipated by such Person, or changes in the value
of securities issued by such Person in conjunction with a securities
repurchase program not otherwise prohibited hereunder, and not for
purposes of speculation or taking a "market view;" and (b) such Swap
Contracts do not contain (i) any provision ("walk-away" provision)
exonerating the non-defaulting party from its obligation to make
payments on outstanding transactions to the defaulting party or (ii)
if the counterparty is not a Lender Party, any provision creating or
permitting the declaration of an event of default, termination event
or similar event upon the occurrence of an Event of Default hereunder
(other than an Event of Default under subsection 9.1(a)).
Person means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
Plan means an employee benefit plan (as defined in Section
3(3) of ERISA) with respect to which the Company may have any
liability.
Pledge Agreement means the Parent Pledge Agreement, the
Company Pledge Agreement and each Subsidiary Pledge
Agreement.
Public Offering means an offering of equity securities or
Indebtedness registered under the Securities Act of 1933.
Qualified Indenture means a trust indenture entered into by
the Company with an indenture trustee with terms and
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provisions no more restrictive to the Company than the Subordinated
Indenture, and with terms no less advantageous to the Lenders than the
terms of the Subordinated Indenture, as amended from time to time in
accordance with Section 8.22.
Qualified Notes means subordinated notes of the Company which
shall not require scheduled payments of principal prior to April 15,
2007, which shall not require cash interest payments thereon at a rate
in excess of 12-1/4% per annum, and which are issued pursuant to a
Qualified Indenture, as such notes may be amended from time to time in
accordance with Section 8.22.
Qualified Parent Indenture means a trust indenture entered
into by Parent with an indenture trustee with terms and provisions no
more restrictive to the Parent and no less advantageous to the Lenders
than the Parent Discount Indenture, as amended from time to time in
accordance with Section 8.22.
Qualified Parent Notes means notes of Parent in an aggregate
principal amount not to exceed the amount necessary to pay all
principal, interest, premium, if any, of the Parent Discount Notes or,
if applicable, a prior issuance of Qualified Parent Notes, plus
customary fees and expenses incurred in connection with the issuance
of the refinancing notes, which shall not require scheduled payments
of principal prior to April 15, 2007 and shall not require payments of
interest in cash thereon prior to June 15, 2003, with terms and
provisions not materially more restrictive to the Parent and not
materially less advantageous to the Lenders than the Parent Discount
Notes and which are issued pursuant to a Qualified Parent Indenture,
as amended from time to time in accordance with Section 8.22.
Qualified Parent Refinancing means a refinancing of the
Parent Discount Notes with Qualified Parent Notes or a refinancing of
Qualified Parent Notes with a subsequent
issuance of Qualified Parent Notes.
Qualified Refinancing means a refinancing of the Subordinated
Notes or the Exchange Notes with Qualified Notes; provided, that the
aggregate principal amount of Qualified Notes issued in connection
therewith does not exceed the aggregate principal amount of the
Indebtedness so refinanced unless the excess is applied as set forth
in subsection 2.8(a)(vi).
Redemption and Cash Collateral Agreement means the
Redemption and Cash Collateral Account Pledge Agreement, dated as of
the Restatement Date, among the Company, BofA
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and the Administrative Agent in the form of Exhibit U hereto.
Redemption Price means, as applicable, the Subordinated
Note Redemption Price, the Parent Discount Note Redemption
Price and the TPG Acquisition Preferred Stock Redemption
Price.
Redemption Reserve means, (i) at any time prior to the time
when each Permitted Redemption has been consummated, an amount equal
to (x) $76,000,000(1) less (y) the amount of all borrowings
theretofore made by the Company under the second proviso to subsection
2.1(c) plus (z) the amount of all withdrawals from the Cash Collateral
Account theretofore made by the Company not used to fund Permitted
Redemptions and (ii) thereafter, zero.
Release means a "release", as such term is defined in
CERCLA.
Replacement Lender - see Section 4.7.
Reportable Event means any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has
been waived in regulations issued by the PBGC or administrative
pronouncements.
Required Lenders means, at any time, Lenders having an
aggregate Total Percentage of more than 50%.
Required Revolving Lenders means, at any time, Revolving
Lenders having an aggregate Revolving Percentage of more than 50%.
Required Term A Lenders means, at any time, Term A Lenders
having an aggregate Term A Percentage of more than 50%.
Required Term B Lenders means, at any time, Term B Lenders
having an aggregate Term B Percentage of more than 50%.
Requirement of Law means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon such
- --------
(1) The amount of the Redemption Reserve, when added to the amount deposited in
the Cash Collateral Account, will be approximately equal to the amount necessary
to fund the Permitted Redemptions. See subsection 5.2(a).
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Person or any of its property or to which such Person or any of its
property is subject.
Resource Conservation and Recovery Act means the
Resource Conservation and Recovery Act, 42 U.S.C. Section
690, et seq.
Responsible Officer means the chief executive officer, chief operating
officer or the president of the Company, or any other officer having
substantially the same authority and responsibility or the chief financial
officer, the treasurer or the chief accounting officer of the Company, or
any other officer having substantially the same authority and
responsibility.
Restatement Date - see Section 5.1.
Revolving Commitment means, as to any Lender, the commitment of such
Lender to make Revolving Loans pursuant to subsection 2.1(c). The initial
amount of each Revolving Lender's Revolving Commitment is set forth across
from such Lender's name on Schedule 1.1.
Revolving Lender means, at any time, a Lender with a Revolving
Commitment at such time or which then holds any Revolving Loan.
Revolving Loan - see subsection 2.1(c).
Revolving Percentage means, as to any Lender, the percentage which (a)
prior to the termination of the Revolving Commitments, (x) the amount of
such Lender's Revolving Commitment is of (y) the aggregate amount of all of
the Revolving Lenders' Revolving Commitments and (b) after the termination
of the Revolving Commitments, (x) the amount of such Lender's Revolving
Loans is of (y) the aggregate amount of all Revolving Loans of all
Revolving Lenders.
Revolving Termination Date means the earlier to occur of:
(a) June 30, 2004; and
(b) the date on which the Revolving Commitments terminate in
accordance with the provisions of this Agreement.
Sale/Leaseback Transaction - see Section 8.18.
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Scheduled Redemption Date means, as applicable, the Restatement Date
(in the case of the TPG Acquisition Preferred Stock), the Subordinated Note
Redemption Date or the Parent Discount Note Redemption Date.
SEC means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
Security Agreement means either the Security Agreement (Company and
Parent) or the Subsidiary Security Agreement.
Security Agreement (Company and Parent) means the Security Agreement,
dated as of the Closing Date, among the Company, Parent and the
Administrative Agent in the form of Exhibit E-1 hereto.
Senior Debt Ratio means for each Computation Period the
ratio of
(i) the sum of (A) the outstanding principal amount of all Total
Debt (other than Subordinated Debt and Revolving Loans) on the last
day of such Computation Period plus (B) the quotient of (1) the sum of
the aggregate outstanding principal amount of all Revolving Loans as
of the last day of each of the twelve fiscal months during such
Computation Period divided by (2) twelve
to
(ii) EBITDA of Parent for such Computation Period.
South American Joint Venture Subsidiary means a Subsidiary of the
Company formed to acquire the assets to be acquired in the Permitted South
American Acquisition, which Subsidiary will initially be a Wholly-Owned
Subsidiary.
Standby Letter of Credit means any Letter of Credit that is not a
Commercial Letter of Credit.
Subordinated Debt means the Subordinated Notes, the Exchange Notes and
any Qualified Notes and all other unsecured Indebtedness of the Company for
borrowed money which is subject to, and is only entitled to the benefits
of, terms and provisions (including maturity, amortization, acceleration,
interest rate, sinking fund, covenant, default and subordination
provisions) satisfactory in form and substance to the Required Lenders, as
evidenced by their
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written approval thereof (which may be granted or withheld
in their sole discretion).
Subordinated Debt Proceeds means, at any time, the lesser of (x) the
aggregate original principal amount of, or (y) the gross proceeds received
by the Company (before deduction of underwriting discounts, placement fees
and all other related fees and expenses) upon issuance of, all outstanding
Subordinated Notes, Exchange Notes or Qualified Notes of the Company at
such time.
Subordinated Indenture means the indenture governing the Subordinated
Notes and the Exchange Notes, as amended from time to time in accordance
with Section 8.22.
Subordinated Note Purchase Agreement means the Purchase Agreement
dated as of April 15, 1997 relating to the Subordinated Notes, as amended
from time to time in accordance with Section 8.22.
Subordinated Note Redemption Date means the date specified in the
notice of redemption sent out on the Restatement Date with respect to the
Permitted Redemption of the Subordinated Notes, which date, in any event,
shall not be later than 60 days after the Restatement Date.
Subordinated Note Redemption Price means the "Redemption Price" (as
defined in the Subordinated Indenture) applicable to the Permitted
Redemption of the Subordinated Notes on the Subordinated Note Redemption
Date.
Subordinated Notes means the 12-1/4% Senior Subordinated Notes due
April 15, 2007 of the Company issued under the Subordinated Indenture, as
amended from time to time in accordance with Section 8.22.
Subsidiary of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests or
other equity interests is owned or controlled directly or indirectly by
such Person, or one or more of the Subsidiaries of such Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of the Company.
Subsidiary Guaranty means the guaranty, substantially in the form of
Exhibit F-2, which may be executed from time to time by certain
Subsidiaries of the Company.
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Subsidiary Pledge Agreement means the Subsidiary Pledge Agreement,
dated as of the Closing Date, between Mike Mac and the Administrative Agent
in the form of Exhibit G-3; such pledge agreement may be joined after the
Closing Date by other Subsidiaries.
Subsidiary Security Agreement means the security agreement,
substantially in the form of Exhibit E-2, which may be executed from time
to time by certain Subsidiaries of the Company.
Surety Instruments means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, surety bonds and
similar instruments.
Swap Contract means any agreement, whether or not in writing, relating
to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or
any combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
Swap Termination Value means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or
after the date such Swap Contracts have been closed out and termination
value(s) determined in accordance therewith, such termination value(s), and
(b) for any date prior to the date referenced in clause (a) the amount(s)
determined as the mark-to-market value(s) for such Swap Contracts, as
determined based upon one or more mid-market or other readily available
quotations provided by any recognized dealer in such Swap Contracts (which
may include any Lender).
Swingline Lender means BofA in its capacity as lender of Swingline
Loans together with any replacement lender of Swingline Loans arising under
Section 10.9.
Swingline Loan has the meaning specified in subsection 2.5(a).
Tax Sharing Agreement means the Tax Sharing Agreement dated as of
January 9, 1990 by and between Parent and the
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Company, as the same may be amended from time to time in accordance with
Section 8.22.
Taxes means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, charges or withholdings, fees or similar
charges and all liabilities with respect thereto, excluding, in the case of
each Lender and the Administrative Agent, such taxes (including income
taxes, branch profit taxes or franchise taxes) as are imposed on or
measured by such Lender's or the Administrative Agent's, as the case may
be, net income by the jurisdiction (or any political subdivision thereof)
under the laws of which such Lender or the Administrative Agent, as the
case may be, is organized, maintains a lending office or conducts business
(collectively, "Excluded Taxes").
Term A Commitment means, as to any Lender, the commitment of such
Lender to make a Term A Loan pursuant to subsection 2.1(a). The initial
amount of each Term A Lender's Term A Commitment is set forth across from
such Lender's name on Schedule 1.1.
Term A Lender means, at any time, a Lender with a Term A Commitment at
such time or which then holds any Term A Loan.
Term A Loan - see subsection 2.1(a).
Term A Percentage means, as to any Lender, the percentage which (a)
the Term A Commitment of such Lender (or, after the making of the Term A
Loans, the principal amount of such Lender's Term A Loan) is of (b) the
aggregate amount of Term A Commitments (or after the making of the Term A
Loans, the aggregate principal amount of all Term A Loans). The initial
Term A Percentage of each Lender is set forth across from such Lender's
name on Schedule 1.1.
Term B Commitment means, as to any Lender, the commitment of such
Lender to make a Term B Loan pursuant to subsection 2.1(b). The initial
amount of each Term B Lender's Term B Commitment is set forth across from
such Lender's name on Schedule 1.1.
Term B Lender means, at any time, a Lender with a Term B Commitment at
such time or which then holds any Term B Loan.
Term B Loan - see subsection 2.1(b).
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Term B Percentage means, as to any Lender, the percentage which (a)
the Term B Commitment of such Lender (or after the making of the Term B
Loans, the principal amount of such Lender's Term B Loan) is of (b) the
aggregate amount of the Term B Commitments (or, after the making of the
Term B Loans, the aggregate principal amount of all Term B Loans). The
initial Term B Percentage of each Lender is set forth across from such
Lender's name on Schedule 1.1.
Term Loan means a Term A Loan or a Term B Loan.
Total Debt means (i) total Indebtedness of Parent and its Subsidiaries
at the time of determination less (ii) Indebtedness of the type described
in clause (c) of the definition of "Indebtedness" in respect of Surety
Instruments under which Parent or any Subsidiary has only an unmatured
payment obligation determined at such time less (iii) Indebtedness of the
type described in clauses (g) and (h) of the definition of "Indebtedness"
in respect of Indebtedness at such time described in clause (ii) above less
(iv) any amounts outstanding under any Parent Discount Notes and any
Qualified Parent Notes.
Total Debt Ratio means as of June 30 of each year the
ratio of
(i) the aggregate outstanding principal amount of
all Total Debt as of such day
to
(ii) EBITDA of Parent for the fiscal year ended on such date.
Total Percentage means, as to any Lender, the percentage which (a) the
aggregate amount of such (i) Lender's Revolving Commitment plus (ii) such
Lender's Term A Commitment (or, after the making of the Term A Loans, the
outstanding principal amount of such Lender's Term A Loans) plus (iii) such
Lender's Term B Commitment (or, after the making of the Term B Loans, the
outstanding principal amount of such Lender's Term B Loans) is of (b) the
aggregate amount of (i) the Revolving Commitments of all Lenders plus (ii)
the Term A Commitments of all Lenders (or, after the making of the Term A
Loans, the outstanding principal amount of all Term A Loans) plus (iii) the
Term B Commitments of all Lenders (or, after the making of the Term B
Loans, the outstanding principal amount of all Term B Loans); provided
that, after the Revolving Commitments have been terminated, "Total
Percentage" shall mean as to any Lender the percentage which the aggregate
principal amount of such
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Lender's Loans is of the aggregate principal amount of all Loans. The
initial Total Percentage of each Lender is set forth opposite such Lender's
name on Schedule 1.1.
TPG Acquisition means TPG Shield Acquisition Corporation, a Maryland
corporation.
TPG Acquisition Preferred Stock means the 14% Series A Redeemable
Preferred Stock, original liquidation preference
$1,000 per share, of Parent.
TPG Acquisition Preferred Stock Redemption Price means the "Redemption
Price" (as defined in the Certificate of Designations of Series A
Cumulative Preferred Stock of Parent with respect to the TPG Acquisition
Preferred Stock) applicable to the Permitted Redemption of the TPG
Acquisition Preferred Stock on the Restatement Date.
TPG Agreements means (i) the Management Advisory Agreement, dated as
of April 18, 1997, between the Company and TPG Partners and (ii) the
Transaction Advisory Agreement, dated as of April 18, 1997, between the
Company and TPG Partners, in each case as amended from time to time in
accordance with Section 8.22.
TPG Partners means TPG Partners, L.P., a Delaware limited partnership.
Trademark Security Agreement means a trademark security agreement in
the form attached to a Security Agreement.
Type has the meaning specified in the definition of
"Loan."
United States and U.S. each means the United States of
America.
Unmatured Event of Default means any event or circumstance which, with
the giving of notice, the lapse of time, or both, would (if not cured or
otherwise remedied during such time) constitute an Event of Default.
Warehouseman's Consent means a document substantially in the form of
Exhibit P, with appropriate insertions, or such other form as shall be
acceptable to the Administrative Agent or Required Revolving Lenders.
Wholly-Owned Subsidiary means any corporation in which (other than
directors' qualifying shares or due to native ownership requirements) 100%
of the capital stock of each
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class is owned beneficially and of record by the Company or by one or more
other Wholly-Owned Subsidiaries.
1.2 Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words
"to" and "until" each mean "to but excluding"; and the word "through" means
"to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided herein, any reference to any action of the Administrative Agent, the
Lenders, the Required Lenders, the Required Term A Lenders, the Required Term B
Lenders or the Required Revolving Lenders by way of consent, approval or waiver
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shall be deemed modified by the phrase "in its/their sole discretion."
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agents, the Company
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Lenders or the Agents merely because of the
Lenders' or the Agents' involvement in their preparation.
1.3 Accounting Principles.
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP, consistently applied; provided that if the Company notifies the
Administrative Agent that the Company wishes to amend any covenant in Article
VIII or any corresponding definition to eliminate the effect of any change in
GAAP after the date hereof on the operation of such covenant (or if the
Administrative Agent notifies the Company that the Required Lenders wish to
amend Article VIII or any corresponding definition for such purpose), then the
Company's compliance with such covenant shall be determined on the basis of GAAP
in effect immediately before the relevant change in GAAP became effective, until
either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Company and the Required Lenders.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Company.
1.4 Addition of Lenders; Adjustment of Percentages; Reallocation of Loans.
On the Restatement Date, (a) each financial institution listed on the signature
pages hereof that was not a party to the Existing Credit Agreement shall
automatically become a party hereto and be entitled to the benefits, and have
the obligations, of a "Lender" hereunder, (b) each Lender's Revolving
Percentage, Term A Percentage and Term B Percentage shall be as set forth on
Schedule 1.1 to this Agreement, (c) each Revolving Lender or Term A Lender
which, as a result of any adjustment of the Revolving Percentages and the Term A
Percentages as set forth in clause (b) above, is to have a greater principal
amount of Revolving Loans or Term A Loans outstanding than such Lender had
outstanding under the Existing Credit Agreement immediately prior to the
Restatement Date shall deliver to the Administrative Agent immediately available
funds to cover such Loans (and the Administrative Agent shall, to the extent of
the funds so received, disburse funds to each Lender which, as a result of such
adjustment of the Revolving Percentages and the Term A Percentages is to have a
lesser
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principal amount of Revolving Loans or Term A Loans outstanding than such Lender
had outstanding under the Existing Credit Agreement, with the effect that, after
giving effect to such disbursement, such Lender has the correct amount of
Revolving Loans and Term A Loans outstanding) and (d) each Term B Lender which,
as a result of any adjustment of the Revolving Percentages and the Term A
Percentages as set forth in clause (b) above, is to have a greater principal
amount of Term B Loans outstanding than such Lender had outstanding under the
Existing Credit Agreement immediately prior to the Restatement Date shall
deliver to the Administrative Agent immediately available funds to cover such
Loans (and the Administrative Agent shall, to the extent of the funds so
received, disburse funds to each Lender which, as a result of such adjustment of
the Term B Percentages is to have a lesser principal amount of Term B Loans
outstanding than such Lender had outstanding under the Existing Credit
Agreement, with the effect that, after giving effect to such disbursement, such
Lender has the correct amount of Term B Loans outstanding). In addition, on the
Restatement Date, $150,000,000 of the Loans outstanding under the Existing
Credit Agreement shall automatically become Term A Loans hereunder, $150,000,000
of the Loans outstanding under the Existing Credit Agreement shall automatically
become Term B Loans hereunder and the balance of the Loans outstanding under the
Existing Credit Agreement shall automatically become Revolving Loans hereunder.
To facilitate the foregoing, the Company agrees that on the Restatement Date the
Company will (i) convert all Offshore Rate Loans outstanding under the Existing
Credit Agreement to Base Rate Loans and (ii) pay to the Administrative Agent for
the account of each Lender which is a party to the Existing Credit Agreement all
interest, fees and other amounts (including amounts payable under Section 4.4 of
the Existing Credit Agreement as a result of the conversion described in clause
(i) of this sentence) owed to such Lender under the Existing Credit Agreement.
The Company, the Issuing Lender, the Lenders and the Administrative Agent
further agree that, on the Restatement Date, the letters of credit issued by
BofA pursuant to the Existing Credit Agreement shall remain outstanding and,
without further act, be deemed to be, and constitute, Letters of Credit Issued
by the Issuing Lender hereunder. Without limiting the generality of the
foregoing, each Revolving Lender shall be deemed to have purchased from the
Issuing Lender a participation in such Letters of Credit on the Restatement Date
pursuant to subsection 3.3(a).
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ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitments. (a) The Term A Credit. Each Term A
Lender severally agrees, on the terms and conditions set forth herein, to make a
single loan to the Company (each such loan, a "Term A Loan") on the Restatement
Date in an amount not to exceed such Term A Lender's Term A Percentage of
$150,000,000. Amounts borrowed as Term A Loans which are repaid or prepaid by
the Company may not be reborrowed. The Term A Commitments shall expire
concurrently with the making of the Term A Loans on the Restatement Date.
(b) The Term B Credit. Each Term B Lender severally agrees, on
the terms and conditions set forth herein, to make a single loan to the Company
(each such loan, a "Term B Loan") on the Restatement Date in an amount not to
exceed such Term B Lender's Term B Percentage of $150,000,000. Amounts borrowed
as Term B Loans which are repaid or prepaid by the Company may not be
reborrowed. The Term B Commitments shall expire concurrently with the making of
the Term B Loans on the Restatement Date.
(c) The Revolving Credit. Each Revolving Lender severally agrees,
on the terms and conditions set forth herein, to make loans to the Company (each
such loan, a "Revolving Loan"), from time to time on any Business Day during the
period from the Restatement Date to the Revolving Termination Date, in an
aggregate amount not to exceed at any time outstanding such Revolving Lender's
Revolving Percentage of the aggregate amount of the Revolving Commitments;
provided that, after giving effect to any Borrowing of Revolving Loans, (x) the
sum of the Effective Amount of all Revolving Loans plus the Effective Amount of
all Swingline Loans plus the Effective Amount of all L/C Obligations shall not
exceed (y) the lesser of (1) the aggregate amount of the Revolving Commitments
and (2) the Borrowing Base; provided, further, however, that the Company may
borrow an amount up to the amount of the Redemption Reserve at any time and from
time to time if the Company delivers to the Administrative Agent a certificate,
in form and substance satisfactory to the Administrative Agent, to the effect
that the Company will use the proceeds of such borrowing allocable to the
Redemption Reserve to finance any or all of the Permitted Redemptions or to fund
the prepayment described in subsection 2.8(a)(x), but in no event shall any such
borrowing cause the Effective Amount of all Revolving Loans plus the Effective
Amount of all Swingline Loans plus the Effective Amount of all L/C Obligations
to exceed the lesser of (x) the Borrowing Base (for this purpose, determined
without deducting the Redemption Reserve as contemplated by clause (f) of the
definition of "Borrowing Base") and (y) the aggregate amount of the Revolving
Commitments. Within the
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foregoing limits, and subject to the other terms and conditions hereof, the
Company may borrow under this subsection 2.1(c), prepay under Section 2.7 and
reborrow under this subsection 2.1(c).
2.2 Loan Accounts. (a) The Loans made by each Lender and the Letters of
Credit Issued by the Issuing Lender shall be evidenced by one or more accounts
or records maintained by such Lender or the Issuing Lender, as the case may be,
in the ordinary course of business. The accounts or records maintained by the
Administrative Agent, the Issuing Lender and each Lender shall be prima facie
evidence as to the amount of the Loans made by the Lenders to the Company and
the Letters of Credit Issued for the account of the Company, and the interest
and payments thereon. Any failure to record or any error in doing so shall not,
however, limit or otherwise affect the obligation of the Company hereunder to
pay any amount owing with respect to any Loan or any Letter of Credit.
(b) Upon the request of any Lender made through the
Administrative Agent, the Loans made by such Lender may be evidenced by one or
more Notes in addition to loan accounts. Each such Lender shall endorse on the
schedules annexed to its Note(s) the date, amount and maturity of each Loan made
by it and the amount of each payment of principal made by the Company with
respect thereto. Each such Lender is irrevocably authorized by the Company to
endorse its Note(s) and each Lender's record shall be conclusive absent manifest
error; provided that the failure of a Lender to make, or an error in making, a
notation thereon with respect to any Loan shall not limit or otherwise affect
the obligations of the Company hereunder or under any Note to such Lender.
2.3 Procedure for Borrowing. (a) Each Borrowing shall be made upon the
Company's irrevocable written notice delivered to the Administrative Agent in
the form of a Notice of Borrowing (which notice must be received by the
Administrative Agent (i) prior to 11:00 a.m. (Chicago time) three Business Days
prior to the requested Borrowing Date, in the case of Offshore Rate Loans and
(ii) prior to 11:00 a.m. (Chicago time) one Business Day prior to the requested
Borrowing Date, in the case of Base Rate Loans), specifying:
(A) the amount of the Borrowing, which shall be in an
amount of $5,000,000 or a higher integral multiple of $100,000;
(B) the requested Borrowing Date, which shall be a
Business Day;
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(C) the Type of Loans comprising the Borrowing; and
(D) in the case of Offshore Rate Loans, the duration of
the Interest Period applicable to such Loans included in such
notice.
(b) The Administrative Agent will promptly notify each Lender of
its receipt of any Notice of Borrowing and of the amount of such Lender's share
of the related Borrowing based upon such Lender's Revolving Percentage, Term A
Percentage or Term B Percentage, as applicable.
(c) Each Lender will make the amount of its share of each
Borrowing available to the Administrative Agent for the account of the Company
at the Agent's Payment Office by 1:00 p.m. (Chicago time) on the Borrowing Date
requested by the Company in funds immediately available to the Administrative
Agent. The proceeds of all Loans will then be made available to the Company by
the Administrative Agent at such office by crediting the account of the Company
on the books of BofA with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent.
(d) After giving effect to any Borrowing, there may not be more
than twelve different Interest Periods in effect.
2.4 Conversion and Continuation Elections. (a) The Company may, upon
irrevocable written notice to the Administrative Agent in accordance with
subsection 2.4(b):
(i) elect to convert, on any Business Day, any Base Rate Loans
(in an aggregate amount of $5,000,000 or a higher integral multiple of
$100,000) into Offshore Rate Loans;
(ii) elect to convert, on the last day of the applicable Interest
Period, any Offshore Rate Loans (or any part thereof in an aggregate
amount of $5,000,000 or a higher integral multiple of $100,000) into
Base Rate Loans; or
(iii) elect to continue, as of the last day of the applicable
Interest Period, any Offshore Rate Loans having Interest Periods
expiring on such day (or any part thereof in an aggregate amount of
$5,000,000 or a higher integral multiple of $100,000);
provided that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing shall have been reduced, by payment, prepayment or
conversion of part thereof, to be less
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than $5,000,000, such Offshore Rate Loans shall automatically convert into Base
Rate Loans.
(b) The Company shall deliver a Notice of Conversion/Continuation
to be received by the Administrative Agent not later than (i) 11:00 a.m.
(Chicago time) at least three Business Days in advance of the
Conversion/Continuation Date, if the Loans are to be converted into or continued
as Offshore Rate Loans and (ii) not later than 11:00 a.m. (Chicago time) one
Business Day prior to the Conversion/Continuation Date, if the Loans are to be
converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate principal amount of Loans to be
converted or continued;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) in the case of conversions into Offshore Rate Loans,
the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, the Company shall be deemed
to have elected to convert such Offshore Rate Loans into Base Rate Loans
effective as of the expiration date of such Interest Period.
(d) The Administrative Agent will promptly notify each Lender of
its receipt of a Notice of Conversion/Continuation or, if no timely notice is
provided by the Company, the Administrative Agent will promptly notify each
Lender of the details of any automatic conversion. All conversions and
continuations shall be made ratably according to the respective outstanding
principal amounts of the Loans held by each Lender with respect to which the
notice was given.
(e) Unless the Required Lenders otherwise agree, during the
existence of an Event of Default or Unmatured Event of Default, the Company may
not elect to have a Loan converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of
Loans, there may not be more than twelve different Interest Periods in effect.
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2.5 Swingline Loans.
(a) Subject to the terms and conditions hereof, the Swingline
Lender may, in its sole discretion (subject to subsection 2.5(b)), make a
portion of the Revolving Commitments available to the Company by making
swingline loans (each such loan, a "Swingline Loan") to the Company on any
Business Day during the period from the Restatement Date to the Revolving
Termination Date in accordance with the procedures set forth in this Section 2.5
in an aggregate principal amount at any one time outstanding not to exceed the
lesser of (x) the lesser of (1) the aggregate available amount of the Revolving
Commitments and (2) the Borrowing Base and (y) $25,000,000, notwithstanding the
fact that such Swingline Loans, when aggregated with the Swingline Lender's
outstanding Revolving Loans, may exceed the Swingline Lender's Revolving
Percentage of the aggregate amount of the Revolving Commitments; provided that
at no time shall the sum of the Effective Amount of all Swingline Loans,
Revolving Loans and L/C Obligations exceed the lesser of (1) the aggregate
amount of the Revolving Commitments and (2) the Borrowing Base. Subject to the
other terms and conditions hereof, the Company may borrow under this subsection
2.5(a), prepay pursuant to subsection 2.5(d) and reborrow pursuant to this
subsection 2.5(a) from time to time; provided that the Swingline Lender shall
not be obligated to make any Swingline Loan.
(b) The Company shall provide the Administrative Agent and the
Swingline Lender irrevocable written notice (or notice by a telephone call
confirmed promptly by facsimile) of any Swingline Loan requested hereunder
(which notice must be received by the Swingline Lender and the Administrative
Agent prior to 12:00 p.m. (Chicago time) on the requested Borrowing Date)
specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date,
which must be a Business Day. Upon receipt of such notice, the Swingline Lender
will promptly confirm with the Administrative Agent (by telephone or in writing)
that the Administrative Agent has received a copy of such notice from the
Company and, if not, the Swingline Lender will provide the Administrative Agent
with a copy thereof. If and only if the Administrative Agent notifies the
Swingline Lender on the proposed Borrowing Date that it may make available to
the Company the amount of the requested Swingline Loan, then, subject to the
terms and conditions hereof, the Swingline Lender may make the amount of the
requested Swingline Loan available to the Company by crediting the account of
the Company on the books of BofA with the amount of such Swingline Loan. The
Administrative Agent will not so notify the Swingline Lender if the
Administrative Agent has knowledge that (A) the limitations set forth in the
proviso set forth in the first sentence of subsection 2.5(a) are being violated
or would be violated by such Swingline Loan or (B) one or more conditions
specified in Article V is not then satisfied.
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Each Swingline Loan shall be in an aggregate principal amount equal to $500,000
or a higher integral multiple of $100,000. The Swingline Lender will promptly
notify the Administrative Agent of the amount of each Swingline Loan.
(c) Principal of and accrued interest on each Swingline Loan
shall be due and payable (i) on demand made by the Swingline Lender at any time
upon one Business Day's prior notice to the Company with a copy to the
Administrative Agent furnished at or before 10:45 a.m. (Chicago time), and (ii)
in any event on the Revolving Termination Date. Interest on Swingline Loans
shall be for the sole account of the Swingline Lender (except to the extent that
the other Lenders have funded the purchase of participations therein pursuant to
subsection 2.5(e)).
(d) The Company may, from time to time on any Business Day, make
a voluntary prepayment, in whole or in part, of the outstanding principal amount
of any Swingline Loan, without incurring any premium or penalty; provided that
(i) each such voluntary prepayment shall require prior written
notice given to the Administrative Agent and the Swingline Lender no
later than 1:00 p.m. (Chicago time) on the day on which the Company
intends to make a voluntary prepayment, and
(ii) each such voluntary prepayment shall be in an amount equal
to $500,000 or a higher integral multiple of $100,000 (or, if less, the
aggregate outstanding principal amount of all Swingline Loans then
outstanding).
Voluntary prepayments of Swingline Loans shall be made by the Company to
the Swingline Lender at such office as the Swingline Lender may designate by
notice to the Company from time to time. All such payments shall be made in
Dollars and in immediately available funds no later than 4:00 p.m. (Chicago
time) on the date specified by the Company pursuant to clause (i) above (and any
payment received later than such time shall be deemed to have been received on
the next Business Day). The Swingline Lender will promptly notify the
Administrative Agent of the amount of each prepayment of Swingline Loans.
(e) If (i) any Swingline Loan shall remain outstanding at 11:00
a.m. (Chicago time) on the Business Day immediately prior to a Business Day on
which Swingline Loans are due and payable pursuant to subsection 2.5(c) and by
such time on such Business Day the Administrative Agent shall have received
neither (A) a Notice of Borrowing delivered pursuant to Section 2.3 requesting
that Revolving Loans be made pursuant to subsection 2.1(c) on such following
Business Day in an amount at least equal to the aggregate principal amount of
such Swingline
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Loans, nor (B) any other notice indicating the Company's intent to repay such
Swingline Loans with funds obtained from other sources, or (ii) any Swingline
Loans shall remain outstanding during the existence of an Unmatured Event of
Default or Event of Default and the Swingline Lender shall in its sole
discretion notify the Administrative Agent that the Swingline Lender desires
that such Swingline Loans be converted into Revolving Loans, then the
Administrative Agent shall be deemed to have received a Notice of Borrowing from
the Company pursuant to Section 2.3 requesting that Base Rate Loans be made
pursuant to subsection 2.1(c) on the following Business Day in an amount equal
to the aggregate amount of such Swingline Loans, and the procedures set forth in
subsections 2.3(b) and 2.3(c) shall be followed in making such Base Rate Loans;
provided that such Base Rate Loans shall be made notwithstanding the Company's
failure to comply with Section 5.3; and provided, further, that if a Borrowing
of Revolving Loans becomes legally impracticable and if so required by the
Swingline Lender at the time such Revolving Loans are required to be made by the
Revolving Lenders in accordance with this subsection 2.5(e), each Revolving
Lender agrees that in lieu of making Revolving Loans as described in this
subsection 2.5(e), such Revolving Lender shall purchase a participation from the
Swingline Lender in the applicable Swingline Loans in an amount equal to such
Revolving Lender's Revolving Percentage of such Swingline Loans, and the
procedures set forth in subsections 2.3(b) and 2.3(c) shall be followed in
connection with the purchases of such participations. The proceeds of such Base
Rate Loans (or participations purchased) shall be delivered by the
Administrative Agent to the Swingline Lender to repay such Swingline Loans (or
as payment for such participations). A copy of each notice given by the
Administrative Agent to the Revolving Lenders pursuant to this subsection 2.5(e)
with respect to the making of Loans, or the purchases of participations, shall
be promptly delivered by the Administrative Agent to the Company. Each Revolving
Lender's obligation in accordance with this Agreement to make the Revolving
Loans, or purchase the participations, as contemplated by this subsection
2.5(e), shall be absolute and unconditional and shall not be affected by any
circumstance, including (1) any set-off, counterclaim, recoupment, defense or
other right which such Revolving Lender may have against the Swingline Lender,
the Company or any other Person for any reason whatsoever, (2) the occurrence or
continuance of an Unmatured Event of Default, an Event of Default or a Material
Adverse Effect or (3) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
2.6 Termination or Reduction of Revolving Commitments.
(a) The Company may, upon not less than three Business Days'
prior written notice to the Administrative Agent,
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permanently reduce the Revolving Commitments to an amount which is not less than
the sum of the Effective Amount of all Revolving Loans plus the Effective Amount
of all Swingline Loans plus the Effective Amount of all L/C Obligations. Any
such reduction shall be in an aggregate amount of $10,000,000 or a higher
integral multiple of $5,000,000. The Company may at any time on like notice
terminate the Revolving Commitments upon payment in full of all Revolving Loans
and Swingline Loans and Cash Collateralization in full of all L/C Obligations.
(b) In addition, after (and to the extent not applied to) the
payment in full of all Term Loans pursuant to subsection 2.8(a), upon the
occurrence of any Mandatory Prepayment Event, the Revolving Commitments shall be
reduced by the amount of all Designated Proceeds resulting from such Mandatory
Prepayment Event, with each such reduction effective at the time required in
subsection 2.8(a) for a prepayment of Term Loans resulting from such Mandatory
Prepayment Event; provided, that upon any Mandatory Prepayment Event arising
from the transfer of Accounts Receivable under a Permitted Receivables Facility
under clause (viii) of subsection 2.8(a), (i) the Revolving Loans shall be
repaid in an amount equal to the Designated Proceeds from such transfer, (ii)
the Revolving Commitments shall be reduced by the full amount of all Designated
Proceeds from such transfer until the Revolving Commitments have been reduced to
zero and (iii) no such Designated Proceeds shall be applied to the Term Loans
until the Revolving Commitments have so been reduced to zero.
(c) Once reduced in accordance with this Section, the Revolving
Commitments may not be increased. Any reduction of the Revolving Commitments
shall be applied to the Revolving Commitment of each Revolving Lender according
to its Revolving Percentage. All accrued commitment fees to, but not including,
the effective date of any reduction or termination of the Revolving Commitments
shall be paid on the effective date of such reduction or termination.
2.7 Optional Prepayments.
(a) Subject to Section 4.4, (i) the Company may, from time to
time, upon irrevocable written notice to the Administrative Agent (which notice
must be received by 11:00 a.m. (Chicago time) one Business Day prior to the
requested day of prepayment in the case of Base Rate Loans and 11:00 a.m.
(Chicago time) three Business Days prior to the date of prepayment in the case
of Offshore Rate Loans), prepay any Borrowing of Revolving Loans in whole or in
part, without premium or penalty, in an aggregate amount of $5,000,000 or a
higher integral multiple of $100,000 and (ii) the Company may, from time to
time, upon not less than three Business Days' irrevocable notice to the
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Administrative Agent, prepay any Borrowing of Term Loans in whole or in part,
without premium or penalty, in an aggregate amount of $5,000,000 or a higher
integral multiple of $100,000.
(b) Each notice of prepayment shall specify the date and amount
of such prepayment and the Loans to be prepaid. The Administrative Agent will
promptly notify each Lender of its receipt of any such notice and of such
Lender's share of such prepayment based upon such Lender's Revolving Percentage,
in the case of a prepayment of Revolving Loans, Term A Percentage, in the case
of a prepayment of Term A Loans or Term B Percentage, in the case of a
prepayment of Term B Loans. If any such notice is given by the Company, the
Company shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein, together with
accrued interest to such date on the amount prepaid and any amounts required
pursuant to Section 4.4. Each prepayment of Revolving Loans shall be applied to
each Revolving Lender's Revolving Loans according to such Revolving Lender's
Revolving Percentage. Each prepayment of Term Loans shall be applied pro rata to
the Term A Loans and Term B Loans; provided, that if the Company elects to
provide the holders of Term B Loans with the option to waive their right to
accept any such voluntary prepayment, and any such Lender notifies the
Administrative Agent of such Lender's waiver of such prepayment not later than
two Business Days prior to the date of prepayment, 50% of the portion of any
such prepayment which would have been applied to such Lender's Term B Loans
shall be applied pro rata to the remaining installments of the Term A Loans of
all Lenders and the remaining 50% may be retained by the Company; provided,
further, that once the Term A Loans shall have been fully repaid, such remaining
prepayment amounts, if any, shall be applied pro rata to the Term B Loans. All
prepayments of the Term Loans pursuant to this Section 2.7 shall be applied pro
rata to the unpaid installments of each of the Term A Loans and Term B Loans;
provided, however, that, at the Company's option, a portion of any such
prepayment may be applied to unpaid installments of the Term A Loans in forward
order of maturity, but the amount so applied in any period of four consecutive
fiscal quarters may not exceed 50% of the amount of the scheduled installments
of the Term A Loans during such period (without giving effect to any reduction
to such scheduled installments as a result of mandatory or voluntary
prepayments).
2.8 Mandatory Prepayments of Loans. (a) The Company (or, in the case of
clause (iii), if the Administrative Agent is holding the proceeds of insurance
or condemnation as additional Collateral pursuant to the terms of a Security
Agreement or any Mortgage, the Administrative Agent) shall make a prepayment of
the Term Loans upon the occurrence of any of the following (each a "Mandatory
Prepayment Event") at the following times and in the
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following amounts (such applicable amounts being referred to as "Designated
Proceeds"):
(i) Within 180 days after any sale, transfer or other disposition
by the Company or any Subsidiary of any asset (other than assets
described in clause (ii) below), other than sales of Inventory, Assets
Held for Sale and transfers of Accounts Receivable pursuant to a
Permitted Receivables Facility and dispositions of obsolete, unused,
surplus or unnecessary equipment, in each case in the ordinary course of
business, to a Person other than the Company or a Subsidiary, in an
amount equal to 100% of the Net Cash Proceeds of such sale, transfer or
other disposition; provided that the foregoing shall not apply (x) to
sales, transfers or other dispositions of such assets the proceeds (or
an amount equal to anticipated proceeds) of which are used or committed
to be used by the Company for the financing of the replacement or
substitution of such assets being sold prior to or within 180 days after
any such sale or (y) to the extent that the Net Cash Proceeds of all
such sales, transfers or other dispositions in any fiscal year is less
than $5,000,000 or (z) to proceeds of Sale/Leaseback Transactions
permitted under Section 8.18.
(ii) Within 30 days after any sale, transfer or other disposition
(including by way of merger or consolidation) by the Company or any
Subsidiary of any of the capital stock of any of the Company's operating
Subsidiaries to a Person other than the Company or a Subsidiary, in an
amount equal to 100% of the Net Cash Proceeds of such sale.
(iii) Within 180 days after the receipt of any insurance or
condemnation proceeds (or other similar recoveries) by Parent, the
Company or any Subsidiary or by the Administrative Agent (to the extent
the Administrative Agent is holding the insurance or condemnation
proceeds as additional Collateral pursuant to Section 6 of a Security
Agreement or any provision of any Mortgage) from any casualty loss
incurred by Parent, the Company or any Subsidiary or condemnation of
property, in an amount equal to 100% of such insurance or condemnation
proceeds (or other similar recoveries) net of any collection expenses;
provided that no such prepayment shall be required (x) to the extent
such proceeds (or an amount equal to anticipated proceeds) are used by
the Company, or will be so used prior to or within 180 days after the
date of receipt of such proceeds for the financing of the replacement,
substitution or restoration of the assets sustaining such casualty loss
or condemnation or (y) to the extent that all such insurance or
condemnation proceeds received in any fiscal year is less than
$1,000,000.
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(iv) Promptly, and in any event within 15 days, after the receipt
of any Net Cash Proceeds from any issuance of equity securities of
Parent, the Company or any Subsidiary (including a Public Offering, but
excluding (w) the Offering, (x) any issuance of shares of capital stock
pursuant to any employee or director stock option program, benefit plan
or compensation program and (y) issuances of equity securities the Net
Cash Proceeds of which are used within 90 days of receipt thereof to
finance or refinance Acquisitions permitted under subsection 8.4(i)), in
an amount equal to 50% of such Net Cash Proceeds.
(v) Promptly, and in any event within 15 days, after the receipt
of any Net Cash Proceeds from the issuance of any Other Debt of Parent,
the Company or any Subsidiary in an amount equal to 100% of such Net
Cash Proceeds.
(vi) If the net proceeds received on issuance of any Qualified
Notes exceeds the net proceeds received by the Company in the issuance
of the Subordinated Notes or on any prior issuance of Qualified Notes,
promptly, and in any event within 15 days, after the receipt of the
proceeds of such notes by the Company in an amount equal to such excess.
(vii) Within 95 days after the end of each fiscal year
(commencing with the fiscal year ending June 30, 1999), in an amount
equal to 50% of Excess Cash Flow for such fiscal year; provided that if
the aggregate unpaid principal amount of the Term Loans as of the end of
such fiscal year is less than $150,000,000, then no prepayment shall be
required pursuant to this clause (vii).
(viii) Subject to the proviso to subsection 2.6(b), immediately
following any transfer by the Company or any Subsidiary of Accounts
Receivable pursuant to a Permitted Receivables Facility, in an amount
equal to the Net Cash Proceeds of such transfer (provided, that if the
Permitted Receivables Facility is a revolving program, the Designated
Proceeds available for application to the Loans and/or Revolving
Commitments from such Permitted Receivables Facility under this clause
(viii) shall not exceed the maximum outstanding amount of such Permitted
Receivables Facility (without giving effect to any reduction in such
amount but giving effect to any increase in such amount)).
(ix) Concurrently with the receipt of any proceeds from the
issuance of any Indebtedness by Parent (other than Other Debt), in an
amount equal 100% of the Net Cash Proceeds thereof; provided, however,
that the Parent may retain any portion or all of the Net Cash Proceeds
of any Qualified Parent Notes to the extent such amount is immediately
used
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to pay in full (including all principal of and interest and premium, if
any, on) and discharge the Parent Discount Notes or a prior issuance of
Qualified Parent Notes, as applicable.
(x) If any Permitted Redemption does not occur on the Scheduled
Redemption Date therefor, then forthwith in an amount equal to the
aggregate Redemption Price that would have been paid in such Permitted
Redemption for the maximum amount of TPG Acquisition Preferred Stock,
Subordinated Notes or Parent Discount Notes, as applicable, hereby
permitted to have been redeemed in such Permitted Redemption.
All prepayments of Term Loans pursuant to this subsection 2.8(a) shall be
applied to the prepayment of the Term Loans pro rata among the Term A Loans and
Term B Loans, with application to the remaining installments of each (x) in
inverse order of maturity, in the case of prepayments pursuant to clauses (v),
(vi) and (ix) and (y) pro rata, in the case of prepayments pursuant to clauses
(i), (ii), (iii), (iv), (vii) and (viii); provided, that Designated Proceeds
arising under clause (viii) shall only be applied to the Term Loans after the
Revolving Commitments have been reduced to zero pursuant to subsection 2.6(b);
provided, further, that, if the Company offers to any Lender holding Term B
Loans the right to waive any such prepayment, and any such Lender notifies the
Administrative Agent of such Lender's waiver of such prepayment not later than
two Business Days prior to the date upon which such prepayment is due, 50% of
the portion of any prepayment which would have been applied to such Lender's
Term B Loans shall be applied pro rata to the remaining installments of the Term
A Loans of all Lenders and the remaining 50% may be retained by the Company;
provided, further, that once the Term A Loans shall have been fully prepaid,
such remaining prepayment amounts, if any, shall be applied pro rata to the Term
B Loans.
(b) If on any day the Effective Amount of all Revolving Loans plus the
Effective Amount of all Swingline Loans plus the Effective Amount of all L/C
Obligations exceeds the lesser of (x) the Borrowing Base and (y) the Revolving
Commitments, the Company shall immediately prepay Revolving Loans and/or
Swingline Loans or Cash Collateralize the outstanding Letters of Credit, or do a
combination of the foregoing, in an amount sufficient to eliminate such excess.
(c) If on any date the Effective Amount of L/C Obligations exceeds the
amount of the L/C Commitment, the Company shall Cash Collateralize on such date
the outstanding Letters of Credit in an amount equal to the excess of the L/C
Obligations over the amount of the L/C Commitment.
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2.9 Repayment. (a) The Term A Credit. The Company shall repay the Term A
Loans in quarterly installments on the last Business Day of each fiscal quarter,
commencing on September 30, 1999, of $7,500,000.
(b) The Term B Credit. The Company shall repay the Term B Loans
in quarterly installments on the last Business Day of each fiscal quarter,
commencing on September 30, 1999, in the amount set forth opposite the period
below in which such quarterly date occurs:
<TABLE>
<CAPTION>
Quarterly
Period Amounts
------ ---------
<S> <C>
9/30/99 - 6/30/05 $375,000
9/30/05 - 6/30/06 $35,250,000.
</TABLE>
(c) The Revolving Credit. The Company shall pay to the
Administrative Agent, for the account of the Lenders, on the Revolving
Termination Date the aggregate principal amount of all Revolving Loans
outstanding on such date.
2.10 Interest. (a) Each Revolving Loan and Term Loan shall bear interest
on the outstanding principal amount thereof from the applicable Borrowing Date
at a rate per annum equal to the Offshore Rate or the Base Rate, as the case may
be (and subject to the Company's right to convert to the other Type of Loans
under Section 2.4), plus the Applicable Offshore Rate Margin or Applicable Base
Rate Margin, as the case may be. Each Swingline Loan shall bear interest on the
outstanding principal amount thereof from the applicable Borrowing Date at a
rate per annum equal to the Base Rate plus .50% per annum.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date therefor. Interest shall also be paid on the date of any
prepayment of Offshore Rate Loans under Section 2.7 or 2.8 for the portion of
the Loans so prepaid and upon payment (including prepayment) in full thereof.
(c) Notwithstanding subsection 2.10(a), during the existence of
any Event of Default, the Company shall pay interest (after as well as before
entry of judgment thereon to the extent permitted by law) on the principal
amount of all outstanding Loans and, to the extent permitted by applicable law,
on any other amount payable hereunder or under any other Loan Document, at a
rate per annum equal to the rate otherwise applicable thereto pursuant to the
terms hereof or such other Loan Document (or, if no such rate is specified, the
Base Rate plus the Applicable Base Rate Margin then in effect for Revolving
Loans) plus 2%. All such interest shall be payable on demand.
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(d) Anything herein to the contrary notwithstanding, the
obligations of the Company to any Lender hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder to the extent (but only to the extent) that
contracting for or receiving such payment by such Lender would be contrary to
the provisions of any law applicable to such Lender limiting the highest rate of
interest that may be lawfully contracted for, charged or received by such
Lender, and in such event the Company shall pay such Lender interest at the
highest rate permitted by applicable law.
2.11 Fees. In addition to certain fees described in Section 3.8:
(a) Arranger and Agency Fees. The Company shall pay fees to the
Arranger and BT Securities Corporation for their own accounts and agency fees to
the Administrative Agent for the Administrative Agent's own account, in each
case as required by the letter agreement (the "Fee Letter") among the Company,
the Arranger, BTCo. and the Administrative Agent dated April 15, 1998.
(b) Commitment Fees. The Company shall pay to the Administrative
Agent for the account of each Revolving Lender a commitment fee calculated at a
rate per annum equal to the Commitment Fee Rate on the average daily unused
portion of such Revolving Lender's Revolving Commitment, computed on a quarterly
basis in arrears on the last Business Day of each fiscal quarter based upon the
daily utilization for that quarter as calculated by the Administrative Agent.
For purposes of calculating utilization under this subsection, the Revolving
Commitments shall be deemed used to the extent of the Effective Amount of all
Revolving Loans then outstanding (but Swingline Loans shall not constitute usage
of any Revolving Lender's Revolving Commitment) plus the Effective Amount of all
L/C Obligations then outstanding. Such commitment fee shall accrue from the
Restatement Date to the Revolving Termination Date and shall be due and payable
quarterly in arrears on the last Business Day of each fiscal quarter, with the
final payment to be made on the Revolving Termination Date. The commitment fees
provided in this subsection shall accrue at all times after the Restatement
Date, including at any time during which one or more conditions in Article V are
not met.
2.12 Computation of Fees and Interest. (a) All computations of interest
for Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All other computations of interest and fees shall be made
on the basis of a 360-day year and actual days
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elapsed. Interest and fees shall accrue during each period during which interest
or such fees are computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Administrative
Agent shall be prima facie evidence thereof. The Administrative Agent will, at
the request of the Company or any Lender, deliver to the Company or such Lender,
as the case may be, a statement showing the quotations used by the
Administrative Agent in determining any interest rate and the resulting interest
rate.
2.13 Payments by the Company. (a) All payments to be made by the Company
shall be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Company shall be made to the
Administrative Agent for the account of the Lenders at the Agent's Payment
Office, and shall be made in Dollars and in immediately available funds, no
later than 1:00 p.m. (Chicago time) on the date specified herein. Except as
expressly provided herein, the Administrative Agent will promptly distribute, in
like funds as received, to each Lender its Revolving Percentage of any portion
of such payment related to the Revolving Loans, its Term A Percentage of any
portion of such payment relating to the Term A Loans or its Term B Percentage of
any portion of such payment relating to the Term B Loans. Any payment received
by the Administrative Agent later than 1:00 p.m. (Chicago time) shall be deemed
to have been received on the following Business Day and any applicable interest
or fee shall continue to accrue.
(b) Whenever any payment is due on a day other than a Business
Day, such payment shall be made on the preceding Business Day, and such
shortening of time shall in such case be reflected in the computation of
interest or fees, as the case may be.
(c) Unless the Administrative Agent receives notice from the
Company prior to the date on which any payment is due to the Lenders that the
Company will not make such payment in full as and when required, the
Administrative Agent may assume that the Company has made such payment in full
to the Administrative Agent on such date in immediately available funds and the
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Company has not made such
payment in full to the Administrative Agent, each Lender shall repay to the
Administrative Agent on demand such amount distributed to such Lender, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
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2.14 Payments by the Lenders to the Administrative Agent. (a) Unless the
Administrative Agent receives notice from a Lender at least one Business Day
prior to the date of such Borrowing, that such Lender will not make available as
and when required hereunder to the Administrative Agent for the account of the
Company the amount of such Lender's Revolving Percentage, Term A Percentage or
Term B Percentage, as applicable, of such Borrowing, the Administrative Agent
may assume that each Lender has made such amount available to the Administrative
Agent in immediately available funds on the Borrowing Date and the
Administrative Agent may (but shall not be required to), in reliance upon such
assumption, make available to the Company on such date a corresponding amount.
If and to the extent any Lender shall not have made its full amount available to
the Administrative Agent in immediately available funds and the Administrative
Agent in such circumstances has made available to the Company such amount, such
Lender shall on the Business Day following such Borrowing Date make such amount
available to the Administrative Agent, together with interest at the Federal
Funds Rate for each day during such period. A notice of the Administrative Agent
submitted to any Lender with respect to amounts owing under this subsection (a)
shall be conclusive, absent manifest error. If such amount is so made available,
such payment to the Administrative Agent shall constitute such Lender's Loan on
the date of Borrowing for all purposes of this Agreement. If such amount is not
made available to the Administrative Agent on the Business Day following the
Borrowing Date, the Administrative Agent will notify the Company of such failure
to fund and, upon demand by the Administrative Agent, the Company shall pay such
amount to the Administrative Agent for the Administrative Agent's account,
together with interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate applicable at the time
to the Loans comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any Borrowing
Date shall not relieve any other Lender of any obligation hereunder to make a
Loan on such Borrowing Date, but no Lender shall be responsible for the failure
of any other Lender to make the Loan to be made by such other Lender on any
Borrowing Date.
2.15 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Lender shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share of such payment
(determined in accordance with the provisions of this Agreement), such Lender
shall immediately (a) notify the Administrative Agent of such fact and (b)
purchase from the other Lenders such participations in the Loans made by them as
shall be necessary to cause such
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purchasing Lender to share the excess payment pro rata with each other Lender;
provided that if all or any portion of such excess payment is thereafter
recovered from the purchasing Lender, such purchase shall to that extent be
rescinded and each other Lender shall repay to the purchasing Lender the
purchase price paid therefor, together with an amount equal to such paying
Lender's ratable share (according to the proportion of (i) the amount of such
paying Lender's required repayment to (ii) the total amount so recovered from
the purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Company
agrees that any Lender so purchasing a participation from another Lender may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 11.10) with respect to
such participation as fully as if such Lender were the direct creditor of the
Company in the amount of such participation. The Administrative Agent will keep
records (which shall be conclusive and binding in the absence of manifest error)
of participations purchased under this Section and will in each case notify the
Lenders following any such purchases or repayments.
ARTICLE III
THE LETTERS OF CREDIT
3.1 The Letter of Credit Subfacility. (a) On the terms and conditions
set forth herein: (i) the Issuing Lender agrees, (A) from time to time on any
Business Day during the period from the Restatement Date to the Revolving
Termination Date to issue Letters of Credit for the account of the Company, and
to amend Letters of Credit previously issued by it, in accordance with
subsections 3.2(c) and 3.2(d), and (B) to honor drawings which comply with the
terms of the Letters of Credit issued by it; and (ii) the Revolving Lenders
severally agree to participate in Letters of Credit Issued for the account of
the Company; provided that the Issuing Lender shall not be obligated to Issue,
and no Revolving Lender shall be obligated to participate in, any Letter of
Credit if as of the date of Issuance of such Letter of Credit (the "Issuance
Date") (1) the sum of the Effective Amount of all L/C Obligations plus the
Effective Amount of all Revolving Loans plus the Effective Amount of all
Swingline Loans exceeds the lesser of (x) the aggregate amount of all Revolving
Commitments and (y) the Borrowing Base, (2) the Effective Amount of all L/C
Obligations exceeds the amount of the L/C Commitment or (3) with respect to any
particular Revolving Lender, the sum of the participation of such Revolving
Lender in the Effective Amount of all L/C Obligations plus the outstanding
principal amount of the Revolving Loans of such Revolving Lender shall exceed
such Revolving Lender's Revolving Commitment. Within the foregoing
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limits, and subject to the other terms and conditions hereof, the Company's
ability to obtain Letters of Credit shall be fully revolving, and, accordingly,
the Company may, during the foregoing period, obtain Letters of Credit to
replace Letters of Credit which have expired or which have been drawn upon and
reimbursed.
(b) The Issuing Lender shall not be under any obligation to Issue
any Letter of Credit if:
(i) any order, judgment or decree of any Governmental Authority
or arbitrator shall by its terms purport to enjoin or restrain the
Issuing Lender from Issuing such Letter of Credit, or any Requirement of
Law applicable to the Issuing Lender or any request or directive
(whether or not having the force of law) from any Governmental Authority
with jurisdiction over the Issuing Lender shall prohibit, or request
that the Issuing Lender refrain from, the Issuance of letters of credit
generally or such Letter of Credit in particular or shall impose upon
the Issuing Lender with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which the Issuing
Lender is not otherwise compensated hereunder) not in effect on the
Closing Date, or shall impose upon the Issuing Lender any unreimbursed
loss, cost or expense which was not applicable on the Closing Date and
which the Issuing Lender in good faith deems material to it;
(ii) the Issuing Lender has received written notice from any
Lender, the Administrative Agent or the Company, on or prior to the
Business Day prior to the requested date of Issuance of such Letter of
Credit, that one or more of the applicable conditions contained in
Article V is not then satisfied;
(iii) the expiry date of such Letter of Credit is after the
Revolving Termination Date, or, in the case of a Commercial Letter of
Credit, the expiry date of such Letter of Credit is less than 15 days
prior to the Revolving Termination Date, unless all of the Revolving
Lenders have approved such expiry date in writing;
(iv) such Letter of Credit does not provide for drafts, or is not
otherwise in form and substance acceptable to the Issuing Lender, or the
Issuance of such Letter of Credit shall violate any applicable policies
of the Issuing Lender; or
(v) such Letter of Credit is denominated in a currency other than
Dollars.
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3.2 Issuance, Amendment and Extension of Letters of Credit. (a) Each
Letter of Credit shall be issued upon the irrevocable written request of the
Company received by the Issuing Lender and the Administrative Agent at least
four Business Days (or such shorter time as the Issuing Lender and the
Administrative Agent may agree in a particular instance in their sole
discretion) prior to the proposed date of issuance. Each such request for
issuance of a Letter of Credit shall be by facsimile, confirmed immediately in
an original writing, in the form of an L/C Application, and shall specify in
form and detail satisfactory to the Issuing Lender: (i) the face amount of the
Letter of Credit; (ii) the expiry date of the Letter of Credit; (iii) the name
and address of the beneficiary thereof; (iv) the documents to be presented by
the beneficiary of the Letter of Credit in case of any drawing thereunder; (v)
the full text of any certificate to be presented by the beneficiary in case of
any drawing thereunder; and (vi) such other matters as the Issuing Lender may
require.
(b) At least two Business Days prior to the Issuance of any
Letter of Credit, the Issuing Lender will confirm with the Administrative Agent
(by telephone or in writing) that the Administrative Agent has received a copy
of the L/C Application or L/C Amendment Application from the Company and, if
not, the Issuing Lender will provide the Administrative Agent with a copy
thereof. If and only if the Administrative Agent notifies the Issuing Lender on
or before the Business Day immediately preceding the proposed date of Issuance
of a Letter of Credit that the Issuing Lender may Issue such Letter of Credit,
then, subject to the terms and conditions hereof, the Issuing Lender shall, on
the requested date, Issue such Letter of Credit for the account of the Company
in accordance with the Issuing Lender's usual and customary business practices.
The Administrative Agent shall not give such notice if the Administrative Agent
has knowledge that (A) such Issuance is not then permitted under subsection
3.1(a) as a result of the limitations set forth in clause (1) or (2) thereof or
(B) the Issuing Lender has received a notice described in subsection 3.1(b)(ii).
The Administrative Agent will promptly notify the Lenders of any Letter of
Credit Issuance hereunder.
(c) From time to time while a Letter of Credit is outstanding and
prior to the Revolving Termination Date, the Issuing Lender will, upon the
written request of the Company received by the Issuing Lender (with a copy sent
by the Company to the Administrative Agent) at least four Business Days (or such
shorter time as the Issuing Lender and the Administrative Agent may agree in a
particular instance in their sole discretion) prior to the proposed date of
amendment, amend any Letter of Credit issued by it. Each such request for
amendment of a Letter of Credit shall be made by facsimile, confirmed
immediately in an
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original writing, made in the form of an L/C Amendment Application and shall
specify in form and detail satisfactory to the Issuing Lender: (i) the Letter of
Credit to be amended; (ii) the proposed date of amendment of such Letter of
Credit (which shall be a Business Day); (iii) the nature of the proposed
amendment; and (iv) such other matters as the Issuing Lender may require. The
Issuing Lender shall not have any obligation to amend any Letter of Credit if
the Issuing Lender would have no obligation at such time to Issue such Letter of
Credit in its amended form under the terms of this Agreement.
(d) The Issuing Lender and the Lenders agree that, while a Letter
of Credit is outstanding and prior to the Revolving Termination Date, at the
option of the Company and upon the written request of the Company received by
the Issuing Lender (with a copy sent by the Company to the Administrative Agent)
at least four Business Days (or such shorter time as the Issuing Lender and the
Administrative Agent may agree in a particular instance in their sole
discretion) prior to the proposed date of notification of extension, the Issuing
Lender shall be entitled, with the approval of the Administrative Agent, to
authorize the automatic extension of any Standby Letter of Credit issued by it.
Each such request for extension of a Letter of Credit shall be made by
facsimile, confirmed immediately in an original writing, in the form of an L/C
Amendment Application, and shall specify in form and detail satisfactory to the
Issuing Lender: (i) the Letter of Credit to be extended; (ii) the proposed date
of notification of extension of such Letter of Credit (which shall be a Business
Day); (iii) the revised expiry date of such Letter of Credit (which, unless all
Lenders otherwise consent in writing, shall be, in the case of Standby Letters
of Credit, prior to the Revolving Termination Date and, in the case of
Commercial Letters of Credit, shall be prior to the date which is 15 days prior
to the Revolving Termination Date); and (iv) such other matters as the Issuing
Lender may require. The Issuing Lender shall not be under any obligation to
extend any Letter of Credit if: (A) the Issuing Lender would have no obligation
at such time to issue or amend such Letter of Credit in its extended form under
the terms of this Agreement; or (B) the beneficiary of such Letter of Credit
does not accept the proposed extension of such Letter of Credit. If any
outstanding Letter of Credit shall provide that it shall be automatically
extended unless the beneficiary thereof receives notice from the Issuing Lender
that such Letter of Credit shall not be extended, and if at the time of
extension the Issuing Lender would be entitled to authorize the automatic
extension of such Letter of Credit in accordance with this subsection 3.2(d)
upon the request of the Company but the Issuing Lender shall not have received
any L/C Amendment Application from the Company with respect to such extension or
other written direction by the Company with respect thereto, the Issuing Lender
shall nonetheless be permitted to allow such
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Letter of Credit to extend, subject to the approval of the Administrative Agent,
and the Company and the Lenders hereby authorize such extension, and,
accordingly, the Issuing Lender shall be deemed to have received an L/C
Amendment Application from the Company requesting such extension.
(e) The Issuing Lender may, at its election (or as required by
the Administrative Agent at the direction of the Required Lenders), deliver any
notices of termination or other communications to any Letter of Credit
beneficiary or transferee, and take any other action as necessary or
appropriate, at any time and from time to time, in order to cause the expiry
date of such Letter of Credit to be, in the case of Standby Letters of Credit, a
date not later than the Revolving Termination Date, and in the case of
Commercial Letters of Credit, a date not later than 15 days prior to the
Revolving Termination Date.
(f) This Agreement shall control in the event of any conflict
with any L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Lender will deliver to the Administrative Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or extension of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each such Letter of Credit or amendment
to or extension of a Letter of Credit.
(h) The Issuing Lender shall deliver to the Administrative Agent,
on the last day of each calendar month (or, if such day is not a Business Day,
the next succeeding Business Day) and upon the date of each payment by the
Company of the letter of credit fee referred to in subsection 3.8(a), a report
setting forth as of such day the aggregate Effective Amount of all Letters of
Credit outstanding on such date, and the Administrative Agent shall promptly
forward copies of such report to all Revolving Lenders.
3.3 Risk Participations, Drawings and Reimbursements.
(a) Immediately upon the Issuance of each Letter of Credit, each
Revolving Lender shall be deemed to, and hereby irrevocably and unconditionally
agrees to, purchase from the Issuing Lender a participation in such Letter of
Credit and each drawing thereunder in an amount equal to the product of (i) such
Revolving Lender's Revolving Percentage times (ii) the maximum amount available
to be drawn under such Letter of Credit and the amount of such drawing,
respectively.
(b) In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, the
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Issuing Lender will promptly notify the Company and the Administrative Agent.
The Company shall reimburse the Issuing Lender on each date that any amount is
paid by the Issuing Lender under any Letter of Credit (each such date, an "Honor
Date") in an amount equal to the amount so paid by the Issuing Lender. If the
Company fails to reimburse the Issuing Lender for the full amount of any drawing
under any Letter of Credit on the Honor Date, the Issuing Lender will promptly
notify the Administrative Agent and the Administrative Agent will promptly
notify each Revolving Lender thereof, and the Company shall be deemed to have
requested that Base Rate Loans be made by the Revolving Lenders to be disbursed
on the Honor Date under such Letter of Credit, subject to the amount of the
unutilized portion of the Revolving Commitments and subject to the conditions
set forth in Section 5.3 other than subsection 5.3(a). Any notice given by the
Issuing Lender or the Administrative Agent pursuant to this subsection 3.3(b)
may be oral if immediately confirmed in writing (including by facsimile);
provided that the lack of such an immediate confirmation shall not affect the
conclusiveness or binding effect of such notice.
(c) Each Revolving Lender shall upon any notice pursuant to
subsection 3.3(b) make available to the Administrative Agent for the account of
the Issuing Lender an amount in Dollars and in immediately available funds equal
to its Revolving Percentage of the amount of the drawing, whereupon the
participating Revolving Lenders shall (subject to subsection 3.3(d)) each be
deemed to have made a Revolving Loan consisting of a Base Rate Loan to the
Company in such amount. If any Revolving Lender so notified fails to make
available to the Administrative Agent for the account of the Issuing Lender the
amount of such Revolving Lender's Revolving Percentage of the amount of such
drawing by no later than 1:00 p.m. (Chicago time) on the Honor Date, then
interest shall accrue on such Revolving Lender's obligation to make such
payment, from the Honor Date to the date such Revolving Lender makes such
payment, at a rate per annum equal to the Federal Funds Rate in effect from time
to time during such period. The Administrative Agent will promptly give notice
of the occurrence of the Honor Date, but failure of the Administrative Agent to
give any such notice on the Honor Date or in sufficient time to enable any
Revolving Lender to effect such payment on such date shall not relieve such
Revolving Lender from its obligations under this Section 3.3.
(d) With respect to any unreimbursed drawing that is not
converted into Revolving Loans consisting of Base Rate Loans in whole or in
part, because of the Company's failure to satisfy the conditions set forth in
Section 5.3 (other than subsection 5.3(a), which need not be satisfied) or for
any other reason, the Company shall be deemed to have incurred from the Issuing
Lender an L/C Borrowing in the amount of such drawing,
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which L/C Borrowing shall be due and payable on demand (together with interest)
and shall bear interest at a rate per annum equal to the Base Rate plus the
Applicable Base Rate Margin then in effect for Revolving Loans plus 2% per
annum, and each Revolving Lender's payment to the Issuing Lender pursuant to
subsection 3.3(c) shall be deemed payment in respect of its participation in
such L/C Borrowing and shall constitute an L/C Advance from such Revolving
Lender in satisfaction of its participation obligation under this Section 3.3.
(e) Each Revolving Lender's obligation in accordance with this
Agreement to make Revolving Loans or L/C Advances, as contemplated by this
Section 3.3, as a result of a drawing under a Letter of Credit, shall be
absolute and unconditional and without recourse to the Issuing Lender and shall
not be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Revolving Lender may have against
the Issuing Lender, the Company or any other Person for any reason whatsoever,
(ii) the occurrence or continuance of an Event of Default, an Unmatured Event of
Default or a Material Adverse Effect or (iii) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing; provided
that each Revolving Lender's obligation to make Revolving Loans under this
Section 3.3 is subject to the conditions set forth in Section 5.3.
3.4 Repayment of Participations. (a) Upon (and only upon) receipt by the
Administrative Agent for the account of the Issuing Lender of immediately
available funds from the Company (i) in reimbursement of any payment made by the
Issuing Lender under a Letter of Credit with respect to which any Revolving
Lender has paid the Administrative Agent for the account of the Issuing Lender
for such Revolving Lender's participation in such Letter of Credit pursuant to
Section 3.3 or (ii) in payment of interest thereon, the Administrative Agent
will pay to each Revolving Lender, in like funds as those received by the
Administrative Agent for the account of the Issuing Lender, the amount of such
Revolving Lender's Revolving Percentage of such funds, and the Issuing Lender
shall receive the amount of the Revolving Percentage of such funds of any
Revolving Lender that did not so pay the Administrative Agent for the account of
the Issuing Lender.
(b) If the Administrative Agent or the Issuing Lender is required
at any time to return to the Company, or to a trustee, receiver, liquidator or
custodian, or to any official in any Insolvency Proceeding, any portion of any
payment made by the Company to the Administrative Agent for the account of the
Issuing Lender pursuant to subsection 3.4(a) in reimbursement of a payment made
under a Letter of Credit or interest or fee thereon, each Revolving Lender
shall, on demand of the
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Administrative Agent, forthwith return to the Administrative Agent or the
Issuing Lender the amount of its Revolving Percentage of any amount so returned
by the Administrative Agent or the Issuing Lender plus interest thereon from the
date such demand is made to the date such amount is returned by such Revolving
Lender to the Administrative Agent or the Issuing Lender, at a rate per annum
equal to the Federal Funds Rate in effect from time to time.
3.5 Role of the Issuing Lender. (a) Each Lender and the Company agree
that, in honoring any drawing under a Letter of Credit, the Issuing Lender shall
not have any responsibility to obtain any document (other than any sight draft
and certificate expressly required by such Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.
(b) No Agent-Related Person, Issuing Lender nor any of their
respective correspondents, participants or assignees shall be liable to any
Lender for: (i) any action taken or omitted in connection herewith at the
request or with the approval of the Lenders (including the Required Lenders, as
applicable); (ii) any action taken or omitted in the absence of gross negligence
or willful misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) The Company hereby assumes all risks of the acts or omissions
of any beneficiary or transferee with respect to its use of any Letter of
Credit; provided that this assumption is not intended to, and shall not,
preclude the Company's pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under this Agreement or any other
agreement. No Agent-Related Person, Issuing Lender nor any of their respective
correspondents, participants or assignees shall be liable or responsible for any
of the matters described in clauses (i) through (vii) of Section 3.6; provided
that, anything in such clauses to the contrary notwithstanding, the Company may
have a claim against the Issuing Lender, and the Issuing Lender may be liable to
the Company, to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by the Company which the Company
proves were caused by the Issuing Lender's willful misconduct or gross
negligence or the Issuing Lender's willful failure to pay under any Letter of
Credit after the presentation to it by the beneficiary of a sight draft and
certificate(s) strictly complying with the terms and conditions of such Letter
of Credit. In furtherance and not in limitation of the foregoing: (i) the
Issuing Lender may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Issuing
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Lender shall not be responsible for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason.
3.6 Obligations Absolute. The obligations of the Company under this
Agreement and any L/C-Related Document to reimburse the Issuing Lender for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit converted into Revolving Loans, shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other L/C-Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of this Agreement or
any L/C-Related Document;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations of the Company in
respect of any Letter of Credit or any other amendment or waiver of or
any consent to departure from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other right
that the Company may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuing Lender or
any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C-Related Documents or any
unrelated transaction;
(iv) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any
Letter of Credit;
(v) any payment by the Issuing Lender under any Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of such Letter of Credit; or any payment made by
the Issuing Lender under any Letter of Credit to any Person purporting
to be a trustee in bankruptcy, debtor-in-possession, assignee for the
benefit of creditors, liquidator, receiver or other representative of or
successor to any beneficiary or any transferee of any Letter of Credit,
including any arising in connection with any Insolvency Proceeding;
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(vi) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from
any guarantee, for all or any of the obligations of the Company in
respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including any other circumstance
that might otherwise constitute a defense available to, or a discharge
of, the Company or a guarantor.
3.7 Cash Collateral Pledge. If any Letter of Credit remains outstanding
and partially or wholly undrawn as of the Revolving Termination Date, then the
Company shall immediately Cash Collateralize the L/C Obligations in an amount
equal to the maximum amount then available to be drawn under all Letters of
Credit.
3.8 Letter of Credit Fees. (a) The Company shall pay to the
Administrative Agent for the account of each Revolving Lender a letter of credit
fee with respect to each Letter of Credit equal to the L/C Fee Rate per annum of
the daily maximum amount available to be drawn on such Letter of Credit,
computed for each day such Letter of Credit is outstanding in arrears on the
last Business Day of each fiscal quarter; provided that, during the existence of
any Event of Default, the L/C Fee Rate shall be increased by 2% per annum. Such
letter of credit fee shall be due and payable quarterly in arrears on the last
Business Day of each fiscal quarter during which Letters of Credit are
outstanding, commencing on the first such quarterly date to occur after the
Restatement Date, to the Revolving Termination Date (or such later date upon
which all outstanding Letters of Credit shall expire or be fully drawn), with
the final payment to be made on the Revolving Termination Date (or such later
date).
(b) The Company shall pay to the Issuing Lender a letter of
credit fronting fee for each Letter of Credit Issued equal to 0.25% per annum of
the daily maximum amount available to be drawn on such Letter of Credit,
computed for each day such Letter of Credit is outstanding, on the last Business
Day of each fiscal quarter and on the Revolving Termination Date (or such later
date on which such Letter of Credit shall expire or be fully drawn).
(c) The letter of credit fees payable under subsection 3.8(a) and
the fronting fees payable under 3.8(b) shall be due and payable quarterly in
arrears on the last Business Day of each fiscal quarter during which Letters of
Credit are outstanding, commencing on the first such quarterly date to occur
after the Closing Date, to the Revolving
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Termination Date (or such later date upon which all outstanding Letters of
Credit shall expire or be fully drawn), with the final payment to be made on the
Revolving Termination Date (or such later date). For purposes of calculating the
fees payable under subsection 3.8(a) and subsection 3.8(b), any undrawn
Commercial Letters of Credit shall be considered outstanding and available to be
drawn upon for 15 days after their expiry date.
(d) The Company shall pay to the Issuing Lender from time to time
on demand the normal issuance, payment, amendment and other processing fees, and
other standard costs and charges, of the Issuing Lender relating to letters of
credit as from time to time in effect.
3.9 Uniform Customs and Practice. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in such Letter of Credit) apply to each Letter of Credit.
3.10 Non-Dollar Letters of Credit. The Company, the Administrative
Agent, the Issuing Lender and all of the Lenders (i) agree that, upon the
request of the Company, the Issuing Lender may (in its sole discretion) issue
Letters of Credit ("Non-Dollar Letters of Credit") in currencies other than
Dollars and (ii) further agree as follows with respect to such Non-Dollar
Letters of Credit:
(a) The Company agrees that its reimbursement obligation under
subsection 3.3(b) and any resulting L/C Borrowing, in each case in
respect of a drawing under any Non-Dollar Letter of Credit, (a) shall be
payable in Dollars at the Dollar Equivalent of such obligation in the
currency in which such Non-Dollar Letter of Credit was issued
(determined on the date of payment) and (b) shall bear interest at a
rate per annum equal to the sum of the Overnight Rate plus the
Applicable Offshore Rate Margin for Revolving Loans plus 3% for each day
from and including the Honor Date to but excluding the date such
obligation is paid in full (it being understood that any payment
received after 10:30 a.m., Chicago time, on any day shall be deemed
received on the following Business Day).
(b) Each Lender agrees that its obligation to make Revolving
Loans under subsection 3.3(b) and to make L/C Advances for any unpaid
reimbursement obligation or L/C Borrowing in respect of a drawing under
any Non-Dollar Letter of Credit shall be payable in Dollars at the
Dollar Equivalent of such obligation in the currency in which such
Non-Dollar Letter of Credit was issued (calculated on the
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date of payment) (and any such amount which is not paid when due shall
bear interest at a rate per annum equal to the Overnight Rate plus,
beginning on the third Business Day after such amount was due, the
Applicable Offshore Rate Margin for Revolving Loans).
(c) For purposes of determining whether there is availability for
the Company to request, continue or convert any Loan, or request, extend
or increase the face amount of any Letter of Credit, the Dollar
Equivalent of the Effective Amount of each Non-Dollar Letter of Credit
shall be calculated on the date such Loan is to be made, continued or
converted or such Letter of Credit is to be issued, extended or
increased.
(d) For purposes of determining (i) the amount of the unused
portion of the Revolving Commitments under subsection 2.11(b), (ii) the
letter of credit fee under subsection 3.8(a) and (iii) the letter of
credit fronting fee under subsection 3.8(b), the Dollar Equivalent of
the Effective Amount of any Non-Dollar Letter of Credit shall be
determined on each of (1) the date of an issuance, extension or change
in the face amount of such Non-Dollar Letter of Credit, (2) the date of
any payment by the Issuing Lender in respect of a drawing under such
Non-Dollar Letter of Credit, (3) the last day of each calendar month and
(4) each day on which the aggregate amount of the Revolving Commitments
and/or L/C Commitment is reduced.
(e) If, on the last day of any calendar month or any day on which
the aggregate amount of the Revolving Commitments and/or L/C Commitment
is reduced, the sum of the Effective Amount of all Revolving Loans plus
the Effective Amount of all Letters of Credit plus the Effective Amount
of all Swingline Loans (valuing the Effective Amount of, and all
reimbursement obligations and L/C Borrowings of the Company in respect
of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as
of such day) would exceed the aggregate amount of the Revolving
Commitments, then the Company will immediately eliminate such excess by
prepaying Revolving Loans and/or Swingline Loans and/or causing one or
more Letters of Credit to be reduced or terminated.
(f) If, for the purposes of obtaining judgment in any court, it
is necessary to convert a sum due in respect of any Non-Dollar Letter of
Credit in one currency into another currency, the rate of exchange used
shall be that at which in accordance with normal banking procedures the
Issuing Lender could purchase the first currency with such other
currency on the Business Day preceding that on which final judgment is
given. The obligation of the Company in respect
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of any such sum due from it to the Administrative Agent, the Issuing
Lender or any Lender hereunder shall, notwithstanding any judgment in a
currency (the "Judgment Currency") other than that in which such sum is
denominated in accordance with the applicable provisions of the
applicable Non-Dollar Letter of Credit (the "Agreement Currency"), be
discharged only to the extent that on the Business Day following receipt
by the Issuing Lender of any sum adjudged to be so due in the Judgment
Currency, the Issuing Lender may in accordance with normal banking
procedures purchase the Agreement Currency with the Judgment Currency.
If the amount of the Agreement Currency so purchased is less than the
sum originally due to the Issuing Lender in the Agreement Currency, the
Company agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify the Administrative Agent, the Issuing Lender or
the Lender to whom such obligation was owing against such loss. If the
amount of the Agreement Currency so purchased is greater than the sum
originally due to the Issuing Lender in such currency, the Issuing
Lender agrees to return the amount of any excess to the Company (or to
any other Person who may be entitled thereto under applicable law).
(g) For purposes of this Section, "Overnight Rate" means, for any
day, the rate of interest per annum at which overnight deposits in the
applicable currency, in an amount approximately equal to the amount with
respect to which such rate is being determined, would be offered for
such day by the London Branch of BofA to major banks in the London or
other applicable offshore interbank market. The Overnight Rate for any
day which is not a Business Day (or on which dealings are not carried on
in the applicable offshore interbank market) shall be the Overnight Rate
for the immediately preceding Business Day.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes. (a) Any and all payments by the Company to each Lender or the
Administrative Agent under this Agreement and any other Loan Document shall be
made free and clear of, and without deduction or withholding for, any Taxes. In
addition, the Company shall pay all Other Taxes.
(b) Subject to subsection 4.1(g), the Company agrees to indemnify
and hold harmless each Lender and the Administrative Agent for the full amount
of Taxes, Other Taxes and Further Taxes paid by such Lender in the amount
necessary to preserve the amount such Lender would have received hereunder if
such Taxes,
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Other Taxes or Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and reasonable out-of-pocket expenses)
arising therefrom or with respect thereto, whether or not such Taxes, Other
Taxes or Further Taxes were correctly or legally asserted; provided, however,
that the Company shall not have to indemnify any Lender or the Administrative
Agent for Taxes, Other Taxes, Further Taxes, penalties, additions to tax or
expenses arising as a result of the gross negligence or wilful misconduct of
such Person. Payment under this subsection 4.1(b) shall be made within 30 days
from the date such Lender or the Administrative Agent makes written demand
therefor and provides reasonable evidence of the payment of such Taxes, Other
Taxes or Further Taxes.
(c) If the Company shall be required by law to deduct or withhold
any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrative Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section), such Lender or the Administrative Agent, as the case may
be, receives and retains an amount equal to the sum it would have
received had no such deductions or withholdings been made;
(ii) the Company shall make such deductions and withholdings; and
(iii) the Company shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law.
(d) Within 10 days after the date the Company receives any
receipt for the payment of Taxes, Other Taxes or Further Taxes, the Company
shall furnish to the Administrative Agent the original or a certified copy of
such receipt evidencing payment thereof, or other evidence of payment
satisfactory to the Administrative Agent and the Administrative Agent will
promptly provide a copy thereof to all interested Lenders.
(e) If the Company is required to pay additional amounts to any
Lender or the Administrative Agent pursuant to subsection (b) of this Section or
Section 4.3, then such Lender shall use reasonable efforts (consistent with
legal and regulatory restrictions) to change the jurisdiction of its Lending
Office so as to reduce or eliminate any such additional payment by the Company
which may thereafter accrue, if such
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change in the sole judgment of such Lender is not otherwise disadvantageous to
such Lender.
(f) If any Lender or the Administrative Agent receives a refund
in respect of any Taxes, Other Taxes or Further Taxes as to which it has been
indemnified by the Company pursuant to this Section 4.1, it shall repay such
refund (to the extent of amounts that have been paid by the Company under this
Section 4.1 with respect to such refund and not previously reimbursed) to the
Company, net of all out-of-pocket expenses of such Lender or the Administrative
Agent and without any interest.
(g) The Company shall not be required to pay additional amounts
to the Administrative Agent or any Lender pursuant to this Section 4.1 to the
extent that the obligation to pay such additional amounts would not have arisen
but for a failure by the Administrative Agent or such Lender to comply with
Section 10.10.
4.2 Illegality. (a) After the date hereof, if any Lender determines that
the introduction of any Requirement of Law, or any change in any Requirement of
Law, or in the interpretation or administration of any Requirement of Law, has
made it unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for such Lender or its applicable Lending Office
to make Offshore Rate Loans, then, on notice thereof by the Lender to the
Company through the Administrative Agent, any obligation of such Lender to make
Offshore Rate Loans shall be suspended until such Lender notifies the
Administrative Agent and the Company that the circumstances giving rise to such
determination no longer exist.
(b) After the date hereof, if a Lender determines that it is
unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt
of notice of such fact and demand from such Lender (with a copy to the
Administrative Agent), prepay in full such Offshore Rate Loan, together with
interest accrued thereon and any amount required under Section 4.4, either on
the last day of the Interest Period thereof, if such Lender may lawfully
continue to maintain such Offshore Rate Loan to such day, or on such earlier
date on which such Lender may no longer lawfully continue to maintain such
Offshore Rate Loan (as determined by such Lender). If the Company is required to
so prepay any Offshore Rate Loan, then concurrently with such prepayment, the
Company shall borrow from the affected Lender, in the amount of such repayment,
a Base Rate Loan.
(c) If the obligation of any Lender to make or maintain Offshore
Rate Loans has been terminated or suspended pursuant to subsection (a) or (b)
above, all Loans which would
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otherwise be made by such Lender as Offshore Rate Loans shall be instead Base
Rate Loans.
(d) Before giving any notice to the Administrative Agent or
demand upon the Company under this Section, the affected Lender shall designate
a different Lending Office with respect to its Offshore Rate Loans if such
designation will avoid the need for giving such notice or making such demand and
will not, in the sole judgment of such Lender, be illegal or otherwise
disadvantageous to such Lender.
4.3 Increased Costs and Reduction of Return. (a) After the date hereof,
if any Lender determines that, due to either (i) the introduction of or any
change (other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the Offshore Rate) in or in the
interpretation of any law or regulation or (ii) compliance by such Lender with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Lender of agreeing to make or making, funding or maintaining any
Offshore Rate Loan or participating in Letters of Credit or, in the case of the
Issuing Lender, any increase in the cost to the Issuing Lender of agreeing to
issue, issuing or maintaining any Letter of Credit or of agreeing to make or
making, funding or maintaining any unpaid drawing under any Letter of Credit,
then the Company shall be liable for, and shall from time to time, upon demand
(with a copy of such demand to be sent to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender, additional amounts as are
sufficient to compensate such Lender for such increased costs.
(b) After the date hereof, if any Lender shall have determined
that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in
any Capital Adequacy Regulation, (iii) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank or other
Governmental Authority charged with the interpretation or administration thereof
or (iv) compliance by such Lender (or its Lending Office) or any corporation
controlling such Lender with any Capital Adequacy Regulation, affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy
and such Lender's desired return on capital) determines that the amount of such
capital is increased as a consequence of any of its Commitments, Loans, credits
or obligations under this Agreement, then, upon demand of such Lender to the
Company through the Administrative Agent, the Company shall pay to such Lender,
from time to time as specified
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by such Lender, additional amounts sufficient to compensate such Lender for such
increase.
(c) This Section 4.3 shall not require the Company to reimburse
the Administrative Agent or any Lender for any Taxes which are otherwise covered
by the indemnity set forth in Section 4.1 or any Excluded Taxes.
4.4 Funding Losses. The Company shall reimburse each Lender and hold
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of:
(a) the failure of the Company to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or convert a
Loan after the Company has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;
(c) the failure of the Company to make any prepayment in
accordance with any notice delivered under Section 2.7;
(d) the prepayment (including pursuant to Section 2.8) or other
payment (including after acceleration thereof) of an Offshore Rate Loan on a day
that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under subsection 2.4(a) of any
Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the
relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Company to the Lenders under this Section and
under subsection 4.3(a), each Offshore Rate Loan made by a Lender (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the IBOR used in determining the Offshore Rate for
such Offshore Rate Loan by a matching deposit or other borrowing in the
interbank eurodollar market for a comparable amount and for a comparable period,
whether or not such Offshore Rate Loan is in fact so funded.
4.5 Inability to Determine Rates. If the Administrative Agent determines
that for any reason adequate and reasonable means do not exist for determining
the Offshore Rate for any requested Interest Period with respect to a proposed
Offshore Rate Loan, or the Required Lenders determine (and notify the
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Administrative Agent) that the Offshore Rate applicable pursuant to subsection
2.10(a) for any requested Interest Period with respect to a proposed Offshore
Rate Loan does not adequately and fairly reflect the cost to such Lenders of
funding such Loan, the Administrative Agent will promptly so notify the Company
and each Lender. Thereafter, the obligation of the Lenders to make or maintain
Offshore Rate Loans hereunder shall be suspended until the Administrative Agent,
with the consent of the Required Lenders, revokes such notice in writing. Upon
receipt of such notice, the Company may revoke any Notice of Borrowing or Notice
of Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Company, in the amount specified in the applicable notice submitted by
the Company, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans.
4.6 Certificates of Lenders. Any Lender claiming reimbursement or
compensation under this Article IV shall deliver to the Company (with a copy to
the Administrative Agent) a certificate setting forth in reasonable detail the
basis for such claim and a calculation of the amount payable to such Lender and
such certificate shall be prima facie evidence thereof.
4.7 Substitution of Lenders. In the event the Company becomes obligated
to pay additional amounts to any Lender pursuant to Section 4.3 or the
circumstances described in Section 4.2 exist with respect to any Lender, the
Company may designate another Lender (with such other Lender's consent) which is
acceptable to the Administrative Agent, the Issuing Lender and the Swingline
Lender in their sole discretion (such other Lender being herein called a
"Replacement Lender") to purchase the Loans of such Lender and such Lender's
rights hereunder, without recourse to or warranty by, or expense to, such Lender
for a purchase price equal to the outstanding principal amount of the Loans
payable to such Lender plus any accrued but unpaid interest on such Loans and
accrued but unpaid commitment fees in respect of such Lender's Commitments and
any other amounts payable to such Lender under this Agreement, and to assume all
the obligations of such Lender hereunder, and, upon such purchase, such Lender
shall no longer be a party hereto or have any rights hereunder (other than
indemnities and other similar rights applicable to such Lender prior to the date
of such assignment and assumption) and shall be relieved from all obligations to
the Company hereunder, and the Replacement Lender shall succeed to the rights
and obligations of such Lender hereunder; without limiting the generality of the
foregoing, the Replacement Lender or the Company shall bear the processing fee
referred to in subsection 11.8(a) in any such substitution.
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4.8 Survival. The agreements and obligations of the Company in this
Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness. This Agreement shall become effective
on the date (the "Restatement Date") each of the conditions precedent set forth
in this Section 5.1 (as well as each condition set forth in Section 5.2) has
been satisfied or waived with the consent of the Required Lenders (or, with
respect to subsection 5.1(f), with the consent of the Persons entitled to
receive payment). The effectiveness of this Agreement is subject to the
conditions that the Administrative Agent shall have received all of the
following, in form and substance satisfactory to each Agent and each Lender, and
(except for the Notes) in sufficient copies for the Administrative Agent and
each Lender:
(a) Credit Agreement. This Agreement executed by the Company and
the Lenders.
(b) Resolutions and Incumbency.
(i) Copies of resolutions of the board of directors of the
Company, Parent and Mike Mac authorizing the transactions contemplated
hereby, certified as of the Restatement Date by the Secretary or an
Assistant Secretary of such Person; and
(ii) A certificate of the Secretary or an Assistant Secretary of
the Company, Parent and Mike Mac certifying the names and true
signatures of the officers of such Person authorized to execute, deliver
and perform this Agreement and all other Loan Documents to be delivered
by it hereunder.
(c) Organization Documents; Good Standing. Each of the following
documents:
(i) for the Company, Parent and Mike Mac, the articles or
certificate of incorporation and the bylaws of each such Person, as the
case may be, as in effect on the Restatement Date, certified by the
Secretary or Treasurer of such Person, as of the Restatement Date; and
(ii) a good standing certificate for the Company, Parent and Mike
Mac from the Secretary of State (or similar
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applicable Governmental Authority) of the jurisdiction of its
organization.
(d) Legal Opinions.
(i) An opinion of Cleary, Gottlieb, Steen & Hamilton, special
counsel to the Company, Parent and Mike Mac, substantially in the form
of Exhibit I-1, and
(ii) An opinion of William R. Sawyers, General Counsel to the
Company, Parent and Mike Mac, substantially in the form of Exhibit I-2.
(e) Notes. Notes payable to the order of each of the Lenders who
have requested a Note under subsection 2.2(b).
(f) Payment of Fees. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Restatement Date, together with Attorney Costs of the Administrative
Agent and the Arranger to the extent invoiced at least three Business Days prior
to the Restatement Date, plus such additional amounts of Attorney Costs as shall
constitute the Administrative Agent's reasonable estimate of Attorney Costs
incurred or to be incurred by it or the Arranger through the Restatement Date
(provided that such estimate shall not thereafter preclude final settling of
accounts between the Company and the Administrative Agent), including such
costs, fees and expenses arising under or referenced in Section 11.4.
(g) Confirmation. A confirmation from Parent and Mike Mac,
substantially in the form of Exhibit T hereto.
(h) Certificate. A certificate signed by a Responsible Officer,
dated as of the Restatement Date, stating that:
(i) the representations and warranties contained in Article VI
are true and correct in all material respects on and as of such date, as
though made on and as of such date;
(ii) no Event of Default or Unmatured Event of Default exists or
will result from the effectiveness of this Agreement; and
(iii) no event or circumstance has occurred since March 31, 1998
that has resulted, or would reasonably be expected to result, in a
Material Adverse Effect.
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(i) Redemption and Cash Collateral Agreement. A counterpart of
the Redemption and Cash Collateral Agreement executed by the Company.
(j) Parent Guaranty. A counterpart of the Parent Guaranty
executed by the Parent.
(k) Other Documents. Such other approvals, opinions, documents or
materials as any Agent or any Lender may reasonably request.
5.2 Additional Conditions to Restatement Date. In addition to the
conditions set forth in Section 5.1, the occurrence of the Restatement Date, and
the effectiveness of this Agreement, are subject to the following conditions
precedent:
(a) Offering. Parent shall have issued shares of its common stock in the
Offering on terms and conditions satisfactory to the Administrative Agent and
shall have received gross proceeds of not less than $225,000,000 therefrom and
shall have effected the Permitted Redemption of the TPG Acquisition Preferred
Stock and made a capital contribution to the Company of the Net Cash Proceeds
remaining after effecting such Permitted Redemption. The Company shall have
deposited into the Cash Collateral Account an amount which is, when added to the
amount of the Redemption Reserve in effect on the Restatement Date, sufficient
to pay the Redemption Prices (plus accrued interest and dividends) in each of
the Permitted Redemptions (other than the Permitted Redemption of the TPG
Acquisition Preferred Stock).
(b) Prepayment under Existing Credit Agreement. The Company shall have
paid down amounts outstanding under the Existing Credit Agreement such that the
amount of the Revolving Loans outstanding thereunder on the Restatement Date is
zero.
5.3 Conditions to All Credit Extensions. The obligation of each Lender
to make any Loan to be made by it and the obligation of the Issuing Lender to
Issue any Letter of Credit is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or Issuance Date:
(a) Notice, Application. In the case of any Loan, the
Administrative Agent shall have received a Notice of Borrowing and, in the case
of any Issuance of any Letter of Credit, the Issuing Lender and the
Administrative Agent shall have received an L/C Application or L/C Amendment
Application, as required under Section 3.2.
(b) Continuation of Representations and Warranties. The
representations and warranties in Article VI shall be true and correct in all
material respects on and as of such Borrowing
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Date or Issuance Date with the same effect as if made on and as of such
Borrowing Date or Issuance Date (except to the extent such representations and
warranties expressly refer to an earlier date, in which case they shall be true
and correct as of such earlier date).
(c) No Existing Default. No Event of Default or Unmatured Event
of Default shall exist or shall result from such Borrowing or Issuance.
Each Notice of Borrowing and L/C Application or L/C Amendment Application
submitted by the Company hereunder shall constitute a representation and
warranty by the Company hereunder, as of the date of such notice and as of the
applicable Borrowing Date or Issuance Date, that the conditions in this Section
5.3 are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each Agent and each Lender that:
6.1 Corporate Existence and Power. Parent, the Company and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals (i) to own its assets and to carry on its
business and (ii) to execute, deliver and perform its obligations under the Loan
Documents;
(c) 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
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clause (b)(i), (c) or (d), to the extent
that the failure to do so would not reasonably be expected to have a Material
Adverse Effect.
6.2 Corporate Authorization; No Contravention. The execution and
delivery by the Company of this Agreement and each
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other Loan Document to which it is a party, the Borrowings hereunder, the
execution and delivery by Parent and each Subsidiary of each Loan Document to
which it is a party, the performance by each of the Company, Parent and each
Subsidiary of its obligations under each Loan Document to which it is a party
and the incurrence of the Obligations (i) are within the corporate powers of the
Company, Parent and each Subsidiary, as applicable, (ii) have been duly
authorized by all necessary corporate action on the part of the Company, Parent
and each Subsidiary (including any necessary shareholder action) and (iii) do
not and will not:
(a) contravene the terms of any of the Organization Documents of
the Company, Parent or any Subsidiary;
(b) conflict with or result in a breach or contravention of, or
the creation of any Lien (other than Liens in favor of the Administrative Agent)
under, any document evidencing any Contractual Obligation to which the Company,
Parent or any Subsidiary is a party or any order, injunction, writ or decree of
any Governmental Authority to which the Company, Parent, any Subsidiary or any
of their properties are subject; or
(c) violate any Requirement of Law.
6.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required for the execution, delivery or
performance by, or enforcement against, (i) the Company of this Agreement or any
other Loan Document to which it is a party or (ii) Parent or any Subsidiary with
respect to each Loan Document to which it is a party, except, in each case, for
filings required to perfect Liens in favor of the Administrative Agent granted
under the Loan Documents.
6.4 Binding Effect. This Agreement and each other Loan Document to which
the Company is a party constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company 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 or by
equitable principles relating to enforceability; and with respect to Parent and
each Subsidiary, each Loan 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
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of creditors' rights generally and by equitable principles relating to
enforceability.
6.5 Litigation. Except as specifically disclosed in Schedule 6.5, there
are no actions, suits, proceedings, claims or disputes pending or, to the best
knowledge of the Company, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against Parent, the Company or
any Subsidiary or any of their respective properties which: (a) purport to
affect or pertain to this Agreement or any other Loan Document, or any of the
transactions contemplated hereby or thereby; or (b) 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
Governmental Authority purporting to enjoin or restrain the execution, delivery
or performance of this Agreement or any other Loan Document, or directing that
the transactions provided for herein or therein not be consummated as herein or
therein provided.
6.6 No Default. No Event of Default or Unmatured Event of Default exists
or would result from the incurring of any Obligations by the Company. As of the
Restatement Date, neither the Company nor any Subsidiary is in default under or
with respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, would reasonably be expected to have a Material
Adverse Effect, or that would, if such default had occurred after the
Restatement Date, create an Event of Default under subsection 9.1(e).
6.7 ERISA Compliance.
(a) 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 the Company, 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. The Company 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.
(b) There are no pending or, to the best knowledge of the
Company, threatened claims, actions or lawsuits, or actions by any Governmental
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
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any Plan which has resulted or would reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur that would reasonably be expected to have a Material Adverse Effect; (ii)
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 (iii) except for
liability the Company has incurred under the agreement between the Company and
the PBGC, dated April 7, 1997, as amended, neither the Company nor any ERISA
Affiliate has incurred, or reasonably expects to incur, any material liability
to the PBGC under Title IV of ERISA with respect to any Pension Plan.
6.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Sections 7.13
and 8.7. Neither the Company nor any Subsidiary is generally engaged in the
business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
6.9 Title to Properties. Each of the Company 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, have a Material Adverse Effect. Each of the Company and each
Subsidiary has good title to all their other respective material properties and
assets (except for those assets disposed of not in violation of this Agreement
and the other Loan Documents and except for encumbrances and title defects that
would not be reasonably likely to have a Material Adverse Effect). As of the
Restatement Date, the property of the Company and its Subsidiaries is subject to
no Liens, other than Permitted Liens.
6.10 Taxes. Parent, the Company and its 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 adequate reserves have been provided in accordance
with GAAP. There is no proposed tax assessment against Parent, the Company or
any Subsidiary that would, if made, have a Material Adverse Effect. The Tax
Sharing Agreement is the only agreement among Parent, the Company and its
Subsidiaries regarding tax sharing, tax reimbursement or tax indemnification.
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6.11 Financial Condition. (a) The audited consolidated financial
statements of Parent dated June 30, 1995, June 30, 1996 and June 30, 1997, and
the related consolidated statements of income or operations, shareholders'
equity and cash flows for the fiscal periods ended on such dates:
(i) were prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, except as otherwise expressly
noted therein;
(ii) present fairly the financial condition of Parent and its
Subsidiaries as of the dates thereof and results of operations for the
periods covered thereby; and
(iii) except as specifically disclosed in Schedule 6.11, show all
material indebtedness and other liabilities, direct or contingent, of
Parent and its Subsidiaries as of the date thereof, including
liabilities for taxes, material commitments and Contingent Obligations,
to the extent required by GAAP to be shown on such financial statements.
(b) The Company has furnished to each Agent and each Lender an
estimated consolidated pro forma balance sheet of Parent and its Subsidiaries as
of June 30, 1998 (giving effect to the Offering and the consummation of all
other transactions contemplated to occur on the Restatement Date, assuming all
such transactions had occurred on June 30, 1998), prepared by the Company and
certified by the Chief Financial Officer of the Company to fairly present, in
accordance with the assumptions set forth therein, the financial condition of
the Company on a pro forma basis as of such date.
(c) The Company has furnished to each Agent and each Lender the
financial projections included in the Company's Confidential Information
Memorandum dated April 1998 as provided to the Agent and the Lenders. Such
projections were prepared by the Company and its Subsidiaries in good faith on
the basis of information and assumptions that the Company and its senior
management believed to be reasonable as of the date of such projections and such
assumptions (as updated by the Company to the extent necessary) will be
reasonable as of the Restatement Date (it being understood that projections are
subject to significant uncertainties and contingencies, many of which are beyond
the Company's control, and that no assurance can be given that the projections
will be realized).
(d) Since March 31, 1998 there has been no Material Adverse
Effect.
6.12 Regulated Entities. None of Parent, the Company or any Subsidiary
is an "investment company" within the meaning of
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the Investment Company Act of 1940. None of Parent, the Company 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.
6.13 No Burdensome Restrictions. None of Parent, the Company 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.
6.14 Copyrights, Patents, Trademarks and Licenses, etc. The Company and
its 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 6.14, 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 the Company, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by the Company 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 6.5, no claim or litigation
regarding any of the foregoing is pending or threatened against the Company 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 the Company, pending or proposed,
which, in either case, would reasonably be expected to have a Material Adverse
Effect.
6.15 Subsidiaries. As of the Restatement Date, the Company has no
Subsidiaries other than those specifically disclosed in part (a) of Schedule
6.15 hereto and has no equity investments in any other corporation or entity
other than those specifically disclosed in part (b) of Schedule 6.15. As of the
Restatement Date, the Company has no Material Subsidiaries.
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6.16 Insurance. Except as specifically disclosed in Schedule 6.16, the
properties of the Company and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Company, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where the Company or such Subsidiary operates.
6.17 Solvency, etc. On the Restatement Date (or, in the case of any
Person that becomes a party to any Loan Document after the Restatement Date, on
the date such Person becomes such a party), and immediately prior to and after
giving effect to the Issuance of each Letter of Credit and each Borrowing
hereunder and the use of the proceeds thereof, (a) each of the Company, Parent
and each Material Subsidiary will not have an unreasonably small capital, (b)
each of the Company's, Parent's and each Material Subsidiary's assets will
exceed its liabilities, (c) each of the Company, Parent and each Material
Subsidiary will be solvent, will be able to pay its liabilities as they mature
and (d) both the fair value and fair saleable value of the assets of the
Company, Parent and each Material Subsidiary exceeds the liabilities,
respectively, of each of the Company, Parent and each Material Subsidiary.
6.18 Real Property. Set forth on Schedule 6.18 is a complete and
accurate list, as of the Restatement Date, of the address and legal description
of any real property owned by the Company or any Subsidiary.
6.19 Swap Obligations. Neither the Company nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations. The Company 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 counterparty or any Affiliate of any
swap counterparty in determining whether to enter into any Swap Contract.
6.20 Senior Indebtedness. The Company's obligation to pay the
Obligations, including interest thereon and all fees, costs, expenses and
indemnities related thereto, constitutes "Designated Senior Debt" of the Company
as such term is defined in the Subordinated Indenture. Parent's obligation to
pay its Guaranty Obligations under the Parent Guaranty constitutes "Guarantor
Senior Debt" of Parent as such term is defined in the Subordinated Indenture.
The Company acknowledges that the Lenders and the Administrative Agent have
entered into this Agreement, and have extended Commitments, in reliance upon the
subordination provisions in the Subordinated Notes and the
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Subordinated Indenture. If any Qualified Notes are outstanding, the foregoing
representation and warranty shall be deemed made with respect to Qualified Notes
and the related Qualified Indenture to the same extent made with respect to
Subordinated Notes and the Subordinated Indenture.
6.21 Environmental Warranties. Except as set forth in Schedule 6.21:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Company or any of its Subsidiaries 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;
(b) there are no pending or, to the best knowledge of the
Company, 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;
(c) there have been no Releases of Hazardous Materials at, on or
under any property now or, to the best of the Company's knowledge, previously
owned or leased by the Company or any of its Subsidiaries that, singly or in the
aggregate, have, or may reasonably be expected to have, a Material Adverse
Effect;
(d) the Company and its Subsidiaries have been issued and are in
compliance with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters and necessary 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;
(e) no property now or, to the best of the Company's knowledge,
previously owned or leased by the Company or any of its Subsidiaries is listed
or proposed for listing (with respect to owned property only) on the National
Priorities List pursuant to CERCLA, or, to the best of the Company'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
(f) to the best of the Company's knowledge, neither the Company
nor any Subsidiary of the Company has directly transported or directly arranged
for the transportation of any Hazardous Material to any location which is listed
or proposed for listing on the National Priorities List pursuant to CERCLA,
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or which is the subject of Federal, state or local enforcement actions or other
investigations which may lead to Environmental Claims against the Company or
such Subsidiary except, in each case, to the extent that the foregoing would not
reasonably be expected to have a Material Adverse Effect.
6.22 Year 2000. The Company has reviewed the areas within the business
and operations of the Company and each Subsidiary which could be adversely
affected by, and have developed or are developing programs to address on a
timely basis, the "Year 2000 Problem" (that is, the risk that computer
applications, as well as embedded microchips in non-computing devices, used by
the Company or any Subsidiary may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on such review and program, the Company reasonably
believes that the "Year 2000 Problem" will not result in a Material Adverse
Effect.
6.23 Full Disclosure. None of the representations or warranties made by
Parent, the Company or any Subsidiary in the Loan 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 Parent, the Company or any Subsidiary in connection with the
Loan 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 Parent, the Company and its Subsidiaries to
the Administrative Agent and the Lenders in connection with the Loan 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 the Company'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 the
Company believed to be reasonable as of the date such material was prepared (it
being understood that projections are subject to significant uncertainties and
contingencies, many of which are beyond the Company's control, and that no
assurance can be given that the projections will be realized).
6.24 Permitted Redemptions. (a) Upon the mailing of a notice of
redemption with respect to the Permitted Redemption of the Subordinated Notes in
accordance with the Subordinated Indenture and deposit of an amount equal to the
Subordinated Note Redemption Price for the Subordinated Notes to be redeemed in
the
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Permitted Redemption of the Subordinated Notes with the paying agent for the
Subordinated Notes on the Subordinated Note Redemption Date, interest on such
Subordinated Notes will cease to accrue and the sole right of the holders of
such Subordinated Notes shall be to receive payment of the Subordinated Note
Redemption Price plus accrued interest on such Subordinated Notes to the
Subordinated Note Redemption Date. The Subordinated Note Redemption Price will
not exceed 112.625% of the principal amount of the Subordinated Notes to be
redeemed in the Permitted Redemption of the Subordinated Notes.
(b) Upon the mailing of a notice of redemption with respect to
the Permitted Redemption of the Parent Discount Notes in accordance with the
Parent Discount Indenture and deposit of an amount equal to the Parent Discount
Note Redemption Price for the Parent Discount Notes to be redeemed in the
Permitted Redemption of the Parent Discount Notes with the paying agent for the
Parent Discount Notes on the Parent Discount Note Redemption Date, interest on
such Parent Discount Notes will cease to accrue and the sole right of the
holders of such Parent Discount Notes shall be to receive payment of the Parent
Discount Note Redemption Price plus accrued interest on such Parent Discount
Notes to the Parent Discount Note Redemption Date. The Parent Discount Note
Redemption Price will not exceed 112.50% of the principal amount of the Parent
Discount Notes to be redeemed in the Permitted Redemption of the Parent Discount
Notes.
(c) Dividends on the TPG Acquisition Preferred Stock will cease
to accrue from the Restatement Date and the sole right of the holders of TPG
Acquisition Preferred Stock is to receive payment of the Redemption Price (as
defined in the Certificate of Designations of Series A Cumulative Preferred
Stock of Parent governing the terms of the TPG Acquisition Preferred Stock). The
TPG Acquisition Preferred Stock Redemption Price will not exceed $43,500,000.
(d) At the time of consummation thereof, the Permitted
Redemptions shall have been consummated in all material respects in accordance
with applicable laws (including any stock exchange rules applicable thereto) and
the contracts, agreements and indentures applicable thereto.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Lenders waive compliance in
writing:
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7.1 Financial Statements. The Company shall deliver to the
Administrative Agent (which shall promptly provide copies to each Lender), in
form and detail satisfactory to the Required Lenders:
(a) 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
Parent 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 Parent 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 Parent's or any of its Subsidiary's records and (ii) a
comparison with the budget for such fiscal year;
(b) 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 Parent and its Subsidiaries as of the end of such month and the
related consolidated 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 the Company that each such statement fairly presents the
financial condition and results of operations (subject to normal year-end audit
adjustments) of Parent and its Subsidiaries and has been prepared in accordance
with GAAP consistently applied; and
(c) Not later than 60 days after the end of each fiscal year, a
copy of the projections of Parent of the consolidated operating budget and cash
flow budget of Parent 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
the Company to the effect that (i) such projections were prepared by the Company
in good faith, (ii) the Company has a reasonable basis for the assumptions
contained in such projections and (iii) such projections have been prepared
according to such assumptions.
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7.2 Certificates; Other Information. The Company shall furnish to the
Administrative Agent (and the Administrative Agent will promptly distribute
copies of the same to the Lenders):
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.1(a), 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;
(b) concurrently with the delivery of the financial statements
referred to in subsection 7.1(a) and each set of quarterly statements referred
to in subsection 7.1(b), a Compliance Certificate executed by a Responsible
Officer (it being understood that the Compliance Certificate to be delivered in
connection with the delivery of the audited financial statements as of the end
of the 1998 fiscal year shall be with respect to the covenants in the Existing
Credit Agreement);
(c) promptly, copies of all financial statements and regular,
periodic or special reports (including Forms 10K, 10Q and 8K) that Parent, the
Company or any Subsidiary may make to, or file with, the SEC;
(d) 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 the Company;
(e) forthwith upon any Qualified Refinancing or Qualified Parent
Refinancing, a copy of the related Qualified Indenture or Qualified Parent
Indenture, certified as true and correct by the Secretary or an Assistant
Secretary of the Company or Parent, as applicable;
(f) within 30 days of the end of each month, a Borrowing Base
Certificate dated as of the end of such month and executed by a Responsible
Officer (provided that (i) the Company may deliver a Borrowing Base Certificate
more frequently if it chooses and (ii) after an Event of Default shall have
occurred and be continuing, the Required Revolving Lenders may request that the
Company deliver Borrowing Base Certificates more frequently); and
(g) promptly, such additional information regarding the business,
financial or corporate affairs of Parent, the Company or any Subsidiary as the
Administrative Agent, at the request of any Lender, may from time to time
reasonably request.
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7.3 Notices. Promptly upon a Responsible Officer obtaining knowledge
thereof, the Company shall notify the Administrative Agent (and the
Administrative Agent will promptly distribute such notice to the Lenders) of:
(a) the occurrence of any Event of Default or Unmatured Event of
Default;
(b) any matter that has resulted or would reasonably be expected
to result in a Material Adverse Effect, including, if applicable, (i) any breach
or non-performance of, or any default under, a Contractual Obligation of the
Company or any Subsidiary, (ii) any dispute, litigation, investigation,
proceeding or suspension between the Company or any Subsidiary and any
Governmental Authority or (iii) the commencement of, or any material development
in, any litigation or proceeding affecting the Company or any Subsidiary;
(c) the occurrence of any of the following events affecting the
Company or any ERISA Affiliate (but in no event more than ten days after such
event), and deliver to the Administrative Agent (which shall promptly deliver to
each Lender a copy thereof) a copy of any notice with respect to such event that
is filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Company or any ERISA Affiliate with respect to
such event:
(i) an ERISA Event; or
(ii) a contribution failure with respect to a Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA;
(d) any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries;
(e) any Mandatory Prepayment Event;
(f) any proposed payment of principal of Subordinated Debt prior
to the making thereof; and
(g) upon the request from time to time of the Administrative
Agent, the Swap Termination Values, together with a description of the method by
which such values were determined, relating to any then-outstanding Swap
Contracts to which the Company or any of its Subsidiaries is party.
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 the
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Company or any affected Subsidiary proposes to take with respect thereto and at
what time. Each notice under subsection 7.3(a) shall describe with particularity
any and all clauses or provisions of this Agreement or any other Loan Document
that have been breached or violated.
7.4 Preservation of Corporate Existence, Etc. The Company shall, and
shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation except a Subsidiary need not be in compliance with the foregoing
to the extent such Subsidiary is sold pursuant to Section 8.2 or merged or
consolidated into another Person pursuant to Section 8.3;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises, in each case which are material and which are necessary or desirable
in the normal conduct of its business except in connection with transactions
permitted by Section 8.3 and dispositions of assets permitted by Section 8.2;
and
(c) preserve or renew all of its registered patents, copyrights,
trademarks, trade names and service marks, the non-preservation of which would
reasonably be expected to have a Material Adverse Effect.
7.5 Maintenance of Property. The Company shall, and shall cause each
Subsidiary to, maintain and preserve all property material to the normal conduct
of its business in good working order and condition, ordinary wear and tear
excepted, other than obsolete, worn out or surplus equipment.
7.6 Insurance. The Company shall, and shall cause each Subsidiary to,
maintain with financially sound and reputable independent insurers, insurance
with respect to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar business,
of such types and in such amounts as are customarily carried under similar
circumstances by such other Persons.
7.7 Payment of Obligations. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable,
unless the same are being contested in good faith by appropriate proceedings and
adequate reserves in accordance with GAAP are being maintained by the Company or
such Subsidiary in respect thereof, all of its obligations and liabilities,
including:
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(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets; and
(b) all lawful claims which, if unpaid, would by law become a
Lien upon its property.
7.8 Compliance with Laws. The Company shall, and shall cause each
Subsidiary to, comply in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.9 Compliance with ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other Federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records. The Company shall,
and shall cause each Subsidiary to, maintain proper books of record and account,
in which full, true and correct entries in conformity with GAAP consistently
applied shall be made of all financial transactions and matters involving the
assets and business of the Company and such Subsidiary. The Company shall
permit, and shall cause each Subsidiary to permit, representatives and
independent contractors of the Administrative Agent or any Lender (a) to visit
and inspect any of their respective properties, to examine their respective
corporate, financial and operating records, and to make copies thereof or
abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants and (b) to inspect any of their Inventory and equipment, to perform
appraisals of any of their equipment, and to inspect, audit, check and make
copies and/or extracts from the books, records, computer data and records,
computer programs, journals, orders, receipts, correspondence and other data
relating to Inventory, Accounts Receivable, contract rights, general
intangibles, equipment and any other Collateral, or relating to any other
transactions between the parties hereto; at such reasonable times during normal
business hours and as often as may be reasonably desired, upon reasonable
advance notice to the Company; provided, however, that when an Event of Default
exists, the Administrative Agent or any Lender may do any of the foregoing
without advance notice. After the occurrence and during the continuance of an
Event of Default, any such inspection shall be at the Company's expense.
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7.11 Interest Rate Protection. The Company shall either (i) maintain in
effect the interest rate protection agreements put in place in connection with
Section 7.11 of the Original Credit Agreement and Section 7.11 of the Existing
Credit Agreement for the remainder of their respective terms or (ii) enter into
one or more Permitted Swap Obligations in replacement of the Swap Obligations
referred to in clause (i) for a notional amount at least equal to the notional
amount of the Swap Obligations replaced, on terms no less favorable to the
Company than those pertaining to the Swap Obligations replaced, for a term at
least equal to the remaining terms of the Swap Obligations replaced, and on an
ISDA standard form with one or more Lenders or Affiliates thereof or with
counterparties reasonably acceptable to the Administrative Agent.
7.12 Environmental Covenant. The Company will, and will cause each of
its Subsidiaries to,
(a) use and operate all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance therewith, and
handle all Hazardous Materials in material compliance with all applicable
Environmental Laws;
(b) promptly notify the Administrative Agent and provide copies
of all written material Environmental Claims, and shall act in a diligent and
prudent fashion to address such Environmental Claims, including Environmental
Claims that allege that the Company or any of its Subsidiaries is not in
compliance with Environmental Laws; and
(c) provide such information and certifications which the
Administrative Agent may reasonably request from time to time to evidence
compliance with this Section 7.12.
7.13 Use of Proceeds. The Company shall use the proceeds of the Loans
and the Letters of Credit for working capital and other general corporate
purposes not in contravention of any Requirement of Law or of any Loan Document;
provided that Revolving Loans may be used to finance Acquisitions permitted in
accordance with subsection 8.4(i).
7.14 Further Assurances. (a) The Company shall, and shall cause each
Subsidiary to, execute, acknowledge, deliver, record, re-record, file, re-file,
register and re-register, any and all such further acts, deeds, conveyances,
security agreement, mortgages, assignments, estoppel certificates, financing
statements and continuations thereof, termination statements, notices of
assignment, transfers, certificates, assurances and
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other instruments the Administrative Agent or the Required Lenders, as the case
may be, may reasonably request from time to time in order (1) to ensure that (i)
the obligations of the Company hereunder and under the other Loan Documents are
secured by substantially all assets of the Company (provided, that unless
otherwise reasonably required by the Required Lenders, the pledge of the capital
stock of a Foreign Subsidiary shall be limited to 65% of the outstanding capital
stock of such Subsidiary) and guaranteed, pursuant to the Guaranties, by Parent
and all Domestic Subsidiaries that are Material Subsidiaries (including,
promptly upon the acquisition or creation thereof, any Material Subsidiary
created or acquired after the date hereof) and (ii) the obligations of the
Company under the Loan Documents are secured by substantially all of the assets
of Parent and each Domestic Subsidiary that is a Material Subsidiary (provided,
that unless reasonably required by the Required Lenders, the pledge of the
capital stock of a Foreign Subsidiary shall be limited to 65% of the outstanding
capital stock of such Subsidiary), (2) to perfect and maintain the validity,
effectiveness and priority of any of the Collateral Documents and the Liens
intended to be created thereby and (3) to better assure, convey, grant, assign,
transfer, preserve, protect and confirm to the Administrative Agent and the
Lenders the rights granted or now or hereafter intended to be granted to the
Administrative Agent and the Lenders under any Loan Documents or under any other
document executed in connection therewith. Contemporaneously with the execution
and delivery of any document referred to above, the Company shall, and shall
cause each Subsidiary to, deliver all resolutions, opinions and corporate
documents as the Administrative Agent or the Required Lenders may reasonably
request to confirm the enforceability of such document and the perfection of the
security interest created thereby, if applicable. The Company shall, and shall
cause its Subsidiaries to, use best efforts to obtain consents of landlords to
the granting of security interests in favor of the Administrative Agent for the
benefit of the Lender Parties in all leasehold interests of the Company or any
Subsidiary of real property that is used for distribution or warehousing and has
aggregate improvements of 100,000 square feet or greater and such other leased
properties as the Administrative Agent may reasonably request; provided,
however, that such best efforts obligation shall not require the Company or any
Subsidiary to make any payment of money or property.
(b) If at any time (x) there are Subsidiaries that are not
parties to the Subsidiary Security Agreement or the Subsidiary Guaranty and (y)
(i) the aggregate assets of such Subsidiaries exceed 5% of the consolidated
assets of the Company and its Subsidiaries, (ii) the aggregate revenues of such
Subsidiaries for any fiscal quarter exceed 5% of the consolidated revenues of
the Company and its Subsidiaries for such period or
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(iii) the aggregate investments of the Company and its other Subsidiaries in and
advances to such Subsidiaries exceed 5% of the consolidated assets of the
Company and its Subsidiaries, then the Company shall cause one or more
Subsidiaries that are not then parties to the Subsidiary Security Agreement
and/or the Subsidiary Guaranty to execute and deliver to the Administrative
Agent counterparts to such agreements and become parties thereto such that the
circumstances described in the foregoing clauses (y)(i), (y)(ii) and (y)(iii) do
not exist, and in connection with such execution and delivery the Company shall
cause to be delivered to the Administrative Agent such opinions of counsel and
other supporting documentation in respect thereof as the Administrative Agent
shall reasonably request.
(c) The Company shall cause each financial institution at which
Parent, the Company or any Domestic Subsidiary maintains any lockbox, deposit
account or other similar account to deliver to the Administrative Agent and the
Company a writing, in form and substance satisfactory to the Administrative
Agent, acknowledging and consenting to the security interest of the
Administrative Agent in such lockbox or account and all cash, checks, drafts and
other instruments or writings for the payment of money from time to time
therein, confirming such financial institution's agreement to follow the
instructions of the Administrative Agent with respect to all such cash, checks,
drafts and other instruments or writings for the payment of money following the
occurrence of any Event of Default or Unmatured Event of Default of the type
specified in subsection 9.1(f) or (g) and waiving all rights of setoff and
banker's lien on all items held in any such lockbox or account. With respect to
each of the accounts held at First State Bank Lake Lillian and listed on
Schedule V of the Security Agreement (Company and Parent), the Company shall not
be obligated to obtain an agreement from such bank covering such account and
satisfying the requirements of the immediately preceding sentence so long as the
amount in such account is less than $5,000; provided, however, that
notwithstanding the foregoing, upon the occurrence of an Event of Default or
Unmatured Event of Default or at the request of Administrative Agent, the
Company shall have 30 days to obtain an agreement covering each of the accounts
referred to in this sentence and satisfying the requirements of the immediately
preceding sentence.
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or
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unsatisfied, or any Letter of Credit shall remain outstanding, unless the
Required Lenders waive compliance in writing:
8.1 Limitation on Liens. The Company shall not, and shall not permit
Parent or any Subsidiary to, directly or indirectly, make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
Liens"):
(a) any Lien existing on property of the Company or any
Subsidiary on the Restatement Date and set forth on Schedule 8.1 securing
Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by Section 7.7, provided that no
notice of lien has been filed or recorded under the Code;
(d) growers', carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or which are being contested in good faith
and by appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on property of the Company or any Subsidiary securing
(i) the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) surety bonds (excluding
appeal bonds and other bonds posted in connection with court proceedings or
judgments) and (iii) other non-delinquent obligations of a like nature, in each
case, incurred in the ordinary course of business, provided that all such Liens
in the aggregate would not (even if enforced) cause a Material Adverse Effect;
(g) Liens consisting of judgment or judicial attachment Liens and
Liens securing contingent obligations on appeal bonds and other bonds posted in
connection with court proceedings or judgments, provided that the enforcement of
such Liens is effectively stayed;
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(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries;
(i) purchase money security interests on any property acquired by
the Company or any Subsidiary in the ordinary course of business, securing
Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such property, provided that (i) any such Lien attaches to
such property concurrently with or within 45 days after the acquisition thereof,
(ii) such Lien attaches solely to the property so acquired in such transaction,
(iii) the principal amount of the Indebtedness secured thereby does not exceed
100% of the cost of such property and (iv) the principal amount of the
Indebtedness secured by all such purchase money security interests shall not at
any time exceed $20,000,000;
(j) Liens securing obligations in respect of capital leases on
assets subject to such leases (and secured by only the assets subject to such
leases) (provided that such capital leases are otherwise permitted hereunder) or
Liens on property sold in a Sale/Leaseback Transaction provided that such Liens
shall cover only the property subject to such Sale/Leaseback Transaction and the
amount of Indebtedness secured thereby shall not exceed the fair market value of
the property sold;
(k) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution, provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the FRB and (ii) such deposit account is not intended by the Company or any
Subsidiary to provide collateral to the depository institution;
(l) Liens in connection with a Permitted Receivables Facility;
(m) Liens under Permitted Security Agreements;
(n) Liens securing Acquired Indebtedness permitted by subsection
8.5(k), provided that such Liens were in existence prior to the contemplation of
the related Acquisition and do not extend to any assets other than the property
financed with such Acquired Indebtedness;
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(o) Liens, defects and other matters specifically disclosed on
the title insurance policies delivered to and accepted by the Administrative
Agent on the Closing Date in connection with properties subjected to a Mortgage
on the Closing Date;
(p) extensions, renewals and replacements of Liens referred to in
clauses (a) through (o) above, provided that any such extension, renewal or
replacement Lien is limited to the property or assets covered by the Lien
extended, renewed or replaced and does not secure any Indebtedness in addition
to that secured immediately prior to such extension, renewal or replacement; and
(q) Liens securing other Indebtedness of the Company and its
Subsidiaries not expressly permitted by clauses (a) through (p) above; provided
that the aggregate amount of the Indebtedness secured by Liens permitted
pursuant to this clause (q) does not exceed $5,000,000 in the aggregate
outstanding at any time.
8.2 Disposition of Assets. The Company shall not, and shall not permit
any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer
or otherwise dispose of (whether in one or a series of transactions) any
property (including accounts and notes receivable, with or without recourse) or
enter into any agreement to do any of the foregoing, except:
(a) dispositions of Inventory, or worn-out or surplus equipment,
all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment, unless such equipment is not
needed in the Company's or such Subsidiary's business;
(c) transfers of Accounts Receivable under a Permitted
Receivables Facility;
(d) dispositions not otherwise permitted hereunder (including the
disposition of all of the capital stock of any operating Subsidiary by sale of
stock or by merger of such Subsidiary with or into another Person and including
a disposition pursuant to a sale and lease-back transaction) which are made for
fair market value if the fair market value of all assets so disposed of by the
Company and its Subsidiaries under this clause (d) does not exceed $25,000,000
in the aggregate; provided that (i) at the time of any disposition, no Event of
Default or Unmatured Event of Default shall exist or will result
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from such disposition, (ii) at least 75% of the consideration received by the
Company or such Subsidiary from such disposition is in cash or Cash Equivalent
Investments and (iii) the proceeds thereof are applied as provided in subsection
2.8(a);
(e) mergers expressly permitted by clauses (i) and (ii) of
Section 8.3 or transfers by any Wholly-Owned Subsidiary of the Company of its
assets upon its liquidation to the Company or any of its Wholly-Owned
Subsidiaries;
(f) dispositions (including by means of a Sale/Leaseback
Transaction) of Assets Held for Sale which are made for fair market value;
(g) dispositions of assets for not less than fair market value in
Sale/Leaseback Transactions permitted under Section 8.18 (provided that the fair
market value of all property sold pursuant to this clause (g) may not exceed
$25,000,000);
(h) dispositions by the Company of up to 49% of the equity
interests of the South American Joint Venture Subsidiary; and
(i) dispositions of assets not exceeding $2,000,000 in any fiscal
year for non-cash consideration.
8.3 Consolidations and Mergers. The Company shall not, and shall not
permit any Subsidiary to, merge or consolidate with or into any other Person,
except that (i) any Subsidiary may merge with the Company (provided that the
Company shall be the continuing or surviving corporation) or with any one or
more Wholly-Owned Subsidiaries (provided that a Wholly-Owned Subsidiary shall be
the continuing or surviving corporation), (ii) any Wholly-Owned Subsidiary may
acquire by merger any Person in an Acquisition permitted by subsection 8.4(i)
(provided that such Wholly-Owned Subsidiary is the survivor of such merger) and
(iii) any Subsidiary may be merged with or into any other Person in a
transaction permitted by subsection 8.2(d).
8.4 Loans and Investments. The Company shall not, and shall not permit
any Subsidiary to, purchase or acquire, or make any commitment to purchase or
acquire, any capital stock, equity interest or other obligations or securities
of, or any interest in, any other Person, or make or commit to make any
Acquisition, or make or commit to make any advance, loan, extension of credit or
capital contribution to or any other investment in, any other Person, except
for:
(a) investments in Cash Equivalent Investments;
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(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(c) investments by the Company in its Wholly-Owned Subsidiaries
or by any Subsidiary in any Wholly-Owned Subsidiary, in the form of
contributions to capital or loans or advances; provided that, immediately before
and after giving effect to such investment, no Event of Default or Unmatured
Event of Default shall have occurred and be continuing and the aggregate amount
invested in Foreign Subsidiaries after the Closing Date shall not exceed
$10,000,000;
(d) loans or advances made by any Subsidiary to the Company;
(e) loans and advances to employees in the ordinary course of
business (such as travel advances) in an aggregate amount not at any time
exceeding $5,000,000;
(f) investments by the Company and its Subsidiaries in Joint
Ventures in the form of contributions of capital, loans, advances or Contingent
Obligations; provided that, immediately before and after giving effect to such
investment, (x) no Event of Default or Unmatured Event of Default shall have
occurred and be continuing, including pursuant to Section 8.9, and (y) the
aggregate amount of all investments pursuant to this clause (f) (other than the
investment in the South American Joint Venture Subsidiary represented by the
contribution by the Company to the South American Joint Venture Subsidiary of an
amount equal to the purchase price of the Permitted South American Acquisition)
shall not exceed $20,000,000 in the aggregate (with all such investments valued
at the time of investment at the cash amount thereof, if in cash, the fair
market value thereof as determined by the board of directors of the Company, if
in property, and at the maximum amount thereof if in Contingent Obligations);
(g) investments constituting Permitted Swap Obligations or
payments or advances under Swap Contracts relating to Permitted Swap
Obligations;
(h) other investments in an aggregate amount not exceeding
$5,000,000 during the term of this Agreement (with all such investments valued
at the time of investment at the cash amount thereof, if in cash, the fair
market value thereof as determined by the board of directors of the Company, if
in property, and at the maximum amount thereof if in Contingent Obligations);
(i) Acquisitions, provided that
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(i) the Company shall have delivered to the
Administrative Agent evidence in form and substance satisfactory
to the Administrative Agent that the financial conditions
referred to in clause (ii) below with respect to such Acquisition
will be satisfied, together with a statement of a Responsible
Officer of the Company detailing all amounts required to
consummate the prospective Acquisition and a business description
and summary of terms of the prospective Acquisition,
(ii) the Company shall be in compliance with all
financial covenants in Sections 8.11, 8.12, 8.14 and 8.15 on a
pro forma basis for the period of four consecutive fiscal
quarters ending on the last day of the last completed fiscal
quarter immediately preceding the proposed date of consummation
of the prospective Acquisition (on the assumption such
Acquisition occurred on the first day of such four fiscal quarter
period and using historical results of the Company and its
Subsidiaries and the related Acquisition Prospect for such
period, without giving effect to any adjustment for expected cost
savings or other synergies),
(iii) such Acquisition shall be consummated in accordance
with all Requirements of Law and the Company and its Subsidiaries
shall have obtained all consents and approvals necessary or
desirable to such consummation and the business operations of
such Acquisition Prospect after such Acquisition, including
governmental and contractual approvals,
(iv) no Event of Default or Unmatured Event of Default
shall exist at the time of consummation thereof or would result
therefrom,
(v) the Person to be acquired (or its Board of Directors
or equivalent governing body) has not (A) announced it will
oppose such Acquisition or (B) commenced any action which alleges
that such Acquisition violates, or will violate, any Requirement
of Law, and
(vi) the total consideration for all such Acquisitions
(including cash and noncash purchase price, liabilities assumed,
deferred or financed purchase price, purchase price characterized
as noncompetition payments and the like), together with the
amount of all investments made pursuant to subsection 8.4(j),
does not exceed in the aggregate
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during the term of this Agreement an amount equal to the sum of
(x) $150,000,000 plus (y) an amount equal to the aggregate
amount received by the Company as capital contributions from
Parent after the Closing Date (provided, that the consideration
paid in the Permitted South American Acquisition shall be
disregarded from the foregoing limitation); and
(j) investments in Subsidiaries acquired in Acquisitions
permitted under subsection 8.4(i) that are not Wholly-Owned Subsidiaries,
provided that the amount of all such investments, together with the aggregate
total consideration paid in connection with all Acquisitions permitted by
subsection 8.4(i) (calculated in the manner set forth in subsection 8.4(i)(vi)),
does not exceed in the aggregate during the term of this Agreement an amount
equal to the sum of (x) $150,000,000 plus (y) an amount equal to the aggregate
amount received by the Company as capital contributions from Parent after the
Closing Date.
8.5 Limitation on Indebtedness. The Company shall not, and shall not
permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise
become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement, the
Subsidiary Guaranty and the other Loan Documents;
(b) the Subordinated Notes and the Exchange Notes and any
Qualified Notes issued in a Qualified Refinancing and related Guaranty
Obligations by Subsidiaries of the Company;
(c) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 8.8;
(d) Indebtedness existing on the Restatement Date, as set forth
in Schedule 8.5(d), and extensions, renewals or replacements of such
Indebtedness to the extent that the principal amount of such Indebtedness is not
increased;
(e) Indebtedness of Subsidiaries to the Company or Wholly-Owned
Subsidiaries; provided, that the aggregate amount of all such Indebtedness of
Foreign Subsidiaries and other investments by the Company and its Subsidiaries
in Foreign Subsidiaries shall not exceed $25,000,000;
(f) Indebtedness up to $20,000,000 outstanding at any time
secured by Liens permitted by subsection 8.1(i);
(g) Indebtedness incurred in connection with leases permitted
pursuant to Section 8.10;
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(h) Indebtedness of the Company or any Subsidiary of the Company
in connection with guaranties resulting from endorsement of negotiable
instruments in the ordinary course of business;
(i) surety bonds and appeal bonds required in the ordinary course
of business or in connection with the enforcement of rights or claims of the
Company or in connection with judgments that do not result in an Unmatured Event
of Default or an Event of Default;
(j) any Indebtedness arising under a Permitted Receivables
Facility;
(k) up to $40,000,000 of Acquired Indebtedness assumed in
Acquisitions permitted under subsection 8.4(i);
(l) Indebtedness incurred in a Sale/Leaseback Transaction
permitted under Section 8.18; and
(m) other Indebtedness in an aggregate amount not at any time
exceeding $5,000,000.
It is understood that any Indebtedness borrowed in a foreign currency shall
continue to be permitted under this Section, notwithstanding any fluctuation in
the Dollar Amount of such Indebtedness, as long as the outstanding principal
balance of such Indebtedness (denominated in its original currency) does not
exceed the maximum amount of such Indebtedness (denominated in such currency)
permitted to be outstanding on the date such Indebtedness was incurred.
8.6 Transactions with Affiliates. The Company shall not, and shall not
permit any Subsidiary to, enter into any transaction with any Affiliate of the
Company (other than a Material Subsidiary), except upon fair and reasonable
terms no less favorable to the Company or such Subsidiary than would be
obtainable in a comparable arm's-length transaction with a Person not an
Affiliate of the Company; provided that the TPG Agreements and the Tax Sharing
Agreement shall not violate this Section.
8.7 Use of Proceeds. The Company shall not, and shall not permit any
Subsidiary to, use any portion of the proceeds of any Loan or any Letter of
Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance indebtedness of the Company or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock or (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.
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8.8 Contingent Obligations. The Company shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any Contingent
Obligation except:
(a) endorsements for collection or deposit in the ordinary course
of business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in Schedule 8.8 and Guaranty
Obligations by the Company relating to Indebtedness of Wholly-Owned
Subsidiaries, provided, that all Contingent Obligations permitted by this
subsection 8.8(c) shall not exceed $10,000,000 at any one time;
(d) Contingent Obligations arising under the Loan Documents;
(e) Guaranty Obligations with respect to or constituting
obligations of the Company or a Wholly-Owned Subsidiary that are permitted by
the Loan Documents; and
(f) Contingent Obligations with respect to Joint Ventures to the
extent permitted by Section 8.9.
8.9 Joint Ventures. The Company shall not, and shall not permit any
Subsidiary to, enter into any Joint Venture, except that the Company or any
Subsidiary may enter into any Joint Venture so long as the aggregate amount
invested by the Company and its Subsidiaries in all Joint Ventures in any form
(including by capital contribution, incurrence of Indebtedness by any such Joint
Venture to the Company or any Subsidiary or the incurrence of Contingent
Obligations by the Company or any Subsidiary with respect to any such Joint
Venture), during the term of this Agreement does not exceed $20,000,000;
provided, however, that for purposes of determining the aggregate amount
invested in Joint Ventures hereunder (i) (x) any return of principal or equity
received in cash on any amount invested hereunder and (y) the fair market value
of any other property received in exchange for any amount invested hereunder
shall be deducted and (ii) the initial investment in the South American Joint
Venture Subsidiary shall be disregarded.
8.10 Lease Obligations. The Company shall not, and shall not permit any
Subsidiary to, create or suffer to exist any obligations for the payment of rent
for any property under lease or agreement to lease, except for:
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(a) leases of the Company and its Subsidiaries in existence on
the Closing Date and any renewal, extension or refinancing thereof;
(b) operating leases entered into by the Company or any
Subsidiary after the Closing Date in the ordinary course of business;
(c) capital leases entered into by the Company or any Subsidiary;
provided that no Event of Default or Unmatured Event of Default has occurred and
is continuing or will result from the incurrence of the obligations contemplated
thereby; and
(d) operating leases entered into by the Company or any
Subsidiary in connection with any Sale/Leaseback Transaction permitted under
Section 8.18; provided that no Event of Default or Unmatured Event of Default
has occurred and is continuing or will result from the incurrence of the
obligations contemplated thereby.
8.11 Minimum Fixed Charge Coverage. The Company will not permit the
Fixed Charge Coverage Ratio for any Computation Period to be less than the ratio
set forth below opposite the period in which such Computation Period ends:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
9/30/98 - 3/26/00 1.75:1.0
6/30/00 - 4/01/01 1.80:1.0
6/30/01 - 3/31/02 1.90:1.0
6/30/02 and thereafter 2.00:1.0.
</TABLE>
8.12 Minimum Adjusted Net Worth. The Company will not permit at any time
(i) Net Worth at such time plus Subordinated Debt Proceeds at such time plus
$300,000,000, to be less than (ii) (a) $200,000,000, plus (b) 80% of cumulative
Consolidated Net Income of Parent for the period beginning on the Closing Date
and ending on the date of calculation (provided that if Consolidated Net Income
is less than zero for any fiscal year, or for the completed portion of the
then-current fiscal year, Consolidated Net Income for such fiscal year or
portion shall be deemed to be zero); provided that no Event of Default shall
arise by reason of clause (i) above being less than clause (ii) above if, within
ten days of the occurrence of any such deficiency, Parent receives a capital
contribution from its shareholders at least equal to the amount of such
deficiency and Parent in turn makes a capital contribution of such amount to the
Company.
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8.13 Maximum Senior Debt Ratio. The Company will not permit the Senior
Debt Ratio for any Computation Period to exceed the ratio set forth below
opposite the period in which such Computation Period ends:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
9/30/98 - 3/28/99 4.25:1.0
6/30/99 - 3/26/00 4.00:1.0
6/30/00 - 4/01/01 3.75:1.0
6/30/01 - 3/31/02 3.50:1.0
6/30/02 and thereafter 3.00:1.0.
</TABLE>
8.14 Maximum Total Debt Ratio. The Company will not permit the Total
Debt Ratio on the last day of any fiscal year to exceed the ratio set forth
below opposite such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Ending Ratio
------------------ -----
<S> <C>
6/30/99 4.75:1.0
6/30/00 4.50:1.0
6/30/01 4.25:1.0
6/30/02 and each fiscal
year thereafter 4.00:1.0.
</TABLE>
8.15 Maximum Capital Expenditures. The Company will not permit the
aggregate amount of all Capital Expenditures made by the Company and its
Subsidiaries for any fiscal year to exceed the amount set forth below opposite
such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
ending 6/30/98 $45,000,000
ending 6/30/99 $55,000,000
ending 6/30/00 $65,000,000
ending 6/30/01 and each fiscal
year thereafter $40,000,000;
</TABLE>
provided, however, that to the extent Capital Expenditures actually made in any
fiscal year are less than the amount permitted to be made in such fiscal year
(without giving effect to any carryforward), the lesser of (x) the amount of the
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difference and (y) 50% of the amount of Capital Expenditures permitted to be
made in such year as set forth in the table above may be carried forward and
used to make Capital Expenditures in the next succeeding fiscal year; provided,
further, however, that in any period the Company and its Subsidiaries may only
use a carryforward to such period if the entire amount set forth in the table
above for such period has been utilized.
8.16 Restricted Payments. The Company shall not, and shall not permit
any Subsidiary to, (1) declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding, or (2)
make any redemptions, prepayments, defeasances or repurchases of any
Subordinated Debt except that:
(a) any Subsidiary may declare and pay dividends to the Company
or a Wholly-Owned Subsidiary;
(b) the Company may declare and make dividend payments or other
distributions payable solely in Common Stock;
(c) the Subordinated Notes may be exchanged for the Exchange
Notes pursuant to the terms of the Subordinated Note Purchase Agreement and the
Exchange Notes or the Subordinated Notes may be repaid using the Net Cash
Proceeds of a Qualified Refinancing;
(d) the Company or any of its Subsidiaries may purchase (or may
pay a dividend to Parent to enable Parent to purchase) (i) capital stock or
options with respect to capital stock held by employees or management of Parent
or any of its Subsidiaries in connection with the termination of employment of
any such employees or management and (ii) capital stock for the purpose of
holding such capital stock for future issuance under an employee stock plan,
provided that all such payments in the aggregate for clauses (i) and (ii) do not
exceed $10,000,000 in any fiscal year or $15,000,000 in the aggregate;
(e) on or prior to the 60th day following the Restatement Date,
the Company may make the Permitted Redemption of the Subordinated Notes and may
make dividends to Parent to enable Parent to make the Permitted Redemption of
the Parent Discount Notes, in each case out of funds in the Cash Collateral
Account or with borrowings of Revolving Loans attributable to the second proviso
to subsection 2.1(c);
(f) so long as no Event of Default or Unmatured Event of Default
has occurred and is continuing or would result
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therefrom, the Company may pay a dividend to Parent not more than 10 days in
advance of June 15 and December 15 of each year commencing in 2003, with each
such dividend to be in an amount no greater than the amount Parent is required
to pay in respect of the next scheduled payment of cash interest on the Parent
Discount Notes; provided, that the Company may not pay any dividends pursuant to
this clause (f) if, after giving effect thereto (as well as to all dividends
made under clause (g) below), the Company's pro forma Senior Debt Ratio for the
last four full fiscal quarters immediately preceding the date of such dividend
(determined as if all such dividends had been made on the first day of such
period), would be less than 2.50:1;
(g) so long as no Event of Default or Unmatured Event of Default
has occurred and is continuing or would result therefrom, the Company may pay
dividends to Parent; provided, that the Company may not pay any dividends
pursuant to this clause (g) if, after giving effect thereto (as well as to all
dividends made under clause (f) above), the Company's pro forma Senior Debt
Ratio for the last four fiscal quarters immediately preceding the date of such
dividend (determined as if such all dividends had been made on the first day of
such period), would be less than 1.50:1;
(h) the Company may make payments to Parent at the times and in
the amounts provided in the Tax Sharing Agreement;
(i) the Company may make payments to TPG Partners of fees and
expenses at the times and in the amounts provided in the TPG Agreements; and
(j) the Company may make payments to Parent in amounts not to
exceed $1,000,000 per fiscal year to reimburse Parent for expenses incurred by
Parent in the ordinary course of business.
8.17 ERISA. The Company shall not, and shall not permit any of its ERISA
Affiliates to: (a) engage in a 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; or (b)
engage in a transaction that could reasonably be expected to be subject to
Section 4069 or 4212(c) of ERISA.
8.18 Limitations on Sale and Leaseback Transactions. The Company shall
not, and shall not permit any Subsidiary to, enter into any arrangement with any
Person providing for the leasing by the Company or any Subsidiary of any real or
personal property, which property is or has been sold or transferred by the
Company or any Subsidiary to such Person in contemplation of taking back a lease
thereof (a "Sale/Leaseback Transaction") other than
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Sale/Leaseback Transactions in compliance with subsection 8.1 (j), subsection
8.2 (f) or (g), subsection 8.5 (l) and Section 8.10.
8.19 Limitation on Restriction of Subsidiary Dividends and
Distributions. The Company will not, and will not permit any Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary to (a)
pay dividends or make other distributions on its capital stock owned by the
Company or any Subsidiary, or pay any Indebtedness owed to the Company or any
Subsidiary, (b) make loans or advances to the Company or (c) transfer any of its
assets or properties to the Company, except for such encumbrances or
restrictions existing by reason of or under (i) applicable law, (ii) this
Agreement and the other Loan Documents, (iii) customary non- assignment
provisions of any contract or lease governing a leasehold or ownership interest
of any Subsidiary, (iv) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or assets of the
Person so acquired, (v) customary net worth provisions contained in leases and
other agreements entered into by a Subsidiary in the ordinary course of
business, (vi) customary restrictions with respect to a Subsidiary pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the capital stock of such Subsidiaries, (vii) customary
provisions in joint venture agreements and other similar agreements relating
solely to the securities, assets and revenues of such joint venture or other
business venture and (viii) an agreement governing Indebtedness incurred to
refinance the Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (iv) above; provided, however, that the provisions
relating to such encumbrance or restriction contained in any such Indebtedness
are not, in the aggregate, materially less favorable to the Company as
determined by the Board of Directors of the Company in its reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in the agreements referred to in such clause (iv).
8.20 Inconsistent Agreements. The Company will not, and will not permit
any Subsidiary to, enter into any agreement containing any provision which would
be violated or breached by any borrowing by the Company hereunder or by the
performance by the Company or any Subsidiary of their respective obligations
hereunder or under any other Loan Document. The Company will not, and will not
permit any of its Subsidiaries to, enter into any agreement (other than this
Agreement and the other Loan Documents) prohibiting the creation or assumption
of any Lien upon its properties, revenues or assets, whether now owned or
hereafter acquired, or the ability of the Company and its
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Subsidiaries to amend or modify this Agreement or any other Loan Document.
8.21 Change in Business. The Company shall not, and shall not permit any
Subsidiary to, engage in any material business other than production, processing
and related distribution of food and beverage products and other related
businesses.
8.22 Amendments to Certain Documents. The Company and Parent shall not
make or agree to any amendment to or modification of, or waive any of its rights
under, any of the terms of (a) the Merger Agreement, (b) the Subordinated Note
Purchase Agreement, (c) the Subordinated Indenture, (d) any Qualified Indenture,
(d) any other instrument evidencing Subordinated Debt, (e) the Tax Sharing
Agreement, (f) the TPG Agreements, (g) any Qualified Parent Indenture or the
Parent Discount Indenture or (h) any other instrument evidencing Qualified
Parent Notes or Parent Discount Notes, unless any such amendment, modification
or waiver is not adverse in any respect to the Lenders.
8.23 Fiscal Year. The Company shall not, and shall not permit the Parent
or any Subsidiary to, change the fiscal year of the Company or of any
Subsidiary; provided, that any Subsidiary acquired in an Acquisition permitted
hereunder may change its fiscal year to end on June 30.
8.24 Limitation on Issuance of Guaranty Obligations. The Company will
not permit any Subsidiary to create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to any
Guaranty Obligation of such Subsidiary relating to any Indebtedness of the
Company unless
(i) such Subsidiary, if it is not already a party to the
Subsidiary Guaranty, simultaneously executes and delivers to the
Administrative Agent a counterpart to the Subsidiary Guaranty, together
with such supporting documentation as the Administrative Agent may
reasonably request, notwithstanding Section 7.14,
(ii) if such Indebtedness is by its terms subordinated to the
Obligations, any such assumption, guaranty or other liability of such
Subsidiary with respect to such Indebtedness shall be subordinated, in
form and substance satisfactory to the Administrative Agent, to such
Subsidiary's Guaranty Obligation with respect to the Obligations to the
same extent as such Indebtedness is subordinated to the Obligations
(provided that such Subsidiary's Guaranty Obligation of such
Indebtedness of the Company shall be subordinated to the full amount of
such Subsidiary's Guaranty Obligation under the Subsidiary
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Guaranty without giving effect to any reduction thereto necessary to
render the Guaranty Obligation of such Subsidiary thereunder not
voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer), and
(iii) such Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any right of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Subsidiary as a result of any payment by such
Subsidiary under such Guaranty Obligation unless and until payment in
full in cash is made of such Indebtedness of the Company.
ARTICLE IX
EVENTS OF DEFAULT
9.1 Event of Default. Any of the following shall constitute an "Event of
Default":
(a) Non-Payment. The Company fails to pay, when and as required
to be paid herein, any amount of principal of any Loan or of any L/C Obligation,
or, within three days after the same becomes due, any amount of interest or any
fees or other amounts payable hereunder or under any other Loan Document.
(b) Representation or Warranty. Any representation or warranty by
Parent, the Company or any Subsidiary made or deemed made herein or in any other
Loan Document, or which is contained in any certificate, document or financial
or other statement by Parent, the Company, any Subsidiary or any Responsible
Officer furnished at any time under this Agreement or any other Loan Document,
is incorrect in any material respect on or as of the date made or deemed made.
(c) Specific Defaults. The Company fails to perform or observe
any term, covenant or agreement contained in any of Section 7.3 or Article VIII
(other than Section 8.1, 8.5, 8.6, 8.16(1) or 8.18).
(d) Other Defaults. The Company fails to perform or observe any
term or covenant contained in Section 8.1, 8.5, 8.6, 8.16(1) or 8.18 (or the
Parent shall fail to perform its agreement in the Parent Guaranty to comply with
Section 8.1), and such default shall continue unremedied for a period of 10 days
after the earlier of (i) the date upon which a Responsible Officer knew or
reasonably should have known of such failure or (ii) the date upon which written
notice thereof is given to the Company by the Administrative Agent or any
Lender; or the
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Company, Parent or any Subsidiary fails to perform or observe any term or
covenant contained in this Agreement (other than Section 7.3 or Article VIII) or
any other Loan Document, and such default shall continue unremedied for a period
of 30 days after the earlier of (x) the date upon which a Responsible Officer
knew or reasonably should have known of such failure or (y) the date upon which
written notice thereof is given to the Company by the Administrative Agent or
any Lender.
(e) Cross-Default. (i) The Company, Parent or any Subsidiary (A)
fails to make any payment in respect of any Indebtedness or Contingent
Obligation (other than in respect of Swap Contracts) having an aggregate
principal amount (including undrawn committed or available amounts and including
amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $10,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise but subject to any
applicable grace period) or (B) fails to perform or observe any other condition
or covenant, or any other event shall occur or condition shall exist, under any
agreement or instrument relating to any such Indebtedness or Contingent
Obligation, if the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause, such Indebtedness
to be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable, or cash collateral in respect thereof
to be demanded or (ii) there occurs under any Swap Contract an Early Termination
Date (as defined in such Swap Contract) resulting from (A) any event of default
under such Swap Contract as to which the Company or any Subsidiary is the
Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event
(as so defined) as to which the Company or any Subsidiary is an Affected Party
(as so defined), and, in either event, the Swap Termination Value owed by the
Company or such Subsidiary as a result thereof is greater than $5,000,000.
(f) Insolvency; Voluntary Proceedings. The Company, Parent or any
Material Subsidiary: (i) ceases or fails to be solvent, or generally fails to
pay, or admits in writing its inability to pay, its debts as they become due;
(ii) voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing.
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company, Parent or any Material
Subsidiary, or any writ, judgment, warrant of attachment, warrant of execution
or similar process is issued
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or levied against a substantial part of the Company's, Parent's or any Material
Subsidiary's properties, and such proceeding or petition shall not be dismissed,
or such writ, judgment, warrant of attachment, warrant of execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Company, Parent or any Material
Subsidiary admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) the Company, Parent or
any Material Subsidiary acquiesces in the appointment of a receiver, trustee,
custodian, conservator, liquidator, mortgagee in possession (or agent therefor)
or other similar Person for itself or a substantial portion of its property or
business.
(h) ERISA. (i) One or more ERISA Events shall occur with respect
to a Pension Plan or Multiemployer Plan which has resulted or could reasonably
be expected to result in liability of the Company under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$10,000,000; (ii) a contribution failure shall have occurred with respect to a
Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; or
(iii) the Company or any ERISA Affiliate shall fail to pay when due, after the
expiration of any applicable grace period, one or more installment payments with
respect to its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan which results in an aggregate withdrawal liability in excess
of $10,000,000.
(i) Monetary Judgments. One or more judgments, orders, decrees or
arbitration awards is entered against the Company, Parent or any Subsidiary
involving in the aggregate a liability (to the extent not covered by independent
third-party insurance as to which the insurer does not dispute coverage), as to
any single or related series of transactions, incidents or conditions, of
$10,000,000 or more, and the same shall remain undischarged, unvacated and
unstayed pending appeal for a period of 30 days after the entry thereof, or the
Company, Parent or any Subsidiary shall enter into any agreement to settle or
compromise any pending or threatened litigation, as to any single or related
series of claims, involving payment by the Company, Parent or any Subsidiary of
$10,000,000 or more.
(j) Non-Monetary Judgments. Any non-monetary judgment, order or
decree is entered against the Company, Parent or any Subsidiary which has or
would reasonably be expected to have a Material Adverse Effect, and there shall
be any period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect.
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(k) Change of Control. Any Change of Control occurs.
(l) Guarantor Defaults. Any Guaranty shall cease to be in full
force and effect with respect to any Guarantor (other than as expressly
permitted hereunder), or any Guarantor (or any Person acting by, through or on
behalf of such Guarantor) shall contest in any manner the validity, binding
nature or enforceability of any Guaranty with respect to such Guarantor.
(m) Collateral Documents, etc. Any Collateral Document shall
cease to be in full force and effect with respect to the Company, Parent or any
Subsidiary (other than pursuant to its terms or as expressly permitted
hereunder), or the Company, Parent or any Subsidiary (or any Person acting by,
through or on behalf of the Company, Parent or any Subsidiary) shall contest in
any manner the validity, binding nature or enforceability of any Collateral
Document.
9.2 Remedies. If any Event of Default occurs, the Administrative Agent
shall, at the request of, or may, with the consent of, the Required Lenders do
any or all of the following:
(a) declare the commitment of each Lender to make Loans and any
obligation of the Issuing Lender to Issue Letters of Credit to be terminated,
whereupon such commitments and obligations shall be terminated (provided, that
if any Event of Default occurs after the making of the Term Loans, the Revolving
Commitments shall, at the request of, or may, with the consent of, the Required
Revolving Lenders (and not the Required Lenders), be terminated);
(b) declare an amount equal to the maximum aggregate amount that
is or at any time thereafter may become available for drawing under any
outstanding Letter of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letter of Credit) to be immediately due
and payable, and declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Lenders all rights and
remedies available to it and the Lenders under the Loan Documents or applicable
law;
provided, however, that upon the occurrence of any Event of Default specified in
subsection 9.1(f) or (g), the obligation of each Lender to make Loans and the
obligation of the Issuing
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Lender to Issue Letters of Credit shall automatically terminate and the unpaid
principal amount of all outstanding Loans and all interest and other amounts as
aforesaid shall automatically become due and payable without further act of the
Administrative Agent, the Issuing Lender or any other Lender.
9.3 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE X
THE AGENTS
10.1 Appointment and Authorization. (a) Each Lender hereby irrevocably
(subject to Section 10.9) appoints, designates and authorizes the Administrative
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Each Lender hereby appoints BTCo. as Documentation Agent for the Lenders and ABN
Amro Bank, N.V., The Bank of Nova Scotia, Citicorp USA, Inc., The First National
Bank of Chicago, General Electric Capital Corporation, Harris Trust & Savings
Bank and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., New York Branch,
as Co-Agents for the Lenders. The Documentation Agent and the Co-Agents, in
their capacities as such, shall have no rights or duties hereunder or under any
other Loan Document. Notwithstanding any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document, the Administrative
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, nor shall the Administrative Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent. Without limiting the generality of the foregoing sentence,
the use of the term "agent" in this Agreement and in the other Loan Documents
with reference to the Administrative Agent is not intended to connote any
fiduciary or other implied (or express) obligation arising under agency doctrine
of any applicable law. Instead, such term is used merely as a matter of market
custom, and is intended to create or reflect only an administrative relationship
between independent contracting parties.
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(b) The Issuing Lender shall act on behalf of the Lenders with
respect to any Letters of Credit Issued by it and the documents associated
therewith until such time and except for so long as the Administrative Agent may
agree at the request of the Required Lenders to act for the Issuing Lender with
respect thereto; provided, however, that the Issuing Lender shall have all of
the benefits and immunities (i) provided to the Administrative Agent in this
Article X with respect to any acts taken or omissions suffered by the Issuing
Lender in connection with Letters of Credit Issued by it or proposed to be
Issued by it and the applications and agreements for letters of credit
pertaining to the Letters of Credit as fully as if the term "Administrative
Agent", as used in this Article X, included the Issuing Lender with respect to
such acts or omissions and (ii) as additionally provided in this Agreement with
respect to the Issuing Lender.
10.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
10.3 Liability of Administrative Agent. None of the Agent-Related
Persons shall (a) be liable to any Lender for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct) or (b) be responsible in any manner to any of
the Lenders for any recital, statement, representation or warranty made by the
Company or any Subsidiary or Affiliate of the Company, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or the existence, creation, validity, attachment, perfection,
enforceability, value or sufficiency of any collateral security for the
Obligations or for any failure of the Company or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Company or any of the Company's Subsidiaries
or Affiliates.
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10.4 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Company), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a request or
consent of the Required Lenders and such request and any action taken or failure
to act pursuant thereto shall be binding upon all of the Lenders.
10.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Event of Default or Unmatured
Event of Default, except with respect to defaults in the payment of principal,
interest and fees required to be paid to the Administrative Agent for the
account of the Lenders, unless the Administrative Agent shall have received
written notice from a Lender or the Company referring to this Agreement,
describing such Event of Default or Unmatured Event of Default and stating that
such notice is a "notice of default". The Administrative Agent will notify the
Lenders of its receipt of any such notice. The Administrative Agent shall take
such action with respect to such Event of Default or Unmatured Event of Default
as may be requested by the Required Lenders in accordance with Article IX;
provided, however, that unless and until the Administrative Agent has received
any such request, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such Event
of Default or Unmatured Event of Default as it shall deem advisable or in the
best interest of the Lenders.
10.6 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Administrative Agent hereafter taken, including any review of the
affairs of the Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any
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Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Company and
its Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Company hereunder. Each Lender also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Company. Except for notices,
reports and other documents expressly herein required to be furnished to the
Lenders by the Administrative Agent, the Administrative Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of the Company which may come into the
possession of any of the Agent-Related Persons.
10.7 Indemnification of Agents. Whether or not the transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agents and the Agent-Related Persons (to the extent not reimbursed by or on
behalf of the Company and without limiting the obligation of the Company to do
so), pro rata, from and against any and all Indemnified Liabilities incurred by
the Agents or the Agent-Related Persons in their capacities as such; provided,
however, that no Lender shall be liable for the payment to any Agent or
Agent-Related Person of any portion of the Indemnified Liabilities resulting
from such Person's gross negligence or willful misconduct. Without limitation of
the foregoing, to the extent the same are not reimbursed by the Company, each
Lender shall reimburse each Agent upon demand for its ratable share of any costs
or out-of-pocket expenses (including Attorney Costs) incurred by such Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that such Agent is not
reimbursed for such expenses by or on behalf of the Company. The undertaking in
this Section shall survive the
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payment of all Obligations hereunder and the resignation or replacement of any
Agent.
10.8 Administrative Agent in Individual Capacity. BofA and its
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with the
Company and its Subsidiaries and Affiliates as though BofA were not the
Administrative Agent hereunder and without notice to or consent of the Lenders.
The Lenders acknowledge that, pursuant to such activities, BofA or its
Affiliates may receive information regarding the Company or its Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Company or such Affiliates) and acknowledge that the Administrative
Agent shall be under no obligation to provide such information to them. With
respect to its Loans, BofA and any Affiliate thereof shall have the same rights
and powers under this Agreement as any other Lender and may exercise the same as
though BofA were not the Administrative Agent.
10.9 Successor Administrative Agent. The Administrative Agent may, and
at the request of the Required Lenders shall, resign as Administrative Agent
upon 30 days' notice to the Lenders and the Company. If the Administrative Agent
resigns under this Agreement, the Required Lenders shall have the right, with
the consent of the Company so long as no Event of Default or Unmatured Event of
Default has occurred and is continuing (which consent shall not be unreasonably
withheld or delayed), to appoint from among the Lenders a successor agent for
the Lenders. If no successor agent is appointed prior to the effective date of
the resignation of the Administrative Agent, the Administrative Agent may
appoint, after consulting with the Lenders and the Company, a successor agent
from among the Lenders. Upon the acceptance of its appointment as successor
agent hereunder, such successor agent shall succeed to all the rights, powers
and duties of the retiring Administrative Agent and the term "Administrative
Agent" shall mean such successor agent and the retiring Administrative Agent's
appointment, powers and duties as Administrative Agent shall be terminated.
After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article X and Sections 11.4 and
11.5 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Administrative Agent under this Agreement. If no successor
agent has accepted appointment as Administrative Agent by the date which is 30
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Required Lenders appoint a
successor agent as
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provided for above. Notwithstanding the foregoing, however, BofA may not be
removed as the Administrative Agent at the request of the Required Lenders
unless BofA and any Affiliate thereof acting as the Issuing Lender or Swingline
Lender hereunder shall also simultaneously be replaced as the Issuing Lender and
Swingline Lender pursuant to documentation in form and substance reasonably
satisfactory to BofA (and, if applicable, such Affiliate).
10.10 Withholding Tax. (a) If any Lender is not a "U.S person" within
the meaning of the Code, such Lender shall deliver to the Administrative Agent
and the Company either:
(i) properly completed IRS Form 1001 certifying that such Lender
is entitled to benefits under an income tax treaty to which the United
States is a party that reduces the rate of withholding tax on interest
to zero before the payment of any interest in the first calendar year
and before the payment of any interest in each third succeeding calendar
year during which interest may be paid under this Agreement;
(ii) two properly completed and executed copies of IRS Form 4224
certifying that income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the
United States before the payment of any interest is due in the first
taxable year of such Lender and in each succeeding taxable year of such
Lender during which interest may be paid under this Agreement, and IRS
Form W-9; or
(iii) if such Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224, such Lender shall deliver (A) a
certificate substantially in the form of Exhibit L and (B) two properly
completed and signed copies of Internal Revenue Service Form W-8
certifying that such Lender is entitled to an exemption from United
States withholding tax with respect to payments of interest to be made
under this Agreement and any Note.
Each such Lender further agrees to deliver such other form or forms from
time to time as may be required under the Code or other laws or regulations of
the United States as a condition to exemption from, or reduction of, United
States withholding tax. Each such Lender agrees to promptly notify the
Administrative Agent and the Company of any change in circumstances which would
modify or render invalid any claimed exemption or reduction.
If any Lender is a United States person, it agrees to complete and
deliver to the Administrative Agent and the Company a statement signed by an
authorized signatory of such Lender to
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the effect that such Lender is a United States person together with a duly
completed and executed copy of Internal Revenue Service Form W-9 or a successor
form establishing that such Lender is not subject to U.S. backup withholding
tax.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of the Company to such Lender, such Lender agrees
to notify the Administrative Agent and the Company of the percentage amount in
which it is no longer the beneficial owner of Obligations of the Company to such
Lender. To the extent of such percentage amount, the Administrative Agent and
the Company will treat such Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Administrative Agent and the
Company grants a participation in all or part of the Obligations of the Company
to such Lender, such Lender agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Administrative Agent or the Company, as the case may be,
may withhold from any interest payment to such Lender an amount equivalent to
the applicable withholding tax after taking into account such reduction. If the
forms or other documentation required by subsection (a) of this Section are not
timely delivered to the Administrative Agent, or the Company, as the case may
be, then the Administrative Agent or the Company, as the case may be, may
withhold from any interest payment to such Lender not providing such forms or
other documentation an amount equivalent to the applicable withholding tax
without reduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent or
the Company did not properly withhold tax from amounts paid to or for the
account of any Lender (because the appropriate form was not delivered or was not
properly executed, or because such Lender failed to notify the Administrative
Agent or the Company of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Lender shall indemnify the Administrative Agent or the Company, as the case
may be, fully for all amounts paid, directly or indirectly, by the
Administrative Agent or the Company, as the case may be, as Tax or otherwise,
including penalties and interest, and including any Taxes imposed by any
jurisdiction on the amounts payable to
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the Administrative Agent or the Company, as the case may be, under this Section,
together with all costs and expenses (including Attorney Costs). The obligation
of the Lenders under this subsection shall survive the payment of all
Obligations and the resignation or replacement of the Administrative Agent.
(f) If any Lender claims exemption from, or reduction of,
withholding tax under the Code by providing IRS Form W-8 and a certificate in
the form of Exhibit L and such Lender sells, assigns, grants a participation in,
or otherwise transfers all or part of the Obligations of the Company to such
Lender, such Lender agrees to notify the Administrative Agent and the Company of
the percentage amount in which it is no longer the beneficial owner of
Obligations of the Company to such Lender. To the extent of such percentage
amount, the Administrative Agent and the Company will treat such Lender's IRS
Form W-8 and certificate in the form of Exhibit L as no longer valid.
10.11 Collateral Matters. (a) The Administrative Agent is authorized on
behalf of all the Lenders, without the necessity of any notice to or further
consent from the Lenders, from time to time to take any action with respect to
any Collateral or the Collateral Documents which may be necessary to perfect and
maintain perfected the security interest in and Liens upon the Collateral
granted pursuant to the Collateral Documents.
(b) The Lenders irrevocably authorize the Administrative Agent,
at its option and in its discretion, to release any Lien granted to or held by
the Administrative Agent upon any Collateral: (i) upon termination of the
Commitments and payment in full of all Loans and all other obligations known to
the Administrative Agent and payable under this Agreement or any other Loan
Document; (ii) constituting property sold or to be sold or disposed of as part
of or in connection with any disposition permitted hereunder; (iii) constituting
property in which the Company or any Subsidiary owned no interest at the time
the Lien was granted or at any time thereafter; (iv) constituting property
leased to the Company or any Subsidiary under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to expire
and which has not been, and is not intended by the Company or such Subsidiary to
be, renewed or extended; (v) consisting of an instrument evidencing Indebtedness
or other debt instrument, if the indebtedness thereby has been paid in full; or
(vi) if approved, authorized or ratified in writing by the Required Lenders or,
if required by subsection 11.1(g), all the Lenders. Upon request by the
Administrative Agent at any time, the Lenders will confirm in writing the
Administrative Agent's authority to release particular types or items of
Collateral pursuant to this subsection 10.11(b).
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(c) Each Lender agrees with and in favor of each other (which
agreement shall not be for the benefit of the Company or any Subsidiary) that
any security interest in real property collateral received by a Lender in
connection with the extension of any loan or financial commitment between such
Lender and the Company or any of its Affiliates and not related to the
transactions contemplated hereby shall not constitute collateral for the
Company's obligations under this Agreement or any other Loan Document.
(d) (i) Any and all proceeds of disposition or other realization
on the Collateral or from any realization on any Guaranty received by the
Administrative Agent in connection with any enforcement, sale, collection
(including judicial or non-judicial foreclosure) or similar proceedings with
respect to the Collateral or a demand or other enforcement or collection with
respect to any Guaranty shall be applied by the Administrative Agent, as
follows:
FIRST: To the payment of the reasonable costs and expenses of
such disposition, collection or other realization, including Attorney
Costs, and all reasonable expenses, liabilities and advances made or
incurred by the Administrative Agent in connection therewith;
SECOND: To the ratable payment of the Liabilities then due and
owing to the Lender Parties; provided that with respect to Liabilities
consisting of the undrawn amounts of outstanding Letters of Credit,
payment shall be made to the Administrative Agent, to be retained as
Cash Collateral, for the ratable portion of the Liabilities consisting
of such undrawn amount of outstanding Letters of Credit (provided that
(A) if any such Letter of Credit is drawn upon, the Administrative Agent
shall distribute (ratably in accordance with subsection 3.4(a)) the Cash
Collateral therefor which is allocable to the amount drawn upon such
Letter of Credit to the Issuing Lender and, if any Revolving Lenders
have paid the Administrative Agent for the account of the Issuing Lender
for such Revolving Lender's participation in such Letter of Credit in
accordance with Section 3.3, the Revolving Lenders entitled to receive
such distribution and (B) if and to the extent that any such Letter of
Credit shall expire or terminate, the amount of Cash Collateral therefor
shall be applied in accordance with this subsection 10.11(d)(i)),
calculated in accordance with the provisions of subsection 10.11(d)(ii);
and
THIRD: After payment in full of all Liabilities, any surplus then
remaining from such proceeds shall be paid to the Company or to
whomsoever may be lawfully entitled to
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receive the same or paid as a court of competent jurisdiction may
direct.
Until such proceeds are so applied, the Administrative Agent shall hold
such proceeds in its custody in accordance with its regular procedures for
handling deposited funds.
(ii) Payment of proceeds of Collateral or of any realization on any
Guaranty to any Lender Party shall be based upon the proportion which the amount
of such Liabilities of such Lender Party bears to the total amount of all
Liabilities of all such Lender Parties. For purposes of determining the
proportionate amounts of all Liabilities sharing in any such distribution, (A)
the amount of the outstanding Obligations shall be deemed to be the Effective
Amount of the Loans and Letters of Credit and all accrued interest, fees and
costs with respect thereto and (B) the amount under any outstanding Swap
Contract shall be deemed to be the amount of the Permitted Swap Obligations then
due and payable (including early termination payments then due) in connection
therewith and all accrued interest and fees with respect thereto, after giving
effect to any netting of payments to which the Company is entitled with respect
to such Swap Contract vis-a-vis the Company's counterparty to such Swap
Contract.
(iii) Payments of proceeds of Collateral or of any realization on any
Guaranty by the Administrative Agent in respect of (i) the Obligations shall be
made to the Administrative Agent for distribution to the Lenders pro rata and
(ii) any Swap Contract shall be made as directed by the Lender Party to which
the same is owed.
ARTICLE XI
MISCELLANEOUS
11.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Required Lenders and the Company and acknowledged
by the Administrative Agent, and then any such waiver or consent shall be
effective only if in writing and in the specific instance and for the specific
purpose for which given; provided that:
(a) no such waiver, amendment or consent shall increase or extend
any Commitment of any Lender (or reinstate any Commitment terminated pursuant to
Section 9.2) without the written consent of such Lender;
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(b) no such waiver, amendment or consent shall postpone or delay
any date fixed by this Agreement or any other Loan Document for any payment of
regularly scheduled principal or interest on any Loan without the written
consent of the Lender holding such Loan (provided, that any date fixed for
repayment of principal of any Term A Loan may be postponed or delayed (but not
beyond June 30, 2004) with the consent of Term A Lenders with an aggregate Term
A Percentage of at least 66-2/3%);
(c) no such waiver, amendment or consent relating to the
definition of "Mandatory Prepayment Event" or to any provision of this Agreement
or any other Loan Document which would result in any increased or decreased
mandatory prepayment of any Loan, or any increased or decreased mandatory
reduction of any Commitment, shall be made without the written consent of the
Required Revolving Lenders, Required Term A Lenders and Required Term B Lenders;
(d) no such waiver, amendment or consent shall reduce the
principal of, or the rate of interest specified herein on, any Loan without the
written consent of the Lender holding such Loan;
(e) no such waiver, amendment or consent shall (subject to clause
(m) below) reduce any fees payable hereunder or under any other Loan Document,
or postpone or delay any date fixed by this Agreement or any other Loan Document
for the payment of fees or any other amounts due to any Lender hereunder or
under any other Loan Document, without the written consent of the Lender to whom
such fee or other amount is owing;
(f) no such waiver, amendment or consent shall (w) change the
aggregate percentage of the Total Percentage which is required for the Lenders
or any of them to take any action hereunder without the written consent of all
Lenders, (x) amend the definition of "Required Revolving Lenders" without the
written consent of all Revolving Lenders, (y) amend the definition of "Required
Term A Lenders" without the written consent of all Term A Lenders or (z) amend
the definition of "Required Term B Lenders" without the written consent of all
Term B Lenders;
(g) no such waiver, amendment or consent shall release any
Guaranty or Parent or any Subsidiary from its respective obligations under the
Loan Documents to which it is a party or release all or substantially all of the
collateral securing the Obligations without the written consent of all Lenders;
(h) no such waiver, amendment or consent shall amend or waive any
provision of this Section or Section 2.15, or any
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other provision herein providing for consent or other action by all Lenders,
without the written consent of all Lenders;
(i) after the making of the Term Loans, Section 2.3, 2.4 (as it
relates to conversions and continuations of Revolving Loans), 2.6, 2.7 (as it
relates to an optional prepayment of Revolving Loans), 2.8(b) or 2.9(c) or
Article III may be amended, or the rights or privileges thereunder waived, with
the written consent of the Required Revolving Lenders (or, in the case of
Section 2.9(c), all of the Revolving Lenders), the Company and the
acknowledgment of the Administrative Agent;
(j) no amendment, waiver or consent shall, unless in writing and
signed by the Issuing Lender in addition to the Required Lenders or all Lenders,
as the case may be, affect the rights or duties of the Issuing Lender under this
Agreement or any L/C-Related Document relating to any Letter of Credit Issued or
to be Issued by it;
(k) no amendment, waiver or consent shall, unless in writing and
signed by the Swingline Lender in addition to the Required Lenders or all
Lenders, as the case may be, affect the rights and duties of the Swingline
Lender under this Agreement;
(l) no amendment, waiver or consent shall, unless in writing and
signed by the Administrative Agent in addition to the Required Lenders or all
Lenders, as the case may be, affect the rights or duties of the Administrative
Agent under this Agreement or any other Loan Document; and
(m) the Fee Letter may be amended, or rights or privileges
thereunder waived, in writing executed by the parties thereto.
11.2 Notices. (a) All notices, requests and other communications
hereunder shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission, provided that any matter transmitted by the
Company by facsimile (i) shall be immediately followed by a telephone call to
the recipient at the number specified on Schedule 11.2, and (ii) shall be
followed promptly by delivery of a hard copy original thereof) and mailed, faxed
or delivered to the address or facsimile number specified for notices on
Schedule 11.2; or, as directed to the Company or the Administrative Agent, to
such other address as shall be designated by such party in a written notice to
the other parties, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to the Company and the
Administrative Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be
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effective when delivered, or transmitted in legible form by facsimile machine,
respectively, or if mailed, upon the third Business Day after the date deposited
into the U.S. mail, return receipt requested; except that notices to the
Administrative Agent pursuant to Article II, III or X shall not be effective
until actually received by the Administrative Agent, and notices pursuant to
Article III to the Issuing Lender shall not be effective until actually received
by the Issuing Lender at the address specified for the "Issuing Lender" on
Schedule 11.2.
(c) Any agreement of the Administrative Agent and the Lenders
herein to receive certain notices by telephone or facsimile is solely for the
convenience and at the request of the Company. The Administrative Agent and the
Lenders shall be entitled to rely on the authority of any Person purporting to
be a Person authorized by the Company to give such notice and the Administrative
Agent and the Lenders shall not have any liability to the Company or any other
Person on account of any action taken or not taken by the Administrative Agent
or the Lenders in reliance upon such telephonic or facsimile notice. The
obligation of the Company to repay the Loans and L/C Obligations shall not be
affected in any way or to any extent by any failure of the Administrative Agent
and the Lenders to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Administrative Agent and the Lenders of a
confirmation which is at variance with the terms understood by the
Administrative Agent and the Lenders to be contained in the telephonic or
facsimile notice.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of the Administrative Agent or any Lender, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.
11.4 Costs and Expenses. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Administrative Agent, the Documentation Agent
and the Arranger and their Affiliates (including BofA in its capacities as
Swingline Lender and Issuing Lender) within five Business Days after demand
therefor (subject to subsection 5.1(f)) for all reasonable and documented costs
and expenses incurred by such Agents and the Arranger and their Affiliates in
connection with the preparation, delivery, administration and execution of, and
any amendment, supplement, waiver or modification to (in each case, whether or
not consummated), this Agreement, any Loan Document and any other
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document prepared in connection herewith or therewith, and the consummation of
the transactions contemplated hereby and thereby, including Attorney Costs
incurred by such Agents and the Arranger with respect thereto; and
(b) pay or reimburse the Administrative Agent and each Lender
within five Business Days after demand therefor (subject to subsection 5.1(f))
for all costs and expenses (including Attorney Costs) incurred by them in
connection with the enforcement, attempted enforcement or preservation of any
right or remedy under this Agreement or any other Loan Document during the
existence of an Event of Default or after acceleration of the Loans (including
in connection with any "workout" or restructuring regarding the Loans and
including in any Insolvency Proceeding or appellate proceeding).
11.5 Company Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Company shall indemnify and hold the
Agent-Related Persons, each Agent and each Lender and each of their respective
Affiliates, officers, directors, employees, counsel, agents and
attorneys-in-fact (each an "Indemnified Person") harmless from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including Attorney
Costs) of any kind or nature whatsoever (excluding costs and expenses
specifically referred to in Section 11.4) which may at any time (including, at
any time following repayment of the Loans, the termination of the Letters of
Credit and the termination, resignation or replacement of the Administrative
Agent or replacement of any Lender) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement
or any document contemplated by or referred to herein, or the transactions
contemplated hereby or thereby, or any action taken or omitted by any such
Person under or in connection with any of the foregoing, including with respect
to any investigation, litigation or proceeding (including any Insolvency
Proceeding or appellate proceeding or any investigation, litigation or
proceeding related to any environmental cleanup, audit, compliance or other
matter relating to the protection of the environment or the Release by the
Company or any of its Subsidiaries of any Hazardous Material) related to or
arising out of this Agreement or the Loans or Letters of Credit or the use of
the proceeds thereof, whether or not any Indemnified Person is a party thereto
(all the foregoing, collectively, the "Indemnified Liabilities"); provided that
the Company shall have no obligation hereunder to any Indemnified Person with
respect to Indemnified Liabilities resulting solely from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this Section
shall survive payment of all other Obligations. Each Agent-Related Person and
each Lender agrees that in the event
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that any investigation, litigation or proceeding is asserted or threatened in
writing or instituted against it or any other Indemnified Person, or any
remedial, removal or response action which is requested of it or any other
Indemnified Person, for which any Agent- Related Person or Lender may desire
indemnity or defense hereunder, such Agent-Related Person or such Lender shall
notify the Company in writing of such event; provided that failure to so notify
the Company shall not affect the right of any Agent-Related Person or Lender to
seek indemnification under this Section.
11.6 Payments Set Aside. To the extent that the Company makes a payment
to the Administrative Agent or the Lenders, or the Administrative Agent or the
Lenders exercise their right of set-off, and such payment or the proceeds of
such set-off or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Administrative Agent or such Lender in its
discretion) to be repaid to a trustee or receiver, or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the extent
of such recovery, the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred and (b) each Lender
severally agrees to pay to the Administrative Agent upon demand its pro rata
share of any amount so recovered from or repaid by the Administrative Agent.
11.7 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Administrative Agent and each Lender.
11.8 Assignments, Participations, etc. (a) Any Lender may, with the
written consent of the Company at all times other than during the existence of
an Event of Default and with the written consents of the Administrative Agent
and, in case of an assignment of a Revolving Commitment or L/C Obligations, the
Issuing Lender and the Swingline Lender, which consents shall not be
unreasonably withheld or delayed, at any time assign and delegate to one or more
Eligible Assignees (provided that no written consent of the Company, the
Administrative Agent, the Issuing Lender or the Swingline Lender shall be
required in connection with any assignment and delegation by a Lender to a
Person described in clause (ii), (iii) or (iv) of the definition of Eligible
Assignee) (each, an "Assignee") all, or any part, of the Loans, the Revolving
Commitment, the L/C Obligations and the other rights and obligations of such
Lender hereunder, in a minimum amount of $5,000,000 (or, if less, all of such
Lender's
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remaining rights and obligations hereunder or all of such Lender's rights and
obligations with respect to Revolving Commitment and Revolving Loans, Term A
Loans or Term B Loans) or such lesser amount as may be approved by the Company
and the Administrative Agent (provided that such minimum amount shall not apply
to assignments by a Lender to Persons described in clause (ii), (iii) or (iv) of
the definition of Eligible Assignee); provided, however, that (A) the Company,
the Administrative Agent, the Issuing Lender and the Swingline Lender may
continue to deal solely and directly with such Lender in connection with the
interest so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee shall have been given to the Company and the
Administrative Agent by such Lender and the Assignee, (ii) such Lender and the
Assignee shall have delivered to the Company and the Administrative Agent an
Assignment and Acceptance in the form of Exhibit K (an "Assignment and
Acceptance") together with any Note or Notes subject to such assignment and
(iii) the assignor Lender or the Assignee has paid to the Administrative Agent a
processing fee in the amount of $3,500 and (B) the Company shall not, as a
result of any assignment, delegation or participation by any Lender, incur any
increased liability for Taxes, Other Taxes or Further Taxes pursuant to Section
4.1. The Company designates the Administrative Agent as its agent for
maintaining a book entry record of ownership identifying the Lenders, their
respective addresses and the amount of the respective Loans and Notes which they
own. The foregoing provisions are intended to comply with the registration
requirements in Treasury Regulation Section 5f.103-1 so that the Loans and Notes
are considered to be in "registered form" pursuant to such regulation.
(b) From and after the date that the Administrative Agent
notifies the assignor Lender that it has provided its consent, and received the
consents of the Swingline Lender, the Issuing Lender and (if applicable) the
Company, with respect to an executed Assignment and Acceptance and payment of
the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the assignor
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Loan Documents.
(c) Any Lender may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Company (a "Participant")
participating interests in any Loan, the Revolving Commitment of such Lender and
the other interests of
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such Lender (the "originating Lender") hereunder and under the other Loan
Documents; provided, however, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations, (iii) the
Company, the Swingline Lender, the Issuing Lender and the Administrative Agent
shall continue to deal solely and directly with the originating Lender in
connection with the originating Lender's rights and obligations under this
Agreement and the other Loan Documents and (iv) no Lender shall transfer or
grant any participating interest under which the Participant has rights to
approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such amendment,
consent or waiver would require unanimous consent of the Lenders or the consent
of a particular Lender or the consent of the Required Revolving Lenders,
Required Term A Lenders or Required Term B Lenders, in each case as described in
clauses (a) through (h) of the proviso to Section 11.1. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections 4.1,
4.3 and 11.5 as though it were also a Lender hereunder (provided, with respect
to Sections 4.1 and 4.3, the Company shall not be required to pay any amount
which it would not have been required to pay if no participating interest had
been sold), and if amounts outstanding under this Agreement are due and unpaid,
or shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, the Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Lender under this Agreement. Each Lender which
sells a participation will maintain a book entry record of ownership identifying
the Participant(s) and the amount of such participation(s) owned by such
Participant(s). Such book entry record of ownership shall be maintained by the
Lender as agent for the Company and the Administrative Agent. This provision is
intended to comply with the registration requirements in Treasury Regulation
Section 5f.103-1 so that the Loans and Notes are considered to be in "registered
form" pursuant to such regulation. Each Lender may furnish any information
concerning the Company and its Subsidiaries in the possession of such Lender
from time to time to participants and prospective participants and may furnish
information in response to credit inquiries consistent with general banking
practice.
(d) Notwithstanding any other provision in this Agreement, (i)
any Lender may at any time assign all or any portion of its rights under and
interest in this Agreement and any Note held by it to any Affiliate of such
Lender that is an "Eligible Assignee" or create a security interest in, or
pledge all or any portion of its rights under and interest in this
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Agreement and any Note held by it in favor of any Federal Reserve Bank in
accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR
Section 203.14, and such Federal Reserve Bank may enforce such pledge or
security interest in any manner permitted under applicable law and (ii) any
Lender which is a fund may, with the consent of the Company, the Administrative
Agent, and in the case of an assignment of a Revolving Commitment or L/C
Obligations, the Issuing Lender and the Swingline Lender, pledge all or any
portion of its Loans and Notes to its trustee in support of its obligations to
its trustee.
11.9 Confidentiality. Each Lender agrees to take, and to cause its
Affiliates to take, normal and reasonable precautions and exercise due care to
maintain the confidentiality of all non-public information provided to it by the
Company or any Subsidiary, or by the Administrative Agent on the Company's or
any Subsidiary's behalf, under this Agreement or any other Loan Document, and
neither such Lender nor any of its Affiliates shall use any such information
other than in connection with or in enforcement of this Agreement and the other
Loan Documents or in connection with other business now or hereafter existing or
contemplated with the Company or any Subsidiary, except to the extent such
information (i) was or becomes generally available to the public other than as a
result of disclosure by such Lender or (ii) was or becomes available on a
non-confidential basis from a source other than the Company (provided that such
source is not bound by a confidentiality agreement with the Company or any
Subsidiary known to such Lender); provided, however, that any Lender may
disclose such information (A) at the request or pursuant to any requirement of
any Governmental Authority to which such Lender is subject or in connection with
an examination of such Lender by any such authority, (B) pursuant to subpoena or
other court process, (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law, (D) to the extent reasonably
required in connection with any litigation or proceeding to which the
Administrative Agent or any Lender or any of their respective Affiliates may be
party, (E) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document, (F) to such Lender's
independent auditors and other professional advisors, (G) to any Participant or
Assignee, actual or potential, or to direct or indirect contractual
counterparties to swap agreements or such contractual counterparties'
professional advisors provided that such Person or contractual counterparty or
professional advisor to such contractual counterparty agrees in writing to keep
such information confidential to the same extent required of the Lenders
hereunder, (H) as to any Lender or its Affiliate, as expressly permitted under
the terms of any other document or agreement regarding confidentiality to which
the Company or any Subsidiary is party or is deemed party with such Lender or
such Affiliate, (I) to its Affiliates and (J) to the
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National Association of Insurance Commissioners or any similar organization or,
with the consent of the Company (not to be unreasonably withheld or delayed),
any nationally recognized rating agency that requires access to information
about such Lender's investment portfolio in connection with ratings issued to
such Lender.
11.10 Set-off. In addition to any right or remedy of the Lenders
provided by law, if an Event of Default exists, or the Loans have been
accelerated, each Lender is authorized at any time and from time to time,
without prior notice to the Company, any such notice being waived by the Company
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held by, and other indebtedness at any time owing by, such Lender or any
Affiliate of such Lender to or for the credit or the account of the Company
against any and all Obligations then due and owing to such Lender, and each
Affiliate of such Lender is hereby irrevocably authorized to permit such set-off
and application. Each Lender agrees promptly to notify the Company and the
Administrative Agent after any such set-off and application made by such Lender;
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
11.11 Automatic Debits of Fees. With respect to any commitment fee,
arrangement fee, agency fee, letter of credit fee or other fee, or any other
cost or expense (including Attorney Costs) due and payable to the Administrative
Agent, the Swingline Lender or the Issuing Lender under the Loan Documents, the
Company hereby irrevocably authorizes BofA to debit any deposit account of the
Company with BofA in an amount such that the aggregate amount debited from all
such deposit accounts does not exceed such fee or other cost or expense. If
there are insufficient funds in such deposit accounts to cover the amount of the
fee or other cost or expense then due, such debits will be reversed (in whole or
in part, in BofA's sole discretion) and such amount not debited shall be deemed
to be unpaid. No such debit under this Section shall be deemed a set-off.
11.12 Notification of Addresses, Lending Offices, Etc. Each Lender shall
notify the Administrative Agent in writing of any change in the address to which
notices to such Lender should be directed, of addresses of any Lending Office,
of payment instructions in respect of all payments to be made to it hereunder
and of such other administrative information as the Administrative Agent shall
reasonably request.
11.13 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed,
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shall be deemed an original, and all of which taken together shall constitute
but one and the same instrument.
11.14 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or such instrument or agreement.
11.15 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Company, the Lenders, the
Administrative Agent and the Agent-Related Persons, and their permitted
successors and assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any other Loan Document.
11.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND ANY NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE
STATE OF NEW YORK; PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL
RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT
AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. THE COMPANY, THE ADMINISTRATIVE AGENT AND THE LENDERS EACH WAIVE
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
11.17 Waiver of Jury Trial. THE COMPANY, THE LENDERS AND THE
ADMINISTRATIVE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON,
PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THE COMPANY, THE LENDERS AND THE ADMINISTRATIVE AGENT EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT WITHOUT A JURY.
WITHOUT
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LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENT, RENEWAL, SUPPLEMENT OR MODIFICATION TO THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
11.18 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company,
the Lenders and the Agents, and supersedes all prior or contemporaneous
agreements and understandings of such Persons, verbal or written, relating to
the subject matter hereof and thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
DEL MONTE CORPORATION
By:
------------------------------------
Title:
---------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent, Issuing Lender, Swingline Lender
and Lender
By:
------------------------------------
Title:
---------------------------------
BANKERS TRUST COMPANY, as
Documentation Agent and as a Lender
By:
------------------------------------
Title:
---------------------------------
S-1
<PAGE> 149
ABN AMRO BANK N.V., as Co-Agent and as
a Lender
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
THE BANK OF NOVA SCOTIA, as Co-Agent
and a Lender
By:
------------------------------------
Title:
---------------------------------
CITICORP USA, INC., as Co-Agent and as
a Lender
By:
------------------------------------
Title:
---------------------------------
THE FIRST NATIONAL BANK OF CHICAGO, as
Co-Agent and a Lender
By:
------------------------------------
Title:
---------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION,
as Co-Agent and as a Lender
By:
------------------------------------
Title:
---------------------------------
HARRIS TRUST & SAVINGS BANK, as
Co-Agent and a Lender
By:
------------------------------------
Title:
---------------------------------
S-2
<PAGE> 150
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND" NEW YORK BRANCH, as Co-Agent
and as a Lender
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
BANKBOSTON, N.A., as a Lender
By:
------------------------------------
Title:
---------------------------------
THE BANK OF NEW YORK, as a Lender
By:
------------------------------------
Title:
---------------------------------
NATEXIS BANQUE (Formerly Banque
Francaise du Commerce
Exterieur), as a Lender
By:
------------------------------------
Name: Iain Whyte
Title: Vice President
By:
------------------------------------
Name: Daniel Touffu
Title: 1st Vice President and
and Regional Manager
BHF-BANK AKTIENGESELLSCHAFT, as a
Lender
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
S-3
<PAGE> 151
BLACK DIAMOND CAPITAL MANAGEMENT,
LLC, as a Lender
By:
------------------------------------
Title:
---------------------------------
CANADIAN IMPERIAL BANK OF COMMERCE
By:
------------------------------------
Title:
---------------------------------
CITY NATIONAL BANK, as a Lender
By:
------------------------------------
Title:
---------------------------------
[DEAN WITTER], as a Lender
By:
------------------------------------
Title:
---------------------------------
DRESDNER BANK AG, NEW YORK BRANCH and
GRAND CAYMAN BRANCH, as a Lender
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
THE FIRST NATIONAL BANK OF CHICAGO, as
a Lender
By:
------------------------------------
Title:
---------------------------------
IBJ SCHRODER BANK & TRUST COMPANY
By:
------------------------------------
Title:
---------------------------------
S-4
<PAGE> 152
THE ING CAPITAL SENIOR SECURED HIGH
INCOME FUND, L.P., as a Lender
By: ING Capital Advisors, Inc., as
Investment Advisor
By:
------------------------------------
Title:
---------------------------------
KZH-SOLEIL CORPORATION, as a Lender
By:
------------------------------------
Title:
---------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY, as a Lender
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
MARINE MIDLAND BANK, as a Lender
By:
------------------------------------
Title:
---------------------------------
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, as a Lender
By:
------------------------------------
Title:
---------------------------------
MERITA BANK LTD., NEW YORK BRANCH,
as a Lender
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
S-5
<PAGE> 153
MERRILL LYNCH PRIME RATE PORTFOLIO
By:
------------------------------------
Title:
---------------------------------
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
------------------------------------
Title:
---------------------------------
METROPOLITAN LIFE INSURANCE COMPANY,
as a Lender
By:
------------------------------------
Title:
---------------------------------
THE MITSUBISHI TRUST AND BANKING
CORPORATION, Los Angeles Agency, as a
Lender
By:
------------------------------------
Title:
---------------------------------
NATIONAL CITY BANK, as a Lender
By:
------------------------------------
Title:
---------------------------------
OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO (a Unit of The Chase
Manhattan Bank), as a Lender
By:
------------------------------------
Title:
---------------------------------
S-6
<PAGE> 154
PILGRIM AMERICA PRIME RATE TRUST, as a
Lender
By:
------------------------------------
Title:
---------------------------------
PAMCO CAYMAN LTD.
By: Protective Asset Management
Company, as Collateral Manager
By:
------------------------------------
Title:
---------------------------------
SUMITOMO TRUST & BANKING COMPANY, LTD.
By:
------------------------------------
Title:
---------------------------------
SWISS BANK CORPORATION
By:
------------------------------------
Title:
---------------------------------
[THE CIT GROUP]
By:
------------------------------------
Title:
---------------------------------
UNION BANK OF CALIFORNIA, N.A., as a
Lender
By:
------------------------------------
Title:
---------------------------------
S-7
<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 N, as to which
the date is June 29, 1998, and Note M, as to which the date is July 22, 1998),
in Amendment No. 4 to the Registration Statement (Form S-1 No. 333-48235) and
related Prospectus of Del Monte Foods Company for the registration of up to
21,985,700 shares of its common stock.
/s/ Ernst & Young LLP
San Francisco, California
July 23, 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 reports dated August 22, 1997 (except for Note N,
as to which the date is June 29, 1998, and Note M, as to which the date is July
22, 1998) and May 1, 1998 (except for Note O, as to which the date is June 29,
1998, and the third paragraph of Note M, as to which the date is July 22, 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
July 23, 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, and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
July 23, 1998
