SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-K
-----------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal
year ended April 28, 1996
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the
transition period from to
COMMISSION FILE NUMBER: 0-2258
SMITHFIELD FOODS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-0845861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 DOMINION TOWER
999 WATERSIDE DRIVE
NORFOLK, VIRGINIA 23510
(Address of principal executive offices) (Zip Code)
(804) 365-3000
(Registrant's telephone number, including area code)
-----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.50 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of Registrant's Common Stock held
by non-affiliates as of July 12, 1996 was approximately $269,536,688. This
figure was calculated by multiplying (i) the $23-7/16 last sales price of
Registrant's Common Stock as reported on The Nasdaq National Market on July 12,
1996 by (ii) the number of shares of Registrant's Common Stock not held by any
officer or director of the Registrant or any person known to the Registrant to
own more than five percent of the outstanding Common Stock of the Registrant.
Such calculation does not constitute an admission or determination that any such
officer, director or holder of more than five percent of the outstanding shares
of Common Stock of the Registrant is in fact an affiliate of the Registrant.
At July 12, 1996, 18,016,015 shares of the Registrant's Common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement to be filed with respect to its Annual
Meeting of Stockholders to be held on August 28, 1996.
- 1 -
<PAGE>
TABLE OF CONTENTS
ITEM
NUMBER PAGE
PART I
1. Business................................................................ 3
General.............................................................. 3
Business Strategy.................................................... 3
Revenue by Source.................................................... 4
Fresh Pork Products ................................................. 4
Processed Meat Products.............................................. 5
Raw Materials ....................................................... 5
Customers and Marketing ............................................. 6
Distribution......................................................... 6
Competition ......................................................... 6
Regulation .......................................................... 7
Employees ........................................................... 8
Other .............................................................. 8
2. Properties ............................................................. 8
3. Legal Proceedings ..................................................... 10
4. Submission of Matters to a Vote
of Security Holders ................................................ 10
4A. Executive Officers of the Company ..................................... 11
PART II
5. Market for Company's Common Equity
and Related Stockholder Matters .................................... 13
6. Selected Financial Data ............................................... 14
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...................... 15
8. Financial Statements and Supplementary Data ........................... 18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............................. 18
PART III
10. Directors and Executive Officers of the Company ....................... 19
11. Executive Compensation ................................................ 19
12. Security Ownership of Certain Beneficial Owners
and Management ..................................................... 19
13. Certain Relationships and Related Transactions ........................ 19
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................................. 20
SIGNATURES ............................................................... S-1
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ........... F-1
- 2 -
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Smithfield Foods, Inc. (the "Company"), as a holding company, conducts
its pork processing operations through four principal subsidiaries: Gwaltney of
Smithfield, Ltd. ("Gwaltney") and The Smithfield Packing Company, Incorporated
("Smithfield Packing"), both based in Smithfield, Virginia; John Morrell & Co.
("John Morrell"), based in Cincinnati, Ohio; and Patrick Cudahy Incorporated
("Patrick Cudahy"), based in Cudahy, Wisconsin. The Company also conducts hog
production operations through its Brown's of Carolina, Inc. subsidiary
("Brown's") and Smithfield-Carroll's, a joint hog production arrangement between
the Company and Carroll's Foods of Virginia, Inc., an affiliate of Carroll's
Foods, Inc., Warsaw, North Carolina. Both Brown's and Smithfield-Carroll's
produce hogs for the Company's pork processing plants in Bladen County, North
Carolina and Smithfield, Virginia. The Company is also a participant in the
Circle Four joint hog production arrangement with Carroll's Foods, Inc., Murphy
Family Farms, Inc. and Prestage Farms, Inc., all large North Carolina hog
producers, which conducts hog production operations in Milford, Utah. In this
report, references to "Smithfield Foods" or the "Company" are to Smithfield
Foods, Inc. together with all of its subsidiaries (including John Morrell from
December 20, 1995), unless the context otherwise indicates.
The Company is one of the largest combined pork slaughterers and further
processors in the United States, producing a wide variety of fresh pork and
processed meat products which it markets domestically and to selected foreign
markets, including Japan, Russia, Mexico and other countries.
As consumers have become more health conscious, pork producers and
processors, including the Company, have focused on providing leaner fresh pork
products as well as fat-free, lower-fat and lower-salt processed meats.
Management believes that lean pork products which are more attractive to
diet-conscious Americans, together with the industry's efforts to heighten
public awareness of pork as an attractive protein source, have led to increased
consumer demand for pork products. The Company has developed and is marketing a
line of extremely lean, premium fresh pork products under the Smithfield Lean
Generation trademark to selected retail chains and institutional foodservice
customers.
BUSINESS STRATEGY
Since 1975, when current management assumed control, Smithfield Foods
has expanded both its production capacity and its markets through a combination
of strong internal growth and the acquisition of regional and multi-regional
companies with well-recognized brand identities. In fiscal 1982, the Company
acquired Gwaltney, then Smithfield Packing's principal Mid-Atlantic competitor.
This acquisition doubled the Company's sales and slaughter capacity and added
several popular lines of branded products along with a state-of-the-art hot dog
and luncheon meats production facility. The proximity of Gwaltney to Smithfield
Packing allowed for synergies and cost savings in manufacturing, purchasing,
engineering and transportation.
This combination set the stage for a series of acquisitions of smaller
regional processors with widely-recognized brands. In fiscal 1985, the Company
acquired Patrick Cudahy, which added a prominent line of dry sausage products to
the Company's existing line of processed meats. In fiscal 1986, the Company
acquired Esskay, Inc., a firm with a broad line of delicatessen products having
substantial brand loyalty in the Baltimore-Washington, D.C. metropolitan area.
In fiscal 1991, the Company acquired the Mash's brand name and a ham processing
plant in Landover, Maryland. In fiscal 1993, the Company acquired the Valleydale
brand name and a bacon processing plant in Salem, Virginia.
On December 20, 1995, the Company acquired John Morrell & Co., a major
Midwestern pork processor with primary markets in the Midwest, Northeast and
Western United States. This acquisition changed the Company's character from a
large multi-regional pork processor to one with national distribution. It also
doubled the Company's sales and slaughter capacity, added several popular lines
of branded processed meat products along with four efficient processing
facilities and more than doubled the Company's international sales. The Company
believes that John Morrell's strength in smoked sausage, hot dogs, luncheon
meats, bacon and smoked hams complements the strong smoked meats, hot dog and
- 3 -
<PAGE>
bacon business of the Company's Eastern operations. In addition, by pooling the
operational skills and expertise of management personnel, the combined Company
has already improved operating performance at a number of its plants.
Furthermore, the combination presents substantial opportunities for cost savings
in the areas of processing, marketing, purchasing and distribution.
The Company's business is based around four strategic initiatives: (i)
capitalizing on the Company's new status as a major national pork processor;
(ii) use of the leanest genetics commercially available to enable the Company to
market highly differentiated pork products; (iii) vertical integration into
state-of-the-art hog production through Company-owned hog production operations
and long-term partnerships and alliances with large and efficient hog producers;
and (iv) continued growth through selective acquisition of regional pork
processors and brands.
As a complement to the Company's hog processing operations, the Company
has vertically integrated into state-of-the-art hog production through Brown's
and Smithfield-Carroll's. In addition, the Company is supplementing the hogs it
obtains from these hog production operations with market-indexed, multi-year
agreements with several of the nation's largest suppliers of high quality hogs,
strategically located in North Carolina, including Carroll's Foods, Inc.,
Maxwell Foods, Inc., Murphy Family Farms, Inc., and Prestage Farms, Inc.
In May 1991, Smithfield-Carroll's acquired from National Pig Development
Company ("NPD"), a British firm, the exclusive United States franchise rights
for genetic lines of specialized breeding stock. The NPD hogs produced by these
superior genetic lines are significantly leaner than almost any other animals
available in commercial volume in the United States. Management believes that
the leanness and increased meat yields of these hogs will, over time, improve
the Company's profitability with respect to both fresh pork and processed meat
products and provide a competitive advantage over other domestic pork
processors. In fiscal 1996, the Company processed 847,000 NPD hogs.
REVENUES BY SOURCE
The Company's sales are in one industry segment, meat processing. The
following table shows for the fiscal periods indicated the percentages of the
Company's revenues derived from fresh pork, processed meats, and other products
(including John Morrell from December 20, 1995).
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Fresh Pork............ 59% 51% 48% 41% 39%
Processed Meats....... 37% 45% 49% 55% 57%
Other Products........ 4% 4% 3% 4% 4%
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
=== === === === ===
The increase in percentage of revenues derived from fresh pork since
fiscal 1992 resulted principally from an increase in the number of hogs
slaughtered at the Bladen County plant. The Company expects this percentage to
increase again in fiscal 1997. The meat industry is generally characterized by
narrow margins; however, profit margins on processed meats are greater than
profit margins on fresh pork and on other products.
FRESH PORK PRODUCTS
The Company is one of the two largest fresh pork processors in the
United States. The Company slaughters hogs at five of its plants (three in the
Southeast and two in the Midwest), with an aggregate slaughter capacity of
72,300 per day. The Company currently slaughters approximately 70,000 hogs
daily. The Company plans to add an additional 8,000 hogs per day of capacity by
the end of fiscal 1997, which will lead to an additional increase in fresh pork
output. A substantial portion of the Company's fresh pork is sold to retail
customers as unprocessed, trimmed cuts such as loins (including roasts and
chops), butts, picnics and ribs. The Company also sells hams, bellies and
trimmings to other further processors. The Company is putting greater emphasis
on the sale of value-added, higher margin fresh pork products, such as boneless
loins, hams, butts and picnics. In addition, the Company provides its own
processing operations with raw material of much higher quality and freshness
than that generally available through market purchases.
- 4 -
<PAGE>
The Company is marketing an extensive product line of NPD fresh pork
cuts (including boneless loins, shoulder cuts, chops, ribs and processed and
cubed pork) under the Smithfield Lean Generation Pork trademark to selected
retail chains and institutional foodservice customers. Smithfield Packing has
also developed a case-ready pork program designed to supply supermarket chains
with pre-packaged, weighed, labeled and priced fresh pork, ready for immediate
sale to the consumer. Management believes that these initiatives, over time,
should result in greater brand identification and higher margins for the
Company's fresh pork products.
PROCESSED MEAT PRODUCTS
The Company manufactures a wide variety of processed meats, including
smoked and boiled hams, bacon, sausage, hot dogs (pork, beef and chicken), deli
and luncheon meats and specialty products such as pepperoni and dry salami. The
Company markets its processed meat products under labels that include, among
others, Smithfield, Gwaltney, Patrick Cudahy and John Morrell, as well as Dinner
Bell, Esskay, Great, Hamilton's, Jamestown, Kretschmar, Luter's, Peyton's,
Tobin's First Prize and Valleydale. The Company also sells a substantial
quantity of processed meats as private label products. The Company believes it
is one of the largest producers of smoked hams and picnics in the United States.
In response to growing consumer preference for more nutritious and
healthful meats, the Company has for several years emphasized production of more
closely-trimmed, leaner and lower salt processed meats, such as 40
percent-lower-fat bacon. As a follow-up to the fiscal 1996 introduction of a
lower-fat line of value-priced luncheon meats, smoked sausage and hot dogs, the
Company is introducing in fiscal 1997 such items as fat-free hot dogs and
fat-free deli ham.
RAW MATERIALS
The Company's primary raw material is live hogs. Historically, hog
prices have been subject to substantial fluctuations. In addition, hog prices
tend to rise seasonally as hog supplies decrease during the hot summer months
and tend to decline as supplies increase during the fall. This is due to lower
farrowing performance during the winter months and slower animal growth rates
during the hot summer months. Hog supplies, and consequently prices, are also
affected by factors such as corn and soybean prices, weather and interest rates.
The Company produces its own hogs through Brown's and
Smithfield-Carroll's and purchases hogs from several of the nation's largest hog
producers strategically located in North Carolina, such as Carroll's Foods,
Inc., Maxwell Foods, Inc., Murphy Family Farms, Inc. and Prestage Farms, Inc. as
well as from other independent hog producers and dealers located in the East,
Southeast and Midwest. The Company obtained 11.3% of the hogs it processed in
fiscal 1996 from Brown's and Smithfield-Carroll's. The Company's raw material
costs fall when hog production at Brown's and Smithfield-Carroll's is profitable
and conversely rise when such production is unprofitable. The profitability of
hog production is directly related to the market price of live hogs and the cost
of corn. Hog producers such as Brown's and Smithfield-Carroll's generate higher
profits when hog prices are high and corn prices are low, and lower profits (or
losses) when hog prices are low and corn prices are high. Management believes
that hog production at Brown's and Smithfield-Carroll's furthers the Company's
strategic initiative to become vertically integrated and reduces exposure to the
fluctuations of profitability historically experienced by the pork processing
industry. The Company has also established multi-year agreements with Carroll's
Foods, Maxwell Foods, Murphy Family Farms and Prestage Farms which provide the
Company with a stable supply of high-quality hogs at market-indexed prices.
These producers supplied 50.0% of the hogs processed by the Company in fiscal
1996.
The Company purchases its hogs on a daily basis at its Southeastern and
Midwestern slaughter plants; at Company-owned buying stations in three
Southeastern and five Midwestern states; from certain Canadian sources; and
through certain exclusive dealer-operated buying stations in the Midwest. The
Company also purchases fresh pork from other meat processors to supplement its
processing requirements, and raw beef, poultry and other meat products to add to
its sausage, hot dogs and luncheon meats. Such meat products and other materials
and supplies, including seasonings, smoking and curing agents, sausage casings
and packaging materials are readily available from numerous sources at
competitive prices.
- 5 -
<PAGE>
CUSTOMERS AND MARKETING
The Company has dominant market shares in the Mid-Atlantic and Southeast
and strong market positions in the Northeast, South, Midwest, Southwest and
Western United States. The Company's fundamental marketing strategy is to sell
large quantities of value-priced processed meat products as well as fresh pork
to national and regional supermarket chains, wholesale distributors and the
foodservice industry (fast food, restaurant and hotel chains, hospitals and
other institutional customers) and export markets. Management believes that this
marketing approach reaches the largest number of value-conscious consumers
without requiring large advertising and promotional campaigns. The Company uses
both in-house salesmen as well as independent commission brokers to sell its
products. In fiscal 1996, the Company sold its products to more than 3,500
customers, none of whom accounted for as much as 10% of the Company's revenues.
The Company has no significant or seasonally variable backlog because most
customers prefer to order products shortly before shipment, and therefore, do
not enter into formal long-term contracts. Management believes that its
registered trademarks have been important to the success of its branded
processed meat products.
The Company in recent years has placed major emphasis on growing and
expanding its international sales, which currently comprise approximately 7% of
its total dollar sales. The Company provides the Japanese market with a line of
unique branded, as well as other chilled and frozen unbranded, fresh pork
products. Export sales to Japan increased significantly in fiscal 1996,
reflecting increased volume through a distributorship arrangement with Sumitomo
Corporation of America. The Company also had export sales to Russia and Mexico
in fiscal 1996, and export sales in varying amounts to other foreign markets.
The Company expects continued growth in its international sales for the
foreseeable future. The Company is targeting Europe and attractive Pacific Rim
markets such as Korea, Taiwan, Hong Kong and Singapore for international sales
expansion. International sales are subject to factors beyond the Company's
control, such as tariffs, exchange rate fluctuations and changes in governmental
policies. The Company conducts all of its export sales in dollars and therefore
bears no currency translation risk.
The Company's processed meats business is somewhat seasonal in that,
traditionally, the heavier periods of sales for hams are the holiday seasons
such as Thanksgiving, Christmas and Easter, and the heavier periods of sales of
smoked sausage, hot dogs and luncheon meats are the summer months. The Company
typically builds substantial inventories of hams in anticipation of its holiday
seasons' business.
The Company uses recognized price risk management and hedging techniques
to enhance sales and to reduce the effect of adverse price changes on the
Company's profitability. The Company's price risk management and hedging
activities currently are utilized in the areas of forward sales, hog production
margin management, procurement of raw materials (ham and bacon) for seasonal
demand peaks, inventory hedging, hog contracting and truck fleet fuel purchases.
DISTRIBUTION
The Company uses a private fleet of leased tractors and trailers, as
well as independent common carriers, to distribute both fresh pork and processed
meats to its customers, as well as to move raw material between plants for
further processing. The Company coordinates deliveries and employs backhauling
to reduce overall transportation costs. The Company distributes its products
directly from certain of its plants and from leased distribution centers located
in Connecticut, Indiana, Missouri, Kansas, Texas and California. During fiscal
1997, the Company expects to complete a distribution center adjacent to its
plant in Sioux Falls, South Dakota.
COMPETITION
The protein industry generally, and the pork processing industry in
particular, are highly competitive. The Company's products compete with a large
number of other protein sources, including beef, chicken, turkey and seafood,
but the Company's principal competition comes from other pork processors.
Management believes that the principal competitive factors in the pork
processing industry are price, quality, product distribution and brand loyalty.
Some of the Company's competitors are larger, have correspondingly greater
financial and other resources and enjoy wider recognition for their branded
products. Some of these competitors are also more diverse
- 6 -
<PAGE>
than the Company. To the extent that their other operations generate profits,
such companies may be able to subsidize their pork processing operations for a
time.
REGULATION
Like other participants in the meat processing industry, the Company is
subject to various laws and regulations administered by federal, state and other
government entities, including the Environmental Protection Agency ("EPA") and
corresponding state agencies such as the Virginia State Water Control Board
("SWCB"), the North Carolina Division of Environmental Management, the Iowa
Department of Natural Resources, the South Dakota Department of Environment and
Natural Resources, the United States Department of Agriculture and the
Occupational Safety and Health Administration. Management believes that the
Company complies with all such laws and regulations in all material respects,
except as set forth immediately below, and that continued compliance with these
standards will not have a material adverse effect on the Company's financial
position or results of operations.
The wastewater discharge permit for Smithfield Packing's and Gwaltney's
plants in Smithfield, Virginia imposes more stringent phosphorus and ammonia
effluent limitations than the plants can currently meet. To achieve compliance,
the Company agreed to discontinue its wastewater discharges to the Pagan River
and connect its wastewater treatment plants to the regional sewage collection
and treatment system operated by the Hampton Roads Sanitation District ("HRSD").
The Company has received a directive to connect its Gwaltney wastewater system
to the HRSD system by June 25, 1996, and expects to receive before the end of
calendar year 1996 a similar directive with respect to its Smithfield Packing
wastewater system. The Company expects to incur approximately $2.7 million in
capital costs (of which $1.3 million has been expended through the end of fiscal
1996) to upgrade its existing treatment systems and make these connections.
After such connections have been made the Company will incur sewer use charges
(approximately $1.7 million annually) imposed by HRSD in addition to the
Company's existing costs of pretreating its wastewater before discharge to the
HRSD system. These HRSD sewer use costs will be accounted for as current period
charges in the years in which such costs are incurred.
Pending connection to the HRSD system, the plants are being operated
under an administrative consent order entered into with the SWCB. During the
period May 1994 through January 1995, the Company's plants had a number of
violations of its permit and the consent order, which led the SWCB to place
these Company plants on its "significant noncompliance" list. Placement on that
list is required by the SWCB's practices when any one of several circumstances
occur, including a single violation of an administrative consent order
provision. The Company has corrected the conditions which caused these
violations, and has experienced only three isolated daily permit violations
during the past year. These two plants are presently in compliance with the
effluent limitations in the SWCB administrative order and those effluent
limitations in its permit except phosphorus and ammonia limitations. The SWCB's
staff has given the Company written notice of its intention to recommend that
the SWCB refer these and other permit violations, including the recordkeeping
violations discussed below, to the Virginia Attorney General for appropriate
legal action. The nature and extent of any action that may be taken by the SWCB
or the Virginia Attorney General or of any sanctions or other requirements which
may be imposed upon the Company are not known.
The Company regularly conducts tests of its wastewater discharges to
assure compliance with the provisions of its wastewater discharge permits.
Federal and state laws require that records of tests be maintained for three
years. Failure to maintain these records may result in the imposition of civil
penalties. Criminal sanctions may be imposed in the event of false reporting or
destruction of records. In the course of a SWCB inspection of its Smithfield,
Virginia plants in May, 1994, it was discovered that records of certain tests
conducted by the Company from 1992 through early 1994 could not be located. The
employee responsible for the supervision of the tests and maintenance of the
test records was replaced. No judicial proceedings have yet been instituted
against the Company as a result of its inability to locate the records for the
period noted and, other than the written notice referred to above, no
administrative proceeding has yet been initiated. The U.S. Department of
Justice, EPA and Federal Bureau of Investigation are engaged in an investigation
of possible criminal charges of false reporting and destruction of records. In
April, 1996, an attorney with the Department of Justice advised the Company that
the Company was not then a target of the investigation, and that the
investigation was focused on the former employee responsible for supervision of
the tests and maintenance of the records. The Company has heard nothing further
from the Department of Justice. The nature and extent of any action that may be
taken by one or more governmental agencies or of any sanctions or other
requirements which may be imposed upon the Company are not known.
- 7 -
<PAGE>
Based on its knowledge, as summarized above, of the facts and
circumstances surrounding the violations and investigations discussed above, the
Company believes that the ultimate resolution of these matters will not have a
material adverse effect on its financial position or annual results of
operations.
On February 7, 1996, John Morrell executed a Plea Agreement with the
Department of Justice in connection with water pollution violations that
allegedly occurred at its Sioux Falls, South Dakota plant from 1985 through
1992, several years prior to the Company's acquisition of John Morrell. On May
28, 1996, the Agreement was executed by the government and entered by the court,
and John Morrell pled guilty to six counts of violating the Clean Water Act due
to numerous discharge exceedances, failure to report the exceedances, and
submitting false reports. John Morrell paid a $3 million penalty. Under two
related civil consent decrees, John Morrell also will pay a $250,000 civil
penalty, make certain improvements at the Sioux Falls plant, and carry out
pollution-prevention and compliance-management audits. In view of these
improvements and commitments, and especially due to efforts by both John Morrell
and the Company to improve John Morrell's environmental compliance programs, on
May 28, 1996, the EPA formally agreed not to debar John Morrell from contracting
with the government. EPA determined that John Morrell and the Company had fully
corrected the conditions giving rise to the violations.
EMPLOYEES
The Company has approximately 16,300 employees, approximately 9,700 of
whom are covered by collective bargaining agreements expiring between February
5, 1997 and May 19, 2000. The Company believes that its relationship with its
employees is good.
OTHER
With the exception of the franchise agreement between
Smithfield-Carroll's and NPD (referred to above), the Company has no patents,
licenses, franchises or concessions which it considers material to its business.
The Company owns and uses numerous marks, which are registered
trademarks of the Company or are otherwise subject to protection under
applicable intellectual property laws. Such registrations may be kept in force
in perpetuity through continued use of the marks and timely renewal. The Company
considers these marks and the accompanying goodwill and customer recognition
valuable and material to its business.
ITEM 2. PROPERTIES
The following table summarizes information concerning the principal
plants and other materially important physical properties of the Company:
<TABLE>
<CAPTION>
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION (ACRES) (SQ. FT.)
- -------------------------------------------------------------------------------------------------------
<S> <C>
Smithfield Packing Plant No. 1* Slaughtering and cutting hogs; 25.5 457,000
501 North Church Street manufacture of bacon products, smoked
Smithfield, Virginia meats, and dry salt meats; production of
hams and picnics
Smithfield Packing Plant No. 2* Production of bone-in and boneless 20.0 218,000
2501 West Vernon Avenue cooked and smoked ham and other
Kinston, North Carolina smoked meat products
Smithfield Packing Plant No. 3* Production of bone-in smoked ham and 7.8 136,000
5801 Columbia Park Drive other smoked meat products
Landover, Maryland
</TABLE>
- 8 -
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION (ACRES) (SQ. FT.)
- ------------------------------------------------------------------------------------------------------
<S> <C>
Smithfield Packing Plant No. 4* Slaughtering and cutting hogs; 860.0 966,000
Carolina Food Processors production of boneless hams and loins
Division (Bladen County)
Route #87
Tarheel, North Carolina
Gwaltney Plant No. 1* Slaughtering and cutting hogs; 56.4 556,000
601 North Church Street production of boneless loins, bacon,
Smithfield, Virginia sausage, bone-in and boneless cooked
and smoked hams and picnics
Gwaltney Plant No. 2* Production of hot dogs, luncheon meats 13.1 200,000
3515 Airline Boulevard and sausage products
Portsmouth, Virginia
Gwaltney Plant No. 3 Manufacture of bacon, smoked sausage 11.0 152,000
1013 Iowa Street and boneless cooked hams
Salem, Virginia
John Morrell Plant No. 1 Slaughtering and cutting hogs and 88.0 2,350,000
1400 N. Weber Avenue lambs; production of boneless loins,
Sioux Falls, South Dakota bacon, bot dogs, luncheon meats,
smoked and canned hams, and packaged
lard
John Morrell Plant No. 2 Slaughtering and cutting hogs; 22.0 243,000
1200 Bluff Road production of boneless hams, loins, butts
Sioux City, Iowa and picnics
John Morrell Plant No. 3 Production of hot dogs, luncheon meats, 21.0 177,000
801 East Kemper Road smoked sausage and smoked hams
Springdale, Ohio
John Morrell Plant No. 4 Production of bacon and smoked hams 60.0 150,000
South 281 Highway
Great Bend, Kansas
Patrick Cudahy Plant Manufacture of bacon, dry sausage, 60.0 1,090,000
3500 E. Barnard Avenue boneless cooked hams and refinery
Cudahy, Wisconsin products
</TABLE>
- ------------------------
* Pledged as collateral under various loan agreements.
The Company, through John Morrell, leases John Morrell Plant No. 3 under
the terms of a 20-year lease expiring in September 2000. The lease includes an
option to purchase the property.
The Company, through Brown's, owns and leases hog production facilities
in North Carolina and South Carolina, and through Smithfield-Carroll's, owns hog
production facilities in North Carolina and Virginia.
- 9 -
<PAGE>
The Company operates hog buying stations in North Carolina, South
Carolina and Virginia which have facilities for purchasing and loading hogs for
shipment to the Company's plants in Smithfield, Virginia and Bladen County,
North Carolina, and hog buying stations in Iowa, Kansas, Minnesota, Nebraska and
South Dakota, which have facilities for purchasing and loading hogs for shipment
to the Company's plants in Sioux City, Iowa and Sioux Falls, South Dakota.
ITEM 3. LEGAL PROCEEDINGS
Smithfield Foods and its subsidiaries and affiliates are parties in
various lawsuits arising in the ordinary course of business, excluding certain
matters discussed under "Business -- Regulation" above. In the opinion of
management, any ultimate liability with respect to these matters will not have a
material adverse effect on the Company's financial position or results of
operations. For a discussion of certain other regulatory and environmental
matters, see "Item 1. Business -Regulation" above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
- 10 -
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name and age, position with the
Company and business experience during the past five years of each of the
executive officers of the Company. The Board of Directors elects executive
officers to hold office until the next annual meeting of the Board or Directors
or until their successors are elected, or until their resignation or removal.
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE
NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C>
Joseph W. Luter, III (57) Chairman of the Board and Mr. Luter has served as Chairman of
Chief Executive Officer the Board and Chief Executive
of the Company Officer since 1975. Prior to
May 1995, he also served as
President of the Company.
John O. Nielson (65) President and Chief Operating Mr. Nielson joined the Company in
Officer of the Company May 1995 as President and Chief
Operating Officer.
Between May 1995 and
December 1995, he also served
as President and Chief
Operating Officer of
Smithfield Packing. Mr.
Nielson was a consultant and
private investor from
June 1989 to May 1995. Prior
to June 1989, he held various
executive positions with
John Morrell, including
President and Chief Operating
Officer.
Thomas D. Davis (40) President and Chief Operating Mr. Davis was elected President and
Officer of Smithfield Packing Chief Operating Officer of
Smithfield Packing in December
1995. He served as Senior Vice
President of Smithfield Packing from
June 1995 until December 1995.
Between February 1995 and June
1995, Mr. Davis was Vice President
of Triad Food Marketing, Inc.
Between October 1994 and February
1995, he held a senior management
position with Chiquita Brands
International, Inc. Prior to October
1994, Mr. Davis was Executive Vice
President of John Morrell.
Roger R. Kapella (54) President and Chief Operating Mr. Kapella has served as President
Officer of Patrick Cudahy and Chief Operating Officer of
Patrick Cudahy since 1986.
</TABLE>
- 11 -
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE
NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------
<S> <C>
Lewis R. Little (52) President and Chief Operating Mr. Little was elected President and
Officer of Gwaltney Chief Operating Officer of Gwaltney
in May 1993. Prior to May 1993,
Mr. Little served as Executive Vice
President of Gwaltney.
Joseph B. Sebring (49) President and Chief Operating Mr. Sebring has served as President
Officer of John Morrell and Chief Operating Officer of John
Morrell since May 1994. Between
1992 and May 1994, he served as
President and Chief Executive
Officer of Indiana Packers Company.
Prior to 1992, Mr. Sebring was
Executive Vice President of Fresh
Mark, Inc.
Robert W. Manly, IV (44) Executive Vice President Mr. Manly has served as Executive
of the Company Vice President of the Company since
June 1995 and prior to June
1994. Between June 1994 and
June 1995, he served as
President and Chief Operating
Officer of Smithfield Packing.
C. Larry Pope (41) Vice President and Controller Mr. Pope joined the Company as
of the Company Controller in 1980. He was elected
Vice President and Controller in
August 1995.
Aaron D. Trub (61) Vice President, Secretary and Mr. Trub has served as Vice
Treasurer of the Company President, Secretary and Treasurer of
the Company since 1978.
</TABLE>
- 12 -
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock of the Company is traded in the national
over-the-counter market and is authorized for quotation on The Nasdaq National
Market under the symbol "SFDS."
The following table sets forth, for the fiscal periods indicated, the
highest and lowest sales prices of the Common Stock on The Nasdaq National
Market.
Range of Sales Prices
-------------------------
High Low
-------------------------
Fiscal year ended April 30, 1995
First quarter ....................... $30.25 $21.50
Second quarter ...................... 31.75 24.00
Third quarter ....................... 34.00 26.50
Fourth quarter ...................... 34.25 20.75
Fiscal year ended April 28, 1996
First quarter ....................... 24.25 19.50
Second quarter ...................... 27.00 19.75
Third quarter ....................... 32.75 24.75
Fourth quarter ...................... 31.06 25.25
HOLDERS
As of July 12, 1996, there were 1,346 record holders of the Common
Stock.
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock and does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future. In addition, the terms of certain of the Company's debt agreements
prohibit the payment of cash dividends on the Common Stock. The payment of cash
dividends, if any, will be made only from assets legally available for that
purpose, and will depend on the Company's financial condition, results of
operations, current and anticipated capital requirements, restrictions under
then existing debt instruments and other factors deemed relevant by the board of
directors.
- 13 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the fiscal
years indicated were derived from the Company's audited consolidated financial
statements. The information should be read in conjunction with the Company's
consolidated financial statements (including the notes thereto) and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in, or incorporated by reference into, this
report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
APRIL 28, APRIL 30, MAY 1, MAY 2, MAY 3,
1996 1995 1994 1993 1992
<S> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Sales................................................ $2,383,893 $1,526,518 $ 1,403,485 $1,113,712 $1,036,613
Cost of sales (1).................................... 2,203,626 1,380,586 1,287,880 1,037,628 949,200
Gross profit (1)..................................... 180,267 145,932 115,605 76,084 87,413
Selling, general and administrative expenses (1)..... 103,095 61,723 50,738 42,924 40,065
Depreciation expense................................. 25,979 19,717 21,327 18,418 12,630
Interest expense..................................... 20,942 14,054 11,605 6,183 3,903
Plant closing costs.................................. -- -- -- 3,598 --
Gain on sale of marketable securities................ -- -- -- -- (2,830)
Income from continuing operations before
income taxes and change in accounting
for income taxes.................................. 30,251 50,438 31,935 4,961 33,645
Income taxes......................................... 10,465 18,523 12,616 1,690 11,821
Income from continuing operations before change in
accounting for income taxes....................... 19,786 31,915 19,319 3,271 21,824
Income (loss) from discontinued operations........... (3,900) (4,075) 383 (420) (189)
Cumulative effect of change in accounting for income
taxes............................................. -- -- -- 1,138 --
Net income........................................ $ 15,886 $ 27,840 $ 19,702 $ 3,989 $ 21,635
NET INCOME (LOSS) PER SHARE:
Continuing operations before cumulative effect of
change in accounting for income taxes............. $ 1.06 $ 1.83 $ 1.11 $ .18 $ 1.38
Discontinued operations.............................. (.22) (.24) .02 (.03) (.01)
Cumulative effect of change in accounting for
income taxes...................................... -- -- -- .07 --
Net income........................................... $ .84 $ 1.59 $ 1.13 $ .22 $ 1.37
Weighted average shares outstanding.................. 17,530 17,059 16,768 16,372 15,813
BALANCE SHEET DATA:
Working capital...................................... $ 88,026 $ 60,911 $ 81,529 $ 64,671 $ 26,672
Total assets......................................... 857,619 550,225 452,279 399,567 277,685
Long-term debt and capital lease obligations......... 188,618 155,047 118,942 124,517 49,091
Stockholders' equity................................. 242,516 184,015 154,950 135,770 113,754
OPERATING DATA:
Fresh pork sales (pounds)............................ 1,635,300 955,290 820,203 588,284 527,611
Processed meats sales (pounds)....................... 839,341 774,615 661,783 631,521 581,303
Total hogs purchased................................. 12,211 8,678 7,414 5,767 4,790
</TABLE>
(1) Certain expenses previously classified as selling, general and
administrative have been reclassified as cost of sales.
- 14 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis set forth below should be read in
conjunction with the Company's consolidated financial statements (including the
notes thereto) appearing elsewhere in this Form 10-K.
FISCAL 1996 COMPARED TO FISCAL 1995
On December 20, 1995, the Company acquired all of the capital stock of
John Morrell for $58.0 million comprised of $25.0 million in cash and $33.0
million of the Company's common stock plus the assumption of all of John
Morrell's liabilities. The Company's fiscal 1996 operating results include the
results of operations of John Morrell for the period from December 20, 1995
through April 28, 1996.
Sales in fiscal 1996 increased $857.4 million, or 56.2%, from fiscal
1995. The increase was primarily due to the inclusion of the sales of John
Morrell for the eighteen-week period and increased sales of fresh pork related
to increased slaughter levels at the Company's Bladen County, North Carolina
plant. The increase in sales was the result of a 42.0% increase in sales tonnage
combined with a 9.9% increase in unit selling prices, reflecting the passthrough
to the consumer of higher raw material (live hog) costs. The increase in sales
tonnage reflected a 71.2% increase in fresh pork tonnage and a 8.4% increase in
processed meats tonnage.
Cost of sales increased $823.0 million, or 59.6%, in fiscal 1996,
reflecting the increased sales tonnage, a 20.0% increase in live hog costs and
higher warehousing and distribution costs associated with the increase in sales
tonnage. During fiscal 1996, certain warehousing and distribution costs were
reclassified from selling, general and administrative expenses to cost of sales.
Gross profit increased $34.3 million, or 23.5%, in fiscal 1996, compared to
fiscal 1995. The increase in gross profit resulted from the increased sales
tonnage of both fresh pork (58.8% of dollar sales) and processed meats (36.7% of
dollar sales), offset by lower sales margins on both fresh pork and processed
meats. In addition, gross profit was favorably affected by a $10.8 million
reduction in cost of sales as a result of the Company's hog production
operations and joint hog production arrangements. In fiscal 1995, gross profit
was adversely affected by a $0.2 million increase in cost of sales as a result
of the performance of these operations. During fiscal 1996, the Company obtained
11.3% of the hogs it processed from Brown's and Smithfield-Carroll's.
The Company uses recognized price risk management and hedging techniques
to enhance sales and to reduce the effect of adverse price changes on the
Company's profitability. The Company's price risk management and hedging
activities currently are utilized in the areas of forward sales, hog production
margin management, procurement of raw materials (ham and bacon) for seasonal
demand peaks and inventory hedging. The Company recognizes gains and losses
resulting from hedging transactions when the related sales are made and hedges
are lifted. As of April 28, 1996, the Company had deferred $2.2 million of
unrealized hedging gains on outstanding futures contracts pending the completion
of the sales transaction and lifting of the hedges.
Selling, general and administrative expenses increased $41.4 million, or
67.0%, in fiscal 1996. The increase was primarily due to the inclusion of the
operations of John Morrell and higher selling and marketing costs associated
with the increase in fresh pork tonnage.
Depreciation expense increased $6.3 million, or 31.8%, in fiscal 1996
from fiscal 1995. The increase was related to continued expansion at the Bladen
County plant, additional hog production facilities at Brown's and the inclusion
of the operations of John Morrell.
Interest expense increased $6.9 million, or 49.0%, in fiscal 1996,
reflecting increased carrying costs on long-term debt related to the funding of
capital projects at the Bladen County plant and Brown's, higher short- and
long-term interest rates, and interest costs associated with the cash portion of
the purchase price related to the acquisition of John Morrell.
The effective income tax rate in fiscal 1996 decreased to 34.6% from
36.7% in fiscal 1995 reflecting a lower tax rate on foreign sales and benefits
related to certain insurance contracts. The Company had no valuation allowance
related to income tax assets as of April 28, 1996, and there was no change in
the valuation allowance during fiscal 1996.
- 15 -
<PAGE>
Income from continuing operations decreased $12.1 million in fiscal
1996, reflecting lower sales margins on both fresh pork and processed meats
compared to fiscal 1995. The prior year's results reflected exceptionally strong
margins on fresh pork due to unusually low hog prices. In addition, the
Company's fiscal 1996 profitability was adversely affected by inefficiencies and
increased costs associated with the start-up of the second shift at the Bladen
County plant which brought the operation of the plant to 75% of its planned
slaughter capacity. John Morrell made a significant contribution to the
Company's overall profitability in fiscal 1996. In the first quarter of fiscal
1997, the Company continues to experience strong pressure on both fresh pork and
processed meats margins as a result of sharply higher live hog costs, continued
industry overcapacity, large supplies of low-priced beef and consumer resistance
to higher-priced pork products. While the pork industry is cyclical and
financial performance is not highly predictable, the Company anticipates that
the present highly-competitive and difficult environment will moderate as fiscal
1997 progresses. In addition, the Company expects that its export business will
continue to grow and positively impact profitability in fiscal 1997.
In fiscal 1996, the Company completed the disposition of the assets and
business of Ed Kelly, Inc. ("Kelly"), its former retail electronics subsidiary,
which is reported separately as discontinued operations in the consolidated
statements of income. The delay in the final disposition of the assets and
business led to an unanticipated deterioration of Kelly's estimated realization
value, resulting in an additional loss from discontinued operations of $3.9
million in fiscal 1996. Fiscal 1995 reflected a loss from discontinued
operations related to Kelly of $4.1 million.
Reflecting the factors discussed above, net income decreased to $15.9
million in fiscal 1996 from $27.8 million in fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales in fiscal 1995 increased $123.0 million, or 8.8%, from fiscal
1994. The increase was the result of an 18.0% increase in sales tonnage offset
by a 7.8% decrease in unit selling prices due to lower live hog costs. The
increase in sales tonnage was the result of a 16.5% increase in fresh pork
tonnage combined with a 17.1% increase in processed meats tonnage.
Cost of sales increased $92.7 million, or 7.2%, in fiscal 1995,
primarily due to the increased sales tonnage offset by a 16.0% decrease in the
cost of live hogs. Gross profit increased $30.3 million, or 26.2%, in fiscal
1995, compared to fiscal 1994. The increase in gross profit resulted from the
increased sales tonnage of both fresh pork (51.2% of dollar sales) and processed
meats (44.6% of dollar sales), and increased margins on sales of both fresh pork
and processed meats.
Gross profit in fiscal 1995 was adversely affected by a $0.2 million
increase in cost of sales as a result of the performance of Brown's and
Smithfield-Carroll's. In fiscal 1994, the performance of these operations
resulted in a reduction in cost of sales of $10.3 million. The Company obtained
12.1% of the hogs which it processed in fiscal 1995 from Brown's and
Smithfield-Carroll's, compared with 11.4% in fiscal 1994.
Selling, general and administrative expenses increased $10.9 million, or
21.7%, in fiscal 1995. The increase reflected higher personnel costs and
administrative expenses related to additional supervisory and support staff for
current and anticipated future growth.
Depreciation expense decreased $1.6 million, or 7.5%, in fiscal 1995.
Increased depreciation charges related to expansion at the Bladen County plant
and Brown's were offset by reduced depreciation charges resulting from a
revision in estimated useful lives of certain assets beginning in the third
quarter of fiscal 1994. This change in accounting estimate reduced depreciation
by $7.7 million in fiscal 1995 and $3.9 million in fiscal 1994.
Interest expense increased $2.4 million, or 21.1%, reflecting higher
long-term debt related to the funding of capital projects at the Bladen County
plant and Brown's, and higher short- and long-term rates.
The effective income tax rate in fiscal 1995 decreased to 36.7% from
39.5% in the prior year, reflecting the impact of increased employment incentive
credits, lower taxes on foreign sales and benefits related to certain insurance
contracts.
- 16 -
<PAGE>
The Company had no valuation allowance related to income tax assets as of April
30, 1995, and there was no change in the valuation allowance during fiscal 1995.
The increase in income from continuing operations in fiscal 1995 was
largely attributable to substantially higher sales margins on fresh pork in the
second and third quarters which resulted from a large supply of hogs and the
lowest hog prices in a decade.
As of April 30, 1995, the Company adopted a plan to sell the assets and
business of Kelly, the Company's former retail electronics subsidiary and
reflected the operations as discontinued operations on the consolidated
statements of income. The loss from discontinued operations in fiscal 1995
includes the write-off of the goodwill and all estimated costs and write-downs
related to the planned disposal of the assets and business of Kelly.
Reflecting the factors discussed above, net income increased to $27.8
million in fiscal 1995 from $19.7 million in fiscal year 1994.
FINANCIAL CONDITION
The pork processing industry is characterized by high sales tonnage and
rapid turnover of inventories and accounts receivable. Because of the rapid
turnover rate, the Company considers its inventories and accounts receivable
highly liquid and readily convertible into cash. Borrowings under the Company's
lines of credit are used to finance increases in the levels of inventories and
accounts receivable resulting from seasonal and other market-related
fluctuations in raw material costs. The demand for seasonal borrowings usually
peaks in early November when ham inventories are at their highest levels and
borrowings are repaid in January when accounts receivable generated by sales of
these hams are collected.
On December 20, 1995, the Company acquired from Chiquita Brands
International, Inc. all of the capital stock of John Morrell for a total
purchase price of $58.0 million, consisting of $25.0 million in cash and $33.0
million of its common stock (1,094,273 shares). The Company also assumed all of
John Morrell's liabilities, including $71.7 million in unfunded pension
liabilities.
As of April 28, 1996, the Company had aggregate lines of credit of
$265.0 million, including a $75.0 million line of credit assumed in connection
with the acquisition of John Morrell. Borrowings under the lines are secured by
substantially all of the Company's inventories and accounts receivable. Weighted
average borrowings under the lines were $133.4 million in fiscal 1996, $69.9
million in fiscal 1995 and $66.6 million in fiscal 1994 at weighted average
interest rates of approximately 7%, 6% and 4%, respectively. Maximum borrowings
were $179.8 million in fiscal 1996, $117.0 million in fiscal 1995 and $105.1
million in fiscal 1994. The outstanding balances under these lines totaled
$151.3 million and $67.2 million as of April 28, 1996 and April 30, 1995,
respectively, at a weighted average interest rate of 7% for both years.
Subsequent to year-end, the Company consolidated its lines of credit into a
single line of credit by increasing a previously existing $200.0 million line of
credit to $255.0 million. This line consists of a 364-day, $205.0 million
revolving credit facility and a two-year, $50.0 million revolving credit
facility. The short-term facility is being used for seasonal inventory and
receivable needs and the long-term facility is being used for working capital
and capital expenditures. The Company terminated the $75.0 million John Morrell
credit facility on April 30, 1996.
Capital expenditures totaled $74.9 million in fiscal 1996 and consisted
primarily of $26.1 million for hog production facilities at Brown's and $23.4
million for capital projects at the Bladen County plant, including a new storage
and distribution center. The capital expenditures were funded with a portion of
the $50.0 million bank revolving credit facility and $20.0 million in cash from
the private sale of the Company's Series C 6.75% cumulative convertible
redeemable preferred stock to Sumitomo Corporation of America. This preferred
stock is convertible into 666,666 shares of the Company's common stock at $30.00
per share.
During fiscal 1996, all of the Company's Series B 6.75% preferred stock
was converted into 465,116 shares of the Company's common stock at $21.50 per
share.
The Company has negotiated the private placement of $140.0 million of 7-
and 10-year senior secured notes with a group of institutional lenders. The
proceeds from this financing will be used to repay $65.7 million of presently
existing
- 17 -
<PAGE>
long-term debt and reduce short-term borrowings. The Company expects to close
this transaction in the first quarter of fiscal 1997.
In fiscal 1997, the Company expects a reduction in capital spending from
its levels in recent years. The fiscal 1997 capital expenditure plans include
certain capital improvements to John Morrell's Sioux Falls, South Dakota plant,
completion of Patrick Cudahy Incorporated's new dry sausage facility and
completion of Brown's expansion program including a feed mill.
The Company's various debt agreements contain covenants regarding
working capital, current ratio, fixed charges coverage and net worth, and, among
other restrictions, limit additional borrowings, the acquisition, disposition
and leasing of assets, and payment of dividends to stockholders. Additionally,
existing loan covenants contain provisions which substantially limit the amount
of funds available for transfer from its subsidiaries to Smithfield Foods, Inc.
without the consent of certain lenders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements listed in Item 14(a) hereof are
incorporated herein by reference and are filed as a part of this report
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 18 -
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Information required by this Item regarding directors and all
persons nominated or chosen to become directors is incorporated by reference
from the Company's definitive proxy statement to be filed with respect to its
Annual Meeting of Stockholders to be held on August 28, 1996.
(b) Information required by this Item regarding the executive officers
of the Company is included in Part I, Item 4A of this report.
There is no family relationship between any of the persons named in
response to Item 10.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Stockholders to be held on August 28, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Stockholders to be held on August 28, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Stockholders to be held on August 28, 1996.
- 19 -
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. Index to Financial Statements and Financial Statement
Schedule
An "Index to Financial Statements and Financial Statement Schedule" has
been filed as a part of this Form 10-K Annual Report on page F-1 hereof.
3. Exhibits
Exhibit 3.1 -- Composite Certificate of Incorporation of the Company, as
amended to date (incorporated by reference to Exhibit 3.1 to
the Company's Form 10-K Annual Report for the fiscal year
ended April 28, 1991).
Exhibit 3.1(a) -- Certificate of Designation of Series C 6-3/4% Cumulative
Convertible Preferred Stock, par value $1.00 per share, of
the Company.
Exhibit 3.2 -- By-Laws of the Company, as amended to date.
Exhibit 4.1 -- Composite Certificate of Incorporation of the Company, as
amended to date (see Exhibit 3.1 above).
Exhibit 4.2 -- Form of Certificate representing the Company's Common Stock,
par value $.50 per share (including Rights legend)
(incorporated by reference to Exhibit 4.2 to the Company's
Form 10-K Annual Report for the fiscal year ended April 28,
1991).
Exhibit 4.3 -- Form of Certificate representing the Company's Series C
6-3/4% Cumulative Convertible Preferred Stock, par value
$1.00 per share (including Rights legend).
Exhibit 4.4 -- Form of Certificate representing Rights (incorporated by
reference to Exhibit 4 to the Company's Amendment No. 1 to
Registration Statement on Form 8-A dated May 23, 1991).
Exhibit 4.5 -- Rights Agreement dated as of May 8, 1991, as amended by
Amendment No. 1 dated as of January 31, 1994, by and between
the Company and First Union National Bank of North Carolina,
Rights Agent (incorporated by reference to Exhibit 4.5 to the
Company's Form 10-K Annual Report for the fiscal year ended
May 1, 1994).
Exhibit 4.6 -- Fourth Amended, Restated and Continued Revolving Credit
Agreement dated as of April 30, 1996 among Gwaltney of
Smithfield, Ltd., The Smithfield Packing Company,
Incorporated, Patrick Cudahy Incorporated, Esskay, Inc.,
Brown's of Carolina, and John Morrell & Co., and Cooperative
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch, as agent, and each bank a party
thereto.
Exhibit 4.6(a) -- Fourth Amended, Restated and Continued Guaranty dated as of
April 30, 1996, made by Smithfield Foods, Inc. in favor of
Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as agent for the banks
a party to the Credit Agreement, as defined therein.
Exhibit 4.6(b) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by Gwaltney of Smithfield,
Ltd. to Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as Agent under the
Credit Agreement.
- 20 -
<PAGE>
Exhibit 4.6(c) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by The Smithfield Packing
Company, Incorporated, to Cooperative Centrale
RaiffeisenBoerenleenbank B.A., "Rabobank Nederland", New York
Branch, as Agent under the Credit Agreement.
Exhibit 4.6(d) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by Patrick Cudahy
Incorporated to Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as Agent under the Credit Agreement.
Exhibit 4.6(e) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by Esskay, Incorporated to
Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as Agent under the
Credit Agreement.
Exhibit 4.6(f) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by Brown's of Carolina, Inc.
to Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as Agent under the
Credit Agreement.
Exhibit 4.6(g) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by John Morrell & Co. to
Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as Agent under the
Credit Agreement.
Exhibit 4.7 -- Note Agreement dated July 29, 1988 between The Smithfield
Packing Company, Incorporated and John Hancock Mutual Life
Insurance Company, covering $15,000,000 9.80% Secured Notes
due August 1, 2003 (incorporated by reference to Exhibit 4.11
to the Company's Form 10-K Annual Report for the fiscal year
ended April 30, 1989).
Exhibit 4.7(a) -- Guaranty and Agreement by Smithfield Foods, Inc. dated July
29, 1988 (incorporated by reference to Exhibit 4.11(a) to the
Company's Form 10-K Annual Report for the fiscal year ended
April 30, 1989).
Exhibit 4.8 -- Note Agreement dated August 6, 1990 between The Smithfield
Packing Company, Incorporated and John Hancock Mutual Life
Insurance Company, covering $15,000,000 10.75% Secured Notes
due August 1, 2005 (incorporated by reference to Exhibit 4.10
to the Company's Form 10-K Annual Report for the fiscal year
ended April 28, 1991).
Exhibit 4.8(a) -- Guaranty and Agreement by Smithfield Foods, Inc. dated August
6, 1990 (incorporated by reference to Exhibit 4.10(a) to the
Company's Form 10-K Annual Report for the fiscal year ended
April 28, 1991).
Exhibit 4.9 -- Note Agreement dated October 31, 1991 between Gwaltney of
Smithfield, Ltd. and John Hancock Mutual Life Insurance
Company, covering $20,000,000 9.85% Secured Notes due
November 1, 2006 (incorporated by reference to Exhibit 4.9 to
the Company's Form 10-K Annual Report for the fiscal year
ended May 3, 1992).
Exhibit 4.9(a) -- Guaranty and Agreement by Smithfield Foods, Inc. dated
October 31, 1991 (incorporated by reference to Exhibit 4.9(a)
to the Company's Form 10-K Annual Report for the fiscal year
ended May 3, 1992).
Exhibit 4.10 -- Note Purchase Agreement dated January 15, 1993, by and among
Carolina Food Processors, Inc. and Smithfield Foods, Inc. and
John Hancock Mutual Life Insurance Company, Massachusetts
Mutual Life Insurance Company and MML Pension Insurance
Company, covering $25,000,000 8.41% Senior Secured Notes due
February 1, 2013, guaranteed by Smithfield Foods, Inc.
(incorporated by reference to Exhibit 4.11 to the Company's
Form 10-K Annual Report for the fiscal year ended May 2,
1993).
- 21 -
<PAGE>
Exhibit 4.10(a) -- Omnibus Amendment Agreement dated December 1, 1993 by and
among Smithfield Foods, Inc., Carolina Food Processors, Inc.,
John Hancock Mutual Life Insurance Company and MML Pension
Insurance Company (incorporated by reference to Exhibit
4.10(a) to the Company's Form 10-K Annual Report for the
fiscal year ended May 1, 1994).
Exhibit 4.10(b) -- Assumption, Waiver and Amendment Agreement dated May 1, 1994,
by and among The Smithfield Packing Company, Incorporated,
Smithfield Foods, Inc., John Hancock Mutual Life Insurance
Company and MML Pension Insurance Company (incorporated by
reference to Exhibit 4.10(b) to the Company's Form 10-K
Annual Report for the fiscal year ended May 1, 1994).
Exhibit 4.11 -- Master Lease Agreement dated May 14, 1993 between General
Electric Capital Corporation and Brown's of Carolina, Inc.
(incorporated by reference to Exhibit 4.12 to the Company's
Form 10--K Annual Report for the fiscal year ended May 2,
1993).
Exhibit 4.11(a) -- Corporate Guaranty by Smithfield Foods, Inc. dated May 14,
1993 (incorporated by reference to Exhibit 4.12(a) to the
Company's Form 10-K Annual Report for the fiscal year ended
May 2, 1993).
Exhibit 4.12 -- Amended and Restated Credit Agreement dated June 28, 1993
between Smithfield Foods, Inc. and NationsBank of Virginia,
N.A., covering $25,000,000 6.48% Notes due September 30, 1998
(incorporated by reference to Exhibit 4.13 to the Company's
Form 10-K Annual Report for the fiscal year ended May 2,
1993).
Exhibit 4.12(a) -- Loan Modification Agreement dated April 30, 1994, among
Smithfield Foods, Inc., Carolina Food Processors, Inc., The
Smithfield Packing Company, Incorporated and NationsBank of
Virginia, N.A. (incorporated by reference to Exhibit 4.12(a)
to the Company's Form 10-K Annual Report for the fiscal year
ended May 1, 1994).
Exhibit 4.13 -- Credit Agreement dated August 19, 1994 between Smithfield
Foods, Inc. and NationsBank of Virginia, N.A. covering
$50,000,000 Term Loan due October 1997 (incorporated by
reference to Exhibit 4.13 to the Company's Form 10-K Annual
Report for the fiscal year ended April 30, 1995).
Exhibit 10.1 -- Subscription Agreement dated September 3, 1992 between
Smithfield Foods, Inc. and Carroll's Foods, Inc., covering
1,000,000 shares of Smithfield Foods, Inc. Common Stock
(incorporated by reference to Exhibit 10.1 of the Company's
Form 10-K Annual Report for the fiscal year ended May 2,
1993); and Amendment No. 1 to Subscription Agreement dated
January 31, 1995.
Exhibit 10.2 -- Subscription Agreement dated October 26, 1995 between
Smithfield Foods, Inc. and Sumitomo Corporation of America,
covering $20,000,000 Series C 6-3/4% Cumulative Convertible
Preferred Stock.
Exhibit 10.3 -- Smithfield Foods, Inc. 1984 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 to the Company's
Form 10-K Annual Report for the fiscal year ended April 28,
1991).
Exhibit 10.4 -- Smithfield Foods, Inc. 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.4 to the Company's Form 10-K
Annual Report for the fiscal year ended May 2, 1993).
Exhibit 10.5 -- Smithfield Foods, Inc. Incentive Bonus Plan applicable to the
Company's Chairman of the Board and Chief Executive Officer
(incorporated by reference to Exhibit 10.8 to the Company's
Form 10-K Annual Report for the fiscal year ended April 30,
1995).
Exhibit 10.6 -- Smithfield Foods, Inc. 1997 Incentive Bonus Plan applicable
to the Company's President and Chief Operating Officer.
- 22 -
<PAGE>
Exhibit 11 -- Computation of Net Income Per Common Share.
Exhibit 21 -- Subsidiaries of the Registrant.
Exhibit 23 -- Consent of Independent Public Accountants.
Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K
1. A Current Report on Form 8-K for February 9, 1996 was filed with the
Securities and Exchange Commission on February 9, 1996 to report, under Item 5,
that John Morrell & Co., a wholly-owned subsidiary of the Company, which was
acquired in December 1995, had entered a plea of guilty to a six-count charge by
the United States government involving reporting violations of the Clean Water
Act and other related charges.
2. An Amended Current Report on Form 8-K for December 21, 1995 was filed
with the Securities and Exchange Commission on March 4, 1996, to report, under
Items 2 and 7, the acquisition by the Company from Chiquita Brands
International, Inc. of all of the outstanding capital stock of John Morrell &
Co.
(This space intentionally left blank)
- 23 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SMITHFIELD FOODS, INC.
Date: July 18, 1996 By: /s/ JOSEPH W. LUTER, III
-------------------------
Joseph W. Luter, III
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on July 18, 1996.
SIGNATURE TITLE
Chairman of the Board,
Chief Executive Officer,
/s/ JOSEPH W. LUTER, III and Director
Joseph W. Luter, III
President, Chief Operating
Officer, and Director
/s/ JOHN O. NIELSON
John O. Nielson
Vice President, Secretary
and Treasurer
/s/ AARON D. TRUB (Principal Financial Officer)
Aaron D. Trub
Vice President and Controller
/s/ C. LARRY POPE (Principal Accounting Officer)
C. Larry Pope
Director
/s/ F.J. FAISON
F. J. Faison
Director
/s/ JOEL W. GREENBERG
Joel W. Greenberg
Director
/s/ CECIL W. GWALTNEY
Cecil W. Gwaltney
Director
/s/ GEORGE E. HAMILTON, JR.
George E. Hamilton, Jr.
Director
/s/ RICHARD J. HOLLAND
Richard J. Holland
- S-1 -
<PAGE>
Director
/s/ ROGER R. KAPELLA
Roger R. Kapella
Director
/s/ LEWIS R. LITTLE
Lewis R. Little
Director
/s/ ROBERT W. MANLY, IV
Robert W. Manly, IV
Director
/s/ WENDELL H. MURPHY
Wendell H. Murphy
Director
/s/ WILLIAM H. PRESTAGE
William H. Prestage
- S-2 -
<PAGE>
SMITHFIELD FOODS, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE(S)
FINANCIAL STATEMENTS
Report of Independent Public Accountants............................... F-2
Consolidated Statements of Income for the Years Ended April 28, 1996,
April 30, 1995, and May 1, 1994.................................... F-3
Consolidated Balance Sheets at April 28, 1996 and April 30, 1995....... F-4
Consolidated Statements of Cash Flows for the Years ended April 28,
1996, April 30, 1995, and May 1, 1994.............................. F-5
Consolidated Statements of Stockholders' Equity for the Years ended
April 28, 1996, April 30, 1995, and May 1, 1994.................... F-6
Notes to Consolidated Financial Statements............................. F-7
to
F-20
FINANCIAL STATEMENT SCHEDULE
Independent Public Accountants' Report on Financial Statement Schedule. F-21
Schedule I - Condensed Financial Information of Registrant ............ F-22
to
F-26
- F-1 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF SMITHFIELD FOODS, INC.:
We have audited the accompanying consolidated balance sheets of Smithfield
Foods, Inc. (a Delaware corporation) and subsidiaries as of April 28, 1996 and
April 30, 1995, and the related consolidated statements of income, cash flows
and stockholders' equity for each of the three years in the period ended April
28, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 Smithfield Foods, Inc. and
subsidiaries as of April 28, 1996 and April 30, 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
April 28, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
June 11, 1996.
F-2
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
APRIL 28, 1996 APRIL 30, 1995 MAY 1, 1994
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales............................................................................ $2,383,893 $1,526,518 $ 1,403,485
Cost of sales.................................................................... 2,203,626 1,380,586 1,287,880
Gross profit................................................................... 180,267 145,932 115,605
Selling, general and administrative expenses..................................... 103,095 61,723 50,738
Depreciation expense............................................................. 25,979 19,717 21,327
Interest expense................................................................. 20,942 14,054 11,605
Income from continuing operations before income taxes............................ 30,251 50,438 31,935
Income taxes..................................................................... 10,465 18,523 12,616
Income from continuing operations................................................ 19,786 31,915 19,319
Income (loss) from discontinued operations, net of tax........................... (3,900) (4,075) 383
Net income....................................................................... $ 15,886 $ 27,840 $ 19,702
Net income available to common stockholders...................................... $ 14,734 $ 27,165 $ 19,027
Income (loss) per common share:
Continuing operations.......................................................... $ 1.06 $ 1.83 $ 1.11
Discontinued operations........................................................ (.22) (.24) .02
Net Income..................................................................... $ .84 $ 1.59 $ 1.13
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 28, APRIL 30,
1996 1995
<S> <C> <C>
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash.............................................................................................. $ 28,529 $ 14,790
Accounts receivable less allowances of $1,084 and $540............................................ 144,956 66,727
Inventories....................................................................................... 210,759 120,986
Advances to joint hog production arrangements..................................................... 7,578 14,042
Prepaid expenses and other current assets......................................................... 28,585 16,748
Total current assets........................................................................... 420,407 233,293
Property, plant and equipment:
Land.............................................................................................. 12,453 9,747
Buildings and improvements........................................................................ 146,545 116,637
Machinery and equipment........................................................................... 303,384 220,750
Construction in progress.......................................................................... 74,207 68,705
536,589 415,839
Less accumulated depreciation..................................................................... (163,866) (141,533)
Net property, plant and equipment.............................................................. 372,723 274,306
Other assets:
Investments in partnerships....................................................................... 29,662 27,209
Deferred income taxes............................................................................. 10,235 -
Other............................................................................................. 24,592 15,417
Total other assets............................................................................. 64,489 42,626
$ 857,619 $ 550,225
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................................................... $ 110,563 $ 69,695
Current portion of long-term debt and capital lease obligations................................... 13,392 9,961
Accounts payable.................................................................................. 113,344 55,371
Accrued expenses and other current liabilities.................................................... 95,082 37,355
Total current liabilities...................................................................... 332,381 172,382
Long-term debt and capital lease obligations........................................................ 188,618 155,047
Other noncurrent liabilities:
Pension and post-retirement benefits.............................................................. 59,128 4,733
Deferred income taxes............................................................................. - 18,404
Other............................................................................................. 14,975 5,644
Total other noncurrent liabilities............................................................. 74,103 28,781
Commitments and contingencies
Redeemable preferred stock.......................................................................... 20,000 10,000
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 1,000,000 shares..................................... - -
Common stock, $.50 par value, authorized 25,000,000 shares; issued 18,453,015 and 16,834,026
shares......................................................................................... 9,227 8,417
Additional paid-in capital........................................................................ 92,762 49,804
Retained earnings................................................................................. 148,171 133,437
Treasury stock, at cost, 437,000 shares........................................................... (7,643) (7,643)
Total stockholders' equity..................................................................... 242,517 184,015
$ 857,619 $ 550,225
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
APRIL 28, 1996 APRIL 30, 1995 MAY 1, 1994
<S> <C> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net income...................................................................... $ 15,886 $ 27,840 $19,702
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 28,299 22,127 23,010
Increase in accounts receivable............................................ (9,251) (6,141) (9,763)
Increase in inventories.................................................... (41,316) (1,717) (24,447)
(Increase) decrease in prepaid expenses and other current assets........... 1,535 (2,802) (4,529)
(Increase) decrease in other assets........................................ 22,682 (8,121) (1,398)
Increase in accounts payable, accrued expenses and other liabilities....... 19,166 8,272 25,608
Increase (decrease) in deferred income taxes............................... (27,059) 6,637 6,177
Loss on sale of property, plant and equipment.............................. 2,168 1,130 1,088
Net cash provided by operating activities......................................... 12,110 47,225 35,448
Cash flows from investing activities:
Capital expenditures............................................................ (74,888) (90,550) (25,241)
Payment of cash portion for acquisition of John Morrell & Co.,
net of cash acquired......................................................... (14,079) - -
Investments in partnerships..................................................... (2,486) (16,537) (2,257)
Advances to joint hog production arrangements................................... (4,636) (18,130) (20,178)
Reductions of advances to joint hog production arrangements..................... 11,100 24,266 19,830
Proceeds from sale of property, plant and equipment............................. 82 969 444
Net cash used in investing activities............................................. (84,907) (99,982) (27,402)
Cash flows from financing activities:
Net borrowings on notes payable................................................. 33,592 17,560 4,322
Proceeds from issuance of long-term debt and capital lease obligations.......... 50,000 50,000 5,341
Principal payments on long-term debt and capital lease obligations.............. (16,672) (13,588) (7,916)
Proceeds from issuance of preferred stock....................................... 20,000 - -
Exercise of common stock options................................................ 768 1,900 153
Dividends on preferred stock.................................................... (1,152) (675) (675)
Net cash provided by financing activities......................................... 86,536 55,197 1,225
Net increase in cash.............................................................. 13,739 2,440 9,271
Cash at beginning of year......................................................... 14,790 12,350 3,079
Cash at end of year............................................................... $ 28,529 $ 14,790 $12,350
Supplemental disclosures of cash flow information:
Cash payments during the year for:
Interest, net of amount capitalized.......................................... $ 20,684 $ 14,630 $12,379
Income taxes................................................................. $ 1,685 $ 16,254 $ 5,574
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Balance, May 2, 1993............................................................ $8,350 $ 47,818 $ 87,245 $ (7,643)
Net income.................................................................... - - 19,702 -
Exercise of stock options..................................................... 7 146 - -
Dividends on preferred stock.................................................. - - (675) -
Balance, May 1, 1994............................................................ 8,357 47,964 106,272 (7,643)
Net income.................................................................... - - 27,840 -
Exercise of stock options..................................................... 60 1,840 - -
Dividends on preferred stock.................................................. - - (675) -
Balance April 30, 1995.......................................................... 8,417 49,804 133,437 (7,643)
Net income.................................................................... - - 15,886 -
Common stock issued for acquisition of John Morrell & Co...................... 547 32,453 - -
Conversion of preferred stock................................................. 233 9,767 - -
Exercise of stock options..................................................... 30 738 - -
Dividends on preferred stock.................................................. - - (1,152) -
Balance, April 28, 1996......................................................... $9,227 $ 92,762 $148,171 $ (7,643)
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Smithfield Foods, Inc., and subsidiaries (the "Company"). The Company's
principal subsidiaries include Brown's of Carolina, Inc. ("Brown's"), Esskay,
Inc. ("Esskay"), Gwaltney of Smithfield, Ltd. ("Gwaltney"), John Morrell & Co.
("John Morrell"), Patrick Cudahy Incorporated ("Patrick Cudahy"), Smithfield
International, Inc. ("International") and The Smithfield Packing Company,
Incorporated ("Smithfield Packing"). The accounts of Ed Kelly, Inc. ("Kelly")
are reflected as discontinued operations (see Note 3) and are reported
separately on the consolidated statements of income. All material intercompany
balances and transactions have been eliminated.
FISCAL YEAR
The Company's fiscal year is the 52 or 53 week period which ends on the
Sunday nearest April 30.
INVENTORIES
The Company's inventories are valued at the lower of first-in, first-out
(FIFO) cost or market. Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL APRIL
28, 30,
1996 1995
<S> <C> <C>
(IN THOUSANDS)
Fresh and processed meats..................................................... $154,110 $ 82,957
Livestock and manufacturing supplies.......................................... 51,145 28,596
Other......................................................................... 5,504 9,433
$210,759 $120,986
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated over the
estimated useful lives of the assets. Buildings and improvements are depreciated
over periods from 10 to 40 years. Machinery and equipment is depreciated over
periods from 3 to 25 years. Repair and maintenance charges are expensed as
incurred. Improvements and betterments that materially extend the life of the
asset are capitalized. Gains and losses from dispositions or retirements of
property, plant and equipment are recognized currently.
In fiscal 1994, the Company revised the estimated useful lives of certain
assets to more accurately reflect their economic useful lives and to better
align them with those generally used in the meat processing industry. This
change was made to assets acquired after April 1990 and has been reflected on a
prospective basis since November 1993. The lives of the affected buildings and
improvements were revised from 10 to 40 years to 20 to 40 years. The lives of
the affected machinery and equipment were revised from 3 to 12 years to 10 to 25
years.
Interest on capital projects is capitalized during the construction period.
Total interest capitalized was $2,021,000 in fiscal 1996, $842,000 in fiscal
1995 and $612,000 in fiscal 1994. Repair and maintenance expenses totaled
$59,951,000, $50,975,000 and $40,713,000 in fiscal 1996, 1995 and 1994,
respectively.
OTHER ASSETS
Cost in excess of net assets acquired is amortized over 40 years.
Organization costs are amortized over a five-year period. Deferred debt issuance
costs are amortized over the terms of the related loan agreements. Start-up
costs associated with hog production are amortized over a three-year period.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current or future operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments and/or cleanups are probable and the cost
F-7
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
can be reasonably estimated. Other than for assessments, the timing of these
accruals coincides with the Company's commitment to a formal plan of action.
SELF-INSURANCE PROGRAMS
The Company is self-insured for certain levels of general and vehicle
liability, workers' compensation and health care coverage. The cost of these
self-insurance programs is accrued based upon estimated settlements for known
and anticipated claims. Any resulting adjustments to previously recorded
reserves are reflected in current operating results.
PRICE RISK MANAGEMENT AND HEDGING
The Company uses recognized price risk management and hedging techniques to
enhance sales and to reduce the effect of adverse price changes on the Company's
profitability. The Company's price risk management and hedging activities
currently are utilized in the areas of forward sales, hog production margin
management, procurement of raw materials (ham and bacon) for seasonal demand
peaks and inventory hedging. Contracts related to sales or purchase commitments
are accounted for as hedges. Gains and losses on these contracts are deferred
and recorded to cost of sales when the sales or purchase commitments are
fulfilled. As of April 28, 1996 and April 30, 1995, the Company had deferred
unrealized hedging gains of $2,160,000 and $222,000, respectively, on
outstanding futures contracts. All contracts mature within one year.
INCOME PER COMMON SHARE
Income per common share is computed using the weighted average shares of
common stock and dilutive common stock equivalents (options and convertible
preferred stock) outstanding during the respective periods. Net income available
to common stockholders is net income less dividends on preferred stock. The
number of weighted average shares used in calculating income per common share
was 17,530,000 in fiscal 1996, 17,059,000 in fiscal 1995 and 16,768,000 in
fiscal 1994.
USE OF ESTIMATES
Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect amounts reported therein. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to fiscal
1996 presentations including warehousing and distribution costs which have been
reclassified from selling, general and administrative expenses to cost of sales.
NOTE 2 -- ACQUISITION
On December 20, 1995, the Company acquired all of the capital stock of John
Morrell from Chiquita Brands International, Inc. ("Chiquita") for $58,000,000,
consisting of $25,000,000 in cash and $33,000,000 of the Company's common stock
(1,094,273 shares), plus the assumption of all of John Morrell's liabilities.
The Company accounted for the acquisition using the purchase method of
accounting and, accordingly, the results of operations of John Morrell from
December 20, 1995 are included in the accompanying consolidated financial
statements.
F-8
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- ACQUISITION -- Continued
The following unaudited pro forma information combines the operating
results of the Company and John Morrell assuming the acquisition had been made
as of the beginning of the fiscal year ended April 30, 1995.
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
APRIL 28, 1996 APRIL 30, 1995
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales............................................................................... $3,414,561 $2,949,426
Income from continuing operations................................................... 25,094 49,257
Net income.......................................................................... 21,194 45,182
Income per common share:
Continuing operations............................................................. 1.31 2.68
Net income........................................................................ 1.10 2.45
</TABLE>
NOTE 3 -- DISCONTINUED OPERATIONS
In fiscal 1996, the Company completed the disposition of the assets and
business of Kelly, its former retail electronics subsidiary, which is reported
separately as discontinued operations in the consolidated statements of income.
The delay in the final disposition of the assets and business led to an
unanticipated deterioration of Kelly's estimated realization value, resulting in
an additional loss from discontinued operations of $3.9 million in fiscal 1996.
Fiscal 1995 reflected a loss from discontinued operations related to Kelly of
$4.1 million.
NOTE 4 -- JOINT HOG PRODUCTION ARRANGEMENTS
SMITHFIELD-CARROLL'S
The Company has an arrangement with affiliates of Carroll's Foods, Inc.
("CFI") to produce hogs for the Company's meat processing plants in North
Carolina and Virginia. The arrangement involves: (1) Smithfield-Carroll's Farms,
a partnership owned jointly by the Company and Carroll's Farms of Virginia, Inc.
("CFAV"), which owns the hog raising facilities, and (2) a long-term purchase
contract between the Company and Carroll's Foods of Virginia, Inc. ("CFOV"),
which leases and operates the facilities, that obligates the Company to purchase
all the hogs produced by CFOV at prices which are equivalent to market at the
time of delivery. A director of the Company is the president and a director of
CFI, CFAV and CFOV. In addition, the Company has a long-term agreement to
purchase hogs from CFI at prices which, in the opinion of management, are
equivalent to market.
As of April 28, 1996 and April 30, 1995, the Company had investments of
$20,252,000 and $20,231,000, respectively, in the partnership which are
accounted for using the equity method. Profits and losses are shared equally
under the arrangement. During fiscal 1995, the Company converted $12,500,000 of
advances to partners' equity, which is included in the investments above. In
addition, as of April 28, 1996, the Company had $2,200,000 of working capital
loans outstanding to the partnership. These demand loans are expected to be
repaid in the next fiscal year.
Substantially all revenues of the partnership consist of lease payments
from CFOV which cover debt service, depreciation charges and other operating
expenses. For the fiscal years 1996, 1995 and 1994, revenues were $8,912,000,
$9,479,000 and $9,706,000, respectively.
Pursuant to the long-term purchase contract, the Company purchased
$70,540,000, $54,081,000 and $62,348,000 of live hogs from CFOV in fiscal years
1996, 1995 and 1994, respectively. The contract resulted in decreased raw
material costs (as compared to market costs) of $2,617,000 and $2,223,000 in
fiscal 1996 and 1994, respectively, and increased raw material costs of
$2,615,000 in fiscal 1995. In fiscal 1996, the Company made $2,800,000 of
working capital loans to CFOV and received payments of $4,700,000. Demand loans
of $6,905,000 are outstanding as of April 28, 1996 and are expected to be repaid
in the next fiscal year.
F-9
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- JOINT HOG PRODUCTION ARRANGEMENTS -- Continued
Pursuant to the agreement with CFI, the Company purchased $201,878,000,
$134,937,000 and $127,849,000 of hogs in fiscal 1996, 1995 and 1994,
respectively.
CIRCLE FOUR
The Company has an arrangement with three of its principal hog suppliers to
produce hogs in the state of Utah for sale to an unrelated party. The chief
executive officers of two of the suppliers and the president of another serve as
directors of the Company. As of April 28, 1996, the Company had a 33% interest
in the arrangement, which is accounted for using the equity method. As of April
28, 1996 and April 30, 1995, the Company had investments of $7,083,000 and
$5,050,000, respectively, in the arrangement.
B&G
Brown's has an arrangement with a company owned by the daughter and
son-in-law of the chairman and chief executive officer of the Company. The
arrangement, B&G Farms LLC ("B&G"), involves the leasing of hog production
facilities to Brown's and the production of hogs by Brown's on a contractual
basis. In addition, the Company has a contract to purchase all of the hogs
produced by B&G at prices, which in the opinion of management, are equivalent to
market. Profits and losses are shared equally under the arrangement. As of April
28, 1996 and April 30, 1995, B&G had advanced $1,527,000 and $1,723,000,
respectively, to Brown's for working capital. As of April 28, 1996 and April 30,
1995, the Company had investments of $1,260,000 and $1,157,000, respectively, in
the partnership.
B&G's revenues consist of lease payments from Brown's, which cover debt
service and depreciation charges, and the profits or losses on the sale of hogs.
Pursuant to the contract, the Company purchased $7,990,000 and $3,048,000 of
hogs in fiscal 1996 and 1995, respectively.
The summarized unaudited financial information which follows represents an
aggregation of the Company's unconsolidated hog production operations of
Smithfield-Carroll's, Circle Four and B&G.
<TABLE>
<CAPTION>
APRIL 28, APRIL 30,
1996 1995
<S> <C> <C>
(IN THOUSANDS)
Current assets.......................................................... $ 6,532 $ 4,108
Property and equipment.................................................. 107,996 84,255
Other assets............................................................ 6,094 2,296
$120,622 $ 90,659
Current liabilities..................................................... $ 11,785 $ 16,029
Long-term debt.......................................................... 54,926 28,310
Equity.................................................................. 53,911 46,321
$120,622 $ 90,660
</TABLE>
F-10
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 28, APRIL 30,
1996 1995
<S> <C> <C>
(IN THOUSANDS)
Notes payable to institutional lenders:
8.41% notes, payable through February 2013.................................. $ 25,000 $ 25,000
9.85% notes, payable through November 2006.................................. 14,333 15,667
10.75% notes, payable through August 2005................................... 9,500 10,500
9.80% notes, payable through August 2003.................................... 9,187 9,938
6.24% notes, payable through November 1998.................................. 3,108 4,237
7.15% notes, payable through October 1997................................... 3,044 4,899
7.00% notes, payable through September 1998................................. 1,429 2,017
Notes payable to banks:
Notes, payable October 1997................................................. 45,000 45,000
Line of credit, expiring July 1997.......................................... 43,750 -
6.48% notes, payable through September 1998................................. 20,700 22,600
7.10% notes, payable through September 1997................................. 2,290 2,760
Other notes payable........................................................... 407 200
177,748 142,818
Less current portion.......................................................... (11,810) (9,030)
$ 165,938 $ 133,788
</TABLE>
F-11
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- DEBT -- Continued
Scheduled maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fiscal year
1997....................................................................... $ 11,810
1998....................................................................... 101,655
1999....................................................................... 19,924
2000....................................................................... 4,554
2001....................................................................... 4,554
Thereafter................................................................. 35,251
$177,748
</TABLE>
As of April 28, 1996, the fair value of long-term debt, based on the market
value of debt with similar maturities and covenants, approximates recorded
values.
Notes payable and lines of credit to institutional lenders and banks are
collateralized with all of the Company's inventories and accounts receivable,
and certain of the Company's property, plant and equipment.
As of April 28, 1996, the Company had aggregate lines of credit of
$265,000,000, including a $75,000,000 line assumed in connection with the
acquisition of John Morrell. Subsequent to year-end, the Company consolidated
its lines of credit into a single line by increasing a previously existing
$200,000,000 line of credit to $255,000,000. This line consists of a 364-day,
$205,000,000 revolving credit facility and a two-year, $50,000,000 revolving
credit facility. The short-term facility is being used for seasonal inventory
and receivable needs and the long-term facility is being used for working
capital and capital expenditures. The increased line expires in July 1996 and is
expected to be extended for an additional year in the first quarter of fiscal
1997. The line of credit has no compensating balance requirements, but requires
commitment fees based on the unused portion. The Company terminated the
$75,000,000 John Morrell line of credit on April 30, 1996.
Weighted average borrowings under the lines were $133,400,000 in fiscal
1996, $69,900,000 in fiscal 1995 and $66,600,000 in fiscal 1994 at weighted
average interest rates of approximately 7%, 6% and 4%, respectively. Maximum
borrowings were $179,800,000 in fiscal 1996, $117,000,000 in fiscal 1995 and
$105,100,000 in fiscal 1994. The outstanding balances under these lines totaled
$151,300,000 and $67,200,000 as of April 28, 1996 and April 30, 1995,
respectively, at a weighted average interest rate of 7% for both years.
The Company's various debt agreements contain covenants regarding current
ratio, fixed charges coverage, net worth, and, among other restrictions, limit
additional borrowings, the acquisition, disposition and leasing of assets and
payments of dividends to stockholders. Additionally, existing loan covenants
contain provisions which substantially limit the amount of funds available for
transfer from its subsidiaries to Smithfield Foods, Inc. without the consent of
certain lenders.
NOTE 6 -- INCOME TAXES
Total income tax expense (benefit) was allocated as follows:
<TABLE>
<CAPTION>
APRIL 28, APRIL 30, MAY 1,
1996 1995 1994
<S> <C> <C> <C>
(IN THOUSANDS)
Income from continuing operations........................... $ 10,465 $ 18,523 $12,616
Discontinued operations..................................... (2,600) (2,716) 305
$ 7,865 $ 15,807 $12,921
</TABLE>
F-12
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- INCOME TAXES -- Continued
Income tax expense attributable to income from continuing operations
consists of the following:
<TABLE>
<CAPTION>
APRIL 28, APRIL 30, MAY 1,
1996 1995 1994
<S> <C> <C> <C>
(IN THOUSANDS)
Current tax expense:
Federal................................................... $ 8,850 $ 10,373 $ 7,235
State..................................................... 1,530 1,835 1,675
10,380 12,208 8,910
Deferred tax expense (benefit):
Federal................................................... (129) 5,301 3,108
State..................................................... 214 1,014 598
85 6,315 3,706
$ 10,465 $ 18,523 $12,616
</TABLE>
A reconciliation of taxes computed at the federal statutory rate to the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
APRIL 28, APRIL 30, MAY 1,
1996 1995 1994
<S> <C> <C> <C>
Federal income taxes at statutory rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit.......................... 3.9 3.6 4.6
Other................................................................... (4.3) (1.9) (0.1)
34.6% 36.7% 39.5%
</TABLE>
The tax effects of temporary differences consist of the following:
<TABLE>
<CAPTION>
APRIL 28, APRIL 30,
1996 1995
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Employee benefits..................................................... $ 35,925 $ 6,019
Alternative minimum tax credit........................................ 5,607 2,680
Tax credits, carryforwards and net operating losses................... 12,523 2,709
Inventories........................................................... 1,297 1,155
Other assets.......................................................... 317 968
Accrued expenses...................................................... 12,004 1,041
$ 67,673 $ 14,572
Deferred tax liabilities:
Property, plant and equipment......................................... $ 33,643 $ 21,853
Investment in subsidiary.............................................. 574 574
Start-up costs........................................................ 1,805 1,303
$ 36,022 $ 23,730
</TABLE>
As of April 28, 1996 and April 30, 1995, the Company had $21,416,000 and
$9,246,000, respectively, of net current deferred tax assets included in prepaid
expenses and other current assets. The Company had no valuation allowance
related to income tax assets as of April 28, 1996 or April 30, 1995, and there
was no change in the valuation allowance during fiscal 1996 and 1995.
As of April 28, 1996 and April 30, 1995, the Company had $12,241,000 and
$1,836,000 of deferred tax assets relating to net operating losses and tax
credits, respectively, which expire from fiscal 1998 to 2001. In addition,
deferred tax assets include alternative minimum tax credits of $5,607,000 which
do not expire.
F-13
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7 -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
APRIL 28, APRIL 30,
1996 1995
<S> <C> <C>
(IN THOUSANDS)
Payroll and related benefits............................................ $ 42,737 $ 15,531
Self-insurance reserves................................................. 18,914 12,357
Other................................................................... 33,431 9,467
$ 95,082 $ 37,355
</TABLE>
NOTE 8 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK
ISSUANCE OF COMMON STOCK
In fiscal 1996, the Company issued 1,094,273 shares of its common stock to
Chiquita as part of the acquisition of John Morrell (See Note 2).
PREFERRED STOCK
The Company has 1,000,000 shares of $1.00 par value preferred stock
authorized, of which 998,000 shares are unissued. The board of directors is
authorized to issue preferred stock in series and to fix by resolution the
designation, dividend rate, redemption provisions, liquidation rights, sinking
fund provisions, conversion rights and voting rights of each series of preferred
stock.
In fiscal 1996, all of the Series B 6.75% cumulative convertible redeemable
preferred stock totaling $10,000,000 was converted into 465,116 shares of the
Company's common stock at $21.50 per share.
In fiscal 1996, the Company authorized and issued 2,000 shares of Series C
6.75% cumulative convertible redeemable preferred stock in a private transaction
for $20,000,000. These shares are convertible into 666,666 shares of the
Company's common stock at $30.00 per share. The shares are mandatorily
redeemable in fiscal 2006 at $10,000 per share, plus accumulated and unpaid
dividends and have an equivalent liquidation preference.
Redeemable preferred stock consists of the following:
<TABLE>
<CAPTION>
APRIL 28, APRIL 30,
1996 1995
<S> <C> <C>
(IN THOUSANDS)
Series B 6.75% cumulative convertible redeemable preferred stock,
$1.00 par value, 1,000 shares authorized, issued and outstanding.............................. $ - $ 10,000
Series C 6.75% cumulative convertible redeemable preferred stock,
$1.00 par value, 2,000 shares authorized, issued and outstanding.............................. 20,000 -
$ 20,000 $ 10,000
</TABLE>
STOCK OPTIONS
Under the Company's 1984 Stock Option Plan ("1984 Plan"), which expired in
fiscal 1995, officers and certain key employees were granted incentive and
nonstatutory stock options to purchase shares of the Company's common stock for
periods not exceeding 10 years at prices that were not less than the fair market
value of the common stock on the date of grant. Stock appreciation rights which
are exercisable upon a change in control of the Company are attached to the
options granted pursuant to the 1984 Plan. The Company granted options for
1,400,000 shares of common stock under the 1984 Plan.
Under the Company's 1992 Stock Incentive Plan ("1992 Plan"), management and
other key employees may be granted nonstatutory stock options to purchase shares
of the Company's common stock exercisable five years after grant for periods not
exceeding 10 years. The exercise price for options granted prior to August 31,
1994 was not less than 150% of the fair market value of the common stock on the
date of grant. On August 31, 1994, the Company amended and restated the 1992
F-14
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK -- Continued
Plan, changing the exercise price of options granted on or after that date to
not less than the fair market value of the common stock on the date of grant.
The Company has reserved 1,250,000 shares of common stock under the 1992 Plan.
As of April 28, 1996, there were 164,500 options available for grant under the
1992 Plan.
The following is a summary of transactions for the 1984 Plan and 1992 Plan
during fiscal 1995 and 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE RANGE
<S> <C> <C>
Outstanding options at May 1, 1994................................ 1,652,000 $ 5.50-23.06
Granted......................................................... 60,000 30.63
Exercised....................................................... (120,900) 5.50- 8.13
Cancelled....................................................... (25,000) 23.06
Outstanding options at April 30, 1995............................. 1,566,100 5.50-30.63
Granted......................................................... 345,000 21.50-27.25
Exercised....................................................... (59,600) 5.50- 8.13
Cancelled....................................................... (50,000) 23.06
Outstanding options at April 28, 1996............................. 1,801,500 $ 5.50-30.63
Options exercisable at April 28, 1996............................. 716,000 $ 5.50- 8.13
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") which is
effective for fiscal 1997. The Company has not completed all of the analyses
required to estimate the impact of the statement. The Company intends to
continue to apply the accounting provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees;" and will comply with the disclosure requirements
of SFAS No. 123.
PREFERRED SHARE PURCHASE RIGHTS
In fiscal 1992, the Company adopted a preferred share purchase rights plan
(the "Rights Plan") and declared a dividend of one preferred share purchase
right (a "Right") on each outstanding share of common stock. Under the terms of
the Rights Plan, if the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to purchase, at the
Right's then current exercise price, a number of the acquiring company's common
shares having a market value of twice such price. In addition, if a person or
group acquires 20% (or other applicable percentage, as summarized in the Rights
Plan) or more of the outstanding common stock, each Right will entitle its
holder (other than such person or members of such group) to purchase, at the
Right's then current exercise price, a number of shares of common stock having a
market value of twice such price.
Each Right will entitle its holder to buy five ten-thousandths of a share
of Series A junior participating preferred stock, par value $1.00 per share, at
an exercise price of $75 subject to adjustment. Each share of Series A junior
participating preferred stock will entitle its holder to 1,000 votes and will
have an aggregate dividend rate of 1,000 times the amount, if any, paid to
holders of common stock. Currently, 25,000 shares of Series A junior
participating preferred stock have been reserved. The Rights will expire in
fiscal 2002 unless previously exercised or redeemed at the option of the board
of directors for $.005 per Right. Generally, each share of common stock issued
after May 31, 1991 will have one Right attached.
NOTE 9 -- PENSION AND OTHER RETIREMENT PLANS
The Company and its subsidiaries sponsor several defined benefit pension
plans covering substantially all employees. Pension expense for fiscal 1996,
1995 and 1994 was $3,303,000, $2,306,000 and $2,078,000, respectively. It is the
Company's policy to fund the plans based on the minimum contribution required
under ERISA. The plans' assets consist of listed corporate stocks, corporate and
government bonds, insurance contracts and cash and cash equivalents.
In connection with the John Morrell acquisition, the Company assumed the
obligations under two non-contributory, defined benefit pension plans for
substantially all full-time salaried and hourly employees. Benefit accrual for
substantially
F-15
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- PENSION AND OTHER RETIREMENT PLANS -- Continued
all hourly employees under the defined benefit pension plan ceased as of March
1991. Current benefits for these employees are provided by a defined
contribution plan covering both salaried and hourly employees.
The status of the Company's plans and the components of pension expense are
as follows:
<TABLE>
<CAPTION>
APRIL 28, 1996 APRIL 30, 1995
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
PLANS PLANS PLANS PLANS
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Accumulated benefit obligation................................ $ 29,548 $ 175,103 $ 23,705 $ 16,398
Vested benefit obligation..................................... $ 25,591 $ 169,468 $ 21,274 $ 15,819
Plan assets at fair value..................................... $ 39,127 $ 116,542 $ 30,625 $ 11,946
Projected benefit obligation.................................. (36,434) (181,306) (29,782) (16,397)
Excess (deficiency) of plan assets over projected benefit
obligation.................................................. 2,693 (64,764) 843 (4,451)
Items not recorded on consolidated balance sheets:
Unrecognized net transition gain............................ (181) - (271) -
Unrecognized net loss (gain) from experience differences.... (3,356) (8,710) 825 283
Unrecognized prior service cost (benefit)................... 1,188 175 (462) 946
Prepaid (accrued) pension costs.......................... $ 344 $ (73,299) $ 935 $ (3,222)
Net pension expense included the following: 1996 1995 1994
Service costs for benefits earned........................... $2,662 $2,079 $1,690
Interest accrued on projected benefit obligation............ 7,532 3,089 2,890
Actual return on plan assets................................ (6,691) (2,558) (3,185)
Net amortization and deferral............................... (200) (304) 683
Net pension expense......................................... $3,303 $2,306 $2,078
</TABLE>
In determining the projected benefit obligation in fiscal 1996 and 1995,
the weighted average assumed discount rate was 7.75% and 7.5%, respectively,
while the assumed rate of increase in future compensation was 5% to 6% in fiscal
1996 and 6% in fiscal 1995. The weighted average expected long-term rate of
return on plan assets was 9% and 8% in fiscal 1996 and 1995, respectively.
The Company provides health care and life insurance benefits for certain
retired employees at Esskay, John Morrell and Patrick Cudahy. The total cost to
provide retiree benefits was $673,000, $406,000 and $994,000 in fiscal 1996,
1995 and 1994, respectively.
NOTE 10 -- LEASE AND SERVICE OBLIGATIONS
The Company leases transportation equipment under operating leases ranging
from 1 to 10 years with options to cancel at earlier dates. In addition, the
Company has a long-term maintenance agreement related to this equipment.
Maintenance fees are based upon fixed monthly charges for each vehicle, as well
as the maintenance facility itself and contingent fees based upon transportation
equipment usage. The amounts shown below as minimum rental commitments do not
include contingent maintenance fees.
The Company has agreements, expiring in fiscal 2004 and 2008, to use two
cold storage warehouses owned by a partnership, 50% of which is owned by the
Company. The Company has agreed to pay prevailing competitive rates for use of
the facilities, subject to aggregate guaranteed minimum annual fees of
$3,600,000. In fiscal 1996, 1995 and 1994, the Company paid $4,641,000,
$5,986,000 and $5,284,000, respectively, in fees for use of the facilities. As
of April 28, 1996 and April 30,
F-16
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- LEASE AND SERVICE OBLIGATIONS -- Continued
1995, the Company had investments of $1,067,000 and $744,000, respectively, in
the partnership which are accounted for using the equity method.
Minimum rental commitments under all noncancelable operating leases and
maintenance agreements are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fiscal year
1997....................................................................... $ 20,850
1998....................................................................... 17,400
1999....................................................................... 14,441
2000....................................................................... 12,938
2001....................................................................... 10,939
Thereafter................................................................. 32,772
$109,340
</TABLE>
Rental expense was $17,664,000 in fiscal 1996, $15,025,000 in fiscal 1995
and $12,159,000 in fiscal 1994. Rental expense in fiscal 1996, 1995 and 1994
included $3,389,000, $2,681,000 and $2,137,000 of contingent maintenance fees,
respectively.
The Company has entered into a sale and leaseback arrangement for certain
hog production facilities at Brown's. The arrangement provides for an early
termination at predetermined amounts after 10 years.
Property, plant and equipment under capital leases as of April 28, 1996
consist of land of $2,659,000, buildings and improvements of $7,017,000 and
machinery and equipment of $6,701,000, less accumulated amortization of
$3,707,000.
Future minimum lease payments for assets under capital leases and the
present value of the net minimum lease payments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fiscal year
1997....................................................................... $ 3,798
1998....................................................................... 3,876
1999....................................................................... 3,991
2000....................................................................... 4,046
2001....................................................................... 3,675
Thereafter................................................................. 15,982
35,368
Less amounts representing interest......................................... (11,106)
Present value of net minimum obligations................................... 24,262
Less current portion....................................................... (1,582)
Long-term capital lease obligations........................................ $ 22,680
</TABLE>
NOTE 11 -- RELATED PARTY TRANSACTIONS
The Company's chairman and chief executive officer is an officer and the
majority owner of the capital stock of a company to which the Company made sales
of fresh pork and processed meat products totaling $299,000, $328,000 and
$321,000 in fiscal 1996, 1995 and 1994, respectively. In fiscal 1996, 1995 and
1994, the Company purchased raw materials totaling $10,069,000, $7,535,000 and
$8,159,000, respectively, from a company which is 48% owned by the chairman's
children.
F-17
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- RELATED PARTY TRANSACTIONS -- Continued
A director of the Company is the chairman and chief executive officer and a
director of Murphy Family Farms, Inc. ("MFF"). The Company has a long-term
agreement to purchase hogs from MFF at prices, which in the opinion of
management, are equivalent to market. Pursuant to this agreement with MFF, the
Company purchased $330,033,000, $232,130,000 and $237,889,000 of hogs in fiscal
1996, 1995 and 1994, respectively.
A director of the Company is the chairman and chief executive officer and a
director of Prestage Farms Inc., ("PFI"). The Company has a long-term agreement
to purchase hogs from PFI at prices, which in the opinion of management, are
equivalent to market. Pursuant to this agreement with PFI, the Company purchased
$129,577,000, $79,292,000 and $70,258,000 of hogs in fiscal 1996, 1995 and 1994,
respectively.
A director of the Company is the chairman of the board of a company from
which the Company made purchases of automotive parts and equipment, as well as
maintenance and leasing services, totaling $556,000, $489,000 and $515,000 in
fiscal 1996, 1995 and 1994, respectively. In addition, the Company leases
substantially all of its automobiles under three-year leases arranged by this
company. As of April 28, 1996, the Company was obligated to make a total of
$1,265,000 in future lease payments under these leases.
The Company paid a director of the Company, who was formerly president and
chief operating officer of a subsidiary, $250,000 and $221,000 for consulting
services during fiscal 1996 and 1995, respectively.
The Company is a 50% partner in a partnership which owns two cold storage
warehouses (see Note 10). In fiscal 1995, the partnership purchased the capital
stock of a company which previously owned one of the warehouses, 18% of the
capital stock of which was owned by a group of the Company's officers and
directors. The purchase price approximated the net book value of the company as
of December 31, 1994, the effective purchase date.
The Company is engaged in hog production arrangements with several related
parties. See Note 4 for additional information regarding these arrangements.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
As of April 28, 1996, the Company had outstanding commitments for
construction of hog production facilities and plant expansion projects of
approximately $37,845,000.
The Company and its subsidiaries are defendants in various lawsuits and
claims arising in the ordinary course of business. In the opinion of management,
any ultimate liability with respect to these matters will not have a material
effect on the Company's consolidated financial position or results of
operations.
Like other participants in the meat processing industry, the Company is
subject to various laws and regulations administered by federal, state and other
government entities, including the Environmental Protection Agency ("EPA") and
corresponding state agencies such as the Virginia State Water Control Board
("SWCB"), the North Carolina Division of Environmental Management, the Iowa
Department of Natural Resources, the South Dakota Department of Environment and
Natural Resources, the United States Department of Agriculture and the
Occupational Safety and Health Administration. Management believes that the
Company complies with all such laws and regulations in all material respects,
except as set forth immediately below, and that continued compliance with these
standards will not have a material adverse effect on the Company's financial
position or results of operations.
The wastewater discharge permit for Smithfield Packing's and Gwaltney's
plants in Smithfield, Virginia imposes more stringent phosphorus and ammonia
effluent limitations than the plants can currently meet. To achieve compliance,
the Company agreed to discontinue its wastewater discharges to the Pagan River
and connect its wastewater treatment plants to the regional sewage collection
and treatment system operated by the Hampton Roads Sanitation District ("HRSD").
The Company has received a directive to connect its Gwaltney wastewater system
to the HRSD system by June 25, 1996, and expects to receive before the end of
calendar year 1996 a similar directive with respect to its Smithfield Packing
wastewater system. The Company expects to incur approximately $2,664,000 capital
costs (of which $1,292,000 has been expended through the end of fiscal 1996) to
upgrade its existing treatment systems and make these connections. After such
connections have been made the Company will incur sewer use charges
(approximately $1,700,000 annually) imposed by HRSD in addition to its
F-18
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- COMMITMENTS AND CONTINGENCIES -- Continued
existing costs of pretreating its wastewater before discharge to the HRSD
system. These HRSD sewer use costs will be accounted for as current period
charges in the years in which such costs are incurred.
Pending connection to the HRSD system, the plants are being operated under
an administrative consent order entered into with the SWCB. During the period
May 1994 through April 1995, the Company's plants had a number of violations of
its permit and the consent order, which led the SWCB to place these Company
plants on its "significant noncompliance" list. Placement on that list is
required by the SWCB's practices when any one of several circumstances occur,
including a single violation of an administrative consent order provision. The
Company has corrected the conditions which caused these violations, and has
experienced only two isolated daily permit violations during the past year.
These two plants are presently in compliance with the effluent limitations in
the SWCB administrative order and those effluent limitations in its permit
except phosphorus and ammonia limitations. The SWCB's staff has given the
Company written notice of its intention to recommend that the SWCB refer these
and other permit violations, including the recordkeeping violations discussed
below, to the Virginia Attorney General for appropriate legal action. The nature
and extent of any action that may be taken by the SWCB or the Virginia Attorney
General or of any sanctions or other requirements which may be imposed upon the
Company are not known.
The Company regularly conducts tests of its wastewater discharges to assure
compliance with the provisions of its wastewater discharge permits. Federal and
state laws require that records of tests be maintained for three years. Failure
to maintain these records may result in the imposition of civil penalties.
Criminal sanctions may be imposed in the event of false reporting or destruction
of records. In the course of a SWCB inspection of its Smithfield, Virginia
plants in May, 1994, it was discovered that records of certain tests conducted
by the Company from 1992 through early 1994 could not be located. The employee
responsible for the supervision of the tests and maintenance of the test records
was replaced. No judicial proceedings have yet been instituted against the
Company as a result of its inability to locate the records for the period noted
and, other than the written notice referred to above, no administrative
proceeding has yet been initiated. The U.S. Department of Justice, EPA and
Federal Bureau of Investigation are engaged in an investigation of possible
criminal charges of false reporting and destruction of records. In April, 1996,
an attorney with the Department of Justice advised the Company that the Company
was not then a target of the investigation, and that the investigation was
focused on the former employee responsible for supervision of the tests and
maintenance of the records. The Company has heard nothing further from the
Department of Justice. The nature and extent of any action that may be taken by
one or more governmental agencies or of any sanctions or other requirements
which may be imposed upon the Company are not known.
Based on its knowledge, as summarized above, of the facts and circumstances
surrounding the violations and investigations discussed above, the Company
believes that the ultimate resolution of these matters will not have a material
adverse effect on its financial position or annual results of operations.
On February 7, 1996, John Morrell executed a Plea Agreement with the
Department of Justice in connection with water pollution violations that
allegedly occurred at its Sioux Falls, South Dakota plant from 1985 through
1992, several years prior to the Company's acquisition of John Morrell. On May
28, 1996, the Agreement was executed by the government and entered by the court,
and John Morrell pled guilty to six counts of violating the Clean Water Act due
to numerous discharge exceedances, failure to report the exceedances, and
submitting false reports. John Morrell paid a $3,000,000 penalty. Under two
related civil consent decrees, John Morrell also will pay a $250,000 civil
penalty, make certain improvements at the Sioux Falls plant, and carry out
pollution-prevention and compliance-management audits. In view of these
improvements and commitments, and especially due to efforts by both John Morrell
and the Company to improve John Morrell's environmental compliance programs, on
May 28, 1996, the EPA formally agreed not to debar John Morrell from contracting
with the government. EPA determined that John Morrell and the Company had fully
corrected the conditions giving rise to the violations.
F-19
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13 -- QUARTERLY RESULTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996
Sales........................................................................ $367,328 $455,799 $687,000 $873,766
Gross profit................................................................. 21,023 35,412 56,319 67,513
Income (loss) from continuing operations..................................... (2,594) 4,615 10,787 6,978
Discontinued operations...................................................... (1,800) - (2,100) -
Net income (loss)............................................................ (4,394) 4,615 8,687 6,978
Income (loss) per common share:
Continuing operations........................................................ (.16) .26 .58 .35
Discontinued operations...................................................... (.11) - (.12) -
Net income (loss)............................................................ (.27) .26 .46 .35
1995
Sales........................................................................ $331,761 $373,839 $439,353 $381,565
Gross profit................................................................. 24,641 36,182 55,190 29,919
Income from continuing operations............................................ 2,547 8,080 18,048 3,240
Discontinued operations...................................................... (177) (278) (718) (2,902)
Net income................................................................... 2,370 7,802 17,330 338
Income (loss) per common share:
Continuing operations........................................................ .14 .47 1.04 .18
Discontinued operations...................................................... (.01) (.02) (.04) (.17)
Net income................................................................... .13 .45 1.00 .01
</TABLE>
F-20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
TO THE STOCKHOLDERS OF SMITHFIELD FOODS, INC.
We have audited in accordance with generally accepted auditing standards the
financial statements included in the Form 10-K Annual Report of Smithfield
Foods, Inc. for the fiscal year ended April 28, 1996, and have issued our report
thereon dated June 11, 1996. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
on the Index to Financial Statements and Financial Schedule filed as a part of
the Company's Form 10-K Annual Report is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
June 11, 1996
- F-21 -
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY BALANCE SHEETS
AS OF APRIL 28, 1996 AND APRIL 30, 1995
ASSETS
<TABLE>
<CAPTION>
April 28, April 30,
(In thousands) 1996 1995
------------ -----------
<S> <C>
Current assets:
Cash $ 563 $ 157
Accounts receivable 2,346 175
Receivables from related parties 9,150 15,765
Refundable income taxes - 3,458
Deferred income taxes 6,857 9,246
Other 1,770 452
-------- --------
Total current assets 20,686 29,253
-------- --------
Investments in and net advances to
subsidiaries, at cost plus equity
in undistributed earnings 303,642 233,993
-------- --------
Other assets:
Investments in partnerships 28,402 26,026
Property, plant and equipment, net 8,612 6,554
Other 15,071 10,563
-------- --------
Total other assets 52,085 43,143
-------- --------
$376,413 $306,389
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 3,000 $ 2,500
Current portion of long-term debt 3,304 2,420
Accounts payable 1,325 895
Accrued expenses 16,763 16,933
Income taxes payable 229 -
-------- --------
Total current liabilities 24,621 22,748
-------- --------
Long-term debt 64,836 68,140
-------- --------
Deferred income taxes and other noncurrent liabilities 24,439 21,485
-------- --------
Redeemable preferred stock 20,000 10,000
-------- --------
Stockholders' equity 242,517 184,016
-------- --------
$376,413 $306,389
</TABLE>
The accompanying notes are an integral part of these balance sheets.
- F-22 -
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
April 28, 1996 April 30, 1995 May 1, 1994
-------------- -------------- -----------
(In thousands)
<S> <C>
Sales $ - $ - $ -
Cost of sales (2,540) (1,368) (192)
------- ------- -------
Gross profit 2,540 1,368 192
General and administrative expenses,
net of allocation to subsidiaries 5,780 2,680 1,120
Depreciation expense 892 496 452
Interest expense 2,556 2,596 2,046
------- ------- -------
Loss before income taxes and
equity in earnings of
subsidiaries (6,688) (4,404) (3,426)
Income tax benefit (2,400) (1,003) (600)
------- ------- -------
Loss before equity in
earnings of subsidiaries (4,288) (3,401) (2,826)
Equity in earnings of
subsidiaries 20,174 31,241 22,528
------- ------- -------
Net income $15,886 $27,840 $19,702
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
- F-23 -
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
April 28, April 30, May 1,
(In thousands) 1996 1995 1994
--------- --------- ------
<S> <C>
Cash flows from operating activities:
Net income $15,886 $27,840 $19,702
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 1,162 619 452
Gain on sale of property and equipment (1) (5) -
Decrease in deferred income taxes and
other noncurrent liabilities 5,343 6,748 3,768
(Increase) decrease in accounts
receivable (2,171) (55) 103
Decrease in receivables from related
parties 6,615 3,069 996
Increase in investments in and advances
to subsidiaries, net of common stock
issued to acquire John Morrell & Co. (36,649) (49,669) (58,670)
(Increase) decrease in other current
assets (1,318) 65 (229)
Increase in accounts payable and
accrued expenses 260 546 7,001
(Increase) decrease in refundable
income taxes 3,458 (3,458) 1,303
Increase (decrease) in taxes payable 229 (3,154) 3,154
Increase in other assets (4,778) (8,558) (215)
-------- -------- --------
Net cash used in operating activities (11,964) (26,012) (22,635)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (2,987) (4,534) (1,394)
Proceeds from sale of property, plant
and equipment 38 7 1,500
Investment in partnerships (2,376) (16,623) (988)
-------- -------- --------
Net cash used in investing activities (5,325) (21,150) (882)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of short-term note 500 2,500 -
Proceeds from issuance of long-term debt - 50,000 25,000
Principal payments on long-term debt (2,420) (6,738) (1,309)
Exercise of options 767 1,901 153
Issuance of preferred stock 20,000 - -
Preferred dividends (1,152) (675) (675)
-------- -------- --------
Net cash provided by financing activities 17,695 46,988 23,169
-------- -------- --------
Net decrease in cash 406 (174) (348)
Cash at beginning of year 157 331 679
-------- -------- --------
Cash at end of year $ 563 $ 157 $ 331
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
- F-24 -
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
APRIL 28, 1996 AND APRIL 30, 1995
1. The Notes to Parent Company Financial Statements should be read in
conjunction with the Notes to Registrant's Consolidated Financial
Statements included herein.
2. Restricted assets of Registrant:
Existing loan covenants contain provisions which substantially limit the
amount of funds available for transfer from the subsidiaries to Smithfield
Foods, Inc. without the consent of certain lenders.
3. Accrued expenses as of April 28, 1996 and April 30, 1995 are as follows:
(In thousands) 1996 1995
-------------- ------- ------
Self-insurance reserves $ 8,784 $10,718
Payroll and related benefits 5,696 4,489
Other 2,283 1,726
------- -------
$16,763 $16,933
======= =======
4. Long-Term Debt:
As of April 28, 1996, the Registrant is guaranteeing $126,137,000 of
long-term debtand capital lease obligations of its subsidiaries and lines
of credit aggregating $265,000,000 (of which $151,300,000 is outstanding
and $43,750,000 is included in long-term debt).
Scheduled maturities of the Registrant's long-term debt consists of the
following:
Fiscal Year (In thousands)
----------- --------------
1997 $ 3,304
1998 50,586
1999 14,250
-------
$68,140
5. The amount of dividends received from subsidiaries in fiscal 1996 and 1995
was $5,000,000 and $17,626,000, respectively.
6. Redeemable preferred stock consists of the following:
1996 1995
(In thousands)
Series B 6.75% cumulative convertible redeemable
preferred stock $ - $10,000
Series C 6.75% cumulative convertible redeemable
preferred stock 20,000 -
------- -------
$20,000 $10,000
- F-25 -
<PAGE>
7. Supplemental disclosures of cash flow information (in thousands):
Cash paid during year for: 1996 1995 1994
------- ------- ------
Interest $ 1,807 $ 2,403 $ 1,007
======= ======= =======
Income taxes $ 1,685 $16,254 $ 5,574
======= ======= =======
8. Certain prior year balances have been reclassified to conform to fiscal
1996 presentations.
- F-26 -
CERTIFICATE OF DESIGNATIONS
of
SERIES C 6 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
SMITHFIELD FOODS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------------
Smithfield Foods, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on October 23, 1995:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Composite
Certificate of Incorporation, as amended, the Board of Directors hereby creates
a series of Preferred Stock, par value $1.00 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of shares, and
fixes the relative powers, rights, preferences, and limitations thereof as
follows:
Series C 6 3/4% Cumulative Convertible Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series C 6 3/4% Cumulative Convertible Preferred Stock" (the
"Series C Preferred Stock") and the number of shares constituting the Series C
Preferred Stock shall be 2,000.
Section 2. Dividends. The holders of the outstanding shares of Series C
Preferred Stock shall be entitled to receive, if, when and as declared by the
Board of Directors of the Corporation, and when not prohibited by law, cash
dividends at the rate and payable on the dates hereinafter set forth. The rate
of dividends payable on the shares of Series C Preferred
1
<PAGE>
Stock shall be $675.00 per share per annum (rounded upward to the nearest whole
$.01) and no more. Dividends shall be payable in equal quarterly installments on
the first day of January, April, July and October of each year (the "Payment
Dates"), commencing, in the case of any share of Series C Preferred Stock, on
January 1, 1996. The initial dividend payment will be computed by multiplying
the annual rate divided by 360 times the number of days in the period from and
including the Issuance Date of Series C Preferred Stock to the first installment
Payment Date. Dividends shall be cumulative and accumulate on the Series C
Preferred Stock from and after the Issuance Date. Dividends payable on the first
installment Payment Date following issuance and on the date fixed for any
redemption of shares of Series C Preferred Stock pursuant to Sections 7 or 8
hereof which is not a Payment Date, shall be calculated on the basis of a
360-day year and the actual number of days elapsed. Dividends will be payable to
holders of record as they appear on the stock books of the Corporation on such
record dates as shall be fixed by the Board of Directors of the Corporation (the
"Record Dates").
Section 3. Voting Rights. The holders of shares of Series C Preferred
Stock shall have the following voting rights:
(A) Except for the voting rights expressly conferred by this Section 3
and except to the extent provided by law, the holders of shares of Series C
Preferred Stock shall not be entitled (a) to vote on any matter or (b) to
receive notice of, or to participate in, any meeting of stockholders of the
Corporation at which the holders of shares of Series C Preferred Stock are not
entitled to vote.
(B) The approval of a majority of the outstanding shares of the Series C
Preferred Stock, voting as a separate voting group, shall be required for (i)
the adoption of any amendment to the Composite Certificate of Incorporation, as
amended through the time of filing of this Certificate of Designations, that
materially adversely affects the powers, preferences, limitations and rights of
the Series C Preferred Stock (it being expressly stated that an increase in the
number of Directors of the Corporation is not such an adverse change, provided
that this statement is made as a matter of clarification and shall not be read
as implying that in the absence of this parenthetical statement such an increase
would constitute such an adverse change) or (ii) for the issuance of any shares
of Capital Stock other than Junior Stock. Except for cases covered by the
preceding sentence of this paragraph (B), whenever the holders of the Series C
Preferred Stock are entitled under the Delaware General Corporation Law to vote
as a separate voting group on an amendment of the Composite Certificate of
Incorporation, as amended, a plan of merger, or a plan of share exchange, the
vote required for the approval of such amendment shall be a majority
2
<PAGE>
of all votes cast on the amendment, plan of merger or plan of share exchange by
the holders of the Series C Preferred Stock at a meeting at which the holders of
a majority of the outstanding shares of Series C Preferred Stock are represented
in person or by proxy.
(C) The holders of the outstanding shares of Series C Preferred Stock
shall also have the right, voting as a separate voting group, to elect two
members of the Board of Directors of the Corporation at any time four or more
quarterly dividends on any shares of Series C Preferred Stock shall be in
arrears and unpaid, in whole or in part, whether or not declared and whether or
not any funds shall be or have been legally available for payment thereof. In
such event, unless a regular meeting of the stockholders of the Corporation is
to be held within 60 days thereof for the purpose of electing Directors, the
Corporation shall promptly thereafter cause the number of Directors of the
Corporation to be increased by two, and, within 15 days thereafter, shall call a
special meeting of the holders of the outstanding shares of Series C Preferred
Stock for the purpose of electing such Directors to take place at the time
specified in the notice of the meeting, to be not more than 60 days after such
holders become so entitled to elect two Directors and not less than ten nor more
than 50 days after the date on which such notice is mailed. If such special
meeting shall not have been so called by the Corporation, or such regular
meeting shall not be so held, a special meeting may be called for such purpose
at the expense of the Corporation by the holders of not less than 10% of the
outstanding shares of Series C Preferred Stock; and notice of any such special
meeting shall be given by the person or persons calling the same to the holders
of the outstanding shares of the Series C Preferred Stock by first-class mail,
postage prepaid, at their last addresses as shall appear on the stock transfer
records of the Corporation (which records the Corporation hereby agrees to make
available for such purpose at reasonable times upon request and as otherwise
required by applicable law). At any such special meeting the holders of a
majority of the outstanding shares of Series C Preferred Stock shall elect two
members of the Board of Directors of the Corporation. If a regular meeting of
the stockholders of the Corporation for the purpose of electing Directors is to
be held within 60 days after the time the holders of the outstanding shares of
Series C Preferred Stock become so entitled to elect two Directors, then the
holders of the outstanding shares of Series C Preferred Stock shall be given
notice thereof in the same manner as other stockholders of the Corporation
entitled to vote thereat; and at such regular meeting, the holders of the
outstanding shares of Series C Preferred Stock, voting as a separate voting
group with each share having one vote, shall elect two members of the Board of
Directors. The right of the holders of the Series C Preferred Stock, voting as a
separate voting group, to elect two members of
3
<PAGE>
the Board of Directors of the Corporation shall continue until such time as no
dividends on any outstanding shares of Series C Preferred Stock are in arrears
and unpaid, in whole or in part, at which time (i) the voting power of the
holders of the outstanding shares of Series C Preferred Stock so to elect two
directors shall cease, but always subject to the same provisions of this
paragraph (C) for the vesting of such voting power upon the occurrence of each
and every like arrearage of dividends, and (ii) the term of office of each
member of the Board of Directors who was elected pursuant to this paragraph (C)
shall automatically expire.
(D) Except as set forth herein, or as otherwise provided by law, holders
of Series C Preferred Stock shall have no special voting rights, and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series C Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of Junior Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of Parity Stock, except dividends paid ratably on the
Series C Preferred Stock and all such Parity Stock on which dividends
are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any Junior Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such Junior
Stock in exchange solely for shares of any other Junior Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Parity Stock, except in ac cordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good
4
<PAGE>
faith will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any Subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Composite Certificate of Incorporation, as amended, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of Junior Stock unless, prior thereto, the holders of
shares of Series C Preferred Stock shall have received $10,000 per share, plus
an amount equal to Dividends Accumulated and distributions thereon, whether or
not declared, to the date of such payment, or (2) to the holders of shares of
Parity Stock except distributions made ratably on the Series C Preferred Stock
and all such Parity Stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up.
Section 7. Optional Redemption.
(A) The Corporation may, at its option, redeem shares of Series C
Preferred Stock, in whole or in part, at any time from time to time at a
redemption price of $10,000 per share, plus in each case a premium of (i) prior
to October 25, 1998, $1,000 per share, (ii) from October 25, 1998 through
October 24, 2001, $600.00 per share, and (iii) from October 25, 2001 through
October 24, 2005, $400.00 per share, in each case with any Dividends Accumulated
to the date fixed for redemption.
(B) In case less than all of the outstanding shares of Series C
Preferred Stock are to be redeemed, not more than 60 days prior to the date
fixed for redemption the Corporation shall select the shares to be redeemed. The
Corporation shall select by proration, by lot or otherwise the shares to be so
redeemed among the holders thereof. The Corporation shall make such
5
<PAGE>
adjustments, reallocations and eliminations as it shall deem proper by
increasing or decreasing or eliminating the number of shares to be redeemed
which would be allocable to any one holder on the basis of exact proration,
selection by lot or any such other method of selection by not more than ten
shares to the end that the number of shares so prorated shall be integral
multiples of ten shares. The Corporation in its discretion may elect the
particular certificates (if there are more than one) representing shares
registered in the name of a holder that are to be redeemed.
(C) Not less than 30 nor more than 60 days prior to the date fixed for
any redemption pursuant to this Section 7, notice of redemption shall be given
by first-class mail, postage prepaid, to the holders of record of the
outstanding shares of the Series C Preferred Stock to be redeemed at their last
addresses as shown by the Corporation's stock transfer records. The notice of
redemption shall set forth the number of shares to be redeemed, the date fixed
for redemption, the applicable redemption price or prices (including the amount
of Dividends Accumulated to the date fixed for the redemption), and the place or
places where certificates representing shares to be redeemed may be surrendered.
In case less than all outstanding shares are to be redeemed, the notice of
redemption shall also set forth the numbers of the certificates representing
shares to be redeemed and, in case less than all shares represented by any such
certificate are to be redeemed, the number of shares represented by such
certificate to be redeemed.
(D) If notice of redemption of any outstanding shares of Series C
Preferred Stock shall have been duly mailed as herein provided, on or before the
date fixed for redemption the Corporation shall deposit in cash funds sufficient
to pay the redemption price (including Dividends Accumulated to the date fixed
for redemption) of such shares in trust for the benefit of the holders of shares
to be redeemed with any bank or trust company in the City of Richmond, State of
Virginia, or Borough of Manhattan, City and State of New York, having capital
and surplus aggregating at least $50,000,000 as of the date of its most recent
report of financial condition (with the Corporation giving preference to such a
bank or trust company having long-term debt obligations rated by Standard &
Poors, Inc. in one of its three highest rating categories), named in such
notice, to be applied to the redemption of the shares so called for redemption
against surrender for cancellation of the certificates representing shares so
redeemed. From and after the time of such deposit all shares for the redemption
of which such deposit shall have been made shall, whether or not the
certificates therefor shall have been surrendered for cancellation, be deemed no
longer to be outstanding for any purpose, and all rights with respect to such
shares shall thereupon cease and determine except the right to
6
<PAGE>
receive payment of the redemption price (including Dividends Accumulated to the
date fixed for redemption), but without interest. Any interest earned on funds
so deposited shall be paid to the Corporation from time to time. Any funds so
deposited and unclaimed at the end of two years (or such longer period as may be
required by law) from the date fixed for redemption shall be repaid to the
Corporation free of trust, and the holders of the shares called for redemption
who have not surrendered certificates representing such shares prior to such
repayment shall be deemed to be unsecured creditors of the Corporation for the
amount of the redemption price (including Dividends Accumulated to the date
fixed for redemption) thereof and shall look only to the Corporation for payment
thereof, without interest, subject to the Delaware General Corporation Law.
(E) The Corporation shall also have the right to acquire outstanding
shares of Series C Preferred Stock otherwise than by redemption pursuant to this
Section 7 from time to time for such consideration as may be acceptable to the
holders thereof.
(F) Shares of Series C Preferred Stock purchased, redeemed or otherwise
acquired by the Corporation shall become authorized and unissued shares of
Preferred Stock which may be designated as shares of any other series. No
additional shares of Preferred Stock, however, may be classified as Series C
Preferred Stock.
Section 8. Mandatory Redemption. On the tenth anniversary of the
Issuance Date (or, if such date is not a Business Day, the Business Day
immediately following such anniversary), the Corporation shall redeem all then
outstanding shares of Series C Preferred Stock, at a redemption price of $10,000
per share, plus an amount equal to Dividends Accumulated thereon. Such
redemption shall in all relevant respects be conducted in accordance with the
terms and procedures set forth in Paragraphs (C) and (D) of Section 7 above.
Section 9. Conversion. The holders of the Series C Preferred Stock
shall have conversion rights (the "Conversion Rights") as follows:
(A) Right to Convert. Each share of Series C Preferred Stock shall be
convertible at the option of the holder thereof, and, except as otherwise
provided by this Section 9, such right to convert may be exercised at any time
after the date of issuance of such share.
(i) Series C Conversion. If such right of conversion is exercised
as to any share of Series C Preferred Stock, such share shall convert into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing
7
<PAGE>
$10,000 by the Conversion Price hereinafter defined in effect at the time of the
conversion.
(ii) Effect of Redemption on Conversion. In the event of a call
for redemption of any shares of Series C Preferred Stock pursuant to Sections 7
or 8 hereof, the Conversion Rights shall cease to be exercisable as to the
number of shares designated for redemption at the close of business on the
thirtieth day after notice of redemption, and any right to receive payment of
the redemption price (including Dividends Accumulated to the date fixed for
redemption) shall terminate as to such shares upon the conversion of such shares
into Common Stock pursuant to this Section; provided, however, that if such
shares shall not have been converted under this Section because of default in
payment of the redemption price (that is, default by the Corporation on its
obligation under Section 7(D) to make the required cash deposit on or before the
date fixed for redemption), the Conversion Rights for such shares shall
continue. A holder's rights with respect to current and accumulated dividends on
any share for which such right of conversion is exercised shall continue (but no
further dividends shall cumulate) in the manner specified in Section 2, and
shall be declarable and payable to the holder of record for such share as of the
date of such exercise at such time and to the same extent that dividends with
respect to the same fiscal quarters are declared and paid to all holders of
Series C Preferred Stock.
(iii) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series C Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Preferred Stock may exercise
his right to convert the same into full shares of Common Stock pursuant to this
Section, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
such shares, and shall give written notice to the Corporation at such office
that he elects to convert the same and shall state therein his name or the name
or names of his nominees in which he wishes the certificate or certificates for
shares of Common Stock to be issued and his agreement to pay any applicable
transfer taxes. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Preferred Stock, or to his nominee
or nominees, a certificate or certificates for the number of shares of Common
Stock to which he shall be entitled pursuant to this Section, together with cash
in lieu of any fraction of a share, if applicable. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted and the
person or persons entitled to
8
<PAGE>
receive the shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such time. Notwithstanding the above, if the holder of Preferred Stock is
exercising his right of conversion pursuant to this Section subsequent to
notice, and in anticipation, of any redemption, he may so specify in his written
notice to the Corporation and such shares shall be converted only if there has
been no default in payment of the redemption price (that is, no default by the
Corporation on its obligation under Section 7(D) to make the required cash
deposit on or before the date fixed for redemption). Any such conversion shall
be deemed to have been made immediately prior to such redemption, and the person
or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such instant and shall have no right to
receive payment of the redemption price (including Dividends Accumulated to the
date fixed for redemption).
(B) Conversion Price. The "Conversion Price" with respect to the Series
C Preferred Stock shall be, as of the Issuance Date, $30.00 per share of Common
Stock. Such initial Conversion Price shall be subject to adjustment as
hereinafter provided.
(C) Adjustments to Conversion Price of Diluting Events.
(i) Stock Dividends, Splits, or Recapitalizations. In the
event at any time, or from time to time after the Issuance Date, there is (i) a
subdivision, combination, or consolidation of the Corporation's Common Stock
into a greater or lesser number of shares of Common Stock (by capital
reorganization, reclassification or otherwise than by payment of a dividend in
Common Stock); (ii) the declaration or payment by the Corporation of any
dividend on the Common Stock which is payable in additional Common Stock; or
(iii) any other increase or decrease in the outstanding Common Stock of the
Corporation effected without receipt of consideration by the Corporation (other
than Common Stock issuable upon any conversion of Preferred Stock pursuant to
this Section), then and in any such event, the Conversion Price shall be
adjusted to the price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to the
diluting event described hereinabove, and the denominator of which shall be the
number of shares of Common Stock outstanding after such diluting event. In the
case of any stock dividend, such adjustment shall be effective immediately
after the close of business on the record date for the determination of holders
of any class of securities entitled to receive such dividend. In the case of
any other such diluting event, such adjustment shall be effective at the close
of business on the date immediately
9
<PAGE>
prior to the date on which such corporate action becomes effective. After such
adjustment is made, the adjusted Conversion Price shall constitute and remain
the Conversion Price for all purposes hereunder unless and until it is again
subject to adjustment pursuant to the terms hereof.
(ii) Adjustments for Mergers or Reorganization, Etc. In the event
of any consolidation or merger of the Corporation with or into any other
corporation or the conveyance of all or substantially all of the assets of the
Corporation to another corporation in exchange for securities (in whole or in
part), each share of Series C Preferred Stock shall thereafter be convertible
into the number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Series C Preferred Stock, immediately prior to the
effectiveness of such consolidation, merger or conveyance would have been
entitled upon such consolidation, merger or conveyance. In addition, in any such
case, appropriate adjustment (as determined by the Board of Directors) shall be
made in the application of the provisions set forth in this Section with respect
to the rights and interest, after any such conversion, of the holders of the
Series C Preferred Stock, to the end that the provisions set forth in this
Section (including without limitation provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably possible, in relation to the shares of stock or other
securities or property thereafter deliverable upon the conversion of the Series
C Preferred Stock.
(D) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in reasonable detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the reasonable
written request at any time of any holder of Series C Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Price with respect to
such holder's Series C Preferred Stock at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received by such holder upon the conversion of such
Preferred Stock.
(E) Notices of Common Stock Record Dates. In the event of any taking by
the Corporation of a record of the holders of the Common Stock or any other
class of securities into which the Series C Preferred Stock is convertible for
the purpose of
10
<PAGE>
determining the holders thereof who are entitled to receive any dividend or
other distribution, the Corporation shall mail to each holder of Series C
Preferred Stock, at least ten days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
(F) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
all the Series C Preferred Stock.
Section 10. Definitions. For the purpose of this resolution, the word
"corporation" shall be deemed to include corporations, associations, companies
and business trusts and, unless the context otherwise requires, the following
terms shall have the following meanings:
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Richmond, Virginia
are authorized or obligated by law to close.
"Capital Stock" means any capital stock of any class or series (however
designated) of the Corporation.
"Common Stock" means the Common Stock, par value $.50 per share, of the
Corporation.
"Dividends Accumulated" means with respect to any shares of Series C
Preferred Stock, an amount equal to the dividends thereon at the dividend rate
per annum computed from the Issuance Date to the date to which reference is
made, whether such amount or any part thereof shall have been declared as
dividends and whether there shall be or have been any funds out of which such
dividends might legally be paid, less the amount of dividends declared and paid
thereon and, if any dividends thereon have been declared but not paid, the
amount set apart for the payment of such dividends.
"Issuance Date" shall mean the first date of issuance of any shares of
Series C Preferred Stock.
"Junior Stock" means any Capital Stock ranking as to dividends or as to
rights in liquidation, dissolution or winding up of the affairs of the
Corporation junior to Series C Preferred Stock. At the date hereof, the
Corporation's Junior Stock is comprised solely of the Common Stock and the
Series A Junior Participating Preferred Stock, par value $1.00 per share.
11
<PAGE>
"Parity Stock" means any Capital Stock ranking as to dividends or as to
rights in liquidation, dissolution or winding up the affairs of the Corporation
equally with the Series C Preferred Stock. At the date hereof, the Corporation's
Parity Stock is comprised solely of the Series B 6 3/4% Cumulative Convertible
Preferred Stock, par value $1.00 per share.
"Payment Date" is defined in Section 2 hereof.
"Record Date" is defined in Section 2 hereof.
"Subsidiary" means any corporation a majority of the outstanding Voting
Stock of which is owned, directly or indirectly, by the Corporation or by one or
more Subsidiaries or by the Corporation and one or more Subsidiaries. For this
purpose, "Voting Stock" means stock of any class or classes (however designated)
having ordinary voting power for the election of a majority of the members of
the board of directors (or other governing body) of such corporation, other than
stock having such powers only by reason of the happening of a contingency.
12
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chairman and Chief Executive Officer and
attested by its Secretary this 23rd day of October, 1995.
JOSEPH W. LUTER, III
(Corporate Seal) (Signature)
Chairman and Chief Executive Officer
Attest:
AARON D. TRUB
(Signature
Vice President, Secretary and
Treasurer
13
BY-LAWS
of
SMITHFIELD FOODS, INC.
[Amended as of July 12, 1996]
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. A meeting of stockholders of the corporation
shall be held annually either at the principal office of the company in the
State of Virginia, or at such other place within or without the State of
Virginia, as may be designated from time to time by the Board of Directors and
stated in the notice of the meeting. The time and place of the meeting shall be
fixed from time to time by the Board of Directors and if no such time and place
be so fixed, the annual meeting shall be held at two o'clock in the afternoon on
the first Wednesday in June of each year for the purpose of electing Directors
and for the transaction of such other business as may be brought before the
meeting.
Written notice of the annual meeting shall be mailed at least ten days
prior to the meeting to each stockholder of record at his address as the same
appears on the record of shareholders of the company.
1
<PAGE>
Section 2. Special Meetings. Special meetings of the stockholders of the
corporation may be held either at the principal office of the corporation in the
State of Virginia, or at such other place within or without the State of
Virginia, as may be designated from time to time by the Board of Directors and
stated in the notice of the meeting, and may be called by the Board of Directors
of the corporation, by the Executive Committee of such Board, by the President
or by the Chairman of the Board.
Written notice of each special meeting, stating the day, hour and place
thereof, and the general terms of the business to be transacted thereat, shall
be mailed at least ten days prior to the meeting to each stockholder of record
at his address as the same appears in the record of shareholders of the
corporation.
Section 3. Quorum. At any meeting of the stockholders, the holders of a
majority of the issued and outstanding stock of the corporation entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business. If there be less than a quorum, the holders of
a majority of the stock present or represented may adjourn the meeting from time
to time.
Section 4. Voting. At any meeting of the stockholders every owner of
shares entitled to vote may vote, in person or by proxy, and shall have one vote
for each such share standing in his name on the transfer books of the
corporation as of the record date. At all elections of directors the voting
shall be by ballot, and the Board of Directors or, if the Board shall not
2
<PAGE>
have acted, the Chairman presiding at any meeting of stockholders, shall have
power to appoint two or more persons to act as election inspectors to receive,
canvass, and report the votes cast for such purpose by the stockholders at such
meeting; however, no candidate for the office of director shall be appointed as
inspector at any meeting for the election of directors.
Section 5. Presiding Officer. The President, or in his absence, the
Executive Vice President or other officer of the corporation shall preside at
all meetings of the stockholders, unless the Board of Directors appoints another
stockholder who accepts the appointment to act as Chairman of the meeting.
Section 6. Secretarial Officer. The Secretary of the corporation shall
act as secretary of all meetings of the stockholders unless the Chairman
appoints another stockholder who accepts the appointment to act as secretary of
the meeting.
ARTICLE II
DIRECTORS
Section 1. Function. The property, business, and affairs of the
corporation shall be managed and controlled by its Board of Directors.
Section 2. Number, Term and Qualification. The Board of Directors
shall consist of no less than three (3) nor more than seventeen (17) members,
the precise number to be determined from time to time by the affirmative vote of
not less than a majority of the directors at a meeting where a quorum is
present. Each
3
<PAGE>
director shall hold office until his death, resignation, retirement, removal,
disqualification or until his successor is elected and qualified. Directors need
not be residents of the State of Delaware or shareholders of the corporation. A
stockholder entitled to vote in the election of directors may nominate one or
more persons for election as a director at an annual or special meeting of
stockholders only if written notice of such stockholder's intent to make such
nomination has been given, either by personal delivery to the Secretary of the
corporation not later than the close of business on the tenth day following the
date on which notice of such meeting is first mailed to stockholders or by
United States mail, postage prepaid, to the Secretary of the corporation
postmarked not later than the tenth day following the date on which notice of
such meeting is first mailed to stockholders. Each notice required by this
section shall set forth: (1) the name and address of the stockholder who intends
to make the nomination; (2) the name, address and principal occupation of each
proposed nominee; (3) a representation that the stockholder is entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; and (4) the consent of
each proposed nominee to serve as a director of the corporation if so elected.
The Chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
4
<PAGE>
Section 3. Vacancies. Whenever a vacancy occurs on the Board of
Directors, by reason of death, resignation, retirement, removal,
disqualification, increase in the number of directors or otherwise, it may be
filled by a majority of the remaining directors, though less than a quorum,
until the next Annual Meeting of the stockholders.
Section 4. Meetings of the Board. The organizational meeting of the
Board of Directors shall be held in each year after the adjournment of the
annual stockholders' meeting and on the same day. If a quorum of directors be
not present on the day appointed for the organizational meeting, the meeting
shall be adjourned to some convenient day. No notice need be given of the
organizational meeting of the Board.
Meetings of the Board of Directors shall be held at such place within or
outside the State of Virginia as may from time to time be fixed by resolution of
the Board or as may be specified in the call of any meeting. Regular meetings of
the Board of Directors shall be held at such times as may from time to time be
fixed by resolution of the Board, and no notice need be given of such regular
meetings. Special meetings of the Board may be held at any time upon the call of
the President or the Chairman of the Board or not less than one-third of the
directors then in office by oral, telegraphic or written notice, duly served on
or sent or mailed to each director not less than three days before such meeting.
Special meetings may be held without notice if all the
5
<PAGE>
directors are present or if those not present waive notice of the meeting in
writing, either before or after the meeting.
Section 5. Quorum. At meetings of the Board of Directors, the Chairman
of the Board, the President or a designated Vice President shall preside. A
majority of the members of the Board of Directors shall constitute a quorum for
the transaction of business, but less than a quorum may adjourn any meeting from
time to time until a quorum shall be present, whereupon the meeting may be held,
and adjourned, without further notice. The act of a majority of directors
present at a meeting where a quorum is present shall be the act of the Board of
Directors.
Section 6. Action Without a Meeting. Any action of the Board of
Directors may be taken without a meeting if written consent to the action to be
taken signed by all the members of the Board is filed in the Minute Book of the
Corporation prior to the taking of such action.
Section 7. Compensation. In addition to reimbursement of his reasonable
expenses incurred in attending meetings or otherwise in connection with his
attention to the affairs of the corporation, each director as such, and as a
member of the Executive Committee or of any other committee of the Board, shall
be entitled to receive such remuneration as may be fixed from time to time by
the Board of Directors, in the form of either fees for attendance at meetings of
the Board and committees thereof, or of payment at the rate of a fixed sum per
month, or a combination of both methods of payment; but no director who
6
<PAGE>
receives a salary as an officer of the corporation shall receive any additional
remuneration as a director or member of any committee of the Board.
ARTICLE III
COMMITTEES
Section 1. Executive Committee; Other Committees. The Board of
Directors may, by resolution adopted by a vote of a majority of the directors,
designate three (3) or more of their number, including in each case, the
President, as an Executive Committee. While the Board of Directors is not in
session, the Executive Committee, if there then be such a committee, shall have
and may exercise the authority of the Board of Directors in the management of
the business and affairs of the corporation other than those of corporate policy
and subject to the other restrictions hereinafter set out and further subject to
such limitations as the Board may from time to time impose. In no event shall
the Executive Committee or any other committee, have authority to approve an
amendment to the Certificate of Incorporation, or to approve a plan of merger
consolidation, or to amend these By-Laws, or to elect officers or fix their
compensation. The Executive Committee shall have the power to authorize the seal
of the corporation to be affixed to all papers which may require it.
In addition to an Executive Committee, the Board of Directors may, by
resolution of a majority of the directors present at any meeting at which a
quorum is present, designate
7
<PAGE>
other committees of limited authority, each such committee to consist of three
(3) or more directors.
Unless the Board of Directors by resolution otherwise provide, the
Executive Committee and each other committee shall choose its own chairman and
secretary. The Executive Committee and each other committee shall record all its
acts and proceedings and report the same from time to time to the Board of
Directors.
Regular meetings of any such committee, of which no notice shall be
necessary, may be held at such time and in such place as shall be fixed by a
majority of the committee. Special meetings of any such committee may be called
at the request of any member of any such committee. Notice of each special
meeting of such a committee shall be given by the person calling the same as
provided by these By-Laws for special meetings of the full Board. Notice of any
such meetings may be waived as provided by these By-Laws in the case of meetings
of the full Board.
A majority of any such committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of the committee. Members
of any such committee shall only act as a committee and the individual members
shall have no power as such.
The Board of Directors shall have the power at any time to change the
members of, fill vacancies in, and discharge any such committee, either with or
without cause. The appointment of any
8
<PAGE>
director to any such committee, if not sooner terminated, shall automatically
terminate upon the expiration of his term as a director or upon the earlier
cessation of his membership on the Board of Directors.
Section 2. Records. All actions by any committee shall be reported to
the Board of Directors at a meeting succeeding such action and recorded as a
part of the minutes of said meeting. All such actions shall be subject to
revision, alteration, and approval by the Board of Directors; provided that no
rights or acts of third parties shall be affected by such revision or
alteration.
ARTICLE IV
OFFICERS
Section 1. Election. The Board of Directors may elect from its own
number a Chairman of the Board and shall elect from its own number a President
of the corporation. In addition, the Board shall elect a Treasurer and a
Secretary, and may elect an Executive Vice President and one or more Vice
Presidents and such other officers or assistant officers as in its opinion are
desirable for the conduct of the business of the corporation.
Section 2. Removal. Any officer of the corporation shall be subject to
removal at any time by affirmative vote of a majority of the whole Board of
Directors. Any agent, or employee, other than officers appointed by the Board
of Directors, shall hold office at the discretion of the officer appointing
them. In its discretion, the Board of Directors may
9
<PAGE>
leave any office unfilled, excepting the office of President, Treasurer, and
Secretary, which shall be filled in the event of vacancy as soon as practicable.
Section 3. Chairman of the Board. The Chairman of the Board of
Directors, if elected, or failing his election, the President, shall preside at
all meetings of the Board of Directors and shall perform such other duties as
may be prescribed from time to time by the Board of Directors.
Section 4. President. The President shall be the chief executive and
administrative officer of the corporation. He shall preside at all meetings of
the stockholders and, in the absence of the Chairman of the Board, if any, at
meetings of the Board of Directors. He shall exercise such duties as customarily
pertain to the office of President and shall have general and active supervision
over the property, business, and affairs of the corporation and over its several
officers. He shall perform such other duties as may be prescribed from time to
time by the Board of Directors or by the By-Laws. He, or his designee, shall
have full power and authority on behalf of the corporation to attend and to vote
at any meeting of the stockholders of any corporation in which the corporation
may hold stock, and may exercise on behalf of the corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting,
and shall have power and authority to execute and deliver proxies and consents
on behalf of the corporation in connection with the exercise by the corporation
of the rights and
10
<PAGE>
powers incident to the ownership of such stock. He may appoint agents and
employees, other than those elected by the Board of Directors. He may sign,
execute and deliver in the name of the corporation powers of attorney,
contracts, bonds, notes, corporate obligations and other documents. He may
perform personally and upon his own initiative any duties assigned to or
normally performed by any other officer pursuant to the By-Laws or act of the
Board of Directors.
Section 5. Executive Vice President. The Executive Vice President,
subject to the direction of the President, shall have such powers and pursuant
thereto may perform the duties of the President in his absence or disability.
The Executive Vice President shall perform such other duties as may be
prescribed from time to time.
Section 6. Vice Presidents. The Vice Presidents, subject to the
direction of the President, shall have such powers and perform such duties as
may be prescribed from time to time. In the absence or disability of the
President and the Executive Vice President, the Vice President designated by the
Board so to do shall perform the duties and exercise the powers of the
President.
Section 7. Treasurer. The Treasurer, subject to the direction of the
President, shall have general responsibility for and custody of the books of
account and all funds and securities of the corporation and have general
supervision of the collection and disbursement of funds of the corporation. If
so required, he
11
<PAGE>
shall give bond for the faithful performance of his duties in such sum and with
such surety as shall be approved by the Board of Directors or the President. He
shall perform such other duties as may be prescribed from time to time.
Section 8. Secretary. The Secretary, subject to the direction of the
President, shall have general responsibility for and custody of the minutes of
all meetings of the stockholders and of the Board of Directors and of all
committees appointed by the Board. He shall have general responsibility for and
custody of the corporate seal, the transfer books, and other records and
documents of the corporation not pertaining to the performance of duties vested
in other officers. He shall cause notice to be given of meetings of
stockholders, of the Board of Directors, and of all committees appointed by the
Board of Directors. He shall perform such other duties as may be prescribed from
time to time.
Section 9. Vacancies. In case any office shall become vacant, the Board
of Directors shall have power to fill such vacancies. In case of the absence or
disability of any officer, the Board of Directors or the President may delegate
the powers or duties of any officer to another officer or a director for the
time being.
ARTICLE V
CAPITAL STOCK
Section 1. Form. Certificates for stock of the Corporation shall be in
such form as the Board of Directors may from time to time prescribe and shall be
signed by the President
12
<PAGE>
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary. If certificates are signed by a Transfer
Agent, acting in behalf of the corporation, and a Registrar, the signatures of
the officers of the corporation may be facsimile. In case any officer who
signed, or whose facsimile signature has been used on any certificate shall
cease to be such officer for any reason before the certificate has been
delivered by the corporation, such certificate may nevertheless be adopted by
the corporation and issued and delivered as though the person who signed it or
whose facsimile signature has been used thereon had not ceased to be such
officer.
Section 2. Transfer Agents and Registrars. The Board of Directors shall
have power to appoint one or more Transfer Agents and Registrars for the
transfer and registration of certificates of stock of any class, and may require
that such stock certificates be countersigned and registered by one or more of
such Transfer Agents and Registrars.
Section 3. Transfers. Shares of stock of the corporation shall be
transferable on the transfer books of the corporation only by the holder of
record thereof in person or by duly authorized attorney, upon surrender and
cancellation of certificates for a like number of shares.
Section 4. Transfer Books. The Board of Directors may fix in advance a
date not less than ten nor more than sixty days preceding the date of any
meeting of stockholders, or the date
13
<PAGE>
for the payment of any dividend or the date of allotment of rights of the date
when any change or conversion or exchange of stock shall go into effect, as a
record date for the determination of the shareholders entitled to notice of and
to vote at any such meeting, or entitled to receive payment of any such
dividends, or any such allotment of rights, or to exercise the rights in respect
to any such dividend, or allotment of rights, or exercise such rights, as the
case may be, notwithstanding any transfer of any stock on the transfer books of
the corporation after any such record date.
Section 5. Lost Certificates. In case any certificate for the stock of
the corporation shall be lost, stolen or destroyed, the corporation may require
such proof of the fact and such indemnity to be given to it and to its Transfer
Agent and Registrar, if any, as shall be deemed necessary or advisable by the
Board of Directors.
Section 6. Holder of Record. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder thereof in
fact, and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise specifically provided
by law.
Section 7. Inspection. The transfer books shall be open for at least
three business hours each business day for inspection by any judgment creditor
of the corporation or any
14
<PAGE>
person who shall have been for at least six (6) months immediately preceding his
demand a record holder of not less than one percent (1%) of the outstanding
shares of the corporation, or by any officer, director, or any committee or
person holding or authorized in writing by the holders of at least five percent
(5%) of all the outstanding shares of the corporation. Persons so entitled to
inspect the transfer books may make extracts therefrom. This right of inspection
shall not extend to any person who has used or proposes to use the information
so obtained otherwise than to protect his interest in the corporation, or has
within two (2) years sold or offered for sale any list of stockholders of the
corporation or any other corporation, or has aided or abetted any person in
procuring any stock list for any such purpose.
ARTICLE VI
MISCELLANEOUS
Section 1. Fiscal Year. The Board of Directors shall have power to fix
and to change the fiscal year of the corporation. Unless otherwise determined by
the Board, the corporation's fiscal year shall be the 52 or 53 week period which
ends on the Sunday nearest to April 30.
Section 2. Waiver of Notice. Any notice required to be given under the
provisions of these By-Laws or otherwise may be waived before, at or after the
meeting by the stockholder, director, or officer to whom such notice is required
to be given.
15
<PAGE>
Section 3. Seal. The corporate seal shall have the name of the
corporation and the word "seal" inscribed thereon, and may be engraved, printed,
impressed or drawn in facsimile upon any document where appropriate.
Section 4. Amendments. The Board of Directors shall have the power to
add any provisions or to alter or repeal any provision of these By-Laws by vote
of a majority of all of the directors present and voting at any duly constituted
meeting of the Board, if a statement of the proposed action shall have been
included in the notice or waiver of notice of such meeting of the Board. The
stockholders may take similar actions with respect to these By-Laws by the vote
of a majority of the stockholders present and voting at any duly constituted
meeting, if a statement of the proposed action shall have been included in the
notice or waiver of notice of such meeting of stockholders.
Section 5. Liability. No person shall be liable to the corporation for
loss or damage suffered by it on account of any action taken or omitted to be
taken by him in good faith as an officer of the corporation, or of any other
corporation which he serves as an officer at the request of the corporation, if
such person (a) exercised and used the same degree of care and skill as a
prudent man would have exercised or used under the circumstances in the conduct
of his own affairs, or (b) took or omitted to take such action in reliance upon
advice of counsel for the corporation or upon statements made or information
furnished by officers or employees of the corporation which he
16
<PAGE>
had reasonable grounds to believe. The liabilities of directors of the
corporation for action taken or omitted to be taken by them in their capacity as
such shall be governed by the relevant provisions of the Certificate of
Incorporation of the corporation, and to the extent consistent therewith, by
these ByLaws. The foregoing shall not be exclusive of other rights and defenses
to which he may be entitled as a matter of law.
Section 6. Indemnification and Advancement of Expenses. The corporation
shall indemnify, and shall make advance payment of litigation expenses to, in
each case to the fullest extent permitted by law, any person made, or threatened
to be made, a party to any pending, threatened or completed action, suit or
proceeding (whether civil, criminal, administrative, arbitrative or
investigative) by reason of the fact that he, his testator, or intestate is or
was a director, officer or employee of the corporation.
17
FRONT OF CERTIFICATE
SMITHFIELD FOODS, INC.
a corporation organized under the
Laws of the State of Delaware
(the "Corporation")
THIS CERTIFIES THAT Sumitomo Corporation of America, a New York corporation, is
the registered holder of Two Thousand (2,000) fully paid and non-assessable
share of the Series C 6-3/4% Cumulative Convertible Preferred Stock of
Smithfield Foods, Inc. TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE
HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED. This Certificate and the shares represented hereby are issued
and shall be held subject to all of the provisions of the Composite Certificate
of Incorporation, as amended, of the Corporation (including without limitation
all of the provisions of the Certificate of Designations for the Series C 6-3/4%
Cumulative Convertible Preferred Stock), to all of which the holder hereof by
the acceptance of this Certificate assents.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 26th day of October A.D. 1995.
/s/ AARON D. TRUB /s/ JOHN O. NIELSON
(Signature) (Signature)
Secretary and President and
Treasurer Chief Operating Officer
<PAGE>
BACK OF CERTIFICATE
SMITHFIELD FOODS, INC.
The Corporation will furnish to any stockholder upon request and without charge
a full statement of the powers, designations, preferences and relative
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights between the shares of each such class or series so far
as the same have been fixed and determined, and of the authority of the Board of
Directors to fix and determine the relative rights, preferences and limitations
of subsequent series.
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO
WHICH SUCH SECURITIES MAY BE CONVERTED HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND NONE MAY BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED
UNDER THE ACT AND SUCH STATE LAWS OR IN THE OPINION OF COUNSEL (WHICH OPINION
AND COUNSEL SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY) EXEMPTIONS ARE
AVAILABLE.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto
- ------------------------------------------------------------------------
(Please print or type name and address of assignee)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
shares of the capital stock represented by the within Certificate, and does
hereby irrevocably constitute and appoint __________________________
____________________________________________ Attorney to transfer the said
shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated__________ Signature_____________________________________________
NOTE: The above signature must correspond
with the name on the face of this
Certificate in every particular.
NOTICE OF CONVERSION
The undersigned holder of this Certificate for two thousand (2,000)
shares of Series C 6-3/4% Cumulative Convertible Preferred Stock ("Series C
Preferred Stock") of Smithfield Foods, Inc. hereby irrevocably exercises the
option to convert _____________ shares (which must be whole shares) of the
underlying Series C Preferred Stock represented by this Certificate into shares
of Common Stock (and any other applicable securities or property) of Smithfield
Foods, Inc. in accordance with the terms and conditions of the Series C
Preferred Stock, including the Certificate of Designations in respect thereof,
and directs that the securities deliverable upon such conversion be registered
in the name of and delivered, together with a check in payment of any fractional
share and any other property deliverable upon such conversion, to the
undersigned unless a different name has been indicated below. If securities are
to be registered in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. If the
number of shares of the Series C Preferred Stock indicated above is less than
the number of shares of Series C Preferred Stock represented by this
Certificate, the undersigned directs that Smithfield Foods, Inc. issue to the
undersigned, unless a different name is indicated below, a new Certificate for
the balance of the Series C Preferred Stock not to be converted.
Dated __________ Signature _____________________________________________
NOTE: The above signature should correspond
exactly with the name on the face of this
Certificate or with the name of the
assignee appearing in the assignment form
below.
- ------------------------------------------------------------------------
(Please print or type name and address of registered holder)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(Please indicate delivery instructions, if applicable)
- ------------------------------------------------------------------------
The certificate representing shares of Common Stock into which the shares of
Series C Preferred Stock represented hereby will have been converted, if any,
may entitle the holder thereof to certain rights as set forth in a Rights
Agreement between Smithfield Foods, Inc. and the Rights Agent, dated as of May
8, 1991, as amended, and as the same may be further amended from time to time
(the "Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices of
Smithfield Foods, Inc. Smithfield Foods, Inc. will mail to the holder of this
Certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor. Under certain circumstances, as set forth in the
Rights Agreement, Rights issued to any Person who becomes an Acquiring Person
(as defined in the Rights Agreement) may become null and void.
1
FOURTH AMENDED, RESTATED AND CONTINUED
REVOLVING CREDIT AGREEMENT
DATED AS OF APRIL 30, 1996
GWALTNEY OF SMITHFIELD, LTD., a Delaware corporation ("GWALTNEY"), THE
SMITHFIELD PACKING COMPANY, INCORPORATED, a Virginia corporation ("PACKING"),
PATRICK CUDAHY INCORPORATED, a Delaware corporation ("CUDAHY"), ESSKAY, INC., a
Maryland corporation ("ESSKAY"), BROWN'S OF CAROLINA, INC., a North Carolina
corporation ("BROWN'S") and JOHN MORRELL & CO., a Delaware Corporation
("MORRELL"; Gwaltney, Packing, Cudahy, Esskay, Brown's and Morrell being
individually referred to as a "BORROWER" and collectively referred to as the
"BORROWERS"), and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", New York Branch (individually, "RABOBANK"), as Agent for
the Banks (the "AGENT"), and each financial institution a party hereto (being
individually referred to as a "BANK" and collectively referred to as the
"BANKS") agree as follows:
PRELIMINARY STATEMENTS
This Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy,
Esskay and Brown's, Rabobank as agent for the Banks and each financial
institution a party thereto, with the 1995 Agreement being a complete amendment,
restatement and continuation of the Second Amended, Restated and Continued
Revolving Credit Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as
amended by amendments dated as of May 1, 1994, November 28, 1994, January 31,
1995, February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July
12, 1995 among Gwaltney, Packing, Cudahy, Esskay, Brown's and Carolina Food
Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (i) the Amended,
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992 and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
<PAGE>
2
October 30, 1991 between Gwaltney and Rabobank and (ii) the Amended, Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and Rabobank,
with the 1991 Oral Finance Facility being a complete amendment, restatement and
continuation of the Oral Finance Facility dated as of October 26, 1990, as
amended, between Gwaltney and Rabobank. To the extent that any collateral,
guaranty, pledge or assignment has heretofore been given as security under or in
connection with the 1994 Credit Agreement, 1991 Credit Agreement or the 1991
Oral Finance Facility or any other agreement, instrument or other document for
the repayment of any indebtedness incurred by any of the Borrowers to a Bank,
the security agreements and other lien documents (as the same may be amended,
restated, continued, supplemented or otherwise modified pursuant to or in
connection with this Credit Agreement) applicable thereto shall continue to
secure the repayment of such indebtedness previously incurred and presently
outstanding, together with all new indebtedness now or hereafter incurred by any
or all of the Borrowers to a Bank under this Credit Agreement or the Notes.
ARTICLE I
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 1.01. THE COMMITTED FACILITIES.
(a) $205,000,000 FACILITY A. Each Bank severally agrees, on the terms
and conditions hereinafter set forth, to make advances (the "FACILITY A
ADVANCES") to any of the Borrowers from time to time during the period from the
date hereof to and including July 29, 1996 (the "FACILITY A TERMINATION DATE")
in an aggregate principal amount not to exceed at any time outstanding for all
of the Borrowers (i) the Available Facility A Commitment times (ii) the Facility
A percentage (the "FACILITY A CREDIT PERCENTAGE" of such Bank) set forth for
such Bank on the then current Annex I attached hereto; provided, however, that
if at the time of determination the Facility A Commitments have been terminated
or been reduced to zero, the "FACILITY A CREDIT PERCENTAGE" of each Bank shall
be the Facility A Credit Percentage of such Bank in effect immediately prior to
such termination or reduction. The term "AVAILABLE FACILITY A COMMITMENT" shall
mean, as of any date of determination, the lesser of (x) the then current
Available Borrowing Base or (y) the difference of (A) $205,000,000, as such
amount may be reduced pursuant to Section 1.03(b) (the "FACILITY A COMMITMENT")
minus (B) the aggregate outstanding principal amount of Facility A Advances
outstanding on such date minus (C) any Letter of Credit
<PAGE>
3
Obligations. Facility A Advances shall be used to repay Drawings under Letters
of Credit and for seasonal inventory and receivable needs and for no other
purpose.
(b) $50,000,000 FACILITY B. Each Bank severally agrees, on the terms
and conditions hereinafter set forth, to make advances (the "FACILITY B
ADVANCES"; Facility A Advances and Facility B Advances, collectively, the
"ADVANCES") to any of the Borrowers from time to time during the period from the
date hereof to and including July 29, 1997 (the "FACILITY B TERMINATION DATE")
in an aggregate principal amount not to exceed at any time outstanding for all
of the Borrowers (i) the Available Facility B Commitment times (ii) the Facility
B percentage (the "FACILITY B CREDIT PERCENTAGE" of such Bank; the Facility A
Credit Percentage and the Facility B Credit Percentage, collectively, the
"CREDIT PERCENTAGE" of such Bank) set forth for such Bank on the then current
Annex I attached hereto; provided, however, that if at the time of determination
the Facility B Commitments have been terminated or been reduced to zero, the
"FACILITY B CREDIT PERCENTAGE" of each Bank shall be the Facility B Credit
Percentage of such Bank in effect immediately prior to such termination or
reduction. The term "AVAILABLE FACILITY B COMMITMENT" shall mean, as of any date
of determination, the lesser of (x) the then current Available Borrowing Base
(as defined in Section 1.01(c) below) or (y) the difference of (A) $50,000,000,
as such amount may be reduced pursuant to Section 1.03(b) (the "FACILITY B
COMMITMENT") minus (B) the aggregate outstanding principal amount of Facility B
Advances outstanding on such date. Facility B Advances shall be used for working
capital purposes and for capital expenditures and for no other purpose.
"COMMITMENT" means, as to a Bank, such Bank's obligation to make Advances
hereunder to the extent of such Bank's Credit Percentage, together with the
right of such Bank to receive all payments of all principal, interest and other
amounts due hereunder and under the other Loan Documents from the Loan Parties
to the extent of such Bank's Credit Percentage, together with all other rights,
remedies, privileges, duties and obligations of such Bank hereunder and under
the other Loan Documents.
(c) BORROWING BASE. For purposes of this Agreement, "AVAILABLE
BORROWING BASE" shall mean, as of any date of determination, the then current
aggregate Borrowing Base (as defined in Exhibit E hereto) of all of the
Borrowers minus the aggregate outstanding principal amount of the Advances
outstanding or requested on such date minus the then aggregate outstanding
Letter of Credit Obligations. Each Advance shall be in an amount of $1,000,000
or an integral multiple thereof. Within the limits of the Facility A Commitment
and the Facility B Commitment, each Borrower may borrow, prepay pursuant to
Section 1.04(c) and reborrow under this Section 1.01.
<PAGE>
4
SECTION 1.02. MAKING THE ADVANCES. (a) REQUEST FOR ADVANCE. Each
Advance shall be made on notice, substantially in the form of Exhibit C (a
"BORROWING NOTICE"), from the Borrower desiring such Advance to the Agent
delivered before 12:00 noon (New York City time) with respect to a Eurodollar
Rate Loan, at least three Business Days prior to the making of such Advance and
with respect to any other Loan, on a Business Day specifying, with respect to
such Advance (all such Advances consisting of the same type made, continued or
converted on the same day referred to as a "BORROWING"), (i) the Available
Facility A Commitment or Available Facility B Commitment, as the case may be,
(ii) the amount, (iii) the Facility, (iv) the type of Advance and (v) the
Interest Period therefor pursuant to Section 1.06(a). The Agent shall give such
Borrowing Notice to each Bank not later than 1:30 p.m. (New York City time) on
the day received.
(b) DISBURSEMENTS.
(i) Not later than 3:00 p.m. (New York City time) three
Business Days following the date of receipt of a Borrowing Notice, with
respect to a Eurodollar Rate Loan, or on the date of receipt of a
Borrowing Notice with respect to any other Loan, each Bank with respect
to a Borrowing Notice will make available for its account to the Agent
at the address of the Agent set forth in Annex I attached hereto, in
immediately available funds, the Advance to be made by it using the
wiring instructions for the Agent set forth on Annex I attached hereto
or as otherwise directed by the Agent. Unless the Agent shall have been
notified by a Bank prior to the date of such Advance that such Bank
does not intend to make available to the Agent its portion of such
Advance to be made on such date, the Agent may (but in no event shall
have any obligation to), in reliance thereon, make available the amount
of the pro rata portion of such Advance to be provided by such Bank.
(ii) Provided that the applicable conditions set forth in
Article II hereof for such Advance are fulfilled, the Banks will make
funds available to the Agent and the Agent will make such funds
available to the Borrower requesting such Advance at the account
specified by such Borrower in such notice.
(iii) If the amount described in Section 1.02(b)(i) is not in
fact made available to the Agent by a Bank (such Bank being hereinafter
referred to as a "DEFAULTING BANK") and the Agent has nevertheless made
available to the Borrower the amount of the Advance to be provided by
such Bank, the Agent shall be entitled to recover such corresponding
amount on
<PAGE>
5
demand from such Defaulting Bank. If such Defaulting Bank does not pay
such corresponding amount forthwith upon the Agent's demand therefor,
the Agent shall promptly notify the Borrower requesting such Advance
and such Borrower shall immediately (but in no event later than two
Business Days after such demand) pay such corresponding amount to the
Agent. The Agent shall also be entitled to recover from such Defaulting
Bank or such Borrower, (x) interest on such corresponding amount in
respect of each day from the date such amount was made available to
such Borrower to the date such corresponding amount is recovered by the
Agent, at a rate per annum equal to either (A) if paid by such
Defaulting Bank, for the first two Business Days such amount remains
owing, the Federal Funds Rate from time to time in effect and
thereafter, at the Base Rate or (B) if paid by such Borrower, the Base
Rate plus (y) in each case, an amount equal to costs (including legal
expenses) and losses, if any, incurred as a result of the failure of
such Defaulting Bank to provide such amount as provided in this
Agreement. Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its commitments hereunder or to prejudice any
rights which a Borrower may have against any Bank as a result of any
default by such Bank hereunder, including, without limitation, the
right of such Borrower to seek reimbursement from any Defaulting Bank
for any amounts paid by such Borrower under clause (y) above on account
of such Defaulting Bank's default.
(iv) No Bank shall be responsible for the failure of any other
Bank to make an Advance to be made by such other Bank; provided,
however, that the failure of any Bank to make an Advance to be made by
it shall not relieve the obligation of each other Bank to make the
Advance to be made by such other Bank.
(c) AUTHORIZED OFFICERS AND BANK. Each Borrower shall deliver to the
Agent from time to time an Officer's Certificate setting forth the names of the
officers, employees and agents authorized to request Advances and to request a
conversion/continuation of any Borrowing and containing a specimen signature of
each such officer, employee or agent. Aaron D. Trub and C. Larry Pope or any
other individual so designated in writing by a Borrower shall be authorized to
act for each Borrower in respect of all other matters relating to the Loan
Documents. The Agent and the Banks shall be entitled to rely conclusively on
such officer's or employee's authority to request such Advance or such
conversion/continuation until the Agent receives notice to the contrary. Neither
the Agent nor any Bank shall have a duty to verify the authenticity of the
signature appearing on any Borrowing Notice or Conversion/Continuation Notice or
any other document so long as such signature
<PAGE>
6
reasonably appears to be the same as one of the specimen signatures appearing in
the current Officer's Certificate delivered to the Agent by the respective
Borrower pursuant to this Section. Neither the Agent nor any Bank shall incur
any liability to a Borrower or any other Person in acting upon any telephonic
notice which the Agent or a Bank reasonably believes to have been given by a
duly authorized officer or other person authorized to borrow on behalf of such
Borrower.
SECTION 1.03. COMMITMENT FEE AND REDUCTION OF COMMITMENT. (a) The
Borrowers jointly and severally agree to pay to the Agent for the account of the
Banks a commitment fee on the average daily unused portion of the Commitment
from the date hereof until the Termination Date at the rate of 1/4 of 1% per
annum, payable in arrears on the last day of each calendar quarter during the
term of the Facility A Commitment and Facility B Commitment, commencing on the
last day of the calendar quarter first occurring after the date hereof, and on
the Facility A Termination Date or Facility B Termination Date, as the case may
be.
(b) The Borrowers shall have the right, upon at least five Business
Days' written notice to the Agent, to terminate in whole or reduce in part the
unused portion of the Facility A Commitment or Facility B Commitment, provided,
however, that each partial reduction shall be in the amount of $1,000,000 or an
integral multiple thereof. The Agent will promptly transmit such notice to each
Bank. Notwithstanding the foregoing, in no event shall the Borrower be permitted
to reduce the Facility A Commitment or the Facility B Commitment below an
aggregate amount equal to the aggregate principal amount of Facility A Advances
plus the Letter of Credit Obligations or Facility B Advances, as the case may
be, outstanding at such time. The Commitment once reduced pursuant to this
Section shall not be increased.
SECTION 1.04. REPAYMENT. (a) Each Borrower shall, and hereby jointly
and severally agrees to, repay the aggregate unpaid principal amount of all
Advances, in accordance with the terms of two promissory notes of such Borrower
to each Bank, in substantially the form of Exhibit A-1 hereto (as to Gwaltney),
Exhibit A-2 hereto (as to Packing), Exhibit A-3 hereto (as to Cudahy), Exhibit
A-4 hereto (as to Esskay), Exhibit A-5 hereto (as to Brown's) and Exhibit A-6
(as to Morrell), appropriately completed to evidence the indebtedness resulting
from all Facility A Advances (individually, a "FACILITY A NOTE" and
collectively, the "FACILITY A NOTES") and the indebtedness resulting from all
Facility B Advances (individually, a "FACILITY B NOTE" and collectively, the
"FACILITY B NOTES"; the Facility A Notes and the Facility B Notes, collectively,
the "NOTES") and, in each case, delivered to each Bank pursuant to Article II.
Each Bank shall maintain in accordance with its usual practice an account or
accounts (a "LOAN ACCOUNT") evidencing the indebtedness of each Borrower to such
Bank resulting from each Advance owing to such Bank from
<PAGE>
7
time to time, including the amount of principal and interest payable and paid to
such Bank from time to time hereunder and under the Notes. Such Loan Account
shall be conclusive evidence of the amount owed to such Bank, absent manifest
error.
(b) Each Borrower shall, and hereby jointly and severally agrees to,
within two Business Days following the delivery by it of each borrowing base
certificate under Section 5.01(c)(iv) hereof, either (i) prepay the Advances
made to any Borrower in the amount, if any, by which the outstanding principal
amount of the Advances made to the Borrowers on the date of prepayment under
this Section 1.04(b) exceeds the Borrowers' Borrowing Base set forth on such
borrowing base certificate, together with accrued interest to the date of such
prepayment on the amount prepaid, or (ii) pledge and assign to the Agent on
behalf of the Banks additional collateral acceptable to the Banks, in their sole
discretion, and deliver all documentation that the Agent or the Banks, in their
sole discretion, may require in connection with such pledge and assignment and
the perfection of a first priority security interest in such additional
collateral, so that the Borrowers' Borrowing Base plus the value assigned by the
Banks, in their sole discretion, to such additional collateral equals or exceeds
such outstanding principal amount.
(c) Each Borrower may, upon at least one Business Day's notice to the
Agent and each Bank, prepay the outstanding amount of any Advance made to any
Borrower in whole or in part with accrued interest to the date of such
prepayment on the amount prepaid; provided, however, that any prepayment of any
Advance shall be made on, and only on, the last day of an Interest Period for
such Advance; and provided, further, that each partial prepayment shall be in a
principal amount of at least $1,000,000.
(d) The Agent, in its sole discretion or upon the request of a Bank,
subject only to the terms of this Section 1.04(d), may pay from the proceeds of
an Advance (which Advance has not been requested by a Borrower pursuant to a
Borrowing Notice) made to a Borrower hereunder, whether made following a request
by a Borrower or a deemed request as provided in this Section 1.04(d), all
amounts then due and payable by such Borrower hereunder, including, without
limitation, amounts payable with respect to payments of principal, interest and
fees and all reimbursements for expenses hereunder. Each Borrower hereby
irrevocably authorizes the Agent and the Banks to make Advances, which Advances
shall be Base Rate Loans, in any case, upon notice from the Agent as described
in the following sentence for the purpose of paying principal, interest and fees
due from such Borrower, reimbursing expenses or paying any and all other amounts
due and payable by such Borrower hereunder or under the Notes or any other Loan
Document, and agrees that all such Advances so made shall be deemed to have been
requested by it
<PAGE>
8
hereunder as of the date of the aforementioned notice; provided, however, that,
if following any such notice and prior to the Advance by the Banks contemplated
thereby a Borrower shall pay to the Agent on behalf of the Banks the full amount
of the obligations with respect to which such Advance was to be made, the Banks
shall not make such Advance. The Agent shall request an Advance on behalf of a
Borrower as described in the preceding sentence by notifying such Borrower at
least two (2) Business Days prior to the proposed date of such Advance by telex,
telecopy, telegram or other similar form of transmission, of the amount thereof
and the date such Advance is to be made.
SECTION 1.05. INTEREST. (a) Each Borrower shall, and hereby jointly and
severally agrees to, pay interest on the unpaid principal amount of each Advance
from the date of such Advance until such principal is paid in full at the
applicable rate set forth below.
(b) RATE OF INTEREST. All Advances shall bear interest on the unpaid
principal amount thereof from the date such Advances are made until paid in
full, except as otherwise provided in Section 1.05(e), as follows:
(i) If a Eurodollar Rate Loan, at a rate per annum equal to the
sum of (A) the Eurodollar Rate determined for the applicable Interest
Period plus (B) the Interest Rate Margin; and
(ii) If a Federal Funds Rate Loan, at a rate per annum equal to
the sum of (A) the Federal Funds Rate determined for the applicable
Interest Period plus (B) the Interest Rate Margin.
The applicable basis for determining the rate of interest on the Advances shall
be selected at the time a Borrowing Notice or a Conversion/Continuation Notice
is delivered by a Borrower to the Agent. If on any day any Advance is
outstanding with respect to which notice has not been timely delivered to the
Bank in accordance with the terms of this Agreement specifying the basis for
determining the rate of interest on that day, then for that day that Advance
shall be deemed to be a Base Rate Loan.
(c) INTEREST PAYMENTS.
(i) Interest accrued on each Base Rate Loan shall be payable in
arrears (A) on each Interest Payment Date applicable to such Loan, (B)
upon the prepayment thereof in full or in part, (C) upon conversion
thereof to a Eurodollar Rate Loan or Federal Funds Rate Loan, and (D)
if
<PAGE>
9
not theretofore paid in full, at maturity (whether by acceleration or
otherwise) of such Base Rate Loan.
(ii) Interest accrued on each Eurodollar Rate Loan or Federal
Funds Rate Loan shall be payable in arrears (A) on each Interest
Payment Date applicable to such Loan, (B) upon the payment or
prepayment thereof in full or in part, and (C) if not theretofore paid
in full, at maturity (whether by acceleration or otherwise) of such
Eurodollar Rate Loan or Federal Funds Rate Loan, as the case may be.
(d) CONVERSION OR CONTINUATION.
(i) Each Borrower shall have the option (A) to convert at any
time 1) all or any part of outstanding Base Rate Loans to Eurodollar
Rate Loans or Federal Funds Rate Loans or 2) all or any part of
Eurodollar Rate Loans to Federal Funds Rate Loans or 3) all or any part
of Federal Funds Rate Loans to Eurodollar Rate Loans; or (B) to
continue all or any part of outstanding Eurodollar Rate Loans or
Federal Funds Rate Loans, in accordance with the terms of Section
1.05(b), having Interest Periods which expire on the same date as
Eurodollar Rate Loans or Federal Funds Rate Loans, as the case may be,
and the succeeding Interest Period of such continued Loans shall
commence on such expiration date; provided, however, (I) no portion of
any such outstanding Loan may be continued as (and shall be immediately
converted into a Base Rate Loan), or be converted into, a Eurodollar
Rate Loan or Federal Funds Rate Loan (x) if the continuation of, or the
conversion into, would violate any of the provisions of Section 1.06 or
(y) if an Event of Default has occurred and is continuing, and (II) if
the option set forth in clause (B) of this Section is not exercised, in
accordance with the terms of Section 1.05(d), in respect of a
Eurodollar Rate Loan or Federal Funds Rate Loan, such Eurodollar Rate
Loan or Federal Funds Rate Loan, as the case may be, shall convert
automatically into a Base Rate Loan on the final date of the applicable
Interest Period.
(ii) To convert or continue a Loan under Section 1.05(d), a
Borrower shall deliver a notice of Conversion/Continuation,
substantially in the form of Exhibit D (a "CONVERSION/CONTINUATION
NOTICE"), to the Agent by not later than 11:00 a.m. (New York time) at
least three (3) Business Days in advance of the proposed
conversion/continuation date. The Agent shall give such
Conversion/Continuation Notice to each Bank not later than 12 noon (New
York City time) on the day received. A Conversion/Continuation Notice
shall specify (A) the identity of the
<PAGE>
10
Borrower delivering such notice, (B) the proposed
conversion/continuation date (which shall be a Business Day), (C) the
principal amount of the Borrowing to be converted/continued, (D)
whether such Borrowing shall be converted and/or continued and (E) the
requested Interest Period. Any Conversion/Continuation Notice for
conversion to, or continuation of, an Advance shall be irrevocable, and
such Borrower shall be bound to convert or continue in accordance
therewith.
(e) DEFAULT INTEREST. Notwithstanding the rates of interest specified
in this Section or elsewhere in this Agreement, effective immediately upon the
occurrence of an Event of Default or an event (a "DEFAULT") which with the
passage of time or giving of notice or both would constitute an Event of
Default, and for as long thereafter as such Default or Event of Default shall be
continuing, the principal balance of all Base Rate Loans, all Eurodollar Rate
Loans and all Federal Funds Rate Loans shall bear interest at the Default Rate.
Upon the effectiveness of the Default Rate in accordance with this clause (e),
to the extent any Eurodollar Rate Loans or Federal Funds Rate Loans are then
outstanding, such Loans shall be converted to Base Rate Loans.
(f) COMPUTATION OF INTEREST. Interest shall be computed on the basis of
the actual number of days elapsed in the period during which interest accrues
and a year of 360 days. In computing interest on any Advance, the date of the
making of such Advance or the first day of an Interest Period, as the case may
be, shall be included and the date of payment or the last day of an Interest
Period, as the case may be, shall be excluded; provided, however, if an Advance
is repaid on the same day on which it is made, one (1) day's interest shall be
paid on such Advance.
(g) CHANGES; LEGAL RESTRICTIONS. If after the date hereof a Bank
determines that the adoption or implementation of or any change in or in the
interpretation or administration of any law or regulation or any guideline or
request from any central bank or other governmental authority or
quasi-governmental authority exercising jurisdiction, power or control over such
Bank or over banks or financial institutions generally (whether or not having
the force of law), compliance with which:
(i) does or will subject such Bank to charges (other than
taxes) of any kind which such Bank reasonably determines to be
applicable to the Commitments of such Bank or change the basis of
taxation of payments to such Bank of principal, fees, interest, or any
other amount payable hereunder; or
<PAGE>
11
(ii) does or will impose, modify, or hold applicable, in the
determination of the Bank, any reserve, special deposit, compulsory
loan, FDIC insurance or similar requirement against assets held by, or
deposits or other liabilities in or for the account of, advances or
loans by, commitments made, or other credit extended by, or any other
acquisition of funds by, such Bank;
and the result of any of the foregoing is to increase the cost to such Bank of
making, renewing or maintaining any Advance or its Commitment or to reduce any
amount receivable thereunder; then, in any such case, upon written demand by
such Bank, the Borrowers shall immediately pay to such Bank, from time to time
as specified by such Bank, such amount or amounts as may be necessary to
compensate such Bank for any such additional cost incurred or reduced amount
received. Such demand shall be conclusive and binding for all purposes, absent
manifest error.
(h) CERTAIN DEFINED TERMS. The following capitalized terms used in
this Agreement shall have the following meanings:
"BASE EURODOLLAR RATE" means, with respect to any Interest
Period applicable to a Borrowing of Eurodollar Rate Loans, the interest
rate per annum determined by the Agent to be the rate per annum at
which deposits in United States dollars are offered to the Agent in the
London interbank market at approximately 11:00 a.m. (London time) on
the date two (2) Business Days prior to the first day of the applicable
Interest Period for a period equal to such Interest Period and in an
amount substantially equal to the amount of the Eurodollar Rate Loan
requested by a Borrower for such Interest Period.
"BASE RATE" means, for any period, a fluctuating interest rate
per annum equal to the higher of (i) the rate per annum as shall be
established by the Agent in New York, New York from time to time, as
the Bank's base rate and (ii) the sum of (A) one-half of one percent
(0.5%) and (B) the Federal Funds Rate.
"BASE RATE LOANS" means all Advances which bear interest at a
rate determined by reference to the Base Rate (including any Advances
bearing interest at the Default Rate) as provided in Section 1.05(e).
"DEFAULT RATE" means a per annum rate of interest equal to the
Base Rate plus two percent.
<PAGE>
12
"EURODOLLAR RATE" means, with respect to any Interest Period
applicable to a Eurodollar Rate Loan, an interest rate per annum
obtained by dividing (i) the Base Eurodollar Rate applicable to that
Interest Period by (ii) a percentage equal to one hundred percent
(100%) minus the Eurodollar Reserve Percentage.
"EURODOLLAR RATE LOANS" means those Advances which bear
interest at a rate determined by reference to the Eurodollar Rate
(including any Advances bearing interest at the Default Rate) as
provided in Section 1.05.
"EURODOLLAR RESERVE PERCENTAGE" means, for any day, that
percentage which is in effect on such day, as prescribed by the Federal
Reserve Board for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for a member bank of the Federal Reserve
System in New York, New York in respect of "Eurocurrency Liabilities"
as set forth in Regulation D of the Federal Reserve Board (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Eurodollar Rate Loans is
determined).
"FEDERAL FUNDS RATE" means, with respect to any Interest Period
applicable to a Federal Funds Rate Loan, an interest rate per annum
equal to the rate per annum at which the Agent, as a branch of a
foreign bank, in its sole discretion, may acquire federal funds in the
interbank term federal funds market in New York City through brokers of
recognized standing on the first day of the applicable Interest Period
for a period equal to such Interest Period and in the amount of the
corresponding Federal Funds Rate Loan.
"FEDERAL FUNDS RATE LOANS" means those Advances which bear
interest at a rate determined by reference to the Federal Funds Rate
(including any Advances bearing interest at the Default Rate) as
provided in Section 1.05.
"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate
Loan or any Federal Funds Rate Loan, the last day of each calendar
month commencing on the first such day following the making of such
Base Rate Loan and Federal Funds Rate Loan, as the case may be, (ii)
except as provided in clause (iii), with respect to any Eurodollar Rate
Loan, the last day of each Interest Period applicable to such Loan, and
(iii) with respect
<PAGE>
13
to any Eurodollar Rate Loan having an interest Period in excess of
three (3) calendar months, the last day of each three (3) calendar
month interval during such Interest Period, as the case may be.
"INTEREST RATE MARGIN" means, as of any date, a rate equal to,
with respect to any Facility A Advance, 1.25% per annum and with
respect to any Facility B Advance, 1.35% per annum.
SECTION 1.06. SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS AND
FEDERAL FUNDS RATE LOANS. With respect to Eurodollar Rate Loans:
(a) DETERMINATION OF INTEREST PERIOD. The period between the date of
each Advance and the date of payment in full of such Advance shall be divided
into successive periods, each such period being an "INTEREST PERIOD" for such
Advance. The initial Interest Period for each Advance shall begin on the date of
such Advance and end on the last day of such period as selected by the Borrower
desiring such Advance, and thereafter, each subsequent Interest Period for such
Advance shall begin on the last day of the immediately preceding Interest Period
for such Advance and end on the last day of such period as selected by the
Borrower. The duration of each such Interest Period for each Advance shall be
overnight or one or three months, provided, however, that:
(i) the duration of any Interest Period for any Advance that
commences before the repayment date for such Advance and otherwise ends
after such repayment date shall end on such repayment date;
(ii) A Borrower may only select, as to Eurodollar Rate Loans,
an Interest Period of, with respect to a Facility A Advance, thirty
(30), sixty (60) or ninety (90) days in duration and with respect to a
Facility B Advance, thirty (30), sixty (60), ninety (90), one hundred
fifty (150) or one hundred eighty (180) days in duration;
(iii) A Borrower may only select, as to Federal Funds Rate
Loans, an Interest Period of, with respect to a Facility A Advance, not
more than three months in duration and with respect to a Facility B
Advance, not more than six months in duration;
(iv) In the case of immediately successive Interest Periods
applicable to a Borrowing of Eurodollar Rate Loans or Federal Funds
Rate Loans, each successive Interest Period shall commence on the day
on which the next preceding Interest Period expires;
<PAGE>
14
(v) If any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall be extended to
expire on the next succeeding Business Day provided, that, if such
extension would cause the last day of such Interest Period to occur in
the next following calendar month, the last day of such Interest Period
shall occur on the next preceding Business Day;
(vi) A Borrower may not select an Interest Period as to any
Advance if such Interest Period terminates later than the Facility A
Termination Date or Facility B Termination Date, as the case may be;
and
(vii) There shall be no more than five Interest Periods in
effect at any one time in the aggregate for Facility A Advances and
Facility B Advances.
(b) INTEREST RATE UNASCERTAINABLE, INADEQUATE OR UNFAIR. In the event
that at least one (1) Business Day before the commencement of an Interest Period
a Bank determines that adequate and fair means do not exist for ascertaining the
applicable interest rates by reference to which the Eurodollar Rate, then being
determined is to be fixed, then such Bank shall forthwith give notice thereof to
the Borrowers, whereupon (until such Bank notifies the Borrowers that the
circumstances giving rise to such suspension no longer exist, which such Bank
shall do promptly after it determines that such circumstances no longer exist)
the right of all Borrowers to elect to have Advances bear interest based upon
the Eurodollar Rate shall be suspended and all outstanding Eurodollar Rate Loans
shall be converted into a Base Rate Loan on the last day of the then current
Interest Period therefor, notwithstanding any prior election by any Borrower to
the contrary.
(c) ILLEGALITY.
(i) If at any time a Bank determines (which determination
shall, absent manifest error, be final and conclusive and binding upon
all parties) that the making or continuation of any Eurodollar Rate
Loan has become, as a result of any event occurring after the date
hereof (A) unlawful or (B) impermissible by compliance by such Bank
with any law, governmental rule, regulation or order of any
governmental authority (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful or would
result in costs or penalties), then such Bank may give notice of that
determination to the Agent and the Borrowers.
<PAGE>
15
(ii) When notice is given by a Bank under this Section, (A)
each Borrower's right to request from such Bank and such Bank's
obligation, if any, to make Eurodollar Rate Loans shall be immediately
suspended, and such Bank shall make a Base Rate Loan in lieu of any
requested Borrowing of Eurodollar Rate Loans (on which such Base Rate
Loan the interest and principal shall be payable contemporaneously with
the related Eurodollar Rate Loans of the other Banks) and (B) if
Eurodollar Rate Loans are then outstanding, each Borrower shall
immediately, or if permitted by applicable law, no later than the last
date permitted thereby, upon at least one (1) Business Day's prior
notice to such Bank, convert each such Loan into a Base Rate Loan (on
which such Base Rate Loan the interest and principal shall be payable
contemporaneously with the related Eurodollar Rate Loans of the other
Banks).
(iii) If at any time after the Bank gives notice under this
Section, such Bank determines that it may lawfully make Eurodollar Rate
Loans, such Bank shall promptly give notice of that determination to
each Borrower. Each Borrower's right to request, and such Bank's
obligation, if any, to make Eurodollar Rate Loans shall thereupon be
restored.
(d) COMPENSATION. In addition to all amounts required to be paid by
each Borrower pursuant to Section 1.05, each Borrower shall compensate each
Bank, upon demand, for all losses, expenses and liabilities (including, without
limitation, any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by each such Bank to fund or
maintain such Bank's Eurodollar Rate Loans or Federal Funds Rate Loans to such
Borrower) which such Bank may sustain (i) if for any reason not the fault of
such Bank, a Borrowing, conversion into or continuation of Eurodollar Rate Loans
or Federal Funds Rate Loans does not occur on a date specified therefor in a
Borrowing Notice or a Conversion/Continuation Notice given by such Borrower or a
successive Interest Period does not commence after notice therefor is given,
including, without limitation, as a result of any of the events indicated in
Section 1.06(b) or (c), or (ii) if for any reason any Eurodollar Rate Loan or
Federal Funds Rate Loan is prepaid (including, without limitation, mandatorily
pursuant to Section 1.04(b)) on a date which is not the last day of the
applicable Interest Period, or (iii) as a consequence of a required conversion
of a Eurodollar Rate Loan to a Base Rate Loan as a result of any of the events
indicated in Section 1.06(b) or (c), or (iv) as a consequence of any failure by
such Borrower to repay Eurodollar Rate Loans or Federal Funds Rate Loans when
required by the terms of this Agreement. Such Bank's demand for such
compensation shall be conclusive as to the amount of compensation due to the
Bank, absent manifest error.
<PAGE>
16
SECTION 1.07. PAYMENTS AND COMPUTATIONS. The Borrowers shall make each
payment hereunder and under any Note or any other Loan Document not later than
2:00 p.m. (New York City time) on the day when due in lawful money of the United
States of America to the Agent at its address specified in Annex I attached
hereto in same day funds. Each payment received by the Agent for the account of
the Banks under this Agreement or any Note shall be paid promptly to such Bank,
by wire transfer of same day funds in accordance with the wiring instructions
specified for such Bank in Annex I attached hereto, for the account of such
Bank. If such amount is not made available to a Bank, such Bank shall be
entitled to recover from the Agent (x) interest on such corresponding amount in
respect of each day from the date such payment was made to the Agent for the
account of the Banks to the date such payment is made by the Agent to such Bank
at a rate per annum for the first two Business Days such amount remains owing
equal to the Federal Funds Rate from time to time in effect and thereafter, at
the Base Rate plus (y) an amount equal to costs (including legal expenses) and
losses, if any, incurred as a result of the failure of the Agent to provide such
amount to such Bank. Each Borrower hereby authorizes each Bank, if and to the
extent payment of any amount is not made when due under any Loan Document, to
charge from time to time against any account of such Borrower with such Bank any
amount so due. All computations of interest hereunder and under the Notes and
fees hereunder shall be made on the basis of a year of 360 days for the actual
number of days (including the first day but excluding the last day) elapsed.
SECTION 1.08. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder or under the Notes shall be stated to be due, or whenever the
last day of any Interest Period would otherwise occur, on a Saturday, Sunday or
a public or bank holiday in New York City or in the case of a Eurodollar Rate
Loan, New York City and London, England (any other day being a "BUSINESS DAY"),
such payment may be made, and the last day of such Interest Period shall occur,
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or commitment fee, as
the case may be; provided, however, that if such extension would cause payment
of interest on or principal of an Eurodollar Rate Loan to be made in the next
following calender month, such payment shall be made on the next preceding
Business Day.
SECTION 1.09. PRO RATA TREATMENT. Unless set forth to the contrary
herein, (a) each Advance, (b) each payment by a Borrower with respect to any
Advance, (c) each other payment to be made by a Borrower or any Loan Party
hereunder or under any Loan Document and (d) any amounts received with respect
to the sale, disposition, foreclosure or other transfer of any Collateral, shall
be made by, or credited to the account of, the Banks pro rata in the same
proportion at the time of such calculation as the outstanding principal amount
of the Advances owed
<PAGE>
17
to such Bank bears to the outstanding principal amount of the Advances owed to
all Banks. Each payment of interest on the Advances shall be made for the
account of the Banks pro rata in accordance with the amounts of interest on the
Advances due and payable to the respective Banks.
SECTION 1.10. SHARING OF PAYMENTS, ETC. (a) PAYMENTS UNDER THIS
AGREEMENT. Each Borrower agrees that, in addition to (and without limitation of)
any right of set-off, banker's lien or counterclaim a Bank may otherwise have,
each Bank shall be entitled, at its option, to offset balances held by it for
the account of such Borrower at any of such Bank's offices, in U.S. Dollars or
in any other currency, against any principal of, or interest on, any of such
Bank's Advances hereunder (or other obligations, if any, owing to such Bank
hereunder) which is not paid when due (regardless of whether such balances are
then due to a Borrower), in which case such Bank shall promptly notify such
Borrower, all other Banks and the Agent thereof; provided, however, such Bank's
failure to give such notice shall not affect the validity of such offset. If a
Bank shall obtain payment of any principal of, or interest on, any Advance made
by it to a Borrower under this Agreement through the exercise of any right of
set-off, banker's lien or counterclaim or similar right or otherwise or through
voluntary prepayments directly to a Bank or other payments made to a Bank not in
accordance with the terms of this Agreement and such payment, pursuant to
Section 1.09 hereof, should be distributed to the Banks pro rata in the same
proportion at the time of such calculation as the outstanding principal amount
of the Advances owed to such Bank bears to the outstanding principal amount of
the Advances owed to all Banks, such Bank shall promptly purchase from the other
Banks participations in (or, if and to the extent specified by such Bank, direct
interests in) the Advances made by the other Banks or other obligations arising
under or in connection with the Loan Documents owed to such other Banks in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Banks shall share the benefit of such payment
(net of any expenses which may be incurred by such Bank in obtaining or
preserving such benefit) pro rata in the same proportion at the time of such
calculation as the outstanding principal amount owed to such Bank bears to the
outstanding principal amount owed to all Banks. Each Borrower agrees that any
Bank so purchasing a participation (or direct interest) in the Advances made by
other Banks or other obligations arising under or in connection with the Loan
Documents owed to such other Banks may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Advances in the amount of such
participation.
(b) PAYMENTS OF OTHER OBLIGATIONS. If a Bank shall obtain payment
on any other obligation, if any, owing by a Borrower or a Loan Party through the
exercise of any right of set-off, banker's lien or counterclaim or similar right
or
<PAGE>
18
otherwise or through voluntary prepayments or other payments made to a Bank and
an Event of Default or event which with the passage of time or giving of notice
or both would become an Event of Default has occurred or would occur as a result
of such payment, unless such Bank can conclusively demonstrate that such funds
are proceeds of collateral pledged to secure such obligation in which case such
funds shall not be shared hereunder, such payment shall be distributed to the
Banks pro rata in the same proportion at the time of calculation as the
outstanding principal amount of all Advances owed to such Bank bears to the
outstanding principal amount of all Advances owed to all Banks. Such Bank shall
promptly purchase from the other Banks participations in (or, if and to the
extent specified by such Bank, direct interests in) the amount owed to such
other Banks in such amounts, or make such other adjustments from time to time as
shall be equitable, to the end that all the Banks shall share the benefit of
such payment (net of any expenses which may be incurred by such Bank in
obtaining or preserving such benefit) pro rata in the same proportion at the
time of calculation as the outstanding principal amount of all Advances owed to
such Bank bears to the outstanding principal amount of all Advances owed to all
Banks.
(c) GENERAL PROVISIONS. All the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored. Nothing contained
herein shall require any Bank to exercise any such right or shall affect the
right of any Bank to exercise any such right with respect to any other
indebtedness or obligations of a Borrower.
SECTION 1.11. INSUFFICIENT FUNDS. If the Agent receives funds
insufficient to pay in full the principal of any Advances and/or interest and/or
fees and expenses due and payable on any date such amounts are due, the Agent
shall distribute any such funds received by it:
(a) first, to pay all fees and expenses owing to the Agent (but not
in its capacity as a Bank);
(b) second, to pay all fees and expenses owing to the Banks pro rata in
accordance with the amount of such fees and expenses owing to such Bank at such
time;
(c) third, to pay all accrued but unpaid interest on all
outstanding Advances pro rata in accordance with the second sentence of Section
1.09 hereof; and
<PAGE>
19
(d) fourth, to pay all amounts of principal outstanding on the Advances
pro rata in accordance with the first sentence of Section 1.09 hereof.
SECTION 1.12. DEFAULTING BANK'S STATUS. Notwithstanding anything
contained herein to the contrary, but in addition to provisions regarding the
failure of a Bank to perform its obligations hereunder set forth elsewhere in
this Agreement, so long as any Bank shall be in default in its obligation to
fund its Credit Percentage of any Advance or shall have rejected its Commitment,
then such Bank shall not be entitled to receive any payments of principal of, or
interest on, its Commitment or the Advances or its share of any fees payable
hereunder, and for purposes of voting or consenting to matters with respect to
the Loan Documents, such Bank shall be deemed not to be a "BANK" hereunder and
such Bank's Credit Percentage shall be deemed to be zero, unless and until (i)
the obligations then outstanding are pro rata among all of the Banks (including
such defaulting Bank) based upon each Bank's Credit Percentage immediately prior
to such default, (ii) such failure to fulfill its obligation to fund is cured
and such Bank shall have paid, as and to the extent provided in this Agreement,
to the applicable party, such amount then owing together with interest on the
amount of funds that such Bank failed to timely fund or (iii) the Advances under
this Agreement shall have been declared or shall have become immediately due and
payable. No Commitment of any Bank shall be increased or otherwise affected by
any such failure or rejection by any Bank. Any payments of principal or interest
which would, but for this Section, be paid to any Bank, shall be paid to the
Banks who shall not be in default under their respective Commitments and who
shall not have rejected any Commitment, for application to the Advances in such
manner and order as shall be determined by the Agent.
ARTICLE II
LETTER OF CREDIT FACILITY
SECTION 2.01. LETTERS OF CREDIT/BANKS' PARTICIPATION.
(a) Subject to the terms and conditions of this Agreement, the Agent,
on behalf of the Banks, agrees to issue and amend (including, without
limitation, to extend or renew) for the account of a Borrower one or more
standby letters of credit (individually, a "LETTER OF CREDIT" and collectively,
the "LETTERS OF CREDIT") on any Business Day from and including the date hereof
to the L/C Termination Date, up to a maximum aggregate Stated Amount at any one
time outstanding equal to the L/C Commitment Amount; provided that the Agent
shall have no obligation to issue any Letter of Credit if, after giving effect
to such issuance (i) the Letter of Credit
<PAGE>
20
Obligations would exceed the L/C Commitment Amount or (ii) the Available
Facility A Commitment would be less than zero.
(b) The Letters of Credit shall be (i) in a form customarily used by
the Agent or in such other form as has been approved by the Agent, (ii)
denominated in United States dollars, (iii) issued to support obligations of
such Borrower incurred in the ordinary course of business and (iv) subject to
the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500 and, to the extent not
inconsistent therewith, the laws of the State of New York. At the time of
issuance, the amount and the terms and conditions of each Letter of Credit, and
of any drafts or acceptances thereunder, shall be subject to approval by the
Agent and the Borrower. In no event may the Expiration Date of any Letter of
Credit issued hereunder be later than July 29, 1997. Any Letter of Credit
containing an automatic renewal provision shall also contain a provision
pursuant to which, notwithstanding any other provisions thereof, it shall have a
final Expiration Date no later than the July 29, 1997.
(c) Immediately upon the issuance or amendment by the Agent of any
Letter of Credit in accordance with the procedures set forth in this Article II,
each Bank shall be deemed to have irrevocably and unconditionally purchased and
received from the Agent, without recourse or warranty, an undivided interest and
participation to the extent of such Bank's Credit Percentage of the liability of
the Agent with respect to such Letter of Credit (including, without limitation,
all obligations of such Borrower with respect thereto, other than amounts owing
to the Agent consisting of Issuing Bank Fees) and any security therefor or
guaranty pertaining thereto. Accordingly, each Bank severally agrees that it
shall be unconditionally and irrevocably liable, without regard to the
occurrence of any Default or Event of Default or any condition precedent
whatsoever, to the extent of such Bank's Credit Percentage, to reimburse the
Agent on demand in immediately available funds in U.S. dollars for the amount of
each Drawing paid by the Agent under each Letter of Credit issued by the Agent
to the extent such amount is not reimbursed by the Borrower pursuant to Section
2.04; provided, however, that the Banks shall not be obligated to reimburse the
Agent pursuant to this Section 2.01(c) with respect to a Letter of Credit if (i)
the Agent has made payment pursuant to a Drawing with respect to such Letter of
Credit that does not comply in a material way with the terms of such Letter of
Credit (whether by reason of the presentment of insufficient or non-complying
documents or otherwise) or (ii) if the Agent issues such Letter of Credit after
an Event of Default has been declared by the Majority Banks pursuant to Section
6.01. The failure of any Bank to honor its obligations hereunder shall not
relieve any other Bank of its duty to honor its obligations hereunder. Upon the
written request of a Bank, the Agent shall deliver to such Bank a copy of any
Letter of Credit and copies
<PAGE>
21
of all material documents delivered to the Agent in connection with any Drawing
with respect to such Letter of Credit.
(d) Each payment made by a Bank to the Agent pursuant to paragraph (c)
above shall be treated as the purchase by such Bank of a participating interest
in such Borrower's Reimbursement Obligation under Section 2.04 in an amount
equal to such payment. Each Bank, so long as it has made the payment required to
be made by it pursuant to Section 2.01(c), shall share in accordance with its
Credit Percentage in any interest which accrues pursuant to Section 2.04(b). All
amounts recovered by the Agent hereunder or under any other Loan Document and
which are applied by the Agent to the Reimbursement Obligations of such Borrower
under Section 2.04 shall be distributed by the Agent to the Banks who have made
the payments required to be made by them pursuant to Section 2.01(c) pro rata in
accordance with their respective Credit Percentages.
(e) In addition to other remedies the Agent may have under applicable
law and under this Agreement, if and to the extent that any Bank shall fail to
make available to the Agent the amount required to be paid by such Bank pursuant
to Section 2.01(c), the Agent shall be subrogated to the rights of such Bank
under this Agreement to the extent of such failure and the provisions of Section
1.02(b)(iii) shall be applicable.
SECTION 2.02. METHOD OF ISSUANCE OF LETTERS OF CREDIT.
(a) NOTICE OF ISSUANCE. A Borrower shall give the Agent written notice
(or telephonic notice confirmed in writing) at least three Business Days prior
to the requested Date of Issuance of a Letter of Credit identifying the
Beneficiary and its address, Stated Amount, tenor and purpose of issuance. The
Borrower shall also execute and deliver such customary letter of credit
application forms as requested from time to time by the Agent.
(b) ISSUANCE. Provided a Borrower has given the notice prescribed by
Section 2.02(a) and subject to the other terms and conditions of this Agreement
including the satisfaction of any applicable conditions precedent set forth in
Article III, the Agent shall issue the requested Letter of Credit on the
requested Date of Issuance as set forth in the applicable Letter of Credit
notice on behalf of the Banks for the benefit of the stipulated Beneficiary and
shall deliver the original of such Letter of Credit to the Beneficiary at the
address specified in such Borrower's notice. The Agent shall deliver a copy of
each Letter of Credit to such Borrower within a reasonable time after the Date
of Issuance thereof.
<PAGE>
22
(c) REPORTING TO BANKS. The Agent shall report to the Banks on a
monthly basis the aggregate Stated Amount of all Letters of Credit then
outstanding and such other information concerning the Letters of Credit as a
Bank shall reasonably request. The Agent shall, at the request of a Bank,
deliver copies to such Bank of any Letter of Credit issued hereunder. Other than
as set forth in this paragraph (c), the Agent shall have no duty to notify the
Banks regarding the issuance or other matters regarding Letters of Credit issued
hereunder. The failure of the Agent to perform its requirements under this
paragraph (c) shall not relieve the Banks' reimbursement obligations under
Section 2.01(c).
SECTION 2.03. LETTER OF CREDIT FEES.
(a) In consideration for the issuance of Letters of Credit hereunder,
the Borrowers, jointly and severally, hereby agree to pay to the Agent, for the
account of the Banks, a letter of credit fee in an amount equal to one and
one-quarter percent (1.25%) per annum of the daily weighted average amount of
all outstanding Letters of Credit issued hereunder. Such fee shall be payable
quarterly in arrears on the last day of each calendar quarter commencing with
the calendar quarter first occurring after the date hereof during which any
Letters of Credit remain outstanding and on the L/C Termination Date.
(b) In addition to the fees set forth in (a) above, the Borrowers
shall, jointly and severally, pay to the Agent on the date of issuance,
amendment or extension of any Letter of Credit a fee equal to 1/8 of 1 percent
of the Stated Amount of such Letter of Credit and all out-of-pocket fees and
disbursements incurred by the Agent in connection with the issuance, amendment
or extension of such Letter of Credit and any administrative fees (the "ISSUING
BANK FEES") normally charged by the Corporate Services Department of the Agent
in connection with such Letters of Credit.
SECTION 2.04. LETTER OF CREDIT REIMBURSEMENT.
(a) NOTICE OF DRAWING. The Agent shall promptly notify the Borrower for
which the Letter of Credit was issued and each Bank by telephone, telecopy,
telex or other telecommunication of any Drawing under a Letter of Credit and of
the anticipated Payment Date. On the Payment Date, the Agent shall confirm to
such Borrower and each Bank by telephone or telecopy that payment of the Drawing
is to be made by the Agent on such Date.
(b) PAYMENTS. The Borrowers, jointly and severally, hereby agree
to pay to the Agent, in the manner provided in Section 2.04(c):
<PAGE>
23
(i) On each Payment Date, an amount equal to the amount paid
by the Agent under any Letter of Credit; and
(ii) If any Drawing shall be reimbursed to the Agent after 2:00
p.m. on the Payment Date, interest on any and all amounts required to
be paid pursuant to clause (i) of this Section 2.04(b) from and after
the due date thereof until payment in full, payable on demand, at an
annual rate of interest equal to the Base Rate plus three percent.
(c) METHOD OF REIMBURSEMENT. Each Borrower shall reimburse the
Agent for each Drawing under any Letter of Credit in the following manner:
(i) the Borrowers shall immediately reimburse the Agent in
accordance with Section 2.04; or
(ii) (A) if the Borrowers have not reimbursed the Agent
pursuant to subparagraph (i) above and (B) the applicable conditions
set forth in Article III have been fulfilled and (C) the Available
Facility A Commitment in effect at such time exceeds the amount of the
Drawing to be reimbursed, with the proceeds of a Facility A Advance; or
(iii) Pursuant to Section 2.04 but subject to Section 2.06, the
Agent may debit any deposit account of any Borrower maintained with the
Agent and appropriate and apply an amount of funds in such account
equal to the Reimbursement Obligations outstanding at such time in
satisfaction of any Borrower's obligations set forth in subparagraph
(i) above.
(d) LOANS TO FUND DRAWINGS. Upon any Drawing, the Agent shall notify
the Banks if a Borrower has elected to reimburse the Agent using the proceeds of
Facility A Advances. Upon receipt of such notice and if the conditions set forth
in subparagraph (c)(ii) above have been satisfied, each Bank agrees to deliver
to the Agent its pro rata share of the amount of Facility A Advances necessary
to reimburse the Agent for any payment made by the Agent pursuant to such
Drawing not later than one Business Day after receipt of such notice. Any funds
delivered to the Agent under this paragraph (d) shall be delivered in the manner
set forth in Section 1.02. Unless such Borrower complies with the applicable
notice requirements as set forth in Section 1.02, any Facility A Advances used
to repay any Reimbursement Obligation shall initially be a Base Rate Loan.
SECTION 2.05. NATURE OF AGENT'S DUTIES. In determining whether to
honor any Drawing under any Letter of Credit, the Agent shall be responsible
only to
<PAGE>
24
determine that the documents and certificates required to be delivered under
that Letter of Credit have been delivered and that they comply on their face
with the requirements of that Letter of Credit. The Borrowers otherwise assume
all risks of the acts and omissions of, or misuse of the Letters of Credit
issued by the Agent by, the respective Beneficiaries of such Letters of Credit.
In furtherance and not in limitation of the foregoing, neither the Agent nor any
of the other Banks shall be responsible (i) for the form, validity, sufficiency,
accuracy, genuineness or legal effects of any document submitted by any party in
connection with the application for and issuance of or drawing honored under
such Letters of Credit even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit, or the rights or
assigning or purporting to transfer or assign any such 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; (iii) for failure of the
Beneficiary of any such Letter of Credit to comply fully with conditions
required in order to draw upon such Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex, telecopy or otherwise, whether or not they be
in cipher; (v) for errors in interpretation of technical terms; (vi) for any
loss or delay in the transmission or otherwise of any document required in order
to make a drawing under any such Letter of Credit, or of the proceeds thereof;
(vii) for the misapplication by the Beneficiary of any such Letter of Credit, of
the proceeds of any drawing honored under such Letter of Credit; and (viii) for
any consequences arising from causes beyond the control of the Agent or the
other Banks. None of the above shall affect, impair or prevent the vesting of
any of the Agent's rights or powers hereunder. Any action taken or omitted to be
taken by the Agent under or in connection with any Letter of Credit, if taken or
omitted in the absence of gross negligence or willful misconduct, shall not
create against the Agent any liability to any Borrower or any Bank.
SECTION 2.06. OBLIGATIONS ABSOLUTE. (a) Each Borrower's obligations
under this Article III shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which such Borrower may have or have had against the Agent, as issuer,
or any Beneficiary of a Letter of Credit.
(b) Each Borrower also agrees with the Agent, as issuer, that the Agent
shall not be responsible for, and the Reimbursement Obligations under Section
2.04 shall not be affected by, among other things, (i) the validity or
genuineness of documents or of any endorsements thereon, even though such
documents shall in fact prove to be invalid, fraudulent or forged, or (ii) any
dispute between or among any
<PAGE>
25
Borrower and any Beneficiary or any other Person to which such Letter of Credit
may be transferred or (iii) any claims whatsoever of any Borrower against any
Beneficiary or any such transferee.
(c) The Agent, as issuer, shall not be liable for any error, omission,
interruption or delay in transmission, dispute or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except
errors or omissions caused by its gross negligence or willful misconduct.
(d) Each Borrower agrees that any action taken or omitted by the Agent,
as issuer, under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrowers and
shall not result in any liability of the Agent to the Borrowers.
SECTION 2.07. LETTER OF CREDIT PAYMENTS. If any Drawing shall be made,
the Agent shall promptly notify the Borrowers of the date and amount thereof.
The responsibility of the Agent, as issuer, to the Borrowers in connection with
any Drawing shall, in addition to any payment obligation expressly provided for
in such Letter of Credit, be limited to determining that the documents
(including each draft) delivered under such Letter of Credit in connection with
such presentment are in material compliance with such Letter of Credit.
SECTION 2.08. APPLICATION. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Article II, the provisions of this Article shall apply.
SECTION 2.09. EXPIRATION OF LETTERS OF CREDIT PAST FACILITY TERMINATION
DATE. If on any date (a "FACILITY TERMINATION DATE") this Agreement and the
Letter of Credit Facility are terminated prior to the Expiration Date of any
Letters of Credit outstanding hereunder, the Borrowers shall, on the Facility
Termination Date, deposit with the Agent an amount of money equal to the Stated
Amount of such Letter(s) of Credit in the Cash Collateral Account under Section
6.03. If a Drawing pursuant to such Letter of Credit occurs on or prior to the
Expiration Date of such Letter of Credit or occurs after the Facility
Termination Date, the Borrowers authorize the Agent to use the monies deposited
in the Cash Collateral Account to make payment to the Beneficiary with respect
to such Drawing. If no Drawing occurs on or prior to the Expiration Date of such
Letter of Credit, the Agent shall return as soon as practicable to the Borrowers
the monies deposited in the Cash Collateral Account with respect to such
outstanding Letter(s) of Credit.
<PAGE>
26
SECTION 2.10. CERTAIN DEFINED TERMS. The following capitalized terms
used in this Agreement shall have the following meanings:
"BENEFICIARY" means any third Person designated by a Borrower
to whom the Agent is to make payment or on whose order payment is to be
made under a Letter of Credit.
"DATE OF ISSUANCE" means the date of issuance by the Agent of a
Letter of Credit under this Agreement.
"DRAWING" means a request for payment by a Beneficiary under
any Letter of Credit.
"EXPIRATION DATE" means, as to any Letter of Credit, the date
set forth in such Letter of Credit as the date by which the Beneficiary
must have presented such Letter of Credit, drafts, and any required
documents for payment, acceptance or negotiation in accordance with the
terms of such Letter of Credit.
"L/C COMMITMENT AMOUNT" equals $35,000,000.
"L/C TERMINATION DATE" means July 29, 1996.
"LETTER OF CREDIT OBLIGATIONS" shall mean at any time, an
amount equal to (a) the aggregate then undrawn and unexpired amount of
the then outstanding Letters of Credit and (b) the aggregate amount of
Drawings under Letters of Credit which have not been reimbursed
pursuant to Section 2.04(b).
"LETTER OF CREDIT FACILITY" means the Credit Facility described
in this Article II pursuant to which Letters of Credit are to be
issued.
"PAYMENT DATE" means any date funds are disbursed under a
Letter of Credit by the Agent to or on the order of a Beneficiary in
response to a Drawing.
"REIMBURSEMENT OBLIGATIONS" means the obligation of the
Borrowers to reimburse the Agent for any Drawing.
"STATED AMOUNT" means the amount available to be drawn by a
Beneficiary under a Letter of Credit from time to time, as such amount
of
<PAGE>
27
any such Letter of Credit may be increased or reduced from time to time
in accordance with the terms of such Letter of Credit.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. CONDITION PRECEDENT TO INITIAL ADVANCE. The obligation of
each Bank to make its initial Advance is subject to the condition precedent that
the Agent on behalf of the Banks shall have received at least two Business Days
before the day of such Advance the following, each dated the day of such
Advance, in form and substance satisfactory to each Bank:
(a) The duly executed Facility A Notes and the Facility B
Notes.
(b) A guaranty, duly executed by Smithfield Foods, Inc. (the
"GUARANTOR", and together with the Borrowers collectively the "LOAN
PARTIES" and individually a "LOAN PARTY"), in substantially the form
attached hereto as Exhibit B (as it may be amended, modified or
supplemented from time to time, the "GUARANTY") in favor of the Agent
on behalf of the Banks.
(c) An Amended, Restated and Continued Security Agreement dated
as of the date hereof duly executed by each Borrower (other than
Morrell), in substantially the form attached hereto as Exhibit J-1, and
a Security Agreement dated the date hereof duly executed by Morrell, in
substantially the form attached hereto as Exhibit J-2, and in each case
in favor of the Agent on behalf of the Banks (as it may be amended,
modified or supplemented from time to time, collectively the "SECURITY
AGREEMENTS", individually a "SECURITY AGREEMENT", each and together
with this Agreement, each Note, the Guaranty, each Security Agreement,
each Letter of Credit, the Agent's Fee Letter and each other document
or instrument executed and delivered by a Loan Party in connection with
this Agreement, collectively the "LOAN DOCUMENTS" and individually a
"LOAN DOCUMENT"), together with:
(i) Acknowledgment copies of proper Financing Statements
(Form UCC-1) duly filed under the Uniform Commercial Code of
all jurisdictions as may be necessary or, in the opinion of the
<PAGE>
28
Agent, desirable to perfect the security interests created by
the Security Agreements,
(ii) Certified copies of Requests for Information or
Copies (Form UCC-11), or equivalent reports, listing the
Financing Statements referred to in paragraph (i) above and all
other effective financing statements which name each Borrower
(under its present name and any previous name) as debtor and
which are filed in the jurisdictions referred to in said
paragraph (i), together with copies of such other financing
statements (none of which shall cover the collateral purported
to be covered by the Security Agreements),
(iii) Evidence of the insurance required by the terms of
the Security Agreements,
(iv) Evidence that all other actions necessary or, in
the opinion of the Agent, desirable to perfect and protect the
security interests created by the Security Agreements have been
taken.
(d) Certified copies of the resolutions of the Board of
Directors of each Loan Party approving each Loan Document to which it
is a party, and of all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to such Loan
Document.
(e) A certificate of the Secretary or an Assistant Secretary of
each Loan Party certifying the names and true signatures of the
officers of such Loan Party authorized to sign each Loan Document to
which it is a party and the other documents to be delivered by it
hereunder.
(f) A favorable opinion of McGuire Woods Battle & Boothe,
counsel to the Loan Parties in substantially the form of Exhibit H and
as to such matters as the Agent may reasonably request.
(g) a letter from First Union National Bank of Virginia
specifying the aggregate amount required to be paid to satisfy in full
all obligations owed to it and providing a waiver of any Event of
Default and release of all Borrowers.
(h) A landlord waiver in substantially the form of Exhibit K
for each of the following locations:
<PAGE>
29
(i) 801 East Kemper Road, Springfield, Ohio; and
(ii) 150 Railroad Avenue, Northlake, Illinois.
(i) A letter from General Electric Capital Corporation
specifying the aggregate amount required to be paid to satisfy in full
all obligations owed to it and releasing all liens granted to it by
Morrell and duly executed UCC termination statements.
SECTION 3.02. CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of a
Bank to make each Advance (including the initial Advance) or the Agent to issue,
increase or extend a Letter of Credit shall be subject to the further conditions
precedent that on such date (a) the following statements shall be true (and the
receipt of the proceeds of such Advance or issuance, increase or extension of
such Letter of Credit shall be deemed to constitute a representation and
warranty by the Borrowers that such statements are true on such date):
(i) The representations and warranties contained in
Section 4.01 of this Agreement, in Section 5 of the Guaranty
and in Section 4 of each Security Agreement are correct on and
as of such date as though made on and as of such date,
(ii) No event has occurred and is continuing, or would
result from such Advance or issuance, increase or extension of
such Letter of Credit, which constitutes an Event of Default
(as defined in Section 6.01 hereof) or would constitute an
Event of Default but for the requirement that notice be given
or time elapse or both; and
(iii) After giving effect to such Advance or issuance,
increase or extension of such Letter of Credit, the aggregate
outstanding principal amount of the Advances and the aggregate
Stated Amount of all outstanding Letters of Credit do not
exceed the Available Borrowing Base, of the Borrowers on such
date;
and (b) the Agent shall have received such other approvals, opinions or
documents as the Agent or the Banks may reasonably request.
<PAGE>
30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each
Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction indicated at the
beginning of this Agreement, has the power and authority to own or lease its
properties and to carry on its business as now being and hereafter proposed to
be conducted and is duly qualified and is in good standing as a foreign
corporation, and authorized to do business, in each jurisdiction in which the
character of its properties or the nature of its business requires qualification
or authorization.
(b) The execution, delivery and performance by such Borrower of each
Loan Document to which it is or will be a party are within such Borrower's
corporate powers, have been duly authorized by all necessary corporate action,
do not contravene (i) such Borrower's charter or by-laws or (ii) any law or any
contractual restriction binding on or affecting such Borrower, and do not result
in or require the creation of any lien, security interest or other charge or
encumbrance (other than pursuant hereto) upon or with respect to any of its
properties.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by such Borrower of any Loan
Document to which it is or will be a party.
(d) This Agreement is, and each other Loan Document to which such
Borrower will be a party when delivered hereunder will be, legal, valid and
binding obligations of such Borrower enforceable against such Borrower in
accordance with their respective terms.
(e) There is no pending or threatened action or proceeding affecting
such Borrower before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Borrower.
(f) No proceeds of any Advance will be used to acquire any security in
any transaction which is subject to Sections 13 and 14 of the Securities
Exchange Act of 1934.
<PAGE>
31
(g) Such Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System);
and no proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock.
(h) Schedule 5.01(e) is a true, correct and complete list of all or any
accounts maintained by a Borrower or Borrowers. Each of these accounts is one of
(i) a disbursement account for the payment of payroll, livestock purchases or
operating expenses in which a zero balance is maintained or (ii) a depositary
account from which funds are cleared and deposited on a daily basis with
NationsBank, N.A. or another Bank or (iii) an account of a Borrower in which not
more than $5,000 at any time is deposited that is used in the ordinary course of
such Borrower's business.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any amount payable
hereunder or under the Notes or any other Loan Document shall remain unpaid or a
Bank shall have any Commitment hereunder, each Borrower will, unless the Banks,
pursuant to Section 8.01 hereof, shall otherwise consent in writing:
(a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property except
to the extent contested in good faith.
(b) VISITATION RIGHTS; COLLATERAL EXAMINATION. At any reasonable time
and from time to time, permit the Agent or a Bank or any agents or
representatives thereof, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, and conduct
unannounced field collateral examinations at least quarterly at the expense of,
such Borrower, and to discuss the affairs, finances and accounts of such
Borrower with any of its respective officers or directors.
(c) REPORTING REQUIREMENTS. Furnish to each Bank: (i) as soon as
available and in any event 30 days after the end of each calendar month, the
consolidating balance sheet of such Borrower as of the end of such month and
<PAGE>
32
statement of income of such Borrower for the period commencing at the end of the
previous fiscal year and ending with the end of such calendar month; (ii) as
soon as available and in any event within 45 days after the end of each quarter,
the consolidating balance sheet of such Borrower as of the end of such quarter
and statement of income of such Borrower for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter certified by
the chief financial officer of such Borrower; (iii) as soon as available and in
any event within 90 days after the end of each fiscal year, the consolidating
balance sheet of such Borrower as of the end of such fiscal year and statement
of income of such Borrower for the period commencing at the end of the previous
fiscal year and ending with the end of such fiscal year certified by the chief
financial officer of such Borrower; (iv) promptly after the filing or receiving
thereof, copies of all material reports and notices which such Borrower files
under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or which such Borrower receives from
such Corporation; (v) as soon as available and in any event within five days
after the end of each week (which week ends on Sunday) a duly completed
borrowing base certificate in the form of Exhibit E hereto, as appropriate,
setting forth the Borrowers' Borrowing Base as of the last day of such week;
(vi) promptly, upon the occurrence of an Event of Default or an event that but
for the passage of time or the giving of notice or both would constitute an
Event of Default, notice of such Event of Default or event; and (vii) such other
information respecting the condition or operations, financial or otherwise, of
such Borrower as the Bank may from time to time reasonably request.
(d) STORAGE FACILITIES. Furnish to the Agent on behalf of the Banks a
duly executed waiver, in substantially the form of Exhibit F-1 (for all
Borrowers except Morrell), Exhibit F-2 (for Morrell) or Exhibit K (for
Collateral stored at leased facilities), from the owner (who is not a Borrower)
of each location where a Borrower stores any Collateral at anytime or from time
to time prior to storing any Collateral at such location.
(e) CASH COLLATERAL. Treat all amounts received by a Borrower as
proceeds of the Collateral (unless a Borrower can conclusively demonstrate to
the Agent in its sole judgment that such funds are proceeds from collateral
(other than the Collateral)) and deposit such amounts in one of the accounts
specified in Schedule 5.01(e) hereto. Each Borrower agrees to notify in writing
the Agent if an account, in addition to those specified in Schedule 5.01(e), is
opened and in such notice provide the Agent with the name and address of the
financial institution maintaining such account and the account number therefore
and comply with the terms of this Agreement with respect to such account. Upon
the request of the Agent or a Bank, the Borrowers agree immediately to provide a
letter agreement, in form and substance
<PAGE>
33
satisfactory to the Agent and the Banks and substantially similar to Exhibit G
hereto, from each financial institution maintaining any account or accounts
(including without limitation any accounts specified in Schedule 5.01(e) for
which a letter agreement has not been previously provided) for any Borrower.
Each Borrower further agrees to maintain accounts solely (x) for the purposes of
making disbursements for the payment of payroll, livestock purchases or
operating expenses in which a zero balance is maintained or (y) as a depositary
account specified in Schedule 5.01(e) from which funds are cleared and deposited
on a daily basis with NationsBank, N.A. in one of the accounts specified in Part
I of Schedule 5.01(e). Each Borrower will cause all monies, checks, notes,
drafts and other payments relating to or constituting proceeds of accounts
receivables, or any other Collateral, to be promptly forwarded to the accounts
identified in Part I of Schedule 5.01(e). Any monies, checks, notes, drafts or
other payments which, notwithstanding the terms of this clause (e), are received
by or on behalf of a Borrower will be held in trust for the Agent on behalf of
the Banks and will be delivered to the Agent, as promptly as possible, and in
the exact form received, together with any necessary endorsement.
(f) MORRELL MERGERS. Furnish to the Agent, not later than July 30,
1996, evidence of the consummation of the mergers of all subsidiaries of Morrell
in existence on the date hereof (excluding John Morrell of Japan, Inc. and Copaz
Packing Corporation, but including and not limited to R&R, Inc. and Great Bend
Packing Co., Inc.) into Morrell.
SECTION 5.02. NEGATIVE COVENANTS. So long as any amount payable
hereunder or under the Notes or any other Loan Document shall remain unpaid or a
Bank shall have any Commitment hereunder, each Borrower will not, unless the
Banks, pursuant to Section 8.01 hereof, shall otherwise consent in writing:
(a) LIMITATION ON TYPES OF BUSINESS. Enter into or engage in any
business other than pork production, hog farming, pork processing and the
manufacturing of spices and chemicals.
(b) ACCOUNTS. Deposit, or permit to be deposited, proceeds of the
Collateral into an account other than the account(s) specified in Schedule
5.01(e) or any account for which the notice requirements of Section 5.01(e) have
been met.
(c) COLLATERAL. Include in a Borrowing Base Certificate any Collateral
(i) of John Morrell of Japan, Inc. or Copaz Packing Corporation, (ii) stored at
a facility not owned by a Borrower or (iii) for which a waiver has not been
obtained pursuant to Section 5.01(d).
(d) USE OF PROCEEDS. Use any Facility A Advances or Facility B Advances
for any purpose other than as set forth in Section 1.01, specifically, and not
in limitation thereof, no proceeds shall be used for any Acquisition.
"ACQUISITION" shall mean any transaction, or any series of related transactions,
by which a Borrower directly or indirectly (i) acquires any
<PAGE>
34
ongoing business or all or substantially all of the assets of any Person or
division thereof, whether through purchase of assets, merger or otherwise, (ii)
acquires (in one transaction or as the most recent transaction in a series of
transactions) control of at least a majority in ordinary voting power of the
securities of a Person which have ordinary voting power for the election of
directors or (iii) otherwise acquires control of a more than 51% ownership
interest in any such Person.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) Any Borrower shall fail to pay any amount payable hereunder or
under a Note or any other Loan Document when due; or
(b) Any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to have
been incorrect in any material respect when made; or
(c) The Guarantor shall fail to perform or observe any term, covenant
or agreement contained in Section 6 of the Guaranty, or any Borrower shall fail
to perform or observe any term, covenant or agreement contained in Sections
5.01(d), 5.01(e), 5.02(b) or 5.02(c) or any Loan Party shall fail to perform or
observe any other term, covenant or agreement contained in any Loan Document on
its part to be performed or observed and with respect to such other terms,
covenants or agreements any such failure shall remain unremedied for 10 days
after written notice thereof shall have been given to such Loan Party by the
Agent or a Bank; or
(d) Any Loan Party or any of its subsidiaries shall fail to pay any
indebtedness (excluding indebtedness evidenced by any of the Notes and including
without limitation the indebtedness described in Schedule 6.01(d)) of such Loan
Party or such subsidiary (as the case may be), or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such indebtedness; or any other default under any agreement or
instrument relating to any such indebtedness, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
<PAGE>
35
accelerate, or to permit the acceleration of, the maturity of such indebtedness;
or any such indebtedness shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment as scheduled
on the date hereof) or repurchased, prior to the stated maturity thereof; or
(e) Any Loan Party or any of its subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against any Loan Party or
any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its property, and, in the
case of any such proceeding instituted against it (but not instituted by it)
either such proceeding shall remain undismissed or unstayed for a period of 30
days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur; or any Loan Party or any of its
subsidiaries shall take any corporate action to authorize any of the actions set
forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$250,000 shall be rendered against any Loan Party or any of its subsidiaries and
either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of 10 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; or
(g) Any provision of the Guaranty or any Security Agreement after
delivery thereof under Section 3.01 shall for any reason cease to be valid and
binding on the Guarantor or the Borrower party thereto, or the Guarantor or the
Borrower party thereto shall so state in writing; or
(h) Any Security Agreement after delivery thereof under Section 3.01
shall for any reason, except to the extent permitted by the terms thereof, cease
to create a valid and perfected first priority security interest in any of the
collateral purported to be covered thereby; or
(i) Any Environmental Judgment or Order shall be rendered against any
Loan Party or any Loan Party shall incur any Environmental Liability.
<PAGE>
36
"ENVIRONMENTAL JUDGMENT OR ORDER" shall mean any judgment or decree or any order
that could reasonably be expected to have a material adverse effect on the
financial condition or business of any Loan Party, in either event, arising from
or in any way associated with any Environmental Requirements, whether or not
entered upon consent or written agreements with an Environmental Authority or
other entity arising from or in any way associated with any Environmental
Requirements, whether or not incorporated in a judgment, decree or order.
"ENVIRONMENTAL REQUIREMENTS" shall mean any applicable local, state or federal
law, rule, regulation, permit, order, decision, determination or requirement
relating in any way to hazardous materials or to health, safety or the
environment. "ENVIRONMENTAL AUTHORITY" shall mean any foreign, federal, state,
local or regional government that exercises any form of jurisdiction or
authority under any Environmental Requirement. "ENVIRONMENTAL LIABILITY" shall
mean any liabilities, whether accrued or contingent, arising from or relating in
any way to the Environmental Requirements, which liability could reasonably be
expected to have a material adverse effect on the financial condition or
business of any Loan Party.
THEN, and in any such event, the Majority Banks (i) may, by notice to the
Borrowers, declare the obligation to make Advances or issue Letters of Credit to
be terminated, whereupon the same shall forthwith terminate, and/or (ii) may, by
notice to the Borrowers, declare the Notes, all interest thereon and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the Notes, all such interest and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrowers and/or (iii)
make demand upon the Borrowers to, and forthwith upon such demand the Borrowers
shall, pay to the Agent for benefit of the Banks, in same day funds at the
Agent's office designated in such demand, for deposit into the Cash Collateral
Account, an amount equal to the Stated Amount of all Letters of Credit, such
cash collateral to be held for the benefit of the Banks for payment of the
obligations of the Borrowers hereunder; provided, however, that in the event of
an actual or deemed entry of an order for relief with respect to any Loan Party
or any subsidiary under the Federal Bankruptcy Code, (x) the obligation of each
Bank to make Advances and the Agent to issue Letters of Credit shall
automatically be terminated and (y) the Notes, all such interest and all such
amounts shall automatically become due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrowers.
SECTION 6.02. LOAN DOCUMENTS. Subject to Article VII hereof, the
Agent, upon the direction of the Majority Banks, shall exercise any and all of
its rights under any and all of the other Loan Documents. "MAJORITY BANKS"
means, as of any date, Banks whose combined Credit Percentages equal or exceed
66-2/3%.
<PAGE>
37
SECTION 6.03. CASH COLLATERAL ACCOUNT.
(a) If at any time the Majority Banks on behalf of the Banks shall make
demand upon the Borrowers under Section 2.09 or 6.01 or the Borrowers shall be
obligated to pay funds into the Cash Collateral Account, the Agent on behalf of
the Banks shall establish the Cash Collateral Account which shall be in the name
of the Agent (as a cash collateral account), and under the sole dominion and
control of the Agent, subject to the terms of this Agreement.
(b) If requested by the Borrowers and subject to the right of the Agent
to withdraw funds from the Cash Collateral Account as provided below, the Agent
may, in its sole discretion, and so long as no Event of Default shall have
occurred and be continuing, from time to time invest funds on deposit in the
Cash Collateral Account, reinvest proceeds of any such investments which may
mature or be sold, and invest interest or other income received from any such
investments, in each case in such Eligible Securities (as defined below) as the
Borrowers may select and notify to the Agent in writing. Such proceeds, interest
or income which are not so invested or reinvested in Eligible Securities shall,
except as otherwise provided in this Section, be deposited and held by the Agent
in the Cash Collateral Account and invested in overnight funds in the ordinary
course by the Agent. "ELIGIBLE SECURITIES" means (i) United States Treasury
bills with a remaining maturity not in excess of 90 days, (ii) negotiable
certificates of deposit of the Agent or of other prime commercial banks approved
by the Majority Banks with a remaining maturity not in excess of 90 days and
(iii) such other instruments (within the meaning of Article 9 of the New York
Uniform Commercial Code) as the Borrowers may request and the Majority Banks may
approve in writing. Eligible Securities from time to time purchased and held
pursuant to this subsection (b) shall be referred to as "COLLATERAL SECURITIES"
and shall, for purposes of this Agreement, constitute part of the funds held in
the Cash Collateral Account in amounts equal to their respective outstanding
principal amounts.
(c) If at any time the Agent determines that any funds held in the Cash
Collateral Account are subject to any right or claim of any person or entity
other than the Agent on behalf of the Banks or that the total amount of such
funds is less than the aggregate Stated Amount of all outstanding Letters of
Credit, the Borrowers will, forthwith upon demand by the Agent, pay to the
Agent, as additional funds to be deposited and held in the Cash Collateral
Account, an amount equal to the excess of (i) such Stated Amount at such time
available under the Letters of Credit over (ii) the total amount of funds, if
any, then held in the Cash Collateral Account which the Agent determines to be
free and clear of any such right and claim.
<PAGE>
38
(d) The Borrowers hereby pledge, and grant to the Agent on behalf of
the Banks a security interest in, all funds held in the Cash Collateral Account
(including Collateral Securities) from time to time and all proceeds thereof, as
security for the payment of all obligations hereunder or under the Letters of
Credit.
(e) The Agent shall, at any time or from time to time after funds are
either deposited in the Cash Collateral Account or invested in Collateral
Securities, after selling, if necessary, any Collateral Securities, apply funds
then held in the Cash Collateral Account to the payment of any amounts of
obligations hereunder or under any Letter of Credit, in such order as the Agent
may elect, as shall have become or shall become due and payable. The Borrowers
agree that, to the extent notice of sale of any Collateral Securities shall be
required by law, at least five Business Days' notice to the Borrowers of the
time and place of any public sale or the time after which any private sale is to
be made shall constitutes reasonable notification. The Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it will be so adjourned.
(f) None of the Borrowers nor any person or entity claiming on behalf
of or through the Borrowers shall have any right to withdraw any of the funds
held in the Cash Collateral Account, except that upon the termination of this
Agreement and all Letters of Credit and the payment of all obligations
hereunder, any funds remaining in the Cash Collateral Account shall be returned
by the Agent to the Borrowers or paid to whomever may be legally entitled
thereto.
(g) Each of the Borrowers agrees that it shall have no right to, and
that it shall not (1) sell or otherwise dispose of any interest in the Cash
Collateral Account or any funds held therein, or (2) create or permit to exist
any lien, security interest or other charge or encumbrance upon or with respect
to the Cash Collateral Account or any funds held therein, except as provided in
or contemplated by this Agreement.
(h) The Agent shall exercise reasonable care in the custody and
preservation of any funds held in the Cash Collateral Account and shall be
deemed to have exercised such care if such funds are accorded treatment
substantially equivalent to that which the Agent accords its own property, it
being understood that the Agent shall not have any responsibility for taking any
necessary steps to preserve rights against any parties with respect to any such
funds.
<PAGE>
39
ARTICLE VII
THE AGENT
SECTION 7.01. AUTHORIZATION AND ACTION. Each Bank hereby appoints and
authorizes the Agent to take such action as Agent on such Bank's behalf and to
exercise such powers under this Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. The power of attorney set forth
hereinabove shall be irrevocable and coupled with an interest. The relationship
between the Agent and the Banks shall be that of principal and agent only and
nothing herein shall be construed to deem the Agent a trustee for any Bank nor
to impose on the Agent duties or obligations other than those expressly provided
for herein. At the request of a Bank, the Agent will forward to each Bank copies
or, where appropriate, originals of the documents delivered to the Agent
pursuant to Section 3.01 hereof. The Agent will also furnish to any Bank, upon
the request of such Bank, a copy of any certificate or notice furnished to the
Agent by the Borrower, any Loan Party or any other affiliate of any Borrower,
pursuant to this Agreement or any other Loan Document not already delivered to
such Bank pursuant to the terms of this Agreement or any such other Loan
Document. As to any matters not expressly provided for by the Loan Documents
(including, without limitation, enforcement or collection of the Notes), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Majority
Banks, and such instructions shall be binding upon all Banks and all holders of
Notes; provided, however, that the Agent shall not be required to take any
action which exposes the Agent to personal liability or which is contrary to
this Agreement or any other Loan Document or applicable law. Not in limitation
of the foregoing, the Agent shall not exercise any right or remedy it or the
Banks may have under any Loan Document upon the occurrence of a Default or an
Event of Default unless the Majority Banks have so directed the Agent to
exercise such right or remedy.
SECTION 7.02. AGENT'S RELIANCE, ETC. Neither the Agent nor any of its
directors, officers, agents, employees or counsel shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, the Agent: (a) may treat the
payee of any Note as the holder thereof until the Agent receives written notice
of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent; (b) may consult with legal counsel (including counsel
for the Borrower or any Loan Party), independent public accountants and other
experts selected by it and shall not be liable
<PAGE>
40
for any action taken or omitted to be taken in good faith by it in accordance
with the advice of such counsel, accountants or experts; (c) makes no warranty
or representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of any of this Agreement or any other Loan Document or the
satisfaction of any conditions precedent under this Agreement or any Loan
Document on the part of the Borrower or other Persons or inspect the property,
books or records of the Borrower or any other Person; (e) shall not be
responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
Loan Document, any other instrument or document furnished pursuant thereto or
any collateral covered thereby or the perfection or priority of any Lien in
favor of the Agent on behalf of the Banks in any such collateral; and (f) shall
incur no liability under or in respect of this Agreement or any other Loan
Document by acting upon any notice, consent, certificate or other instrument or
writing (which may be by telephone or telecopy) believed by it to be genuine and
signed, sent or given by the proper party or parties.
SECTION 7.03. RABOBANK AS BANK. Rabobank as a Bank hereunder, shall
have the same rights and powers under this Agreement and any other Loan Document
as any other Bank and may exercise the same as though it were not the Agent; and
the term "BANK" or "BANKS" shall, unless otherwise expressly indicated, include
Rabobank in each case in its individual capacity. Rabobank and its affiliates
may each accept deposits from, maintain deposits or credit balances for, invest
in, lend money to, act as trustee under indentures of, and generally engage in
any kind of business with the Borrower, any Loan Party or any other affiliate
thereof as if it were any other bank and without any duty to account therefor to
the other Banks, except as otherwise provided in Section 1.10(a) and (b).
SECTION 7.04. BANK CREDIT DECISION, ETC. Each Bank expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or other affiliates has made any
representations or warranties to such Bank and that no act by the Agent
hereinafter taken, including any review of the affairs of the Borrower, shall be
deemed to constitute any representation or warranty by the Agent to any Bank.
Each Bank acknowledges that it has, independently and without reliance upon the
Agent, any other Bank or counsel to the Agent, and based on the financial
statements of the Borrower and its affiliates, its review of the Loan Documents,
the legal opinions required to be delivered to it hereunder, the advice of its
own counsel and such other documents and information as it has deemed
appropriate, made its own credit and legal analysis and decision to
<PAGE>
41
enter into this Agreement and the transaction contemplated hereby. Each Bank
also acknowledges that it will, independently and without reliance upon the
Agent, any other Bank or counsel to the Agent, and based on such review, advice,
documents and information as it shall deem appropriate at the time, continue to
make its own decisions in taking or not taking action under the Loan Documents.
Except for notices, reports and other documents expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall have no duty or
responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Borrower, any Loan Party or any other affiliate thereof
which may come into possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or other affiliates.
SECTION 7.05. INDEMNIFICATION. The Banks agree to indemnify the Agent
(to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) pro rata in accordance with the Banks'
respective Credit Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may at any time
be imposed on, incurred by, or asserted against the Agent in any way relating to
or arising out of the Loan Documents or any action taken or omitted by the Agent
under the Loan Documents; provided, however, that no Bank shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Agent's gross negligence or willful misconduct or if the Agent fails to
follow the written direction of the Majority Banks unless such failure is
pursuant to the advice of counsel of which the Banks have received notice.
Without limiting the generality of the foregoing, each Bank agrees to reimburse
the Agent promptly upon demand for its ratable share of any out-of-pocket
expenses (including counsel fees) incurred by the Agent in connection with the
preparation, execution, administration, or enforcement of, or legal advice with
respect to the rights or responsibilities of the parties under, the Loan
Documents, to the extent that the Agent is not reimbursed for such expenses by
the Borrower. The agreements in this Section shall survive the payment of the
Loans and all other amounts payable hereunder or under the other Loan Documents
and the termination of this Agreement.
SECTION 7.06. COLLATERAL MATTERS. (a) Each Bank authorizes and directs
the Agent to enter into the Loan Documents (other than this Agreement) for the
benefit of the Banks. Each Bank hereby agrees that, except as otherwise set
forth herein, any action taken by the Majority Banks in accordance with the
provisions of this Agreement or the other Loan Documents, and the exercise by
the Majority Banks of the powers set forth herein or therein, together with such
other powers as are
<PAGE>
42
reasonably incidental thereto, shall be authorized and binding upon all of the
Banks. The Agent is hereby authorized on behalf of all of the Banks, without the
necessity of any notice to or further consent from any Bank, from time to time
prior to an Event of Default, to take any action with respect to any Collateral
or Loan Documents which may be necessary to perfect and maintain perfected the
security interest in and liens upon the Collateral granted pursuant to the Loan
Documents.
(b) The Banks hereby authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment and satisfaction
of all of the obligations hereunder or under any other Loan Document at any time
arising under or in respect of this Agreement or the Loan Documents or the
transactions contemplated hereby or thereby, (ii) constituting property being
sold or disposed of upon receipt of the proceeds of such sale by the Agent on
behalf of the Banks in accordance with the Loan Documents or (iii) in accordance
with the terms of any Security Agreement. Upon request by the Agent at any time,
the Banks will confirm in writing the Agent's authority to release particular
types or items of Collateral pursuant to this Section 7.06.
(c) Upon any sale and transfer of Collateral (other than in the
ordinary course of business) which is consented to in writing by the Majority
Banks or all of the Banks, as applicable, and upon at least five (5) Business
Days' prior written request by a Borrower, the Agent shall (and is hereby
irrevocably authorized by the Banks to) execute such documents as may be
necessary to evidence the release of the Liens granted to the Agent for the
benefit of the Banks herein or pursuant hereto upon the Collateral that was sold
or transferred; provided, however, that (i) the Agent shall not be required to
execute any such document on terms which, in the Agent's opinion, would expose
the Agent to liability or create any obligation or entail any consequence other
than the release of such Liens without recourse or warranty and (ii) such
release shall not in any manner discharge, affect or impair the obligations
under any Loan Document or any liens upon (or obligations of any Borrower) all
interests retained by such Borrower, including (without limitation) the proceeds
of the sale, all of which shall continue to constitute part of the Collateral.
In the event of any sale or transfer of Collateral, or any foreclosure with
respect to any of the Collateral, the Agent shall be authorized to deduct all of
the expenses reasonably incurred by the Agent from the proceeds of any such
sale, transfer or foreclosure.
(d) The Agent shall have no obligation whatsoever to the Banks or to
any other Person to assure that the Collateral exists or is owned by the
Borrower or any Subsidiary or is cared for, protected or insured or that the
Liens granted to the Agent herein or pursuant hereto have been properly or
sufficiently or lawfully created,
<PAGE>
43
perfected, protected or enforced or are entitled to any particular priority, or
to exercise or to continue exercising at all or in any manner or under any duty
of care, disclosure or fidelity any of the rights, authorities and powers
granted or available to the Agent in this Section 7.06 or in any of the Loan
Documents, it being understood and agreed that in respect of the Collateral, or
any act, omission or event related thereto, the Agent may act in any manner it
may deem appropriate, in its sole discretion, given the Agent's own interest in
the Collateral as one of the Banks and that the Agent shall have no duty or
liability whatsoever to the Banks, except in each case for its gross negligence
or wilful misconduct.
SECTION 7.07. SUCCESSOR AGENT. The Agent may resign at any time as
Agent under the Loan Documents by giving written notice thereof to the Banks and
the Borrower. In the event of a material breach of its duties hereunder as
determined in the judgment of the Majority Banks, the Agent may be removed as
Agent under the Loan Documents at any time by the Majority Banks (other than a
Bank serving as Agent). Upon any such resignation or removal, the Majority Banks
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Majority Banks, and shall have accepted such
appointment, within 30 days after the resigning Agent's giving of notice of
resignation or the Majority Banks' removal of the resigning Agent, then the
resigning Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a Bank, if any Bank shall be willing to serve, and otherwise shall be a
commercial bank having combined capital and surplus of at least $1,000,000,000
and reasonably acceptable to the Majority Banks. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the resigning Agent, and the resigning Agent shall be discharged
from its duties and obligations under the Loan Documents. After any resigning
Agent's resignation or removal hereunder as Agent, the provisions of this
Article VI shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under the Loan Documents.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. AMENDMENTS, ETC. Any consent or approval required or
permitted by this Agreement or in any Loan Document to be given by the Banks may
be given, and any term of this Agreement or of any other Loan Document may be
amended, and the performance or observance by a Borrower of any terms of this
Agreement or such other Loan Document or the continuance of any Event of Default
<PAGE>
44
may be waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written consent of the
Majority Banks. Notwithstanding the foregoing, the rates of interest (including
without limitation any accrued interest) on the Advances and the Notes, the
dates on which any interest payable by the Borrowers under any Loan Document is
due, the Facility A Termination Date (or extension thereof), the Facility B
Termination Date (or extension thereof), the amount and payment date of any fees
(other than fees payable solely to the Agent) and this Section 8.01 may not be
amended, or a Borrower's compliance therewith, may not be waived, without the
written consent of all the Banks. Further, the definition of Majority Banks (or
any minimum requirement necessary for the Banks or Majority Banks to take action
hereunder), Available Borrowing Base, Available Facility A Commitment, Available
Facility B Commitment, Facility A Commitment, Facility B Commitment and
Commitment may not be amended without the written consent of all of the Banks.
Further, the Form of Borrowing Base Certificate (Exhibit E), the definitions
used therein and the percentages and advance rates used in calculating such
Borrowing Base may not be amended without the written consent (which may be
given orally and confirmed in writing) of all of the Banks. Further, no
amendment, waiver or consent unless in writing and signed by the Agent, in
addition to the Banks required hereinabove to take such action, shall affect the
rights or duties of the Agent under this Agreement or any of the other Loan
Documents. Further, no Collateral at any time held by the Agent shall be
released or disposed of by the Agent nor shall the Guarantor be released from
the Guaranty unless all of the Banks so direct the Agent. No waiver shall extend
to or affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of any Bank or
the Agent in exercising any right shall operate as a waiver thereof or otherwise
be prejudicial thereto. No notice to or demand upon a Borrower shall entitle
such Borrower to other or further notice or demand in similar or other
circumstances. Notwithstanding any of the foregoing to the contrary, the consent
of any Borrower shall not be required for any amendment, modification or waiver
of the provisions of Article VII.
SECTION 8.02. NOTICES, ETC. All notices and other communications
provided for under any Loan Document shall be in writing and mailed, telecopied
or delivered by hand or overnight courier:
(i) if to any Borrower, at 900 Dominion Tower, 999 Waterside
Drive, Norfolk, Virginia 23510, Attention: Aaron D. Trub, telephone:
(804) 365-3000, telecopier: (804) 365-3017; and
(ii) if to the Agent or a Bank, at its address as specified in
Annex I attached hereto; or,
<PAGE>
45
(iii) as to each party, at such other address as shall be
designated by such party in a written notice to each other party.
All such notices and communications shall be effective (i) if mailed, when
received, (ii) if telecopied, when transmitted and (iii) if delivered by hand or
overnight courier, when received, except that notices to the Agent and the Banks
pursuant to the provisions of Article I shall not be effective until received by
the Agent or such Bank, as the case may be. Notwithstanding the other provisions
of this Section 8.02, the Agent and each Bank may accept oral Borrowing Notices
pursuant to Section 1.02 hereof, provided that neither the Agent nor a Bank
shall incur liability to any Borrower in acting on any such communication that
the Agent or such Bank believes in good faith to have been given by a person
authorized to give such notice on behalf of such Borrower or in the case of a
Bank, the Agent. Any confirmation sent by the Agent to any Borrower of any
borrowing under this Agreement shall, in the absence of manifest error, be
conclusive and binding for all purposes.
SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of the Agent
or a Bank to exercise, and no delay in exercising, any right under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Loan Document preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law.
SECTION 8.04. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistently applied, except as otherwise stated herein.
SECTION 8.05. COSTS, EXPENSES AND TAXES. (a) The Borrowers jointly and
severally agree to pay on demand all costs and expenses in connection with the
preparation, execution, delivery, filing, recording and administration of the
Loan Documents and the other documents to be delivered under the Loan Documents,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel (who may be in-house counsel) for the Agent and each Bank, and local
counsel who may be retained by said counsel, with respect thereto and with
respect to advising the Agent or a Bank as to its rights and responsibilities
under the Loan Documents, and all costs and expenses (including reasonable
counsel fees and expenses (who may be in-house counsel) for the Agent and each
Bank in connection with the enforcement of the Loan Documents and the other
documents to be delivered under the Loan Documents. In addition, the Borrowers
jointly and severally agree to pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution, delivery,
filing and recording of the Loan
<PAGE>
46
Documents and the other documents to be delivered under the Loan Documents, and
agrees to save each Bank harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
and fees.
(b) If, due to payments made by any Borrower pursuant to Section
1.05(g) or Section 1.06 or due to acceleration of the maturity of the Advances
pursuant to Section 6.01 or due to any other reason, a Bank receives payments of
principal of any Advance other than on the last day of an Interest Period
relating to such Advance, the Borrowers shall pay to such Bank on demand any
amounts required to compensate such Bank for any additional losses, costs or
expenses which it may incur as a result of such payment, including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Bank to fund or maintain such Advance.
(c) Any and all payments by a Borrower hereunder or under any Note or
other documents evidencing any obligations shall be made free and clear of and
without reduction for any and all present or future taxes, levies, imposts,
deductions, charges, withholdings, stamp or documentary taxes imposed on the
value of its property, charges or levies which arise from the execution,
delivery or registration, or from payment or performance under, any of the Loan
Documents or the Commitments, and all other liabilities with respect thereto,
excluding in each case (1) income taxes, (2) taxes imposed on or measured by
capital and (3) franchise taxes, in each case imposed on a Bank by (i) the
United States, or (ii) any governmental authority of the jurisdiction in which
the Bank is organized, managed or controlled (all such non-excluded taxes,
levies, imposts, deductions, charges and withholdings being hereinafter referred
to as "TRANSACTION TAXES"). If a Borrower shall be required by law to withhold
or deduct any Transaction Taxes from or in respect of any sum payable hereunder
or under any such Note or document to the Agent or a Bank, (x) the sum payable
to the Agent or such Bank shall be increased as may be necessary so that after
making all required withholding or deductions (including withholding or
deductions applicable to additional sums payable under this Section) the Agent
or such Bank receives an amount equal to the sum it would have received had no
such withholding or deductions been made, (y) such Borrower shall make such
withholding or deductions, and (z) such Borrower shall pay the full amount
withheld or deducted to the relevant taxation authority or other authority in
accordance with applicable law; provided, however, that the Agent or such Bank
shall reimburse the respective Borrower the amount, if any, later recovered by
the Agent or such Bank (whether by refund or otherwise) with respect to any such
Transaction Taxes so paid by such Borrower.
<PAGE>
47
(d) Each of the Borrowers shall, jointly and severally, indemnify the
Agent and any Bank against, and reimburse the Agent and any such Bank on demand
for, the full amount of all Transaction Taxes (including, without limitation,
any Transaction Taxes imposed by any governmental authority on additional
amounts payable under Section 8.05(c) and any additional income taxes or
franchise taxes resulting therefrom, net of any deductions or allowances
realized by the Agent or such Bank and its affiliates on account of the payment
of such Transaction Taxes) incurred or paid by the Agent or such Bank or any
bank holding company parent thereof and any liability (including penalties,
interest, and reasonable out-of-pocket expenses paid to third parties) arising
therefrom or with respect thereto; provided, however, that the Agent or such
Bank shall reimburse the respective Borrower the amount, if any, later recovered
by the Agent or such Bank or any bank holding company parent thereof (whether by
refund or otherwise) with respect to any such Transaction Taxes, additional
income taxes or franchise taxes, penalties, interest and out-of-pocket expenses
so reimbursed to the Agent or such Bank by such Borrower. A certificate as to
any additional amount payable to the Agent or such Bank under this Section 8.05
submitted by the Agent or such Bank to a Borrower shall, absent manifest error,
be final, conclusive and binding upon all parties hereto. Within thirty (30)
days after the date of any payment of Transaction Taxes by a Borrower, such
Borrower will furnish to the Agent or such Bank the original or a certified copy
of a receipt or other documentation reasonably satisfactory to the Agent or such
Bank, evidencing payment thereof.
(e) Each of the Borrowers shall, jointly and severally, and hereby
agrees to, indemnify, defend and hold harmless the Agent and each of the Banks
and their respective directors, officers, agents, employees and counsel from and
against (i) any and all losses, claims, damages, liabilities, deficiencies,
judgments or expenses incurred by any of them (except to the extent that it is
finally judicially determined to have resulted from their own gross negligence
or wilful misconduct) in connection with or with respect to this Agreement, any
other Loan Documents or any rights or obligations hereunder or thereunder and
(ii) any such losses, claims, damages, liabilities, deficiencies, judgments or
expenses incurred in connection with any remedial or other action taken by any
Borrower or any of the Banks in connection with compliance by a Borrower or any
of its properties, with any Environmental Requirements. If and to the extent
that the obligations of the Borrowers hereunder are unenforceable for any
reason, each Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations which are permissible under
applicable law.
(f) The obligations of each Borrower under this Section 8.05 shall
survive any termination of this Agreement and the other Loan Documents and the
<PAGE>
48
payment in full of the obligations hereunder and the other Loan Documents, and
are in addition to, and not in substitution of, any other of their obligations
set forth in this Agreement.
SECTION 8.06. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default a Bank is hereby authorized at any time and
from time to time, 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 and other indebtedness at any time owing by such Bank to or for
the credit or the account of any Borrower against any and all of the obligations
of such Borrower now or hereafter existing under any Loan Document, irrespective
of whether or not such Bank shall have made any demand under such Loan Document
and although deposits, indebtedness or such obligations may be unmatured or
contingent. Such Bank agrees promptly to notify such Borrower after any such
set-off and application, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of a Bank under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which such Bank may have.
SECTION 8.07. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement or of any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or thereof or affecting the validity or unenforceability of
such provision in any other jurisdiction.
SECTION 8.08. CONSENT TO JURISDICTION. (a) Each Borrower hereby
irrevocably submits to the jurisdiction of any New York State or Federal court
sitting in New York City in any action or proceeding arising out of or relating
to this Agreement or any of the other Loan Documents to which the Borrower is a
party, and each Borrower hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such New York State
court or in such Federal court. Each Borrower hereby irrevocably waives, to the
fullest extent it may effectively do so, the defense of an inconvenient forum to
the maintenance of such action or proceeding. Each Borrower irrevocably consents
to the service of copies of the summons and complaint and any other process
which may be served in any such action or proceeding by the mailing of copies of
such process to such Borrower at its address specified in Section 8.02. Each
Borrower agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
<PAGE>
49
(b) Nothing in this Section 8.08 shall affect the right of the Agent or
a Bank to serve legal process in any other manner permitted by law or affect the
right of the Agent or a Bank to bring any action or proceeding against any
Borrower or its property in the courts of other jurisdictions.
SECTION 8.09. BINDING EFFECT; GOVERNING LAW. This Agreement shall be
binding upon and inure to the benefit of each Borrower, the Agent and each Bank
and their respective successors and assigns, except that no Borrower shall have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Agent and the Banks. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State of
New York.
SECTION 8.10. PARTICIPATIONS. Each Bank may sell participations (with
the consent of the Agent and the Guarantor, which consent shall not be
unreasonably withheld) to one or more persons in or to all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment, the Advances owing to it and the Note or Notes
held by it); provided, however, that (i) such Bank's obligations under this
Agreement (including, without limitation, its Commitment hereunder) shall remain
unchanged; (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations; (iii) such Bank shall remain the
holder of any such Note for all purposes of this Agreement; (iv) the Borrowers,
the Agent, and the other Banks shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Agreement and any other Loan Document; and (v) such Bank shall not transfer,
grant, assign or sell any participation under which the participant shall have
rights to approve any amendment or waiver of this Agreement except to the extent
such amendment or waiver would (A) extend the final maturity date or the date of
the payments of any installment of fees or principal or interest of any Advances
in which such participant is participating, (B) reduce the amount of any
installment of principal of the Advances in which such participant is
participating, (C) reduce the interest rate applicable to the Advances in which
such participant is participating, or (D) reduce any fees payable to the Banks
hereunder. In connection with the efforts of any Bank to participate interests,
such Bank may disclose any information in its possession regarding a Borrower or
any other Loan Party. Notwithstanding the foregoing, without the consent of the
Agent, any Bank or any Borrower, a Bank may make, carry or transfer Advances at,
to or for the account of, any of its branch offices or the office of an
affiliate of such Bank or any Bank may pledge any Advances or Notes to any
Federal Reserve Bank. It is further agreed, notwithstanding any of the
foregoing, that in the event a Bank is a federally chartered instrumentality and
a member of the Farm Credit System, pursuant to 12 USC ss.2001, et seq., such
Bank may sell participation interests to other federally chartered
<PAGE>
50
instrumentalities which are also members of the Farm Credit System, without the
prior written consent of the Agent or the Guarantor, except such Bank may not
sell a participation interest to the following Banks or Farm Credit System,
without the prior written consent of the Agent and Guarantor.
SECTION 8.11. ASSIGNABILITY.
(a) No Borrower shall have the right to assign this Agreement or any
interest therein except with the prior written consent of the Agent and the
Banks.
(b) Notwithstanding Section 8.11(c) below, without the consent of the
Agent or any Borrower or the Guarantor (i) any Bank may make, carry or transfer
Loans at, to or for the account of, any of its branch offices or the office of
an Affiliate of such Bank or (ii) any Bank may pledge any Loans or Notes to any
Federal Reserve Bank, or their respective funding bank if not a Federal Reserve
Bank.
(c) Each Bank may, with the consent of the Agent and the Guarantor
(which consent shall not be unreasonably withheld), assign to one or more
financial institutions all or a portion of its respective Commitment; provided,
however, that (i) for each such assignment, the parties thereto shall execute
and deliver to the Agent, for its acceptance and recording in the Register (as
defined below), an Assignment and Assumption Agreement substantially in the form
of Exhibit I (each an "ASSIGNMENT AND ASSUMPTION AGREEMENT"), together with any
Note subject to such assignment and a processing and recordation fee of $2,500,
which, unless otherwise agreed, shall be payable by the assignor, and (ii) no
such assignment shall be for less than $5,000,000 of the Commitment of such
Bank, unless such assignment is to a then-current holder of a Note. Upon the
effectiveness of the Assignment and Assumption Agreement as provided therein,
from and after the date specified as the effective date in the Assignment and
Assumption Agreement (the "ACCEPTANCE DATE"), (x) 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 Assumption Agreement, such
assignee shall have the rights and obligations of a "Bank" hereunder and (y) the
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Assumption Agreement,
relinquish its rights (other than any rights it may have pursuant to Section
8.05 which will survive such assignment) and be released from its obligations
under this Agreement which are assigned (and, in the case of an Assignment and
Assumption Agreement covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, the Notes and the other Loan
Documents such Bank shall cease to be a party hereto).
<PAGE>
51
(d) The Agent shall maintain at its principal office a copy of each
Assignment and Assumption Agreement delivered to and accepted by it and a
register for the recordation of the names and addresses of the Banks and the
Commitments of each Bank from time to time (the "REGISTER"). The Agent shall
give notice to each Bank of any assignment. Each Borrower, the Agent and the
Banks may treat each person whose name is recorded in the Register as a Bank
hereunder for all purposes of this Agreement. The Register and copies of each
Assignment and Assumption Agreement shall be available for inspection by the
Borrowers or any Bank at any reasonable time and from time to time upon
reasonable prior notice to the Agent.
(e) Upon its receipt of an Assignment and Assumption Agreement executed
by an assigning Bank, together with each Note subject to such assignment (the
"SURRENDERED NOTE"), the Agent shall, if such Assignment and Assumption
Agreement has been completed and is in substantially the form of Exhibit I, (i)
accept such Assignment and Assumption Agreement, (ii) record the information
contained therein in the Register, (iii) give prompt notice thereof to the
Borrowers and the Banks and (iv) revise the information set forth on Annex I to
reflect the effect of such Assignment and Assumption Agreement, and distribute a
copy of such revised Annex I to each Bank and the Borrowers. Within five
Business Days after its receipt of such notice, the Borrowers shall acknowledge
such Assignment and Assumption Agreement and shall execute and deliver to the
Agent in exchange for the Surrendered Note or Notes a new Note or Notes to the
order of the assignee in an amount equal to the Commitment or Commitments
assumed by it pursuant to such Assignment and Assumption Agreement and, if the
assigning Bank has retained a Commitment or Commitments hereunder, a new Note or
Notes to the order of the assigning Bank in an amount equal to the Commitment or
Commitments retained by it hereunder. Such new Note or Notes shall re-evidence
the indebtedness outstanding under the old Note or Notes and shall be in an
aggregate principal amount equal to the aggregate principal amount of such
Surrendered Note or Surrendered Notes, shall be dated the date hereof and shall
otherwise be in substantially the form, of the Note or Notes subject to such
assignments. The assignment by a Bank of a Commitment or portion thereof to
another Person and the execution and delivery of a new Note or Notes shall not
constitute a novation of the indebtedness evidenced by the Surrendered Note or
Surrendered Notes and incurred in connection with such assigned Commitment.
(f) Each Bank agrees that, without the prior written consent of the
Guarantor and the Agent, it will not make any assignment hereunder in any manner
or under any circumstances that would require registration or qualification of,
or filings in respect of, any Note under the securities laws of the United
States of America or of any other jurisdiction.
<PAGE>
52
(g) In connection with the efforts of any Bank to assign its rights or
obligations or to participate interests, such Bank may disclose any information
in its possession regarding any Borrower or any Loan Party.
SECTION 8.12. NONLIABILITY OF AGENT AND LENDERS. The relationship
between any Borrower and the Lenders and the Agent shall be solely that of
borrower and lender. Neither the Agent nor any Lender shall have any fiduciary
responsibilities to any Borrower. Neither the Agent nor any Lender undertakes
any responsibility to any Borrower to review or inform such Borrower of any
matter in connection with any phase of such Borrower's business or operations.
SECTION 8.13. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute but one and
the same agreement.
SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT
AND EACH BANK HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENT TO WHICH IT IS A PARTY OR ANY INSTRUMENT OR DOCUMENT DELIVERED
THEREUNDER.
SECTION 8.15. NO NOVATION. The parties hereto have entered into this
Agreement and the other Loan Documents solely to amend, restate and restructure
the terms of, and obligations owing under and in connection with, the 1995
Agreement, the 1994 Agreement, the 1991 Agreement and 1991 Oral Finance
Facility. The parties do not intend this Agreement or the other Loan Documents
nor the transactions contemplated hereby or thereby to be, and this Agreement
and the other Loan Documents and the transactions contemplated hereby or thereby
shall not be, construed to be a novation of any of the obligations owing by a
Borrower under or in connection with the 1991 Agreement, the 1994 Agreement, the
1995 Agreement or the 1991 Oral Finance Facility.
SECTION 8.16. OBLIGATIONS WITH RESPECT TO LOAN PARTIES. (a) The
obligations of a Borrower to direct or prohibit the taking of certain actions by
the other Loan Parties as specified herein shall be absolute and not subject to
any defense such Borrower may have that such Borrower does not control such Loan
Parties.
(b) Each of the Borrowers hereby agrees that it is jointly and
severally liable for the obligations under this Agreement and each other Loan
Document,
<PAGE>
53
irrespective of whether such Borrower requested a Borrowing or received the
proceeds of such Borrowing and further agrees that the financing provided by
this Agreement and the other Loan Documents is essential to the continued
success of the business operations of such Borrower. Notwithstanding the
foregoing, the Banks agree that the liability of each Borrower hereunder shall
not exceed at any time the Maximum Amount relevant to such Borrower. "MAXIMUM
AMOUNT" means the greater of (i) 95% of (A) the fair saleable value of the
assets of a Borrower as of the date hereof minus (B) the total liabilities of
such Borrower (including contingent liabilities but excluding liabilities of
such Borrower under this Agreement or any other Loan Document) on such date, and
(ii) 95% of (x) the fair saleable value of the assets of such Borrower from time
to time minus (y) the total liabilities of such Borrower (including contingent
liabilities but excluding liabilities of such Borrower under this Agreement and
any other Loan Documents) plus (z) any amounts received by such Borrower under
this Agreement.
(c) Each Borrower expressly waives all rights it may now or in the
future have under any statute, or at common law, or at law or in equity, or
otherwise, to compel the Agent or any Bank to proceed in respect of the
obligations under this Agreement or any other Loan Document against any other
Borrower or any other Loan Party or against any security for the payment and
performance of such obligations before proceeding against, or as a condition to
proceeding against, such Borrower. Each Borrower further expressly waives and
agrees not to assert or take advantage of any defense based upon the failure of
the Agent or any Bank to commence an action in respect of the obligations under
this Agreement or any other Loan Document against any other Borrower or any
other Loan Party or any security for the payment and performance of such
obligations. Each Borrower agrees that any notice or directive given at any time
to the Agent or any Bank which is inconsistent with the waivers in the preceding
sentences shall be null and void and may be ignored by the Agent or such Bank,
and, in addition, may not be pleaded or introduced as evidence in any litigation
relating to this Agreement for the reason that such pleading or introduction
would be at variance with the written terms of this Agreement, unless the Agent
and the Majority Banks have specifically agreed otherwise in writing. The
foregoing waivers are the essence of the transaction contemplated by this
Agreement and the Loan Documents and, but for such waivers, the Banks would
decline to make the Loans. Each Borrower represents, warrants and agrees that
its obligations under this Agreement and the other Loan Documents are not and
shall not be subject to any counterclaims, offsets or defenses of any kind
against the Agent, the Banks or any other Loan Party now existing or which may
arise in the future.
[Signatures on Next Page.]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
GWALTNEY OF SMITHFIELD, LTD.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
THE SMITHFIELD PACKING
COMPANY, INCORPORATED
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
PATRICK CUDAHY INCORPORATED
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
ESSKAY, INC.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
<PAGE>
S-2
BROWN'S OF CAROLINA, INC.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
JOHN MORRELL & CO.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK,
B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH,
individually and as Agent
By /s/ Joanna M. Solowski
Name: Joanna M. Solowski
Title: Authorized Officer
By /s/ Dennis Zienges
Name: Dennis Zienges
Title: Authorized Officer
NATIONSBANK, N.A.
By /s/ John D. Mindnich
Name: John D. Mindnich
Title: Senior Vice President
<PAGE>
S-3
DG BANK, DEUTSCHE
GENOSSENSCHAFTSBANK,
CAYMAN ISLANDS BRANCH
By /s/ William J. Bartlett
Name: William J. Bartlett
Title: Assistant Vice President
By /s/ Bobby Ryan Oliver, Jr.
Name: Bobby Ryan Oliver, Jr.
Title: Assistant Vice President
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
By /s/ Yoshinori Kawamura
Name: Yoshinori Kawamura
Title: Joint General Manager
SUNTRUST BANK, ATLANTA
By /s/ Robert V. Honeycutt
Name: Robert V. Honeycutti
Title: Assistant Vice President
By /s/ John G. Taylor
Name: John G. Taylor
Title: Assistant Vice President
<PAGE>
S-4
CAISSE NATIONALE DE
CREDIT AGRICOLE
By /s/ Dean Balice
Name: Dean Balice
Title: Senior Vice President
BOATMEN'S FIRST NATIONAL
BANK OF KANSAS CITY
By /s/ Ellen M. Isch
Name: Ellen M. Isch
Title: Vice President
<PAGE>
S-5
FARM CREDIT SERVICES OF
THE MIDLANDS, PCA
By /s/ Richard A. Huckle, Jr.
Name: Richard A. Huckle, Jr.
Title: Vice President
<PAGE>
1
ANNEX I to
Fourth Amended, Restated and Continued
Revolving Credit Agreement
dated April 30, 1996
Agent
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK NEDERLAND,"
NEW YORK BRANCH
245 Park Avenue
New York, NY 10167
Attn: Joanna Solowski, Eastern Agribusiness
Telephone: 212-916-7800
Telecopy: 212-916-7837
Banks Credit Percentage
Facility A Facility B
COOPERATIEVE CENTRALE RAIFFEISEN- 29.411764705% 29.411764705%
BOERENLEENBANK B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
245 Park Avenue
New York, New York 10167
Attn: Corporate Services
Telephone: 212-916-7801
Telecopy: 212-916-7837
Wiring Instructions:
Bank of New York
ABA #021000018
A/C Rabobank Nederland, New York Branch
A/C #8026002533
Ref: Smithfield
<PAGE>
2
Banks
Facility A Facility B
NATIONSBANK, N.A. (CAROLINAS) 13.725490196% 13.725490196%
MD2-600-01-05
Corporate Bank
6610 Rockledge Drive
Bethesda, Maryland 20817-1876
Telephone: 301-571-0702
Telecopy: 301-571-0719
Wiring Instructions:
NationsBank of Virginia
ABA #051000017
Credit Name: Comm Loans
Details: Ref Smithfield Foods, Notify Comm Loans
FARM CREDIT SERVICES OF THE
MIDLANDS, PCA 13.725490196% 13.725490196%
206 South 19th Street
Omaha,Nebraska 68102
Telephone: (402) 348-3288
Telecopy: (402) 348-3324
Wiring Instructions:
ABA #125108298
Bank Name: AGAmerica FCB, Spokane, WA
Reference: Smithfield Foods, Inc.
<PAGE>
3
Banks
Facility A Facility B
DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLANDS BRANCH 9.803921569% 9.803921569%
303 Peachtree-One Peachtree Center
Suite 2900
Atlanta, Georgia 30308
Telephone: 404.524.3966
Telecopy: 404.524.4006
Wiring Instructions:
DG Bank, Deutsche Genossenschaftsbank,
Cayman Islands Branch
Via Chips System
DG Bank ABA No.: 845
Reference: Smithfield Foods
Federal Reserve Bank of New York
Routing/Account No.: 026008455
Reference: Smithfield Foods
CAISSE NATIONALE DE
CREDIT AGRICOLE 9.803921569% 9.803921569%
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Telephone: (312) 917-7428
Telecopy: (312) 372-4421
Wiring Instructions:
Morgan Guaranty
ABA #021000238 CNCA Chicago
Account #63000205
Reference: Smithfield Foods
<PAGE>
4
Banks
Facility A Facility B
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH 7.843137255% 7.843137255%
US Corporate Dept. II
277 Park Avenue, 6th Floor
New York, New York 10172
Telephone: 212-224-4130
Telecopy: 212-224-5188
Wiring Instructions:
Morgan Guaranty Trust Company of New York
ABA #021000238
Account Name: The Sumitomo Bank Limited
New York Branch
Account #631-28-256
Reference: Smithfield Foods
SUNTRUST BANK, ATLANTA 7.843137255% 7.843137255%
25 Park Place, 25th Floor
Atlanta, Georgia 30303
Telephone: 404.724.3402
Telecopy: 404.230.5305
Wiring Instructions:
SunTrust Bank, Atlanta
ABA #061000104
Account Name: wire clearing general
Account Number: 8892170730
Reference: Smithfield Foods
Attn: Freda Bethea
<PAGE>
5
Banks
Facility A Facility B
BOATMEN'S FIRST NATIONAL
BANK OF KANSAS CITY 7.843137255% 7.843137255%
14 West 10th Street
Kansas City, Missouri 64105
Telephone: (816) 691-7748
Telecopy: (816) 691-7426
Wiring Instructions:
ABA #101000035
Attn: Commercial Loan Operations
Larry Moss
Reference: Smithfield
1
[CONFORMED COPY]
FOURTH AMENDED, RESTATED AND CONTINUED GUARANTY, dated as of April 30,
1996, made by SMITHFIELD FOODS, INC., a corporation organized and existing under
the laws of Delaware (the "GUARANTOR"), in favor of COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, as Agent
for the banks a party to the Credit Agreement, as defined below (the "AGENT").
PRELIMINARY STATEMENTS.
The Agent and certain banks have entered into a Fourth Amended, Restated
and Continued Revolving Credit Agreement dated as of the date hereof (said
Agreement, as it may hereafter be amended or otherwise modified from time to
time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise
defined herein being used herein as therein defined) among Gwaltney of
Smithfield, Ltd. ("GWALTNEY"), The Smithfield Packing Company, Incorporated
("PACKING"), Patrick Cudahy Incorporated ("CUDAHY"), Esskay, Inc. ("ESSKAY"),
Brown's of Carolina, Inc. ("BROWN'S"), and John Morrell & Co. ("MORRELL")
(individually, a "BORROWER" and collectively, the "BORROWERS") and the Agent and
each of the banks a party thereto. It is a condition precedent to the making of
Advances by the Banks under the Credit Agreement that the Guarantor, as owner of
100 percent of the outstanding shares of stock of each of the Borrowers (other
than Brown's) and 86 percent of the outstanding shares of stock of Brown's,
shall have executed and delivered this Guaranty.
The Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy,
Esskay and Brown's, Rabobank as agent for the Banks and each financial
institution a party thereto, with the 1995 Agreement being a complete amendment,
restatement and continuation of the Second Amended, Restated and Continued
Revolving Credit Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as
amended by amendments dated as of May 1, 1994, November 28, 1994, January 31,
1995, February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July
12, 1995 among Gwaltney, Packing, Cudahy, Esskay, Brown's and Carolina Food
Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (a) the Amended,
<PAGE>
2
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992 and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
October 30, 1991 between Gwaltney and Rabobank and (b) the Amended and Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and Rabobank,
with the 1991 Oral Finance Facility being a complete amendment, restatement and
continuation of the Oral Finance Facility dated as of October 26, 1990, as
amended, between Gwaltney and Rabobank. This Guaranty is a complete amendment,
restatement and continuation of the Third Amended, Restated and Continued
Guaranty (the "1995 GUARANTY") dated as of July 31, 1995 made by the Guarantor
in favor of Rabobank.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Bank to make Advances under the Credit Agreement, the Guarantor hereby
agrees as follows:
SECTION 1. GUARANTY. The Guarantor hereby unconditionally guarantees the
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all obligations of one or more of the Borrowers now or hereafter
existing under the Credit Agreement, the Notes thereunder, the other Loan
Documents to which one or more of the Borrowers is a party, and any other
agreement or instrument relating thereto, whether for principal, interest, fees,
expenses, indemnities or otherwise (such obligations being the "OBLIGATIONS"),
and agrees to pay any and all expenses (including counsel fees and expenses)
incurred by the Agent or any Bank in enforcing any rights under this Guaranty.
SECTION 2. GUARANTY ABSOLUTE. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the Credit
Agreement, the Notes thereunder and the other Loan Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Agent or a Bank with respect
thereto. The liability of the Guarantor under this Guaranty shall be absolute
and unconditional irrespective of:
(i) any lack of validity or enforceability of the Credit
Agreement, the Notes thereunder, any other Loan Document, or any other
agreement or instrument relating thereto;
<PAGE>
3
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to departure from the Credit Agreement, the
Notes thereunder, any other Loan Document and any other agreement or
instrument relating thereto;
(iii) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from
any other guaranty, for all or any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Borrower or a guarantor.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned by a Bank upon the insolvency, bankruptcy or
reorganization of one or more of the Borrowers or otherwise, all as though such
payment had not been made.
SECTION 3. WAIVER. The Guarantor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Obligations
and this Guaranty and any requirement that the Agent or a Bank protect, secure,
perfect or insure any security interest or lien or any property subject thereto
or exhaust any right or take any action against one or more of the Borrowers or
any other person or entity or any collateral.
SECTION 4. WAIVER OF SUBROGATION. The Guarantor hereby waives any claim,
right or remedy which the Guarantor may now have or hereafter acquire against
any Borrower that arises hereunder and/or from the performance by the Guarantor
hereunder including, without limitation, any claim, remedy or right of
subrogation, reimbursement, exoneration, contribution, indemnification, or
participation in any claim, right or remedy of the Agent or a Bank against any
Borrower or any security which the Agent or a Bank now has or hereafter
acquires, whether or not such claim, right or remedy arises in equity, under
contract, by statute, under common law or otherwise until the Agent and the
Banks are paid in full and the Credit Agreement is terminated.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants as follows:
<PAGE>
4
(a) The Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction
indicated at the beginning of this Guaranty.
(b) The execution, delivery and performance by the Guarantor of
this Guaranty are within its corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene (i) the
Guarantor's charter or by-laws or (ii) any law or any contractual
restriction binding on or affecting the Guarantor.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the
Guarantor of this Guaranty.
(d) This Guaranty is a legal, valid and binding obligation of the
Guarantor enforceable against it in accordance with its terms.
(e) The audited balance sheets for the Guarantor and its
subsidiaries as at April 30, 1995, and the related statements of income,
stockholders equity and cash flows of the Guarantor and its subsidiaries
for the fiscal period then ended, copies of which have been furnished to
the Banks, fairly present the financial condition of the Guarantor and
its subsidiaries as at such date and the results of the operations of
the Guarantor and its subsidiaries for the period ended on such date,
all in accordance with generally accepted accounting principles
consistently applied, and since April 30, 1995, there has been no
material adverse change in such condition or operations.
(f) There is no pending or threatened action or proceeding
affecting the Guarantor or any of its subsidiaries before any court,
arbitrator or governmental agency, which could materially adversely
affect the financial condition or operations of the Guarantor or any of
its subsidiaries or which purports to affect the legality, validity or
enforceability of this Guaranty.
SECTION 6. COVENANTS. The Guarantor covenants and agrees that, so long
as any part of the Obligations shall remain unpaid or a Bank shall have any
Commitment, the Guarantor will, unless the Banks, in accordance with Section 8
hereof, shall otherwise consent in writing:
<PAGE>
5
(a) REPORTING REQUIREMENTS. Furnish to the Agent and each
Bank:
(i) as soon as available and in any event 30 days after
the end of each calendar month, (A) a consolidated balance sheet
of the Guarantor and its subsidiaries as at the end of such
calendar month and a consolidated statement of income and cash
flows of the Guarantor and its subsidiaries for the period
commencing at the end of the previous fiscal year and ending with
the end of such calendar month and (B) a certificate of the
treasurer or chief financial officer of the Guarantor (with
calculations in reasonable detail) certifying that the Guarantor
is in compliance in every respect with the terms of this Section
6 and that no Default or Event of Default exists;
(ii) as soon as available and in any event within 45 days
after the end of each quarter of each fiscal year of the
Guarantor, (A) a consolidated balance sheet of the Guarantor and
its subsidiaries as of the end of such quarter and a consolidated
statement of income and cash flows of the Guarantor and its
subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, and (B) a
certificate of the treasurer or chief financial officer of the
Guarantor (with calculations in reasonable detail) certifying
that the Guarantor is in compliance with the terms of this
Section 6 and that no Default or Event of Default exists;
(iii) as soon as available and in any event within 90 days
after the end of each fiscal year of the Guarantor, (A) a copy of
a consolidated financial statement for the Guarantor and its
subsidiaries for such year reported on and certified in a manner
acceptable to the Agent by independent public accountants
acceptable to the Banks, and (B) a certificate of the treasurer
or chief financial officer of the Guarantor (with calculations in
reasonable detail) certifying that the Guarantor is in compliance
with the terms of this Section 6 and that no Default or Event of
Default exists;
(iv) promptly and in any event within five days of the
transmission thereof, copies of all financial statements, proxy
statements, notices and reports as the Guarantor shall send to
its public stockholders and copies of all registration statements
(without exhibits) and all reports which the Guarantor files with
the Securities and Exchange Commission (or any governmental body
or agency
<PAGE>
6
succeeding to the functions of the Securities and Exchange
Commission) and copies of all press releases reporting financial
results of the Guarantor or any of its subsidiaries or any
material development with respect to the Guarantor or any of its
subsidiaries;
(v) such other information respecting the condition or
operations, financial or otherwise, of the Guarantor or any of
its subsidiaries as the Agent or a Bank may from time to time
reasonably request; and
(vi) promptly, upon the occurrence of an Event of Default
or an event that but for the passage of time or the giving of
notice or both would constitute an Event of Default, notice of
such Event of Default or event.
(b) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its
subsidiaries to comply, in all material respects with all applicable
laws, rules, regulations and orders, such compliance to include, without
limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its
property except to the extent contested in good faith.
(c) VISITATION RIGHTS; COLLATERAL EXAMINATION. At any reasonable
time and from time to time, permit the Agent or a Bank or any agents or
representatives thereof, to examine and make copies of and abstracts
from the records and books of account of, and visit the properties of,
the Guarantor and any of its subsidiaries, and to discuss the affairs,
finances and accounts of the Guarantor and any of its subsidiaries with
any of their respective officers or directors.
(d) WORKING CAPITAL. Maintain on a consolidated basis at all
times (i) an excess of current assets over current liabilities, in each
case, as determined in accordance with generally accepted accounting
principles ("WORKING CAPITAL") of not less than the amount set forth
below opposite the applicable period (it being understood that the
period shall include the ending date thereof):
<PAGE>
7
PERIOD AMOUNT
From 04/28/96 to 06/29/96 $ 60,000,000
From 06/30/96 to 07/27/96 $115,000,000
From 07/28/96 to 10/26/96 $110,000,000
From 10/27/96 to 01/25/97 $110,000,000
From 01/26/97 to 04/26/97 $125,000,000
From 04/27/97 to 07/27/97 $115,000,000
and (ii) a ratio of current assets to current liabilities, in each case,
as determined in accordance with generally accepted accounting
principles, of not less than the ratios set forth below opposite the
applicable period (it being understood that the period shall include the
ending date thereof):
PERIOD RATIO
From 04/28/96 to 06/29/96 1.15 to 1.0
From 06/30/96 to 07/27/96 1.25 to 1.0
From 07/28/96 to 10/26/96 1.15 to 1.0
From 10/27/96 to 01/25/97 1.15 to 1.0
From 01/26/97 to 04/26/97 1.30 to 1.0
From 04/27/97 to 07/27/97 1.30 to 1.0
(e) NET WORTH AND DEBT. Maintain on a consolidated basis at all
times (i) a Consolidated Tangible Net Worth (as hereinafter defined) of
not less than the higher of (a) $155,000,000, as of April 30, 1995, plus
75% of Consolidated Net Income, (without taking into account any losses)
on a cumulative basis for each quarter ending after April 30, 1995 and
(b) the amount set forth below opposite the applicable period (it being
understood that the period shall include the ending date thereof):
PERIOD AMOUNT
From 04/28/96 to 06/29/96 $185,000,000
From 06/30/96 to 07/27/96 $185,000,000
From 07/28/96 to 10/26/96 $200,000,000
From 10/27/96 to 01/25/97 $210,000,000
From 01/26/97 to 04/26/97 $220,000,000
From 04/27/97 to 07/27/97 $230,000,000
and (ii) a ratio of Debt to Consolidated Tangible Net Worth of not more
than 2.50 to 1.00.
<PAGE>
8
(f) TOTAL INDEBTEDNESS TO TOTAL CAPITALIZATION RATIO. Permit at
any time the aggregate outstanding principal amount of Consolidated
Total Indebtedness to exceed at any time during the period specified
below the percentage of Consolidated Total Capitalization set forth
opposite such applicable period (it being understood that the period
shall include the ending date thereof):
PERIOD PERCENTAGE
From 04/28/96 to 06/29/96 70.0%
From 06/30/96 to 07/27/96 71.0%
From 07/28/96 to 10/26/96 73.0%
From 10/27/96 to 01/25/97 73.0%
From 01/26/97 to 04/26/97 66.0%
From 04/27/97 to 07/27/97 67.0%
; provided, however, that if during the 30-day period prior to the date
of determination the average spot price quoted in the Wall Street
Journal for Iowa/South Minnesota hogs plus $3.00 (or such other amount
which is the average prevailing carcass merit premium paid by the
Borrowers during such period) equals or exceeds $55 per hundredweight,
the percentages shall be equal to the following for such applicable
period:
From 01/26/97 to 04/26/97 69.0%
From 04/27/97 to 07/27/97 69.0%
(g) INTEREST COVERAGE. Maintain at all times a ratio of
Consolidated EBITDA to Consolidated Interest Expense not less than 3.50
to 1.00 during any consecutive four quarter period prior to the date of
determination.
(h) FIXED CHARGE COVERAGE. Maintain at all times a Fixed
Charge Coverage of not less than 1.00.
(i) LIENS, ETC. Not create or suffer to exist, or permit any
subsidiary to create or suffer to exist, any lien, security interest or
other charge or encumbrance, or any other type of preferential
arrangement, upon or with respect to any of its properties or its
subsidiaries', whether now owned or hereafter acquired, or assign any
right to receive income, in each case to secure any Debt (as defined
below) of any person or entity, other than
<PAGE>
9
(i) purchase money liens or purchase money security interests upon or in
any property acquired or held by the Guarantor or any of its
subsidiaries in the ordinary course of business to secure the purchase
price of such property or to secure indebtedness incurred solely for the
purpose of financing the acquisition of such property, (ii) liens or
security interests existing on such property at the time of its
acquisition, (iii) liens in existence on the date hereof and set forth
on Schedule 6(f) hereto, provided that the aggregate principal amount of
the indebtedness secured by the liens or security interests referred to
in clauses (i), (ii) and (iii) above shall not exceed $285,000,000 at
any time outstanding or (iv) liens granted to the Agent on behalf of the
Banks.
(j) DIVIDENDS, ETC. Not declare or pay any dividends, purchase or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as
such, or permit any of its subsidiaries to purchase or otherwise acquire
for value any stock of any Borrower, except that (i) it may declare and
pay dividends on its $20,000,000 principal amount of its Series C 6.75%
Cumulative Convertible Preferred Stock in an aggregate amount not to
exceed $1,350,000 during any fiscal year and (ii) a Borrower may declare
and deliver dividends and distributions payable in common stock of such
Borrower.
(k) CAPITAL EXPENDITURES. Not incur on a consolidated basis with
its subsidiaries, Capital Expenditures in excess of the amount for the
quarterly period set forth below on a cumulative basis for each fiscal
year:
QUARTER ENDING AMOUNT
April 28, 1996 $75,000,000
July 28, 1996 $25,000,000
October 27, 1996 $35,000,000
January 26, 1997 Permitted Amount
April 27, 1997 Permitted Amount
July 31, 1997 $30,000,000
"PERMITTED AMOUNT" shall mean an amount equal to the sum (i)
year-to-date after tax income plus (ii) year-to-date depreciation plus
(iii) year-to-date amortization, all as calculated in accordance with
generally accepted accounting principles.
<PAGE>
10
(l) LIMITATION ON TYPES OF BUSINESS. Not enter into or engage in,
or permit any subsidiary to enter or engage in, any business other than
pork production and pork processing and with respect to Ed Kelly, Inc.,
the retail electronics and automobile stereo business and with respect
to John Morrell & Co., the spices and chemicals business.
(m) BORROWING BASE. Cause each Borrower to provide a duly
completed borrowing base certificate pursuant to Section 5.01(c)(iv) of
the Credit Agreement.
(n) STOCK OWNERSHIP. Maintain 100% ownership of the capital
stock and all other equity interests in any of its subsidiaries (except
S.F. Investments, Inc. and Brown's of Carolina, Inc.) and 86% ownership
of the capital stock and all other equity interests of Brown's of
Carolina, Inc.
(o) MERGER, CONSOLIDATION AND OTHER ARRANGEMENTS. Not merge or
consolidate with any other person or liquidate or dissolve or windup its
affairs, nor permit any of its subsidiaries to do so. Further, after the
date hereof, neither the Guarantor nor any of its subsidiaries shall
enter into any partnerships, joint ventures or sale-leaseback
transactions or purchase or otherwise acquire (in one or a series of
related transactions) any part of the property or assets (other than
purchases or other acquisitions of materials and equipment in the
ordinary course of business in an aggregate amount not to exceed
$1,000,000 in any fiscal year) of any person.
(p) SALE OF ASSETS. Not sell, lease, assign, transfer or
otherwise dispose of any assets (whether or not related), nor permit any
of its subsidiaries to do so, other than
(i) obsolete or worn out property disposed of in the
ordinary course of business; and
(ii) other dispositions of assets (other than assets of
Morrell), so long as (x) such other dispositions are for fair
value, (y) the aggregate consideration (whether in the form of
cash, promissory notes or other instruments) for such other
dispositions does not exceed $10,000,000 in the aggregate for any
fiscal year, and (z) such consideration is reinvested in the
business of the Guarantor; and
<PAGE>
11
(iii) disposition of assets of John Morrell so long as (x)
such dispositions are for fair value, (y) the aggregate
consideration (whether in the form of cash, promissory notes or
other instruments) for such dispositions does not exceed
$5,000,000 in the aggregate for any fiscal year and (z) such
consideration is used to repay the Advances.
SECTION 7. CERTAIN DEFINED TERMS. The following capitalized terms used
herein shall have the following meanings:
"CAPITAL EXPENDITURES" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets
(including any replacements in the ordinary course of business without reduction
for sales, retirements or replacements) which are not, in accordance with
generally accepted accounting principles, treated as expense items for such
Person in the year made or incurred or as a prepaid expense applicable to a
future year or years, and shall include (i) all Capitalized Lease Obligations
and (ii) any advances remaining outstanding (any repayment or other reduction,
for purposes of this calculation, shall be subject to the approval of the Agent)
to Smithfield Carroll's and any advances to any other hog production operations
in which the Guarantor or any of its subsidiaries has invested as a joint
venturer or partner.
"CAPITALIZED LEASE OBLIGATION" shall mean, with respect to any Person,
any rental obligation which, under generally accepted accounting principles, is
or will be required to be capitalized on the books of such Person, taken at the
amount thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"CONSOLIDATED EBITDA" shall mean, for any fiscal period of the
Guarantor, an amount equal to (A) the sum for such fiscal period of Consolidated
Net Income and, to the extent subtracted in determining such Consolidated Net
Income, provisions for (i) taxes based on income, (ii) Consolidated Interest
Expense, and (iii) depreciation and amortization expense minus (B) any items of
gain (or plus any items of loss) which were included in determining such
Consolidated Net Income, and were (x) not realized in the ordinary course of
business or (y) the result of any sale of assets.
"CONSOLIDATED FIXED CHARGES" shall mean at any time for the Guarantor
and its subsidiaries on a consolidated basis the quotient resulting from
dividing (A) by (B), with (A) being the sum of (i) the aggregate amount of all
Capital Expenditures during
<PAGE>
12
the preceding four quarters, (ii) scheduled principal payments on Debt of the
Guarantor or any of its subsidiaries due within the succeeding four quarters
(including any principal payments to be made as a result of mandatory reductions
under revolving credit facilities), plus (iii) the gross interest accrued on
such Debt during the preceding four quarters, and plus (iv) the aggregate amount
of any dividends paid or other distributions made during the preceding four
quarters and with (B) being, four.
"CONSOLIDATED INTEREST EXPENSE" for any period shall mean the
consolidated interest expense of the Guarantor and its subsidiaries (whether
cash or non-cash interest expense or deferred or accrued interest expense and
including, without limitation, capitalized interest expense and the interest
portion of all Capitalized Lease Obligations during such period) determined in
accordance with generally accepted accounting principles.
"CONSOLIDATED NET INCOME" shall mean and refers to as of the date of any
determination, the net income (or deficit) of the Guarantor and its
subsidiaries; provided, however, that there shall be excluded from Consolidated
Net Income (i) the income (or deficit) of any Person accrued prior to the date
it becomes a subsidiary of the Guarantor or is merged into or consolidated with
the Guarantor or such Person's assets are acquired by the Guarantor; (ii) the
income (or deficit) of any Person (other than a consolidated subsidiary of the
Guarantor) in which the Guarantor has an ownership interest, except to the
extent that any such income has been actually received by the Guarantor in the
form of dividends or similar distributions; (iii) the undistributed earnings of
any subsidiary of the Guarantor to the extent that the declaration or payment of
dividends or similar distributions of such subsidiary is restricted; and (iv)
any income or gain resulting from any write-up or revaluation of the assets of
the Guarantor and its subsidiaries. The calculation of Consolidated Net Income
shall in no event be less than zero and shall be determined in accordance with
generally accepted accounting principles.
"CONSOLIDATED NET WORTH" shall mean, at any time, for the Guarantor and
its subsidiaries on a consolidated basis, shareholders' equity at such time
determined in accordance with generally accepted accounting principles, plus the
aggregate redemption value of any convertible preferred stock of the Guarantor
or any of its subsidiaries.
"CONSOLIDATED TANGIBLE NET WORTH" means at any time, for the Guarantor
and its subsidiaries on a consolidated basis, the excess of total assets over
total liabilities, with total assets and total liabilities each to be determined
in accordance with generally accepted accounting principles consistent with
those applied in the
<PAGE>
13
preparation of the financial statements referred to in subsection 6(a),
including in the determination of total assets the aggregate redemption value of
any convertible preferred stock of the Guarantor or any of its subsidiaries, and
excluding, however, from the determination of total assets (i) Intangible
Assets, (ii) treasury stock, (iii) securities which are not readily marketable,
(iv) cash held in a sinking or other analogous fund established for the purpose
of redemption, retirement or prepayment of capital stock or Debt, (v) any
write-up in the book value of any asset resulting from a revaluation thereof
subsequent to the date hereof, and (vi) any items not included in clauses (i)
through (v) above which are treated as intangibles in conformity with generally
accepted accounting principles.
"CONSOLIDATED TOTAL CAPITALIZATION" means the sum of Consolidated Total
Indebtedness plus Consolidated Tangible Net Worth.
"CONSOLIDATED TOTAL INDEBTEDNESS" shall mean, at any time for the
Guarantor and its subsidiaries on a consolidated basis, Debt.
"DEBT" means (i) indebtedness for borrowed money or for the deferred
purchase price of property or services, (ii) Capitalized Lease Obligations,
(iii) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clause (i) or (ii) above, and
(iv) liabilities in respect of unfunded vested benefits under plans covered by
Title IV of the Employee Retirement Income Security Act of 1974 ("ERISA").
"FAIR MARKET VALUE" shall mean at any time, the sale value of property
that would be realized in an arm's-length sale at such time between an informed
and willing buyer, and an informed and willing seller, under no compulsion to
buy or sell, respectively.
"FIXED CHARGE COVERAGE" shall mean, at any time, the ratio of
Consolidated EBITDA to Consolidated Fixed Charges.
"INTANGIBLE ASSETS" shall mean those assets which would be treated as
intangible under generally accepted accounting principles, including, without
limitation, such items as goodwill, trademarks, trade names, service marks,
brand names, copyrights, patents, licenses, noncompete agreements and rights
with respect to the foregoing, unamortized debt discount and expense,
organizational expenses,
<PAGE>
14
and the excess of cost of purchased subsidiaries over equity in the net assets
(based on Fair Market Value) thereof at the date of acquisition.
SECTION 8. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Majority Banks, and then, in any event, such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 9. ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing and mailed, telecopied or delivered
by hand or overnight courier, if to the Guarantor, at its address at 900
Dominion Tower, 999 Waterside Drive, Norfolk, Virginia 23510, Attention: Aaron
D. Trub, telephone: (804) 365-3000, telecopier: (804) 365-3017, if to the Agent
or a Bank, at its address specified in the Credit Agreement, or as to each party
at such other address as shall be designated by such party in a written notice
to the other party. All such notices and other communications shall be effective
(i) if mailed, when received, (ii) if telecopied, when transmitted and (iii) if
delivered by hand or overnight courier, when received.
SECTION 10. NO WAIVER; REMEDIES. No failure on the part of the Agent or
a Bank to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 11. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default each Bank is hereby authorized at any time
and from time to time, 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 and other indebtedness at any time owing by such Bank to
or for the credit or the account of the Guarantor against any and all of the
obligations of the Guarantor now or hereafter existing under this Guaranty,
irrespective of whether or not the Agent on behalf of the Banks shall have made
any demand under this Guaranty and although such deposits, indebtedness or
obligations may be unmatured or contingent. Such Bank agrees promptly to notify
the Guarantor after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of each Bank under this Section are in addition to other
<PAGE>
15
rights and remedies (including, without limitation, other rights of set-off)
which such Bank may have.
SECTION 12. CONTINUING GUARANTY; TRANSFER OF NOTES. This Guaranty is a
continuing guaranty and shall (i) remain in full force and effect until the
later of payment in full of the Obligations and all other amounts payable under
this Guaranty or the Termination Date, (ii) be binding upon the Guarantor, its
successors and assigns, and (iii) inure to the benefit of and be enforceable by
the Agent on behalf of the Banks and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (iii), if a Bank shall
comply with Section 8.10 of the Credit Agreement, such Bank may assign or
otherwise transfer the Notes delivered under the Credit Agreement to any other
person or entity, and such other person or entity shall thereupon become vested
with all the rights in respect thereof granted to such Bank herein or otherwise.
SECTION 13. CONSENT TO JURISDICTION. (a) The Guarantor hereby
irrevocably submits to the jurisdiction of any New York State or Federal court
sitting in New York City in any action or proceeding arising out of or relating
to this Guaranty, and the Guarantor hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in such New
York State court or in such Federal court. The Guarantor hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. The
Guarantor irrevocably consents to the service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding by the mailing of copies of such process to the Guarantor to its
address specified in Section 9. The Guarantor agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(b) Nothing in this Section 13 shall affect the right of the Agent on
behalf of the Banks to serve legal process in any other manner permitted by law
or affect the right of the Agent on behalf of the Banks to bring any action or
proceeding against the Guarantor or its property in the courts of any other
jurisdictions.
SECTION 14. GOVERNING LAW. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE>
16
SECTION 15. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS GUARANTY.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
SMITHFIELD FOODS, INC.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Vice President, Secretary
and Treasurer
1
[CONFORMED COPY]
SECURITY AGREEMENT
FOURTH AMENDED, RESTATED AND CONTINUED SECURITY AGREEMENT dated
as of April 30, 1996, made by GWALTNEY OF SMITHFIELD, LTD, a Delaware
corporation (the "BORROWER") located at 601 North Church Street, Smithfield,
Virginia, to COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "Rabobank
Nederland", New York Branch, with an office at 245 Park Avenue, New York, New
York 10167, as Agent under the Credit Agreement, defined below ("AGENT").
PRELIMINARY STATEMENTS.
The Agent and certain banks have entered into a Fourth Amended,
Restated and Continued Revolving Credit Agreement dated as of the date hereof
(said Agreement, as it may hereafter be amended or otherwise modified from time
to time, being the "CREDIT AGREEMENT", the terms defined therein and not
otherwise defined herein being used herein as therein defined) with the
Borrower, The Smithfield Packing Company, Incorporated ("PACKING"), Patrick
Cudahy Incorporated ("CUDAHY"), Esskay, Inc. ("ESSKAY"), Brown's of Carolina,
Inc. ("BROWN'S") and John Morrell & Co. ("MORRELL").
The Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy,
Esskay and Brown's, Rabobank as agent for the Banks and each financial
institution a party thereto, with the 1995 Agreement being a complete amendment,
restatement and continuation of the Second Amended, Restated and Continued
Revolving Credit Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as
amended by Amendments dated as of May 1, 1994, November 28, 1994, January 31,
1995, February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July
12, 1995 among the Borrower, Packing, Cudahy, Esskay, Brown's and Carolina Food
Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (a) of the Amended,
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992, and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
October 30, 1991 between Gwaltney and Rabobank and (b) the Amended and Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and the
Rabobank, with the 1991 Oral Finance Facility being a complete amendment,
restatement and continuation of the Oral Finance Facility dated as of October
26, 1990, as amended, between Gwaltney and Rabobank.
<PAGE>
2
It is a condition precedent to the making of Advances by the
Banks under the Credit Agreement that the Borrower shall have granted the
security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Banks to make Advances under the Credit Agreement, the Borrower
hereby agrees as follows:
SECTION 1. GRANT OF SECURITY. The Borrower hereby pledges and
assigns to the Agent on behalf of the Banks, and hereby grants to the Agent on
behalf of the Banks a security interest in, all of the Borrower's right, title
and interest in and to the following, whether now owned or hereafter acquired
(the "COLLATERAL"):
(a) All inventory in all of its forms, wherever located,
now or hereafter existing (including, but not limited to, (i)
all meat, meat products and raw materials and work in process
therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof including
packaging and processing supplies, (ii) goods in which the
Borrower has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in
which the Borrower has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by the
Borrower), and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions,
products and documents being the "INVENTORY");
(b) All farm products in all of their respective forms,
wherever located, now or hereafter existing, including but not
limited to (i) meat and products thereof and (ii) all
agricultural supplies used or consumed in the Borrower's
operations, including without limitation all feed, meal,
ingredients, seeds, drugs, medications, vaccines, supplements
and other chemicals used in feeding, maintaining, growing,
preserving or producing any farm products, and (iii) all
accessions to and products of and documents for any of the
foregoing (any and all such farm products, accessions, products
and documents being the "FARM PRODUCTS");
(c) All accounts, contract rights, chattel paper,
instruments, general intangibles and other obligations of any
kind (including, without limitation, payment-in-kind
certificates, rights to any government subsidy, set aside,
diversion, deficiency or disaster payment, and payments in
kind), now or hereafter existing, whether or not arising out of
or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing
in and to all security agreements, leases, and other contracts
securing or otherwise relating to any such accounts, contract
rights, chattel paper, instruments, general intangibles or
obligations (any and all such accounts, contract rights,
chattel paper, instruments, general intangibles and obligations
being the "RECEIVABLES", and any and all such leases, security
agreements and other contracts being the "RELATED CONTRACTS");
and
<PAGE>
3
(d) Subject to Section 9(a) hereof, all proceeds of any
and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types
described in clauses (a), (b) and (c) of this Section 1) and,
to the extent not otherwise included, all payments under
insurance (whether or not the Agent on behalf of the Banks is
the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all obligations of any or all of the Borrowers now or hereafter
existing under the Credit Agreement and each of the Notes thereunder, whether
for principal, interest, fees, expenses or otherwise, and all or any obligations
of any Borrower under any Loan Document and all obligations of the Borrower now
or hereafter existing under this Agreement (all such obligations being the
"OBLIGATIONS").
SECTION 3. BORROWER REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
on behalf of the Banks of any of the rights hereunder shall not release the
Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) neither the Agent nor any Bank
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Agent or
any Bank be obligated to perform any of the obligations or duties of the
Borrower thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) All of the Inventory and Farm Products are located
at the places specified in the Schedule hereto. The chief place
of business and chief executive office of the Borrower and the
office where the Borrower keeps its records concerning the
Receivables, and all originals of all chattel paper which
evidence Receivables, are located at the address first
specified above for the Borrower. None of the Receivables is
evidenced by a promissory note or other instrument.
(b) The Borrower owns the Collateral free and clear of
any lien, security interest, charge or encumbrance except for
the security interest created by this Agreement. No effective
financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor
of the Agent on behalf of the Banks relating to this Agreement.
The Borrower does not conduct business under any name other
than Valleydale.
<PAGE>
4
(c) The Borrower has exclusive possession and control of
the Inventory and Farm Products.
(d) This Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the
payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security
interest have been duly taken.
(e) No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by the
Borrower of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the
Borrower or (ii) for the perfection of or the exercise by the
Agent on behalf of the Banks of its rights and remedies
hereunder, except for such financing statements as may be filed
in favor of the Agent on behalf of the Banks relating to this
Agreement.
SECTION 5. FURTHER ASSURANCES. (a) The Borrower agrees that
from time to time, at the expense of the Borrower, the Borrower will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent or a Bank may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent on behalf of the Banks to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Borrower will:
(i) mark conspicuously each document included in the Inventory and each chattel
paper included in the Receivables and, at the request of the Agent on behalf of
the Banks, each Related Contract and each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Related Contract or Collateral is
subject to the security interest granted hereby; (ii) if any Receivable shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Agent on behalf of the Banks hereunder such note or instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Agent on behalf of the Banks; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Agent may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.
(b) The Borrower hereby authorizes the Agent on behalf of the
Banks to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
the Borrower where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
<PAGE>
5
(c) The Borrower will furnish to the Agent or the Banks from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Agent
or a Bank may reasonably request, all in reasonable detail.
SECTION 6. AS TO INVENTORY AND FARM PRODUCTS. The Borrower
shall:
(a) Keep the Inventory and Farm Products (other than
Inventory and Farm Products sold in the ordinary course of
business) at the places therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent and the Banks,
at such other places in jurisdictions where all action required
by Section 5 shall have been taken with respect to the
Inventory and Farm Products.
(b) Pay promptly when due all property and other taxes,
assessments and government charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies)
against, the Inventory and Farm Products, except to the extent
the validity thereof is being contested in good faith.
SECTION 7. INSURANCE. (a) The Borrower shall, at its own
expense, maintain insurance with respect to the Inventory and Farm Products in
such amounts, against such risks, in such form and with such insurers, as shall
be satisfactory to the Agent from time to time. Each policy for (i) liability
insurance shall provide for all losses to be paid to the Agent on behalf of the
Banks and the Borrower as their respective interests may appear and (ii)
property damage insurance shall provide for all losses (except for losses of
less than $3,000,000 per occurrence) to be paid directly to the Agent on behalf
of the Banks. Each such policy shall in addition (i) name the Borrower and the
Agent on behalf of the Banks as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or the Banks) as
their interests may appear, (ii) contain the agreement by the insurer that any
loss as set forth above shall be payable to the Agent on behalf of the Banks
notwithstanding any action, inaction or breach of representation or warranty by
the Borrower, (iii) provide that there shall be no recourse against the Agent or
the Banks for payment of premiums or other amounts with respect thereto and (iv)
provide that at least ten days' prior written notice of cancellation or of lapse
shall be given to the Agent by the insurer. The Borrower shall, if so requested
by the Agent, deliver to the Agent original or duplicate policies of such
insurance and, as often as the Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Borrower
shall, at the request of the Agent, duly execute and deliver instruments of
assignment of such insurance policies to comply with the requirements of Section
5 and cause the respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by
the Borrower pursuant to this Section 7 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Inventory or Farm Products when subsection (c) of this
Section 7 is not applicable, the Borrower shall make or cause to be made the
necessary replacements of such Inventory or Farm Products, and any proceeds of
insurance
<PAGE>
6
maintained by the Borrower pursuant to this Section 7 shall be paid to the
Borrower as reimbursement for the costs of such replacements.
(c) Upon (i) the occurrence and during the continuance of any
Event of Default, or (ii) the actual or constructive total loss (in excess of
$3,000,000 per occurrence) of any Inventory or Farm Products, all insurance
payments in respect of such Inventory or Farm Products shall be paid to and
applied by the Agent on behalf of the Banks as specified in Section 13(b).
SECTION 8. AS TO RECEIVABLES. (a) The Borrower shall keep its
chief place of business and chief executive office and the office where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location therefor specified in Section 4(a)
or, upon 30 days' prior written notice to the Agent and the Banks, at such other
locations in a jurisdiction where all action required by Section 5 shall have
been taken with respect to the Receivables. The Borrower will hold and preserve
such records and chattel paper and will permit representatives of the Agent and
the Banks at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Borrower shall continue to collect, at its own expense, all amounts due or to
become due the Borrower under the Receivables. In connection with such
collections, the Borrower may take (and, at the Agent's reasonable direction,
shall take) such action as the Borrower or the Agent may deem necessary or
advisable to enforce collection of the Receivables; provided, however, that the
Agent on behalf of the Banks shall have the right at any time, upon the
occurrence and during the continuance of an Event of Default or an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default and upon written notice to the Borrower of its intention to do so, to
notify the account debtors or obligors under any Receivables of the assignment
of such Receivables to the Agent on behalf of the Banks and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to the Borrower thereunder directly to the Agent on behalf of the Banks and,
upon such notification and at the expense of the Borrower, to enforce collection
of any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Borrower might
have done. After receipt by the Borrower of the notice from the Agent referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
(including instruments) received by the Borrower in respect of the Receivables
shall be received in trust for the benefit of the Banks hereunder, shall be
segregated from other funds of the Borrower and shall be forthwith paid over to
the Agent on behalf of the Banks in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Borrower so long as no Event of Default shall have occurred and be
continuing or (B) if any Event of Default shall have occurred and be continuing,
applied as provided by Section 13(b), and (ii) the Borrower shall not adjust,
settle or compromise the amount or payment of any Receivable, or release wholly
or partly any account debtor or obligor thereof, or allow any credit or discount
thereon.
SECTION 9. TRANSFERS AND OTHER LIENS. The Borrower shall not:
<PAGE>
7
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except Inventory in
the ordinary course of business.
(b) Create or suffer to exist any lien, security
interest or other charge or encumbrance upon or with respect to
any of the Collateral to secure Debt of any person or entity,
except for the security interests created by this Agreement.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower
hereby irrevocably appoints the Agent on behalf of the Banks the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower, the Agent on behalf of the Banks or otherwise, from
time to time in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Borrower under Section
8), including, without limitation:
(i) to obtain and adjust insurance required to be paid
to the Agent on behalf of the Banks pursuant to Section 7,
(ii) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Collateral,
(iii) instruments, documents and chattel paper, in
connection with clause (i) or (ii) above, and
(iv) proceedings which the Agent may deem necessary or
desirable for the collection of any of the Collateral or
otherwise to enforce the rights of the Agent on behalf of the
Banks with respect to any of the Collateral.
SECTION 11. AGENT MAY PERFORM. If the Borrower fails to perform
any agreement contained herein, the Agent on behalf of the Banks may itself
perform, or cause performance of, such agreement, and the expenses of the Agent
incurred in connection therewith shall be payable by the Borrower under Section
14(b).
SECTION 12. THE AGENT'S DUTIES. The powers conferred on the
Agent hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 13. REMEDIES. If any Event of Default shall have
occurred and be continuing:
<PAGE>
8
(a) The Agent on behalf of the Banks may exercise in
respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "CODE") (whether or not the Code
applies to the affected Collateral) and also may (i) require
the Borrower to, and the Borrower hereby agrees that it will at
its expense and upon request of the Agent forthwith, assemble
all or part of the Collateral as directed by the Agent and make
it available to the Agent at a place to be designated by the
Agent which is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private
sale, at any of the Agent's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the
Agent may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of
any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent
shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place
to which it was so adjourned.
(b) All cash proceeds received by the Agent in respect
of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of the
Banks, be held by the Agent on behalf of the Banks as
collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Agent pursuant to
Section 14) in whole or in part by the Agent on behalf of the
Banks against, all or any part of the Obligations in such order
as set forth in Section 1.11 of the Credit Agreement. Any
surplus of such cash or cash proceeds held by the Agent on
behalf of the Banks and remaining after payment in full of all
the Obligations shall be paid over to the Borrower or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 14. INDEMNITY AND EXPENSES. (a) The Borrower agrees to
indemnify the Agent from and against any and all claims, losses and liabilities
growing out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
from the Agent's gross negligence or willful misconduct.
(b) The Borrower will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or (iv) the failure by the Borrower
to perform or observe any of the provisions hereof.
<PAGE>
9
SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the later of payment in full of
the Obligations or the Termination Date, (ii) be binding upon the Borrower, its
successors and assigns and (iii) inure to the benefit of and be binding on the
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), a Bank may assign or otherwise
transfer the Notes held by it and delivered under the Credit Agreement to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to a Bank herein or
otherwise. Upon the later of the payment in full of the Obligations or the
Termination Date, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Agent on behalf of the Banks will, at the Borrower's expense,
execute and deliver to the Borrower such documents as the Borrower shall
reasonably request to evidence such termination.
SECTION 16. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Credit Agreement, terms used in Article 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
[Signature on Next Page.]
<PAGE>
10
IN WITNESS WHEREOF, the Borrower has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
GWALTNEY OF SMITHFIELD, LTD.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
1
[CONFORMED COPY]
SECURITY AGREEMENT
FOURTH AMENDED, RESTATED AND CONTINUED SECURITY AGREEMENT dated
as of April 30, 1996, made by THE SMITHFIELD PACKING COMPANY, INCORPORATED, a
Virginia corporation (the "BORROWER") located at 501 North Church Street,
Smithfield, Virginia, to COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"Rabobank Nederland", New York Branch, with an office at 245 Park Avenue, New
York, New York 10167, as Agent under the Credit Agreement, defined below
("AGENT").
PRELIMINARY STATEMENTS.
The Agent and certain banks have entered into a Fourth Amended,
Restated and Continued Revolving Credit Agreement dated as of the date hereof
(said Agreement, as it may hereafter be amended or otherwise modified from time
to time, being the "CREDIT AGREEMENT", the terms defined therein and not
otherwise defined herein being used herein as therein defined) with the
Borrower, Gwaltney of Smithfield, Ltd. ("GWALTNEY"), Patrick Cudahy Incorporated
("CUDAHY"), Esskay, Inc. ("ESSKAY"), Brown's of Carolina, Inc. ("BROWN'S") and
John Morrell & Co. ("MORRELL").
The Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy,
Esskay and Brown's, Rabobank as agent for the Banks and each financial
institution a party thereto, with the 1995 Agreement being a complete amendment,
restatement and continuation of the Second Amended, Restated and Continued
Revolving Credit Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as
amended by Amendments dated as of May 1, 1994, November 28, 1994, January 31,
1995, February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July
12, 1995 among the Borrower, Gwaltney, Cudahy, Esskay, Brown's and Carolina Food
Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (a) of the Amended,
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992, and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
October 30, 1991 between Gwaltney and Rabobank and (b) the Amended and Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and the
Rabobank, with the 1991 Oral Finance Facility being a complete amendment,
restatement and
<PAGE>
2
continuation of the Oral Finance Facility dated as of October 26, 1990, as
amended, between Gwaltney and Rabobank.
It is a condition precedent to the making of Advances by the
Banks under the Credit Agreement that the Borrower shall have granted the
security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Banks to make Advances under the Credit Agreement, the Borrower
hereby agrees as follows:
SECTION 1. GRANT OF SECURITY. The Borrower hereby pledges and
assigns to the Agent on behalf of the Banks, and hereby grants to the Agent on
behalf of the Banks a security interest in, all of the Borrower's right, title
and interest in and to the following, whether now owned or hereafter acquired
(the "COLLATERAL"):
(a) All inventory in all of its forms, wherever located,
now or hereafter existing (including, but not limited to, (i)
all meat, meat products and raw materials and work in process
therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof including
packaging and processing supplies, (ii) goods in which the
Borrower has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in
which the Borrower has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by the
Borrower), and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions,
products and documents being the "INVENTORY");
(b) All farm products in all of their respective forms,
wherever located, now or hereafter existing, including but not
limited to (i) meat and products thereof and (ii) all
agricultural supplies used or consumed in the Borrower's
operations, including without limitation all feed, meal,
ingredients, seeds, drugs, medications, vaccines, supplements
and other chemicals used in feeding, maintaining, growing,
preserving or producing any farm products, and (iii) all
accessions to and products of and documents for any of the
foregoing (any and all such farm products, accessions, products
and documents being the "FARM PRODUCTS");
(c) All accounts, contract rights, chattel paper,
instruments, general intangibles and other obligations of any
kind (including, without limitation, payment-in-kind
certificates, rights to any government subsidy, set aside,
diversion, deficiency or disaster payment, and payments in
kind), now or hereafter existing, whether or not arising out of
or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing
in and to all security agreements, leases, and other contracts
securing or otherwise relating to any such accounts, contract
rights, chattel paper, instruments, general
intangibles or obligations (any and all such accounts, contract
rights, chattel paper, instruments, general intangibles and
obligations being the "RECEIVABLES", and any and all such
leases, security agreements and other contracts being the
"RELATED CONTRACTS"); and
<PAGE>
3
(d) Subject to Section 9(a) hereof, all proceeds of any
and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types
described in clauses (a), (b) and (c) of this Section 1) and,
to the extent not otherwise included, all payments under
insurance (whether or not the Agent on behalf of the Banks is
the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all obligations of any or all of the Borrowers now or hereafter
existing under the Credit Agreement and each of the Notes thereunder, whether
for principal, interest, fees, expenses or otherwise, and all or any obligations
of any Borrower under any Loan Document and all obligations of the Borrower now
or hereafter existing under this Agreement (all such obligations being the
"OBLIGATIONS").
SECTION 3. BORROWER REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
on behalf of the Banks of any of the rights hereunder shall not release the
Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) neither the Agent nor any Bank
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Agent or
any Bank be obligated to perform any of the obligations or duties of the
Borrower thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) All of the Inventory and Farm Products are located
at the places specified in the Schedule hereto. The chief place
of business and chief executive office of the Borrower and the
office where the Borrower keeps its records concerning the
Receivables, and all originals of all chattel paper which
evidence Receivables, are located at the address first
specified above for the Borrower. None of the Receivables is
evidenced by a promissory note or other instrument.
(b) The Borrower owns the Collateral free and clear of
any lien, security interest, charge or encumbrance except for
the security interest created by this Agreement. No effective
financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor
of the Agent on behalf of the Banks relating to this Agreement.
The Borrower does not conduct business under any other name.
<PAGE>
4
(c) The Borrower has exclusive possession and control of
the Inventory and Farm Products.
(d) This Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the
payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security
interest have been duly taken.
(e) No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by the
Borrower of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the
Borrower or (ii) for the perfection of or the exercise by the
Agent on behalf of the Banks of its rights and remedies
hereunder, except for such financing statements as may be filed
in favor of the Agent on behalf of the Banks relating to this
Agreement.
SECTION 5. FURTHER ASSURANCES. (a) The Borrower agrees that
from time to time, at the expense of the Borrower, the Borrower will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent or a Bank may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent on behalf of the Banks to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Borrower will:
(i) mark conspicuously each document included in the Inventory and each chattel
paper included in the Receivables and, at the request of the Agent on behalf of
the Banks, each Related Contract and each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Related Contract or Collateral is
subject to the security interest granted hereby; (ii) if any Receivable shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Agent on behalf of the Banks hereunder such note or instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Agent on behalf of the Banks; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Agent may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.
(b) The Borrower hereby authorizes the Agent on behalf of the
Banks to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
the Borrower where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
<PAGE>
5
(c) The Borrower will furnish to the Agent or the Banks from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Agent
or a Bank may reasonably request, all in reasonable detail.
SECTION 6. AS TO INVENTORY AND FARM PRODUCTS. The Borrower
shall:
(a) Keep the Inventory and Farm Products (other than
Inventory and Farm Products sold in the ordinary course of
business) at the places therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent and the Banks,
at such other places in jurisdictions where all action required
by Section 5 shall have been taken with respect to the
Inventory and Farm Products.
(b) Pay promptly when due all property and other taxes,
assessments and government charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies)
against, the Inventory and Farm Products, except to the extent
the validity thereof is being contested in good faith.
SECTION 7. INSURANCE. (a) The Borrower shall, at its own
expense, maintain insurance with respect to the Inventory and Farm Products in
such amounts, against such risks, in such form and with such insurers, as shall
be satisfactory to the Agent from time to time. Each policy for (i) liability
insurance shall provide for all losses to be paid to the Agent on behalf of the
Banks and the Borrower as their respective interests may appear and (ii)
property damage insurance shall provide for all losses (except for losses of
less than $3,000,000 per occurrence) to be paid directly to the Agent on behalf
of the Banks. Each such policy shall in addition (i) name the Borrower and the
Agent on behalf of the Banks as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or the Banks) as
their interests may appear, (ii) contain the agreement by the insurer that any
loss as set forth above shall be payable to the Agent on behalf of the Banks
notwithstanding any action, inaction or breach of representation or warranty by
the Borrower, (iii) provide that there shall be no recourse against the Agent or
the Banks for payment of premiums or other amounts with respect thereto and (iv)
provide that at least ten days' prior written notice of cancellation or of lapse
shall be given to the Agent by the insurer. The Borrower shall, if so requested
by the Agent, deliver to the Agent original or duplicate policies of such
insurance and, as often as the Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Borrower
shall, at the request of the Agent, duly execute and deliver instruments of
assignment of such
<PAGE>
6
insurance policies to comply with the requirements of Section 5 and cause the
respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by
the Borrower pursuant to this Section 7 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Inventory or Farm Products when subsection (c) of this
Section 7 is not applicable, the Borrower shall make or cause to be made the
necessary replacements of such Inventory or Farm Products, and any proceeds of
insurance maintained by the Borrower pursuant to this Section 7 shall be paid to
the Borrower as reimbursement for the costs of such replacements.
(c) Upon (i) the occurrence and during the continuance of any
Event of Default, or (ii) the actual or constructive total loss (in excess of
$3,000,000 per occurrence) of any Inventory or Farm Products, all insurance
payments in respect of such Inventory or Farm Products shall be paid to and
applied by the Agent on behalf of the Banks as specified in Section 13(b).
SECTION 8. AS TO RECEIVABLES. (a) The Borrower shall keep its
chief place of business and chief executive office and the office where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location therefor specified in Section 4(a)
or, upon 30 days' prior written notice to the Agent and the Banks, at such other
locations in a jurisdiction where all action required by Section 5 shall have
been taken with respect to the Receivables. The Borrower will hold and preserve
such records and chattel paper and will permit representatives of the Agent and
the Banks at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Borrower shall continue to collect, at its own expense, all amounts due or to
become due the Borrower under the Receivables. In connection with such
collections, the Borrower may take (and, at the Agent's reasonable direction,
shall take) such action as the Borrower or the Agent may deem necessary or
advisable to enforce collection of the Receivables; provided, however, that the
Agent on behalf of the Banks shall have the right at any time, upon the
occurrence and during the continuance of an Event of Default or an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default and upon written notice to the Borrower of its intention to do so, to
notify the account debtors or obligors under any Receivables of the assignment
of such Receivables to the Agent on behalf of the Banks and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to the Borrower thereunder directly to the Agent on behalf of the Banks and,
upon such notification and at the expense of the Borrower, to enforce collection
of any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Borrower might
have done. After receipt by the Borrower of the notice from the Agent referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
(including instruments) received by the Borrower in respect of the Receivables
shall be received in trust for the benefit of the Banks hereunder, shall
<PAGE>
7
be segregated from other funds of the Borrower and shall be forthwith paid over
to the Agent on behalf of the Banks in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Borrower so long as no Event of Default shall have occurred and be
continuing or (B) if any Event of Default shall have occurred and be continuing,
applied as provided by Section 13(b), and (ii) the Borrower shall not adjust,
settle or compromise the amount or payment of any Receivable, or release wholly
or partly any account debtor or obligor thereof, or allow any credit or discount
thereon.
SECTION 9. TRANSFERS AND OTHER LIENS. The Borrower shall not:
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except Inventory in
the ordinary course of business.
(b) Create or suffer to exist any lien, security
interest or other charge or encumbrance upon or with respect to
any of the Collateral to secure Debt of any person or entity,
except for the security interests created by this Agreement.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower
hereby irrevocably appoints the Agent on behalf of the Banks the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower, the Agent on behalf of the Banks or otherwise, from
time to time in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Borrower under Section
8), including, without limitation:
(i) to obtain and adjust insurance required to be paid
to the Agent on behalf of the Banks pursuant to Section 7,
(ii) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Collateral,
(iii) instruments, documents and chattel paper, in
connection with clause (i) or (ii) above, and
(iv) proceedings which the Agent may deem necessary or
desirable for the collection of any of the Collateral or
otherwise to enforce the rights of the Agent on behalf of the
Banks with respect to any of the Collateral.
SECTION 11. AGENT MAY PERFORM. If the Borrower fails to
perform any agreement contained herein, the Agent on behalf of the Banks may
itself perform, or cause
<PAGE>
8
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Borrower under Section 14(b).
SECTION 12. THE AGENT'S DUTIES. The powers conferred on the
Agent hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 13. REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a) The Agent on behalf of the Banks may exercise in
respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "CODE") (whether or not the Code
applies to the affected Collateral) and also may (i) require
the Borrower to, and the Borrower hereby agrees that it will at
its expense and upon request of the Agent forthwith, assemble
all or part of the Collateral as directed by the Agent and make
it available to the Agent at a place to be designated by the
Agent which is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private
sale, at any of the Agent's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the
Agent may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of
any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent
shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place
to which it was so adjourned.
(b) All cash proceeds received by the Agent in respect
of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of the
Banks, be held by the Agent on behalf of the Banks as
collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Agent pursuant to
Section 14) in whole or in part by the Agent on behalf of the
Banks against, all or any part of the Obligations in such order
as set forth in Section 1.11 of the Credit Agreement. Any
surplus of such cash or cash proceeds held by the Agent on
behalf of the Banks and remaining
<PAGE>
9
after payment in full of all the Obligations shall be paid over
to the Borrower or to whomsoever may be lawfully entitled to
receive such surplus.
SECTION 14. INDEMNITY AND EXPENSES. (a) The Borrower agrees to
indemnify the Agent from and against any and all claims, losses and liabilities
growing out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
from the Agent's gross negligence or willful misconduct.
(b) The Borrower will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or (iv) the failure by the Borrower
to perform or observe any of the provisions hereof.
SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the later of payment in full of
the Obligations or the Termination Date, (ii) be binding upon the Borrower, its
successors and assigns and (iii) inure to the benefit of and be binding on the
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), a Bank may assign or otherwise
transfer the Notes held by it and delivered under the Credit Agreement to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to a Bank herein or
otherwise. Upon the later of the payment in full of the Obligations or the
Termination Date, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Agent on behalf of the Banks will, at the Borrower's expense,
execute and deliver to the Borrower such documents as the Borrower shall
reasonably request to evidence such termination.
SECTION 16. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Credit Agreement, terms used in Article 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
[Signature on Next Page.]
<PAGE>
10
IN WITNESS WHEREOF, the Borrower has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
THE SMITHFIELD PACKING COMPANY,
INCORPORATED
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
1
[CONFORMED COPY]
SECURITY AGREEMENT
FOURTH AMENDED, RESTATED AND CONTINUED SECURITY AGREEMENT dated
as of April 30, 1996, made by PATRICK CUDAHY INCORPORATED, a Delaware
corporation (the "BORROWER") located at 3500 East Barnard Avenue, Cudahy,
Wisconsin, to COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "Rabobank
Nederland", New York Branch, with an office at 245 Park Avenue, New York, New
York 10167, as Agent under the Credit Agreement, defined below ("AGENT").
PRELIMINARY STATEMENTS.
The Agent and certain banks have entered into a Fourth Amended,
Restated and Continued Revolving Credit Agreement dated as of the date hereof
(said Agreement, as it may hereafter be amended or otherwise modified from time
to time, being the "CREDIT AGREEMENT", the terms defined therein and not
otherwise defined herein being used herein as therein defined) with the
Borrower, Gwaltney of Smithfield, Ltd. ("GWALTNEY"), The Smithfield Packing
Company, Incorporated ("PACKING"), Esskay, Inc. ("ESSKAY"), Brown's of Carolina,
Inc. ("BROWN'S") and John Morrell & Co. ("MORRELL").
The Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy,
Esskay and Brown's, Rabobank as agent for the Banks and each financial
institution a party thereto, with the 1995 Agreement being a complete amendment,
restatement and continuation of the Second Amended, Restated and Continued
Revolving Credit Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as
amended by Amendments dated as of May 1, 1994, November 28, 1994, January 31,
1995, February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July
12, 1995 among the Borrower, Gwaltney, Packing, Esskay, Brown's and Carolina
Food Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (a) of the Amended,
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992, and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
October 30, 1991 between Gwaltney and Rabobank and (b) the Amended and Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and the
Rabobank, with the 1991 Oral Finance Facility being a complete amendment,
restatement and continuation of the Oral Finance Facility dated as of October
26, 1990, as amended, between Gwaltney and Rabobank.
<PAGE>
2
It is a condition precedent to the making of Advances by the
Banks under the Credit Agreement that the Borrower shall have granted the
security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Banks to make Advances under the Credit Agreement, the Borrower
hereby agrees as follows:
SECTION 1. GRANT OF SECURITY. The Borrower hereby pledges and
assigns to the Agent on behalf of the Banks, and hereby grants to the Agent on
behalf of the Banks a security interest in, all of the Borrower's right, title
and interest in and to the following, whether now owned or hereafter acquired
(the "COLLATERAL"):
(a) All inventory in all of its forms, wherever located,
now or hereafter existing (including, but not limited to, (i)
all meat, meat products and raw materials and work in process
therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof including
packaging and processing supplies, (ii) goods in which the
Borrower has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in
which the Borrower has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by the
Borrower), and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions,
products and documents being the "INVENTORY");
(b) All farm products in all of their respective forms,
wherever located, now or hereafter existing, including but not
limited to (i) meat and products thereof and (ii) all
agricultural supplies used or consumed in the Borrower's
operations, including without limitation all feed, meal,
ingredients, seeds, drugs, medications, vaccines, supplements
and other chemicals used in feeding, maintaining, growing,
preserving or producing any farm products, and (iii) all
accessions to and products of and documents for any of the
foregoing (any and all such farm products, accessions, products
and documents being the "FARM PRODUCTS");
(c) All accounts, contract rights, chattel paper,
instruments, general intangibles and other obligations of any
kind (including, without limitation, payment-in-kind
certificates, rights to any government subsidy, set aside,
diversion, deficiency or disaster payment, and payments in
kind), now or hereafter existing, whether or not arising out of
or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing
in and to all security agreements, leases, and other contracts
securing or otherwise relating to any such accounts, contract
rights, chattel paper, instruments, general intangibles or
obligations (any and all such accounts, contract rights,
chattel paper, instruments, general intangibles and obligations
being the "RECEIVABLES", and any and all such leases, security
agreements and other contracts being the "RELATED CONTRACTS");
and
<PAGE>
3
(d) Subject to Section 9(a) hereof, all proceeds of any
and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types
described in clauses (a), (b) and (c) of this Section 1) and,
to the extent not otherwise included, all payments under
insurance (whether or not the Agent on behalf of the Banks is
the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all obligations of any or all of the Borrowers now or hereafter
existing under the Credit Agreement and each of the Notes thereunder, whether
for principal, interest, fees, expenses or otherwise, and all or any obligations
of any Borrower under any Loan Document and all obligations of the Borrower now
or hereafter existing under this Agreement (all such obligations being the
"OBLIGATIONS").
SECTION 3. BORROWER REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
on behalf of the Banks of any of the rights hereunder shall not release the
Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) neither the Agent nor any Bank
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Agent or
any Bank be obligated to perform any of the obligations or duties of the
Borrower thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) All of the Inventory and Farm Products are located
at the places specified in the Schedule hereto. The chief place
of business and chief executive office of the Borrower and the
office where the Borrower keeps its records concerning the
Receivables, and all originals of all chattel paper which
evidence Receivables, are located at the address first
specified above for the Borrower. None of the Receivables is
evidenced by a promissory note or other instrument.
(b) The Borrower owns the Collateral free and clear of
any lien, security interest, charge or encumbrance except for
the security interest created by this Agreement. No effective
financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor
of the Agent on behalf of the Banks relating to this Agreement.
The Borrower does not conduct business under any other name.
<PAGE>
4
(c) The Borrower has exclusive possession and control of
the Inventory and Farm Products.
(d) This Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the
payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security
interest have been duly taken.
(e) No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by the
Borrower of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the
Borrower or (ii) for the perfection of or the exercise by the
Agent on behalf of the Banks of its rights and remedies
hereunder, except for such financing statements as may be filed
in favor of the Agent on behalf of the Banks relating to this
Agreement.
SECTION 5. FURTHER ASSURANCES. (a) The Borrower agrees that
from time to time, at the expense of the Borrower, the Borrower will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent or a Bank may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent on behalf of the Banks to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Borrower will:
(i) mark conspicuously each document included in the Inventory and each chattel
paper included in the Receivables and, at the request of the Agent on behalf of
the Banks, each Related Contract and each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Related Contract or Collateral is
subject to the security interest granted hereby; (ii) if any Receivable shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Agent on behalf of the Banks hereunder such note or instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Agent on behalf of the Banks; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Agent may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.
(b) The Borrower hereby authorizes the Agent on behalf of the
Banks to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
the Borrower where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
<PAGE>
5
(c) The Borrower will furnish to the Agent or the Banks from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Agent
or a Bank may reasonably request, all in reasonable detail.
SECTION 6. AS TO INVENTORY AND FARM PRODUCTS. The Borrower
shall:
(a) Keep the Inventory and Farm Products (other than
Inventory and Farm Products sold in the ordinary course of
business) at the places therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent and the Banks,
at such other places in jurisdictions where all action required
by Section 5 shall have been taken with respect to the
Inventory and Farm Products.
(b) Pay promptly when due all property and other taxes,
assessments and government charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies)
against, the Inventory and Farm Products, except to the extent
the validity thereof is being contested in good faith.
SECTION 7. INSURANCE. (a) The Borrower shall, at its own
expense, maintain insurance with respect to the Inventory and Farm Products in
such amounts, against such risks, in such form and with such insurers, as shall
be satisfactory to the Agent from time to time. Each policy for (i) liability
insurance shall provide for all losses to be paid to the Agent on behalf of the
Banks and the Borrower as their respective interests may appear and (ii)
property damage insurance shall provide for all losses (except for losses of
less than $3,000,000 per occurrence) to be paid directly to the Agent on behalf
of the Banks. Each such policy shall in addition (i) name the Borrower and the
Agent on behalf of the Banks as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or the Banks) as
their interests may appear, (ii) contain the agreement by the insurer that any
loss as set forth above shall be payable to the Agent on behalf of the Banks
notwithstanding any action, inaction or breach of representation or warranty by
the Borrower, (iii) provide that there shall be no recourse against the Agent or
the Banks for payment of premiums or other amounts with respect thereto and (iv)
provide that at least ten days' prior written notice of cancellation or of lapse
shall be given to the Agent by the insurer. The Borrower shall, if so requested
by the Agent, deliver to the Agent original or duplicate policies of such
insurance and, as often as the Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Borrower
shall, at the request of the Agent, duly execute and deliver instruments of
assignment of such insurance policies to comply with the requirements of Section
5 and cause the respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by
the Borrower pursuant to this Section 7 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Inventory or Farm Products when subsection (c) of this
Section 7 is not applicable, the Borrower shall make or cause to be made the
necessary replacements of such Inventory or Farm Products, and any proceeds of
insurance
<PAGE>
6
maintained by the Borrower pursuant to this Section 7 shall be paid to the
Borrower as reimbursement for the costs of such replacements.
(c) Upon (i) the occurrence and during the continuance of any
Event of Default, or (ii) the actual or constructive total loss (in excess of
$3,000,000 per occurrence) of any Inventory or Farm Products, all insurance
payments in respect of such Inventory or Farm Products shall be paid to and
applied by the Agent on behalf of the Banks as specified in Section 13(b).
SECTION 8. AS TO RECEIVABLES. (a) The Borrower shall keep its
chief place of business and chief executive office and the office where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location therefor specified in Section 4(a)
or, upon 30 days' prior written notice to the Agent and the Banks, at such other
locations in a jurisdiction where all action required by Section 5 shall have
been taken with respect to the Receivables. The Borrower will hold and preserve
such records and chattel paper and will permit representatives of the Agent and
the Banks at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Borrower shall continue to collect, at its own expense, all amounts due or to
become due the Borrower under the Receivables. In connection with such
collections, the Borrower may take (and, at the Agent's reasonable direction,
shall take) such action as the Borrower or the Agent may deem necessary or
advisable to enforce collection of the Receivables; provided, however, that the
Agent on behalf of the Banks shall have the right at any time, upon the
occurrence and during the continuance of an Event of Default or an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default and upon written notice to the Borrower of its intention to do so, to
notify the account debtors or obligors under any Receivables of the assignment
of such Receivables to the Agent on behalf of the Banks and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to the Borrower thereunder directly to the Agent on behalf of the Banks and,
upon such notification and at the expense of the Borrower, to enforce collection
of any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Borrower might
have done. After receipt by the Borrower of the notice from the Agent referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
(including instruments) received by the Borrower in respect of the Receivables
shall be received in trust for the benefit of the Banks hereunder, shall be
segregated from other funds of the Borrower and shall be forthwith paid over to
the Agent on behalf of the Banks in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Borrower so long as no Event of Default shall have occurred and be
continuing or (B) if any Event of Default shall have occurred and be continuing,
applied as provided by Section 13(b), and (ii) the Borrower shall not adjust,
settle or compromise the amount or payment of any Receivable, or release wholly
or partly any account debtor or obligor thereof, or allow any credit or discount
thereon.
SECTION 9. TRANSFERS AND OTHER LIENS. The Borrower shall not:
<PAGE>
7
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except Inventory in
the ordinary course of business.
(b) Create or suffer to exist any lien, security
interest or other charge or encumbrance upon or with respect to
any of the Collateral to secure Debt of any person or entity,
except for the security interests created by this Agreement.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower
hereby irrevocably appoints the Agent on behalf of the Banks the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower, the Agent on behalf of the Banks or otherwise, from
time to time in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Borrower under Section
8), including, without limitation:
(i) to obtain and adjust insurance required to be paid
to the Agent on behalf of the Banks pursuant to Section 7,
(ii) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Collateral,
(iii) instruments, documents and chattel paper, in
connection with clause (i) or (ii) above, and
(iv) proceedings which the Agent may deem necessary or
desirable for the collection of any of the Collateral or
otherwise to enforce the rights of the Agent on behalf of the
Banks with respect to any of the Collateral.
SECTION 11. AGENT MAY PERFORM. If the Borrower fails to
perform any agreement contained herein, the Agent on behalf of the Banks may
itself perform, or cause performance of, such agreement, and the expenses of the
Agent incurred in connection therewith shall be payable by the Borrower under
Section 14(b).
SECTION 12. THE AGENT'S DUTIES. The powers conferred on the
Agent hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 13. REMEDIES. If any Event of Default shall have
occurred and be continuing:
<PAGE>
8
(a) The Agent on behalf of the Banks may exercise in
respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "CODE") (whether or not the Code
applies to the affected Collateral) and also may (i) require
the Borrower to, and the Borrower hereby agrees that it will at
its expense and upon request of the Agent forthwith, assemble
all or part of the Collateral as directed by the Agent and make
it available to the Agent at a place to be designated by the
Agent which is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private
sale, at any of the Agent's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the
Agent may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of
any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent
shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place
to which it was so adjourned.
(b) All cash proceeds received by the Agent in respect
of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of the
Banks, be held by the Agent on behalf of the Banks as
collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Agent pursuant to
Section 14) in whole or in part by the Agent on behalf of the
Banks against, all or any part of the Obligations in such order
as set forth in Section 1.11 of the Credit Agreement. Any
surplus of such cash or cash proceeds held by the Agent on
behalf of the Banks and remaining after payment in full of all
the Obligations shall be paid over to the Borrower or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 14. INDEMNITY AND EXPENSES. (a) The Borrower agrees to
indemnify the Agent from and against any and all claims, losses and liabilities
growing out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
from the Agent's gross negligence or willful misconduct.
(b) The Borrower will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or (iv) the failure by the Borrower
to perform or observe any of the provisions hereof.
<PAGE>
9
SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the later of payment in full of
the Obligations or the Termination Date, (ii) be binding upon the Borrower, its
successors and assigns and (iii) inure to the benefit of and be binding on the
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), a Bank may assign or otherwise
transfer the Notes held by it and delivered under the Credit Agreement to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to a Bank herein or
otherwise. Upon the later of the payment in full of the Obligations or the
Termination Date, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Agent on behalf of the Banks will, at the Borrower's expense,
execute and deliver to the Borrower such documents as the Borrower shall
reasonably request to evidence such termination.
SECTION 16. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Credit Agreement, terms used in Article 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
[Signature on Next Page.]
<PAGE>
10
IN WITNESS WHEREOF, the Borrower has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
PATRICK CUDAHY INCORPORATED
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary
1
[CONFORMED COPY]
SECURITY AGREEMENT
FOURTH AMENDED, RESTATED AND CONTINUED SECURITY AGREEMENT dated
as of April 30, 1996, made by ESSKAY, INC., a Delaware corporation (the
"BORROWER") located at 601 North Church Street, Smithfield, Virginia, to
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "Rabobank Nederland", New
York Branch, with an office at 245 Park Avenue, New York, New York 10167, as
Agent under the Credit Agreement, defined below ("AGENT").
PRELIMINARY STATEMENTS.
The Agent and certain banks have entered into a Fourth Amended,
Restated and Continued Revolving Credit Agreement dated as of the date hereof
(said Agreement, as it may hereafter be amended or otherwise modified from time
to time, being the "CREDIT AGREEMENT", the terms defined therein and not
otherwise defined herein being used herein as therein defined) with the
Borrower, Gwaltney of Smithfield, Ltd. ("GWALTNEY"), The Smithfield Packing
Company, Incorporated ("PACKING"), Patrick Cudahy Incorporated ("CUDAHY"),
Brown's of Carolina, Inc. ("BROWN'S") and John Morrell & Co. ("MORRELL").
The Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy and
Brown's, Rabobank as agent for the Banks and each financial institution a party
thereto, with the 1995 Agreement being a complete amendment, restatement and
continuation of the Second Amended, Restated and Continued Revolving Credit
Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as amended by
Amendments dated as of May 1, 1994, November 28, 1994, January 31, 1995,
February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July 12,
1995 among the Borrower, Gwaltney, Packing, Cudahy, Brown's and Carolina Food
Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (a) of the Amended,
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992, and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
October 30, 1991 between Gwaltney and Rabobank and (b) the Amended and Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and the
Rabobank, with the 1991 Oral Finance Facility being a complete amendment,
restatement and continuation of the Oral Finance Facility dated as of October
26, 1990, as amended, between Gwaltney and Rabobank.
<PAGE>
2
It is a condition precedent to the making of Advances by the
Banks under the Credit Agreement that the Borrower shall have granted the
security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Banks to make Advances under the Credit Agreement, the Borrower
hereby agrees as follows:
SECTION 1. GRANT OF SECURITY. The Borrower hereby pledges and
assigns to the Agent on behalf of the Banks, and hereby grants to the Agent on
behalf of the Banks a security interest in, all of the Borrower's right, title
and interest in and to the following, whether now owned or hereafter acquired
(the "COLLATERAL"):
(a) All inventory in all of its forms, wherever located,
now or hereafter existing (including, but not limited to, (i)
all meat, meat products and raw materials and work in process
therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof including
packaging and processing supplies, (ii) goods in which the
Borrower has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in
which the Borrower has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by the
Borrower), and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions,
products and documents being the "INVENTORY");
(b) All farm products in all of their respective forms,
wherever located, now or hereafter existing, including but not
limited to (i) meat and products thereof and (ii) all
agricultural supplies used or consumed in the Borrower's
operations, including without limitation all feed, meal,
ingredients, seeds, drugs, medications, vaccines, supplements
and other chemicals used in feeding, maintaining, growing,
preserving or producing any farm products, and (iii) all
accessions to and products of and documents for any of the
foregoing (any and all such farm products, accessions, products
and documents being the "FARM PRODUCTS");
(c) All accounts, contract rights, chattel paper,
instruments, general intangibles and other obligations of any
kind (including, without limitation, payment-in-kind
certificates, rights to any government subsidy, set aside,
diversion, deficiency or disaster payment, and payments in
kind), now or hereafter existing, whether or not arising out of
or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing
in and to all security agreements, leases, and other contracts
securing or otherwise relating to any such accounts, contract
rights, chattel paper, instruments, general intangibles or
obligations (any and all such accounts, contract rights,
chattel paper, instruments, general intangibles and obligations
being the "RECEIVABLES", and any and all such leases, security
agreements and other contracts being the "RELATED CONTRACTS");
and
<PAGE>
3
(d) Subject to Section 9(a) hereof, all proceeds of any
and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types
described in clauses (a), (b) and (c) of this Section 1) and,
to the extent not otherwise included, all payments under
insurance (whether or not the Agent on behalf of the Banks is
the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all obligations of any or all of the Borrowers now or hereafter
existing under the Credit Agreement and each of the Notes thereunder, whether
for principal, interest, fees, expenses or otherwise, and all or any obligations
of any Borrower under any Loan Document and all obligations of the Borrower now
or hereafter existing under this Agreement (all such obligations being the
"OBLIGATIONS").
SECTION 3. BORROWER REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
on behalf of the Banks of any of the rights hereunder shall not release the
Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) neither the Agent nor any Bank
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Agent or
any Bank be obligated to perform any of the obligations or duties of the
Borrower thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) All of the Inventory and Farm Products are located
at the places specified in the Schedule hereto. The chief place
of business and chief executive office of the Borrower and the
office where the Borrower keeps its records concerning the
Receivables, and all originals of all chattel paper which
evidence Receivables, are located at the address first
specified above for the Borrower. None of the Receivables is
evidenced by a promissory note or other instrument.
(b) The Borrower owns the Collateral free and clear of
any lien, security interest, charge or encumbrance except for
the security interest created by this Agreement. No effective
financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor
of the Agent on behalf of the Banks relating to this Agreement.
The Borrower does not conduct business under any other name.
<PAGE>
4
(c) The Borrower has exclusive possession and control of
the Inventory and Farm Products.
(d) This Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the
payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security
interest have been duly taken.
(e) No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by the
Borrower of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the
Borrower or (ii) for the perfection of or the exercise by the
Agent on behalf of the Banks of its rights and remedies
hereunder, except for such financing statements as may be filed
in favor of the Agent on behalf of the Banks relating to this
Agreement.
SECTION 5. FURTHER ASSURANCES. (a) The Borrower agrees that
from time to time, at the expense of the Borrower, the Borrower will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent or a Bank may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent on behalf of the Banks to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Borrower will:
(i) mark conspicuously each document included in the Inventory and each chattel
paper included in the Receivables and, at the request of the Agent on behalf of
the Banks, each Related Contract and each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Related Contract or Collateral is
subject to the security interest granted hereby; (ii) if any Receivable shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Agent on behalf of the Banks hereunder such note or instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Agent on behalf of the Banks; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Agent may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.
(b) The Borrower hereby authorizes the Agent on behalf of the
Banks to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
the Borrower where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
<PAGE>
5
(c) The Borrower will furnish to the Agent or the Banks from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Agent
or a Bank may reasonably request, all in reasonable detail.
SECTION 6. AS TO INVENTORY AND FARM PRODUCTS. The Borrower
shall:
(a) Keep the Inventory and Farm Products (other than
Inventory and Farm Products sold in the ordinary course of
business) at the places therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent and the Banks,
at such other places in jurisdictions where all action required
by Section 5 shall have been taken with respect to the
Inventory and Farm Products.
(b) Pay promptly when due all property and other taxes,
assessments and government charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies)
against, the Inventory and Farm Products, except to the extent
the validity thereof is being contested in good faith.
SECTION 7. INSURANCE. (a) The Borrower shall, at its own
expense, maintain insurance with respect to the Inventory and Farm Products in
such amounts, against such risks, in such form and with such insurers, as shall
be satisfactory to the Agent from time to time. Each policy for (i) liability
insurance shall provide for all losses to be paid to the Agent on behalf of the
Banks and the Borrower as their respective interests may appear and (ii)
property damage insurance shall provide for all losses (except for losses of
less than $3,000,000 per occurrence) to be paid directly to the Agent on behalf
of the Banks. Each such policy shall in addition (i) name the Borrower and the
Agent on behalf of the Banks as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or the Banks) as
their interests may appear, (ii) contain the agreement by the insurer that any
loss as set forth above shall be payable to the Agent on behalf of the Banks
notwithstanding any action, inaction or breach of representation or warranty by
the Borrower, (iii) provide that there shall be no recourse against the Agent or
the Banks for payment of premiums or other amounts with respect thereto and (iv)
provide that at least ten days' prior written notice of cancellation or of lapse
shall be given to the Agent by the insurer. The Borrower shall, if so requested
by the Agent, deliver to the Agent original or duplicate policies of such
insurance and, as often as the Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Borrower
shall, at the request of the Agent, duly execute and deliver instruments of
assignment of such insurance policies to comply with the requirements of Section
5 and cause the respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by
the Borrower pursuant to this Section 7 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Inventory or Farm Products when subsection (c) of this
Section 7 is not applicable, the Borrower shall make or cause to be made the
necessary replacements of such Inventory or Farm Products, and any proceeds of
insurance
<PAGE>
6
maintained by the Borrower pursuant to this Section 7 shall be paid to the
Borrower as reimbursement for the costs of such replacements.
(c) Upon (i) the occurrence and during the continuance of any
Event of Default, or (ii) the actual or constructive total loss (in excess of
$3,000,000 per occurrence) of any Inventory or Farm Products, all insurance
payments in respect of such Inventory or Farm Products shall be paid to and
applied by the Agent on behalf of the Banks as specified in Section 13(b).
SECTION 8. AS TO RECEIVABLES. (a) The Borrower shall keep its
chief place of business and chief executive office and the office where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location therefor specified in Section 4(a)
or, upon 30 days' prior written notice to the Agent and the Banks, at such other
locations in a jurisdiction where all action required by Section 5 shall have
been taken with respect to the Receivables. The Borrower will hold and preserve
such records and chattel paper and will permit representatives of the Agent and
the Banks at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Borrower shall continue to collect, at its own expense, all amounts due or to
become due the Borrower under the Receivables. In connection with such
collections, the Borrower may take (and, at the Agent's reasonable direction,
shall take) such action as the Borrower or the Agent may deem necessary or
advisable to enforce collection of the Receivables; provided, however, that the
Agent on behalf of the Banks shall have the right at any time, upon the
occurrence and during the continuance of an Event of Default or an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default and upon written notice to the Borrower of its intention to do so, to
notify the account debtors or obligors under any Receivables of the assignment
of such Receivables to the Agent on behalf of the Banks and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to the Borrower thereunder directly to the Agent on behalf of the Banks and,
upon such notification and at the expense of the Borrower, to enforce collection
of any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Borrower might
have done. After receipt by the Borrower of the notice from the Agent referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
(including instruments) received by the Borrower in respect of the Receivables
shall be received in trust for the benefit of the Banks hereunder, shall be
segregated from other funds of the Borrower and shall be forthwith paid over to
the Agent on behalf of the Banks in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Borrower so long as no Event of Default shall have occurred and be
continuing or (B) if any Event of Default shall have occurred and be continuing,
applied as provided by Section 13(b), and (ii) the Borrower shall not adjust,
settle or compromise the amount or payment of any Receivable, or release wholly
or partly any account debtor or obligor thereof, or allow any credit or discount
thereon.
SECTION 9. TRANSFERS AND OTHER LIENS. The Borrower shall not:
<PAGE>
7
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except Inventory in
the ordinary course of business.
(b) Create or suffer to exist any lien, security
interest or other charge or encumbrance upon or with respect to
any of the Collateral to secure Debt of any person or entity,
except for the security interests created by this Agreement.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower
hereby irrevocably appoints the Agent on behalf of the Banks the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower, the Agent on behalf of the Banks or otherwise, from
time to time in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Borrower under Section
8), including, without limitation:
(i) to obtain and adjust insurance required to be paid
to the Agent on behalf of the Banks pursuant to Section 7,
(ii) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Collateral,
(iii) instruments, documents and chattel paper, in
connection with clause (i) or (ii) above, and
(iv) proceedings which the Agent may deem necessary or
desirable for the collection of any of the Collateral or
otherwise to enforce the rights of the Agent on behalf of the
Banks with respect to any of the Collateral.
SECTION 11. AGENT MAY PERFORM. If the Borrower fails to
perform any agreement contained herein, the Agent on behalf of the Banks may
itself perform, or cause performance of, such agreement, and the expenses of the
Agent incurred in connection therewith shall be payable by the Borrower under
Section 14(b).
SECTION 12. THE AGENT'S DUTIES. The powers conferred on the
Agent hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 13. REMEDIES. If any Event of Default shall have
occurred and be continuing:
<PAGE>
8
(a) The Agent on behalf of the Banks may exercise in
respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "CODE") (whether or not the Code
applies to the affected Collateral) and also may (i) require
the Borrower to, and the Borrower hereby agrees that it will at
its expense and upon request of the Agent forthwith, assemble
all or part of the Collateral as directed by the Agent and make
it available to the Agent at a place to be designated by the
Agent which is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private
sale, at any of the Agent's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the
Agent may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of
any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent
shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place
to which it was so adjourned.
(b) All cash proceeds received by the Agent in respect
of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of the
Banks, be held by the Agent on behalf of the Banks as
collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Agent pursuant to
Section 14) in whole or in part by the Agent on behalf of the
Banks against, all or any part of the Obligations in such order
as set forth in Section 1.11 of the Credit Agreement. Any
surplus of such cash or cash proceeds held by the Agent on
behalf of the Banks and remaining after payment in full of all
the Obligations shall be paid over to the Borrower or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 14. INDEMNITY AND EXPENSES. (a) The Borrower agrees to
indemnify the Agent from and against any and all claims, losses and liabilities
growing out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
from the Agent's gross negligence or willful misconduct.
(b) The Borrower will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or (iv) the failure by the Borrower
to perform or observe any of the provisions hereof.
<PAGE>
9
SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the later of payment in full of
the Obligations or the Termination Date, (ii) be binding upon the Borrower, its
successors and assigns and (iii) inure to the benefit of and be binding on the
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), a Bank may assign or otherwise
transfer the Notes held by it and delivered under the Credit Agreement to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to a Bank herein or
otherwise. Upon the later of the payment in full of the Obligations or the
Termination Date, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Agent on behalf of the Banks will, at the Borrower's expense,
execute and deliver to the Borrower such documents as the Borrower shall
reasonably request to evidence such termination.
SECTION 16. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Credit Agreement, terms used in Article 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
[Signature on Next Page.]
<PAGE>
10
IN WITNESS WHEREOF, the Borrower has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
ESSKAY, INC.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
1
[CONFORMED COPY]
SECURITY AGREEMENT
FOURTH AMENDED, RESTATED AND CONTINUED SECURITY AGREEMENT dated
as of April 30, 1996, made by BROWN'S OF CAROLINA, INC., a North Carolina
corporation (the "BORROWER") located at 303 East College Street, Warsaw, North
Carolina, to COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "Rabobank
Nederland", New York Branch, with an office at 245 Park Avenue, New York, New
York 10167, as Agent under the Credit Agreement, defined below ("AGENT").
PRELIMINARY STATEMENTS.
The Agent and certain banks have entered into a Fourth Amended,
Restated and Continued Revolving Credit Agreement dated as of the date hereof
(said Agreement, as it may hereafter be amended or otherwise modified from time
to time, being the "CREDIT AGREEMENT", the terms defined therein and not
otherwise defined herein being used herein as therein defined) with the
Borrower, Gwaltney of Smithfield, Ltd. ("GWALTNEY"), The Smithfield Packing
Company, Incorporated ("PACKING"), Patrick Cudahy Incorporated ("CUDAHY"),
Esskay, Inc. ("ESSKAY") and John Morrell & Co. ("MORRELL").
The Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy,
Esskay and Brown's, Rabobank as agent for the Banks and each financial
institution a party thereto, with the 1995 Agreement being a complete amendment,
restatement and continuation of the Second Amended, Restated and Continued
Revolving Credit Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as
amended by Amendments dated as of May 1, 1994, November 28, 1994, January 31,
1995, February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July
12, 1995 among the Borrower, Gwaltney, Packing, Cudahy, Esskay and Carolina Food
Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (a) of the Amended,
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992, and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
October 30, 1991 between Gwaltney and Rabobank and (b) the Amended and Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and the
Rabobank, with the 1991 Oral Finance Facility being a complete amendment,
restatement and continuation of the Oral Finance Facility dated as of October
26, 1990, as amended, between Gwaltney and Rabobank.
<PAGE>
2
It is a condition precedent to the making of Advances by the
Banks under the Credit Agreement that the Borrower shall have granted the
security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Banks to make Advances under the Credit Agreement, the Borrower
hereby agrees as follows:
SECTION 1. GRANT OF SECURITY. The Borrower hereby pledges and
assigns to the Agent on behalf of the Banks, and hereby grants to the Agent on
behalf of the Banks a security interest in, all of the Borrower's right, title
and interest in and to the following, whether now owned or hereafter acquired
(the "COLLATERAL"):
(a) All inventory in all of its forms, wherever located,
now or hereafter existing (including, but not limited to, (i)
all meat, meat products and raw materials and work in process
therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof including
packaging and processing supplies, (ii) goods in which the
Borrower has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in
which the Borrower has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by the
Borrower), and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions,
products and documents being the "INVENTORY");
(b) All farm products in all of their respective forms,
wherever located, now or hereafter existing, including but not
limited to (i) meat and products thereof and (ii) all
agricultural supplies used or consumed in the Borrower's
operations, including without limitation all feed, meal,
ingredients, seeds, drugs, medications, vaccines, supplements
and other chemicals used in feeding, maintaining, growing,
preserving or producing any farm products, and (iii) all
accessions to and products of and documents for any of the
foregoing (any and all such farm products, accessions, products
and documents being the "FARM PRODUCTS");
(c) All accounts, contract rights, chattel paper,
instruments, general intangibles and other obligations of any
kind (including, without limitation, payment-in-kind
certificates, rights to any government subsidy, set aside,
diversion, deficiency or disaster payment, and payments in
kind), now or hereafter existing, whether or not arising out of
or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing
in and to all security agreements, leases, and other contracts
securing or otherwise relating to any such accounts, contract
rights, chattel paper, instruments, general intangibles or
obligations (any and all such accounts, contract rights,
chattel paper, instruments, general intangibles and obligations
being the "RECEIVABLES", and any and all such leases, security
agreements and other contracts being the "RELATED CONTRACTS");
and
<PAGE>
3
(d) Subject to Section 9(a) hereof, all proceeds of any
and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types
described in clauses (a), (b) and (c) of this Section 1) and,
to the extent not otherwise included, all payments under
insurance (whether or not the Agent on behalf of the Banks is
the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all obligations of any or all of the Borrowers now or hereafter
existing under the Credit Agreement and each of the Notes thereunder, whether
for principal, interest, fees, expenses or otherwise, and all or any obligations
of any Borrower under any Loan Document and all obligations of the Borrower now
or hereafter existing under this Agreement (all such obligations being the
"OBLIGATIONS").
SECTION 3. BORROWER REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
on behalf of the Banks of any of the rights hereunder shall not release the
Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) neither the Agent nor any Bank
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Agent or
any Bank be obligated to perform any of the obligations or duties of the
Borrower thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) All of the Inventory and Farm Products are located
at the places specified in the Schedule hereto. The chief place
of business and chief executive office of the Borrower and the
office where the Borrower keeps its records concerning the
Receivables, and all originals of all chattel paper which
evidence Receivables, are located at the address first
specified above for the Borrower. None of the Receivables is
evidenced by a promissory note or other instrument.
(b) The Borrower owns the Collateral free and clear of
any lien, security interest, charge or encumbrance except for
the security interest created by this Agreement. No effective
financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor
of the Agent on behalf of the Banks relating to this Agreement.
The Borrower does not conduct business under any other name.
<PAGE>
4
(c) The Borrower has exclusive possession and control of
the Inventory and Farm Products.
(d) This Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the
payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security
interest have been duly taken.
(e) No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by the
Borrower of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the
Borrower or (ii) for the perfection of or the exercise by the
Agent on behalf of the Banks of its rights and remedies
hereunder, except for such financing statements as may be filed
in favor of the Agent on behalf of the Banks relating to this
Agreement.
SECTION 5. FURTHER ASSURANCES. (a) The Borrower agrees that
from time to time, at the expense of the Borrower, the Borrower will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent or a Bank may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent on behalf of the Banks to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Borrower will:
(i) mark conspicuously each document included in the Inventory and each chattel
paper included in the Receivables and, at the request of the Agent on behalf of
the Banks, each Related Contract and each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Related Contract or Collateral is
subject to the security interest granted hereby; (ii) if any Receivable shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Agent on behalf of the Banks hereunder such note or instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Agent on behalf of the Banks; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Agent may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.
(b) The Borrower hereby authorizes the Agent on behalf of the
Banks to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
the Borrower where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
<PAGE>
5
(c) The Borrower will furnish to the Agent or the Banks from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Agent
or a Bank may reasonably request, all in reasonable detail.
SECTION 6. AS TO INVENTORY AND FARM PRODUCTS. The Borrower
shall:
(a) Keep the Inventory and Farm Products (other than
Inventory and Farm Products sold in the ordinary course of
business) at the places therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent and the Banks,
at such other places in jurisdictions where all action required
by Section 5 shall have been taken with respect to the
Inventory and Farm Products.
(b) Pay promptly when due all property and other taxes,
assessments and government charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies)
against, the Inventory and Farm Products, except to the extent
the validity thereof is being contested in good faith.
SECTION 7. INSURANCE. (a) The Borrower shall, at its own
expense, maintain insurance with respect to the Inventory and Farm Products in
such amounts, against such risks, in such form and with such insurers, as shall
be satisfactory to the Agent from time to time. Each policy for (i) liability
insurance shall provide for all losses to be paid to the Agent on behalf of the
Banks and the Borrower as their respective interests may appear and (ii)
property damage insurance shall provide for all losses (except for losses of
less than $3,000,000 per occurrence) to be paid directly to the Agent on behalf
of the Banks. Each such policy shall in addition (i) name the Borrower and the
Agent on behalf of the Banks as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or the Banks) as
their interests may appear, (ii) contain the agreement by the insurer that any
loss as set forth above shall be payable to the Agent on behalf of the Banks
notwithstanding any action, inaction or breach of representation or warranty by
the Borrower, (iii) provide that there shall be no recourse against the Agent or
the Banks for payment of premiums or other amounts with respect thereto and (iv)
provide that at least ten days' prior written notice of cancellation or of lapse
shall be given to the Agent by the insurer. The Borrower shall, if so requested
by the Agent, deliver to the Agent original or duplicate policies of such
insurance and, as often as the Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Borrower
shall, at the request of the Agent, duly execute and deliver instruments of
assignment of such insurance policies to comply with the requirements of Section
5 and cause the respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by
the Borrower pursuant to this Section 7 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Inventory or Farm Products when subsection (c) of this
Section 7 is not applicable, the Borrower shall make or cause to be made the
necessary replacements of such Inventory or Farm Products, and any proceeds of
insurance
<PAGE>
6
maintained by the Borrower pursuant to this Section 7 shall be paid to the
Borrower as reimbursement for the costs of such replacements.
(c) Upon (i) the occurrence and during the continuance of any
Event of Default, or (ii) the actual or constructive total loss (in excess of
$3,000,000 per occurrence) of any Inventory or Farm Products, all insurance
payments in respect of such Inventory or Farm Products shall be paid to and
applied by the Agent on behalf of the Banks as specified in Section 13(b).
SECTION 8. AS TO RECEIVABLES. (a) The Borrower shall keep its
chief place of business and chief executive office and the office where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location therefor specified in Section 4(a)
or, upon 30 days' prior written notice to the Agent and the Banks, at such other
locations in a jurisdiction where all action required by Section 5 shall have
been taken with respect to the Receivables. The Borrower will hold and preserve
such records and chattel paper and will permit representatives of the Agent and
the Banks at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Borrower shall continue to collect, at its own expense, all amounts due or to
become due the Borrower under the Receivables. In connection with such
collections, the Borrower may take (and, at the Agent's reasonable direction,
shall take) such action as the Borrower or the Agent may deem necessary or
advisable to enforce collection of the Receivables; provided, however, that the
Agent on behalf of the Banks shall have the right at any time, upon the
occurrence and during the continuance of an Event of Default or an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default and upon written notice to the Borrower of its intention to do so, to
notify the account debtors or obligors under any Receivables of the assignment
of such Receivables to the Agent on behalf of the Banks and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to the Borrower thereunder directly to the Agent on behalf of the Banks and,
upon such notification and at the expense of the Borrower, to enforce collection
of any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Borrower might
have done. After receipt by the Borrower of the notice from the Agent referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
(including instruments) received by the Borrower in respect of the Receivables
shall be received in trust for the benefit of the Banks hereunder, shall be
segregated from other funds of the Borrower and shall be forthwith paid over to
the Agent on behalf of the Banks in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Borrower so long as no Event of Default shall have occurred and be
continuing or (B) if any Event of Default shall have occurred and be continuing,
applied as provided by Section 13(b), and (ii) the Borrower shall not adjust,
settle or compromise the amount or payment of any Receivable, or release wholly
or partly any account debtor or obligor thereof, or allow any credit or discount
thereon.
SECTION 9. TRANSFERS AND OTHER LIENS. The Borrower shall not:
<PAGE>
7
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except Inventory in
the ordinary course of business.
(b) Create or suffer to exist any lien, security
interest or other charge or encumbrance upon or with respect to
any of the Collateral to secure Debt of any person or entity,
except for the security interests created by this Agreement.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower
hereby irrevocably appoints the Agent on behalf of the Banks the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower, the Agent on behalf of the Banks or otherwise, from
time to time in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Borrower under Section
8), including, without limitation:
(i) to obtain and adjust insurance required to be paid
to the Agent on behalf of the Banks pursuant to Section 7,
(ii) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Collateral,
(iii) instruments, documents and chattel paper, in
connection with clause (i) or (ii) above, and
(iv) proceedings which the Agent may deem necessary or
desirable for the collection of any of the Collateral or
otherwise to enforce the rights of the Agent on behalf of the
Banks with respect to any of the Collateral.
SECTION 11. AGENT MAY PERFORM. If the Borrower fails to
perform any agreement contained herein, the Agent on behalf of the Banks may
itself perform, or cause performance of, such agreement, and the expenses of the
Agent incurred in connection therewith shall be payable by the Borrower under
Section 14(b).
SECTION 12. THE AGENT'S DUTIES. The powers conferred on the
Agent hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 13. REMEDIES. If any Event of Default shall have
occurred and be continuing:
<PAGE>
8
(a) The Agent on behalf of the Banks may exercise in
respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "CODE") (whether or not the Code
applies to the affected Collateral) and also may (i) require
the Borrower to, and the Borrower hereby agrees that it will at
its expense and upon request of the Agent forthwith, assemble
all or part of the Collateral as directed by the Agent and make
it available to the Agent at a place to be designated by the
Agent which is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private
sale, at any of the Agent's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the
Agent may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of
any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent
shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place
to which it was so adjourned.
(b) All cash proceeds received by the Agent in respect
of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of the
Banks, be held by the Agent on behalf of the Banks as
collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Agent pursuant to
Section 14) in whole or in part by the Agent on behalf of the
Banks against, all or any part of the Obligations in such order
as set forth in Section 1.11 of the Credit Agreement. Any
surplus of such cash or cash proceeds held by the Agent on
behalf of the Banks and remaining after payment in full of all
the Obligations shall be paid over to the Borrower or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 14. INDEMNITY AND EXPENSES. (a) The Borrower agrees to
indemnify the Agent from and against any and all claims, losses and liabilities
growing out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
from the Agent's gross negligence or willful misconduct.
(b) The Borrower will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or (iv) the failure by the Borrower
to perform or observe any of the provisions hereof.
<PAGE>
9
SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the later of payment in full of
the Obligations or the Termination Date, (ii) be binding upon the Borrower, its
successors and assigns and (iii) inure to the benefit of and be binding on the
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), a Bank may assign or otherwise
transfer the Notes held by it and delivered under the Credit Agreement to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to a Bank herein or
otherwise. Upon the later of the payment in full of the Obligations or the
Termination Date, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Agent on behalf of the Banks will, at the Borrower's expense,
execute and deliver to the Borrower such documents as the Borrower shall
reasonably request to evidence such termination.
SECTION 16. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Credit Agreement, terms used in Article 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
[Signature on Next Page.]
<PAGE>
10
IN WITNESS WHEREOF, the Borrower has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
BROWN'S OF CAROLINA, INC.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
1
[CONFORMED COPY]
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of April 30, 1996, made by JOHN MORRELL &
CO., INC., a Delaware corporation (the "BORROWER") located at 250 East Fifth
Street, Cincinnati, Ohio 45202, to COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "Rabobank Nederland", New York Branch, with an
office at 245 Park Avenue, New York, New York 10167, as Agent under the Credit
Agreement, defined below ("AGENT").
PRELIMINARY STATEMENTS.
The Agent and certain banks have entered into a Fourth Amended, Restated
and Continued Revolving Credit Agreement dated as of the date hereof (said
Agreement, as it may hereafter be amended or otherwise modified from time to
time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise
defined herein being used herein as therein defined) with the Borrower, Gwaltney
of Smithfield, Ltd. ("GWALTNEY"), The Smithfield Packing Company, Incorporated
("PACKING"), Patrick Cudahy Incorporated ("CUDAHY"), Esskay, Inc. ("ESSKAY") and
Brown's of Carolina, Inc. ("BROWN'S").
The Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy,
Esskay and Brown's, Rabobank as agent for the Banks and each financial
institution a party thereto, with the 1995 Agreement being a complete amendment,
restatement and continuation of the Second Amended, Restated and Continued
Revolving Credit Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as
amended by Amendments dated as of May 1, 1994, November 28, 1994, January 31,
1995, February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July
12, 1995 among Gwaltney, Packing, Cudahy, Esskay, Brown's and Carolina Food
Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (a) of the Amended,
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992, and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
October 30, 1991 between Gwaltney and Rabobank and (b) the Amended and Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and the
Rabobank, with the 1991 Oral Finance Facility being a complete amendment,
restatement and continuation of the Oral Finance Facility dated as of October
26, 1990, as amended, between Gwaltney and Rabobank.
It is a condition precedent to the making of Advances by the Banks under
the Credit Agreement that the Borrower shall have granted the security interest
contemplated by this Agreement.
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks to make Advances under the Credit Agreement, the Borrower hereby
agrees as follows:
SECTION 1. GRANT OF SECURITY. The Borrower hereby pledges and assigns to
the Agent on behalf of the Banks, and hereby grants to the Agent on behalf of
the Banks a security interest in, all of the Borrower's right, title and
interest in and to the following, whether now owned or hereafter acquired (the
"COLLATERAL"):
(a) All inventory in all of its forms, wherever located, now or
hereafter existing (including, but not limited to, (i) all meat, meat
products and raw materials and work in process therefor, finished goods
thereof, and materials used or consumed in the manufacture or production
thereof including packaging and processing supplies, (ii) goods in which
the Borrower has an interest in mass or a joint or other interest or
right of any kind (including, without limitation, goods in which the
Borrower has an interest or right as consignee), and (iii) goods which
are returned to or repossessed by the Borrower), and all accessions
thereto and products thereof and documents therefor (any and all such
inventory, accessions, products and documents being the "INVENTORY");
(b) All farm products in all of their respective forms, wherever
located, now or hereafter existing, including but not limited to (i)
meat and products thereof and (ii) all agricultural supplies used or
consumed in the Borrower's operations, including without limitation all
feed, meal, ingredients, seeds, drugs, medications, vaccines,
supplements and other chemicals used in feeding, maintaining, growing,
preserving or producing any farm products, and (iii) all accessions to
and products of and documents for any of the foregoing (any and all such
farm products, accessions, products and documents being the "FARM
PRODUCTS");
(c) All accounts, contract rights, chattel paper, instruments,
general intangibles and other obligations of any kind (including,
without limitation, payment-in-kind certificates, rights to any
government subsidy, set aside, diversion, deficiency or disaster
payment, and payments in kind), now or hereafter existing, whether or
not arising out of or in connection with the sale or lease of goods or
the rendering of services, and all rights now or hereafter existing in
and to all security agreements, leases, and other contracts securing or
otherwise relating to any such accounts, contract rights, chattel paper,
instruments, general intangibles or obligations (any and all such
accounts, contract rights, chattel paper, instruments, general
intangibles and obligations being the "RECEIVABLES", and any and all
such leases, security agreements and other contracts being the "RELATED
CONTRACTS"); and
(d) Subject to Section 9(a) hereof, all proceeds of any and all
of the foregoing Collateral (including, without limitation, proceeds
which constitute property of the types described in clauses (a), (b) and
(c) of this Section 1) and, to the extent not otherwise included, all
payments under insurance (whether or not the Agent on behalf of the
Banks is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral.
<PAGE>
3
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the payment
of all obligations of any or all of the Borrowers now or hereafter existing
under the Credit Agreement and each of the Notes thereunder, whether for
principal, interest, fees, expenses or otherwise, and all or any obligations of
any Borrower under any Loan Document and all obligations of the Borrower now or
hereafter existing under this Agreement (all such obligations being the
"OBLIGATIONS").
SECTION 3. BORROWER REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Borrower shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Agent on behalf of the
Banks of any of the rights hereunder shall not release the Borrower from any of
its duties or obligations under the contracts and agreements included in the
Collateral, and (c) neither the Agent nor any Bank shall have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Agent or any Bank be obligated to
perform any of the obligations or duties of the Borrower thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants as follows:
(a) All of the Inventory and Farm Products are located at the
places specified in the Schedule hereto. The chief place of business and
chief executive office of the Borrower and the office where the Borrower
keeps its records concerning the Receivables, and all originals of all
chattel paper which evidence Receivables, are located at the address
first specified above for the Borrower. None of the Receivables is
evidenced by a promissory note or other instrument.
(b) The Borrower owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security
interest created by this Agreement. No effective financing statement or
other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except such as may have
been filed in favor of the Agent on behalf of the Banks relating to this
Agreement. The Borrower does not conduct business under any other name.
(c) The Borrower has exclusive possession and control of the
Inventory and Farm Products.
(d) This Agreement creates a valid and perfected first priority
security interest in the Collateral, securing the payment of the
Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly taken.
(e) No authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required either (i) for the grant by the Borrower of the security
interest granted hereby or for the execution, delivery or performance of
this Agreement by the Borrower or (ii) for the perfection of or the
<PAGE>
4
exercise by the Agent on behalf of the Banks of its rights and remedies
hereunder, except for such financing statements as may be filed in favor
of the Agent on behalf of the Banks relating to this Agreement.
(f) With respect to UCC-1 financing statement nos. Z26043
(91-11890), 088202 and 087151 filed by First National Bank of Chicago on
December 23, 1986 in Hamilton County, Ohio; December 23, 1986 in
Oklahoma County, Oklahoma and December 10, 1986 in Oklahoma County,
Oklahoma, respectively (together with all assignments, continuations and
amendments thereto) and UCC-1 financing statement nos. 93-108109 and
93-1850 filed by Congress Financial Corporation on June 24, 1993 in
Hamilton County, Ohio and on June 24, 1993 in Schenechtady County, New
York, respectively (together with all assignments, continuations and
amendments thereto):
(i) there is currently no outstanding indebtedness
relating to any such UCC-1 financing statement;
(ii) the Borrower will not, and will not permit any
subsidiary to, incur any indebtedness to any secured party (or
assignee of any such secured party) listed on any such UCC-1
financing statements; and
(iii) the Borrower will deliver to the Agent, within 30
days of the date hereof, UCC-3 termination statements relating to
each such UCC-1 financing statement, duly executed by each
respective secured party (or assignee of any such secured party)
thereto.
(g) The Borrower will not include in a Borrowing Base Certificate
any Collateral of John Morrell of Japan, Inc. or Copaz Packing
Corporation.
SECTION 5. FURTHER ASSURANCES. (a) The Borrower agrees that from time to
time, at the expense of the Borrower, the Borrower will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Agent or a Bank may request, in order
to perfect and protect any security interest granted or purported to be granted
hereby or to enable the Agent on behalf of the Banks to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, the Borrower will: (i) mark conspicuously each
document included in the Inventory and each chattel paper included in the
Receivables and, at the request of the Agent on behalf of the Banks, each
Related Contract and each of its records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Agent, indicating that such
document, chattel paper, Related Contract or Collateral is subject to the
security interest granted hereby; (ii) if any Receivable shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Agent on behalf
of the Banks hereunder such note or instrument duly indorsed and accompanied by
duly executed instruments of transfer or assignment, all in form and substance
satisfactory to the Agent on behalf of the Banks; and (iii) execute and file
such financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Agent may
request, in order to perfect and preserve the security interest granted or
purported to be granted hereby.
<PAGE>
5
(b) The Borrower hereby authorizes the Agent on behalf of the Banks to
file one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral without the signature of the
Borrower where permitted by law. A carbon, photographic or other reproduction of
this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) The Borrower will furnish to the Agent or the Banks from time to
time statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Agent or a Bank
may reasonably request, all in reasonable detail.
SECTION 6. AS TO INVENTORY AND FARM PRODUCTS. The Borrower shall:
(a) Keep the Inventory and Farm Products (other than Inventory
and Farm Products sold in the ordinary course of business) at the places
therefor specified in Section 4(a) or, upon 30 days' prior written
notice to the Agent and the Banks, at such other places in jurisdictions
where all action required by Section 5 shall have been taken with
respect to the Inventory and Farm Products.
(b) Pay promptly when due all property and other taxes,
assessments and government charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against, the
Inventory and Farm Products, except to the extent the validity thereof
is being contested in good faith.
SECTION 7. INSURANCE. (a) The Borrower shall, at its own expense,
maintain insurance with respect to the Inventory and Farm Products in such
amounts, against such risks, in such form and with such insurers, as shall be
satisfactory to the Agent from time to time. Each policy for (i) liability
insurance shall provide for all losses to be paid to the Agent on behalf of the
Banks and the Borrower as their respective interests may appear and (ii)
property damage insurance shall provide for all losses (except for losses of
less than $3,000,000 per occurrence) to be paid directly to the Agent on behalf
of the Banks. Each such policy shall in addition (i) name the Borrower and the
Agent on behalf of the Banks as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or the Banks) as
their interests may appear, (ii) contain the agreement by the insurer that any
loss as set forth above shall be payable to the Agent on behalf of the Banks
notwithstanding any action, inaction or breach of representation or warranty by
the Borrower, (iii) provide that there shall be no recourse against the Agent or
the Banks for payment of premiums or other amounts with respect thereto and (iv)
provide that at least ten days' prior written notice of cancellation or of lapse
shall be given to the Agent by the insurer. The Borrower shall, if so requested
by the Agent, deliver to the Agent original or duplicate policies of such
insurance and, as often as the Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Borrower
shall, at the request of the Agent, duly execute and deliver instruments of
assignment of such insurance policies to comply with the requirements of Section
5 and cause the respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by the
Borrower pursuant to this Section 7 may be paid directly to the person who shall
have incurred liability covered by such insurance. In case of any loss involving
<PAGE>
6
damage to Inventory or Farm Products when subsection (c) of this Section 7 is
not applicable, the Borrower shall make or cause to be made the necessary
replacements of such Inventory or Farm Products, and any proceeds of insurance
maintained by the Borrower pursuant to this Section 7 shall be paid to the
Borrower as reimbursement for the costs of such replacements.
(c) Upon (i) the occurrence and during the continuance of any Event of
Default, or (ii) the actual or constructive total loss (in excess of $3,000,000
per occurrence) of any Inventory or Farm Products, all insurance payments in
respect of such Inventory or Farm Products shall be paid to and applied by the
Agent on behalf of the Banks as specified in Section 13(b).
SECTION 8. AS TO RECEIVABLES. (a) The Borrower shall keep its chief
place of business and chief executive office and the office where it keeps its
records concerning the Receivables, and all originals of all chattel paper which
evidence Receivables, at the location therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent and the Banks, at such other
locations in a jurisdiction where all action required by Section 5 shall have
been taken with respect to the Receivables. The Borrower will hold and preserve
such records and chattel paper and will permit representatives of the Agent and
the Banks at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the Borrower
shall continue to collect, at its own expense, all amounts due or to become due
the Borrower under the Receivables. In connection with such collections, the
Borrower may take (and, at the Agent's reasonable direction, shall take) such
action as the Borrower or the Agent may deem necessary or advisable to enforce
collection of the Receivables; provided, however, that the Agent on behalf of
the Banks shall have the right at any time, upon the occurrence and during the
continuance of an Event of Default or an event which, with the giving of notice
or the lapse of time, or both, would become an Event of Default and upon written
notice to the Borrower of its intention to do so, to notify the account debtors
or obligors under any Receivables of the assignment of such Receivables to the
Agent on behalf of the Banks and to direct such account debtors or obligors to
make payment of all amounts due or to become due to the Borrower thereunder
directly to the Agent on behalf of the Banks and, upon such notification and at
the expense of the Borrower, to enforce collection of any such Receivables, and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as the Borrower might have done. After receipt by
the Borrower of the notice from the Agent referred to in the proviso to the
preceding sentence, (i) all amounts and proceeds (including instruments)
received by the Borrower in respect of the Receivables shall be received in
trust for the benefit of the Banks hereunder, shall be segregated from other
funds of the Borrower and shall be forthwith paid over to the Agent on behalf of
the Banks in the same form as so received (with any necessary indorsement) to be
held as cash collateral and either (A) released to the Borrower so long as no
Event of Default shall have occurred and be continuing or (B) if any Event of
Default shall have occurred and be continuing, applied as provided by Section
13(b), and (ii) the Borrower shall not adjust, settle or compromise the amount
or payment of any Receivable, or release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon.
<PAGE>
7
SECTION 9. TRANSFERS AND OTHER LIENS. The Borrower shall not:
(a) Sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except Inventory in the ordinary
course of business.
(b) Create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the
Collateral to secure Debt of any person or entity, except for the
security interests created by this Agreement.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower hereby
irrevocably appoints the Agent on behalf of the Banks the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower, the Agent on behalf of the Banks or otherwise, from
time to time in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Borrower under Section
8), including, without limitation:
(i) to obtain and adjust insurance required to be paid to the
Agent on behalf of the Banks pursuant to Section 7,
(ii) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral,
(iii) instruments, documents and chattel paper, in connection
with clause (i) or (ii) above, and
(iv) proceedings which the Agent may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the
rights of the Agent on behalf of the Banks with respect to any of the
Collateral.
SECTION 11. AGENT MAY PERFORM. If the Borrower fails to perform any
agreement contained herein, the Agent on behalf of the Banks may itself perform,
or cause performance of, such agreement, and the expenses of the Agent incurred
in connection therewith shall be payable by the Borrower under Section 14(b).
SECTION 12. THE AGENT'S DUTIES. The powers conferred on the Agent
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Agent shall have no duty as to any Collateral or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral.
SECTION 13. REMEDIES. If any Event of Default shall have occurred and
be continuing:
<PAGE>
8
(a) The Agent on behalf of the Banks may exercise in respect of
the Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Uniform Commercial Code (the "CODE")
(whether or not the Code applies to the affected Collateral) and also
may (i) require the Borrower to, and the Borrower hereby agrees that it
will at its expense and upon request of the Agent forthwith, assemble
all or part of the Collateral as directed by the Agent and make it
available to the Agent at a place to be designated by the Agent which is
reasonably convenient to both parties and (ii) without notice except as
specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of the Agent's offices or
elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Agent may deem commercially reasonable. The Borrower
agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be obligated to
make any sale of Collateral regardless of notice of sale having been
given. The Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it
was so adjourned.
(b) All cash proceeds received by the Agent in respect of any
sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of the Banks, be held by the Agent
on behalf of the Banks as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to the Agent
pursuant to Section 14) in whole or in part by the Agent on behalf of
the Banks against, all or any part of the Obligations in such order as
set forth in Section 1.11 of the Credit Agreement. Any surplus of such
cash or cash proceeds held by the Agent on behalf of the Banks and
remaining after payment in full of all the Obligations shall be paid
over to the Borrower or to whomsoever may be lawfully entitled to
receive such surplus.
SECTION 14. INDEMNITY AND EXPENSES. (a) The Borrower agrees to indemnify
the Agent from and against any and all claims, losses and liabilities growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
from the Agent's gross negligence or willful misconduct.
(b) The Borrower will upon demand pay to the Agent the amount of any and
all reasonable expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, which the Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
the Agent hereunder or (iv) the failure by the Borrower to perform or observe
any of the provisions hereof.
SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES. This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the later of payment in full of
the Obligations or the Termination Date, (ii) be binding upon the Borrower, its
successors and assigns and (iii) inure to the benefit of and be binding on the
<PAGE>
9
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), a Bank may assign or otherwise
transfer the Notes held by it and delivered under the Credit Agreement to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to a Bank herein or
otherwise. Upon the later of the payment in full of the Obligations or the
Termination Date, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Agent on behalf of the Banks will, at the Borrower's expense,
execute and deliver to the Borrower such documents as the Borrower shall
reasonably request to evidence such termination.
SECTION 16. GOVERNING LAW; TERMS. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, except to
the extent that the validity or perfection of the security interest hereunder,
or remedies hereunder, in respect of any particular Collateral are governed by
the laws of a jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Credit Agreement, terms used in Article 9 of the
Uniform Commercial Code in the State of New York are used herein as therein
defined.
[Signature on Next Page.]
<PAGE>
10
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
JOHN MORRELL & CO.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer
AMENDMENT NO. 1 TO SUBSCRIPTION AGREEMENT
This Amendment No. 1 to Subscription Agreement executed as of the 31st
day of January, 1995, by and between Smithfield Foods, Inc., a Delaware
corporation (the "Company"), and Carroll's Foods, Inc., a North Carolina
corporation ("Buyer"), with respect to Subscription Agreement between Company
and Buyer dated as of September 3, 1992 (the "Subscription Agreement").
PRELIMINARY RECITALS
1. The Company and Buyer entered into the Subscription Agreement, which
provided for the sale by the Company to the Buyer of 1,000,000 shares of the
Company's common stock.
2. Section 8.6 of the Subscription Agreement contains certain
prohibitions against the transfer of rights under the Subscription Agreement by
Buyer and the Company.
3. Buyer represents to the Company that it has transferred all its
interest in the shares of common stock of the Company previously owned by it
(the "Shares"), including but not limited to the shares acquired pursuant to the
Subscription Agreement, to Carroll's Swine Investment Partnership, a Virginia
general partnership ("Swine Investment"). Buyer also desires to assign to Swine
Investment all its rights and obligations under the Subscription Agreement,
since Swine Investment is now the holder of the Shares.
AGREEMENTS
NOW, THEREFORE, the Company and Buyer hereby agree to amend the
subscription Agreement by adding the following Section 8.8 thereto:
Section 8.8. Permitted Assignment. Notwithstanding the provisions of
Section 8.6 above, the Company hereby specifically consents to Buyer
assigning to Carroll's Swine Investment Partnership ("Swine Investment")
all its rights under this Subscription Agreement, and further agrees
that Swine Investment, as the holder of the shares, may assigns its
rights under the Subscription Agreement to any lender of Buyer or Swine
Investment who has or will have a security interest in any Registrable
Securities. All references to Buyer in the Subscription Agreement shall
include Swine Investment, as the holder of the shares, but Buyer shall
nevertheless remain a principal obligor under the Subscription Agreement
with respect to the performance of any obligations of Buyer thereunder.
This Agreement executed as of the date and year first above written.
SMITHFIELD FOODS, INC.
By: /s/ JOSEPH W. LUTER, III
(Signature)
Title: President and CEO
CARROLL'S FOODS
By: /s/ F. J. FAISON
(Signature)
Title: President
EXECUTION COPY
SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 26, 1995
BETWEEN
SMITHFIELD FOODS, INC.,
A DELAWARE CORPORATION
AND
SUMITOMO CORPORATION OF AMERICA,
A NEW YORK CORPORATION
<PAGE>
TABLE OF CONTENTS (1)
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.......................................... 4
Section 1.2. General Construction................................. 5
ARTICLE II
PURCHASE AND SALE
Section 2.1. Purchase by the Buyer................................ 5
Section 2.2. Closing.............................................. 5
ARTICLE III
CONDITIONS TO PURCHASE AND SALE
Section 3.1. Conditions to the Buyer's Obligation................. 6
Section 3.2. Conditions to the Company's Obligation............... 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
Section 4.1. Corporate Existence and Power........................ 7
Section 4.2. Corporate and Governmental Authorization;
Binding Effect............................... 8
Section 4.3. Shares............................................... 8
Section 4.4. Offering of Securities............................... 8
Section 4.5. No Conflicting Requirements............................9
Section 4.6. Broker's, Finder's and Investment Banking
Fees and Commissions......................... 9
Section 4.7. No Material Misstatement or Omission................. 9
Section 4.8. Governmental Consents................................ 9
Section 4.9. Reliance..............................................10
Section 4.10. Copies of Certain Reports............................ 10
ARTICLE V
REPRESENTATIONS AND WARRANTIES
BY BUYER
Section 5.1. Corporate Existence and Power........................ 10
Section 5.2. Corporate and Other Authorization;
Binding Effect.............................................. 10
Section 5.3. Intentionally Omitted................................ 10
Section 5.4. No Conflicting Requirements.......................... 10
Section 5.5. Securities Law Compliance............................ 11
Section 5.6. Investment Intent, Etc............................... 11
Section 5.7. Investigation........................................ 11
Section 5.8. Reliance............................................. 11
- --------
(1) The Table of Contents is not part of the document.
<PAGE>
ARTICLE VI
FURTHER ASSURANCES
ARTICLE VII
REGISTRATION RIGHTS
Section 7.1. Certain Definitions.................................. 12
Section 7.2. Demand Registration.................................. 13
Section 7.3. Incidental Registration.............................. 13
Section 7.4. Registration Procedures.............................. 14
Section 7.5. Underwritten Offerings................................17
Section 7.6. Preparation; Reasonable Investigation................ 18
Section 7.7. Indemnification...................................... 18
Section 7.8. Adjustments Affecting Registrable
Securities................................... 20
Section 7.9. Rule 144..............................................21
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Notices.............................................. 21
Section 8.2. No Waiver............................................ 22
Section 8.3. Amendments and Waivers............................... 22
Section 8.4. Restrictive Legends.................................. 22
Section 8.5. Governing Law........................................ 23
Section 8.6. Successors and Assigns............................... 23
Section 8.7. Counterparts; Effectiveness...........................24
Section 8.8. Survival of Representation, Warranties
and Covenants................................ 24
Exhibit A - Form of Certificate of Designations of Series C 6 3/4% Cumulative
Convertible Preferred Stock, par value $1.00 per share, of the
Company
Exhibit B - Investment Letter
Exhibit C - Form of Legal Opinion
<PAGE>
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT is dated as of October 26, 1995 and
is between SMITHFIELD FOODS, INC., a Delaware corporation (the "Company"), and
SUMITOMO CORPORATION OF AMERICA, a New York corporation ("Buyer".)
In consideration of the promises, mutual covenants, conditions
and representations and warranties herein contained, the Buyer desires to
purchase from the Company, and the Company desires to sell to the Buyer, the
Shares under the terms and conditions set forth below. Accordingly, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Articles of Incorporation" means the Composite Certificate of
Incorporation of the Company, including the certificate of designations to be
filed for the Series C Preferred Shares, as amended or amended and restated to
the Closing Date.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in Richmond, Virginia or New York, New York,
are authorized by law to close.
"Capital Stock" means the Common Shares, the Series A Preferred
Shares, the Series B Preferred Shares, the Series C Preferred Shares and any
other class or series of common or preferred shares to be created in the future
of the Company.
"Certificate of Designations" means the Company's certificate of
designations for the Series C Preferred Shares to be filed promptly after the
Closing with the Secretary of State of the State of Delaware in substantially
the form of Exhibit A hereto.
"Closing" and "Closing Date" have the respective meanings set
forth in Section 2.2.
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
<PAGE>
"Common Shares" means the Common Stock, par value $.50 per share,
of the Company.
"Company" means Smithfield Foods, Inc., a Delaware corporation,
and its successors and assigns.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute.
"Series A Preferred Shares" means the Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company.
"Series B Preferred Shares" means the Series B 6 3/4% Cumulative
Convertible Preferred Stock, par value $1.00 per share, of the Company.
"Series C Preferred Shares" means the Series C 6 3/4% Cumulative
Convertible Preferred Stock, par value $1.00 per share, of the Company.
"Shares" means any Series C Preferred Shares issued and sold
pursuant to this Agreement.
SECTION 1.2. GENERAL CONSTRUCTION. The words "herein", "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole, including the Exhibits, as the same may from time to time be amended,
modified or supplemented, and not to any particular section, subsection,
paragraph or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated either in the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter.
ARTICLE II
PURCHASE AND SALE
SECTION 2.1. PURCHASE BY THE BUYER. On the terms and conditions
set forth in this Agreement, the Company agrees to issue and sell to the Buyer,
and the Buyer agrees to subscribe for and purchase, two thousand (2,000) Series
C Preferred Shares. The purchase price shall be $10,000 per Share, resulting in
an aggregate purchase price of $20,000,000; and such aggregate purchase price
shall be payable by the Buyer's due delivery to the order of the Company of same
day funds in such amount.
<PAGE>
SECTION 2.2. CLOSING. The closing ("Closing") of the purchase and
sale of the 2,000 Shares shall take place on October 25, 1995 by wire transfer
of funds and telecopied exchange of executed closing documents (with original
executed closing documents to be exchanged promptly thereafter); the Closing
shall be deemed to take place at the offices of McGuire, Woods, Battle and
Boothe, L.L.P., 901 E. Cary Street, Richmond, Virginia 23219 (phone (804)
775-1000, telecopier (804) 775-1061) or at such other place and/or on such other
date to which the Company and the Buyer shall have agreed (such date being
herein referred to as the "Closing Date"). At the Closing, the Buyer shall make
payment of the aggregate purchase price for the Shares, and the Company will
promptly thereafter file the Certificate of Designations, issue a legended
certificate in the name of the Buyer representing the Shares and make an
appropriate corresponding entry in the Company's stock ledger.
ARTICLE III
CONDITIONS TO PURCHASE AND SALE
SECTION 3.1. CONDITIONS TO THE BUYER'S OBLIGATION. The obligation of the Buyer
to purchase the Shares is subject to the satisfaction on the Closing Date of the
following conditions in all material respects:
(i) the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of
the Closing Date;
(ii) on the Closing Date, the Company shall deliver to the
Buyer a certificate signed by its secretary or any assistant secretary
as to the Company's Composite Certificate of Incorporation, as amended,
as to its Bylaws, as to the resolutions of the Company's Board of
Directors relating to the issue and sale of the Shares, this
Subscription Agreement and the distributorship agreement being
contemporaneously executed between the parties hereto and/or their
affiliates, and as to the due authorization, election, incumbency and
signatures of the Company officers signing this Subscription Agreement,
such distributorship agreement or any related document; and as of the
Closing Date the Company shall have commenced its efforts promptly to
file the Certificate of Designations and deliver a duly executed
certificate for the Shares to be issued to the Buyer hereunder,
registered in the name of the Buyer;
(iii) the Company shall have performed all of its
obligations hereunder and complied with all conditions herein required
to be performed or complied with by the Company on or before the
Closing;
<PAGE>
(iv) all authorizations, approvals, and permits, if any,
of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance
and sale of the Shares pursuant to this Agreement shall have been duly
obtained and shall be effective on and as of the Closing;
(v) on or before the Closing Date, the Company shall
deliver to the Buyer copies of any consents, waivers or amendments which
may be necessary under the Company's various loan agreements and debt
instruments for the Company to enter into and perform its obligations
under this Subscription Agreement; and
(vi) the Buyer shall have received from McGuire, Woods,
Battle & Boothe, L.L.P., counsel for the Company, an opinion, dated as
of the Closing, substantially in the form attached as Exhibit C hereto.
SECTION 3.2. CONDITIONS TO THE COMPANY'S OBLIGATION. The
obligation of the Company to sell the Shares is subject to the satisfaction on
the Closing Date of the following conditions in all material respects:
(i) the representations and warranties of the Buyer contained
in this Agreement shall be true and correct on and as of the Closing
Date;
(ii) the Buyer shall have duly executed and delivered to
the Company an investment letter in the form attached hereto as Exhibit
B and a certificate signed by its secretary or assistant secretary as to
the same matters (to the extent appropriate and reasonable) to be
addressed in the corresponding Company certificate required by Section
3.1(ii) above; and
(iii) at the Closing, the Buyer shall deliver the
aggregate purchase price for the Shares to the Company by wire transfer
to an account designated by the Company.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Buyer as of the date
hereof that:
SECTION 4.1. CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted in all material respects; and the Company has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction.
SECTION 4.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; BINDING
EFFECT. The execution, delivery and performance by the Company of this Agreement
and the issuance and delivery of any Shares pursuant to this Agreement are
within the corporate and other power of the Company, have been duly authorized
by all necessary corporate and other action of the Company and its stockholders,
require no action by or in respect of, or filing with, any governmental body,
agency or official (except as may be required or appropriate to secure
exemptions under the Securities Act and under applicable state securities or
Blue Sky laws in respect of the unregistered offer and sale of Shares to be made
hereby), will not contravene the Articles of Incorporation or ByLaws of the
Company and do not and will not contravene in a material manner, or constitute
(with or without the giving of notice or lapse of time or both) a material
default under, any provision of applicable law or regulation or of any mortgage,
indenture, instrument, agreement, judgment, injunction, order, decree or other
instrument binding upon the Company or result in the creation or imposition of
any material lien on any asset of the Company. This Agreement has been duly
authorized, executed and delivered by and constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.
SECTION 4.3. SHARES. The Shares have been duly authorized and,
when issued, sold and delivered in accordance with this Agreement, will be,
validly issued, fully paid and nonassessable and will have on issuance the
rights and preferences provided in the Certificate of Designations for Series C
Preferred Shares. The Common Shares issuable upon conversion of the Series C
Preferred Shares have been (or prior to the Closing will be) duly and validly
reserved and, upon issuance in accordance with the conversion provisions of the
Series C Preferred Shares, will be duly authorized, validly issued, fully paid
and nonassessable.
<PAGE>
SECTION 4.4. OFFERING OF SECURITIES. Neither the Company nor any
Person acting on its behalf has, directly or indirectly, offered any shares of
the Capital Stock or any similar security of the Company for sale to, or
solicited any offers to buy any thereof from, or otherwise approached or
negotiated with respect thereto with, anyone other than the Buyer and certain
other accredited or sophisticated investors, and neither the Company nor any
Person acting on its behalf has taken or will take any action that would cause
the Company's offer, issuance or sale of any Shares hereby to violate the
provisions of Section 5 of the Securities Act or any securities or Blue Sky law
of any applicable jurisdiction.
SECTION 4.5. NO CONFLICTING REQUIREMENTS. The Company is not in
violation of or in default under any term or provision of any charter, by-law,
mortgage, indenture, agreement, instrument, statute, rule, regulation, judgment,
decree, order, writ or injunction applicable to it, such that such violations or
defaults in the aggregate might materially and adversely affect the financial
condition, results of operations, business, properties or prospects of the
Company or the ability of the Company to perform its obligations under this
Agreement or the Articles of Incorporation.
SECTION 4.6. BROKER'S, FINDER'S AND INVESTMENT BANKING FEES AND
COMMISSIONS. No broker's, finder's or investment banking fee or commission has
been or will be payable, or asserted to be payable, by the Company with respect
to the issuance and sale of the Shares or any transaction contemplated thereby
or ancillary thereto, and the Company agrees that all such fees shall be paid by
it and that it will hold Buyer harmless from any claim, demand or liability for
any such broker's, finder's or investment banking fees or commissions incurred
or alleged to have been incurred in connection with any transaction referred to
above in this Section 4.6.
SECTION 4.7. NO MATERIAL MISSTATEMENT OR OMISSION. Since April
30, 1995 (the date on which the Company's most recently ended fiscal year
concluded), the Company has timely filed all reports (including its Annual
Report on Form 10-K for such fiscal year, its Proxy Statement for Annual Meeting
on August 30, 1995, its Quarterly Report on Form 10-Q for the fiscal quarter
ended July 30, 1995 and its Current Report on Form 8-K dated October 6, 1995)
required to be filed by the Company with the Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); when filed,
each of such reports conformed in all material respects to the requirements of
the Exchange Act and the rules and regulations of the Commission thereunder; and
such reports taken as a whole do not, and will not at and as of the Closing
Date, contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in light of the circumstances under which they were made.
<PAGE>
SECTION 4.8. GOVERNMENTAL CONSENTS. All consents, approvals,
orders or authorizations of, or registrations, qualifications, designations,
declarations or filings with any federal or state governmental authority on the
part of the Company required in connection with the consummation of the
transactions contemplated by this Agreement shall have been obtained prior to,
and be effective as of, the Closing, except for any notices of sale required to
be filed with the Commission pursuant to Regulation D promulgated under the
Securities Act or with any state securities law authority pursuant to applicable
Blue Sky laws.
SECTION 4.9. RELIANCE. The Company acknowledges that the Buyer
is entering into this Agreement in reliance upon the Company's representations
and warranties contained herein.
SECTION 4.10. COPIES OF CERTAIN REPORTS. So long as the Buyer
holds any Shares, the Company will furnish promptly to the Buyer copies of all
annual and quarterly reports and proxy statements mailed hereafter by the
Company to holders of its Common Stock from time to time, and copies of all Form
10-Ks, Form 10-Qs and Form 8-Ks filed hereafter by the Company from time to time
with the Commission.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
BY BUYER
The Buyer represents and warrants to the Company as of the date
hereof that:
SECTION 5.1. CORPORATE EXISTENCE AND POWER. The Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of New York.
SECTION 5.2. CORPORATE AND OTHER AUTHORIZATION; BINDING EFFECT.
The execution, delivery and performance by the Buyer of this Agreement are
within the corporate and other power of the Buyer, have been duly authorized by
all necessary corporate and other action of the Buyer and any other relevant
person or entity, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as may be required or appropriate
to secure exemptions under the Securities Act and under applicable state
securities or Blue Sky laws in respect of the unregistered offer and sale of
Shares to be made hereby), and will not contravene the articles of incorporation
or by-laws of the Buyer. This Agreement has been duly authorized, executed and
delivered by and constitutes a valid and binding agreement of the Buyer,
enforceable against the Buyer in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
<PAGE>
SECTION 5.3. INTENTIONALLY OMITTED.
SECTION 5.4. NO CONFLICTING REQUIREMENTS. The Buyer's
performance of its obligations under this Agreement will not violate any term or
provision of any the Buyer's certificate of incorporation or by-laws or any
statute, rule, regulation, judgment, decree, order, writ or injunction
applicable to the Buyer, such that such violations in the aggregate might
materially and adversely affect the ability of the Buyer to perform its
obligations under this Agreement.
SECTION 5.5. SECURITIES LAW COMPLIANCE. The Buyer acknowledges
that the Shares have not been offered or sold to the Buyer by any form of
general solicitation or general advertising. The Buyer agrees that it will not,
directly or indirectly, offer, transfer, sell, pledge, hypothecate or otherwise
dispose of any Shares (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of any Shares), except in compliance with the
Securities Act and the rules and regulations of the Commission thereunder and
with any applicable state securities laws, and except in compliance with Section
8.6 of this Agreement.
SECTION 5.6. INVESTMENT INTENT, ETC. The Buyer is subscribing the
Shares for its own account for investment and not with a view to, or for resale
in connection with, any distribution thereof, and it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment in the Shares and is able to bear the
economic risk of such investment for an indefinite period. It is an "accredited
investor" (as such term is defined in Rule 501 of Regulation D of the Rules and
Regulations of the Commission thereunder) because the Buyer is a corporation,
not formed for the specific purpose of acquiring the Series C Preferred Shares,
with total assets in excess of $5,000,000. The Buyer is aware that none of the
Shares or the Common Shares into which the Shares may be converted have been
registered under the Securities Act or any state securities law, that the Shares
and such Common Shares must be held indefinitely unless they are subsequently
registered or an exemption from such registration is available and that, except
as may be provided in this Agreement the Company is under no obligation to
register any of the Shares or such Common Shares under the Securities Act or any
state securities law. The Buyer further acknowledges that there is not, nor is
there expected to be, any market for the purchase and sale of the Shares.
<PAGE>
SECTION 5.7. INVESTIGATION. Because the transactions contemplated
by the Agreement have been negotiated, the Buyer has not been furnished with any
formal offering memorandum or prospectus, but to the best of the Buyer's
knowledge the Buyer has received from the Company copies of all such information
as the Buyer or its agents have requested. Representatives of the Buyer have had
full opportunity to examine the financial and business affairs of the Company
and to ask questions of its management. Notwithstanding such opportunities and
examinations, the Buyer disclaims any reliance upon any Company financial
projections beyond the extent to which such reliance is expressly contemplated
therein.
SECTION 5.8. RELIANCE. The Buyer acknowledges that the Company
is entering into this Agreement in reliance upon the Buyer's representations and
warranties contained herein.
ARTICLE VI
FURTHER ASSURANCES
From time to time, without further consideration, whether before
or after the Closing, each of the parties hereto, at its own expense, will
execute and deliver such documents to the other party hereto and take such steps
as such other party may reasonably request to facilitate the consummation of the
transactions contemplated hereby.
ARTICLE VII
REGISTRATION RIGHTS
SECTION 7.1. CERTAIN DEFINITIONS. As used in this Article VII
or elsewhere in this Agreement, the following terms have the following meanings:
"Exchange Act" means the Securities Exchange Act of 1934 or any
similar federal statute at the time in effect, and any reference to a particular
section of such Act shall include a reference to the comparable section, if any,
of any such similar federal statute.
"Registrable Securities" means a collective reference to the
Common Shares to be issued upon conversion of the Shares pursuant to the terms
of the Certificate of Designations and this Agreement; provided, however, that
any particular Registrable Securities shall cease to be such when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force or (iv) they shall have ceased to be
outstanding.
<PAGE>
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Article VII, including, without
limitation, all registration, filing and similar expenses, all messenger and
delivery expenses, the reasonable fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses of any
special audits or "comfort" letters required by or incident to such performance
and compliance, printing costs, the reasonable fees and disbursements of counsel
retained by the holder(s) of the Registrable Securities being registered and any
fees and disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions.
SECTION 7.2. DEMAND REGISTRATION.
(a) Right to Request Registration. At any time upon Buyer's
written request to register under the Securities Act all or part of Buyer's
Registrable Securities and specifying the intended method or methods of
disposition thereof (provided, however, that the Registrable Securities in
respect of which such request is made shall represent either (i) all of the
outstanding Series C Preferred Shares held by the Buyer or (ii) at least $1
million market value based on the NASDAQ National Market System quotations in
respect of the Common Shares (or, if no such quotations are available at the
time of such request, based on a customary and reasonable valuation method
determined by the Company)), the Company thereupon will use its best efforts to
effect the registration under the Securities Act of the Registrable Securities
which the Company has been so requested to register by Buyer, for disposition in
accordance with the intended method or methods of disposition stated in such
request provided that if the Company shall have previously effected a
registration pursuant to this Section 7.2, the Company shall not be required to
effect a registration pursuant to this Section 7.2 until a period of three
months shall have elapsed from the effective date of the most recent such
previous registration.
(b) Registration Statement Form. Each registration requested
pursuant to this Section 7.2 shall be effected by the filing of an appropriate
registration form (giving preference to Form S-3 to the extent available to the
Company at the relevant time and for the relevant registration).
<PAGE>
(c) Expenses. The Company will pay all Registration Expenses in
connection with the very first registration of Registrable Securities requested
pursuant to this Section 7.2; Buyer will pay all Registration Expenses in
connection with any subsequent registration of Registrable Securities requested
pursuant to this Section 7.2.
SECTION 7.3. INCIDENTAL REGISTRATION.
(a) Right to Include Registrable Securities. If at any time or
times, the Company intends to file a registration statement under the Securities
Act for the registration with the Commission of an underwritten offering by the
Company on its behalf of the Company's Common Shares, the Company shall notify
Buyer at least 45 days prior to each such filing of the Company's intention to
file such a registration statement. Such notice shall state the number of shares
proposed to be registered thereby. If Buyer notifies the Company within 15 days
after receipt of such notice from the Company of its desire to have included in
such registration statement any of its Registrable Securities, then the Company
shall cause such shares to be included in such registration statement. No
registration of Registrable Securities effected under this Section 7.3 shall
relieve the Company of its obligation to effect registration of Registrable
Securities upon Buyer's request pursuant to Section 7.2. The Company may in its
discretion withdraw any Registration Statement filed pursuant to this Section
7.3 subsequent to its filing without liability to Buyer.
(b) Payment of Expenses. The Company will pay all Registration
Expenses in connection with any registration of Registrable Securities requested
pursuant to this Section 7.3; provided, however, that the Buyer shall pay the
fees and disbursements of the Buyer's own counsel and any federal and state
registration fees in respect of such Registrable Securities.
(c) Limitation. In the event that the managing underwriter for
any such offering described in this Section 7.3 notifies the Company that, in
good faith, it is able to proceed with the proposed offering only with respect
to a smaller number (the "Maximum Number") of securities and Registrable
Securities than the total number of Registrable Securities proposed to be
offered by the Buyer and securities proposed to be offered by the Company, then
the Buyer shall be entitled to sell pursuant to such registration not more than
the difference between the Maximum Number and the number of shares proposed to
be offered by the Company.
<PAGE>
SECTION 7.4. REGISTRATION PROCEDURES. If and whenever the Company
is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Sections 7.2 and
7.3, the Company will as expeditiously as possible:
(i) prepare and (in any event within 60 days after
delivery of the relevant request under 7.2 or after the end of the
period within which requests for registration may be delivered to the
Company under 7.3, whichever is later) file with the Commission a
registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become
effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities and
other securities covered by such registration statement until the
earlier of (a) such time as all of such Registrable Securities have been
disposed of by Buyer in accordance with the intended methods of
disposition set forth in such registration statement or (b) the
expiration of 60 days after such registration statement becomes
effective, and will furnish to Buyer at least five Business Days prior
to the filing thereof a copy of any amendment or supplement to such
registration statement or prospectus and shall not file any such
amendment or supplement to which Buyer shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the
rules or regulations thereunder;
(iii) furnish to Buyer such number of conformed copies of such
registration statement and of each such amendment thereof and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with
the requirements of the Securities Act, such documents, if any,
incorporated by reference in such registration statement or prospectus,
and such other documents as Buyer may reasonably request;
(iv) use its best efforts to register or qualify all
Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as Buyer shall
reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and do any
and all other acts and things which may be necessary or advisable to
enable Buyer to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this clause (iv) be
obligated to be so qualified, or to subject itself to taxation in any
such jurisdiction, or to consent to general service of process in any
such jurisdiction;
<PAGE>
(v) furnish Buyer a signed counterpart, addressed to it,
of (i) an opinion of counsel for the Company, dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement, covering substantially the same
matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities and, in the case of the accountants' letter,
such other financial matters, as Buyer may reasonably request;
(vi) immediately notify Buyer, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, and at Buyer's request supply such
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(vii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first month of the first fiscal
quarter after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
<PAGE>
(viii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement; and
(ix) use its best efforts to have all shares covered by such
registration statement quoted on NASDAQ or, at the option of the
Company, listed on a national securities exchange.
The Company may require Buyer to furnish the Company such information regarding
Buyer and the distribution of such securities as the Company may from time to
time reasonably request in writing and as shall be required by law or by the
Commission in connection therewith.
SECTION 7.5. UNDERWRITTEN OFFERINGS.
(a) Underwriting Agreement. If requested by the underwriters for
any underwritten offering of Registrable Securities on behalf of a holder of
Registrable Securities pursuant to a registration requested under Section 7.2,
the Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities to the effect and to the extent provided in
Section 7.7. The holder of Registrable Securities on whose behalf Registrable
Securities are to be distributed by such underwriters shall be a party to any
such underwriting agreement and the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters, shall also be made to and for the benefit of such holder of
Registrable Securities. Such holder of Registrable Securities shall not be
required by the Company to make any representations or warranties to or
agreements with the Company or the underwriters other than reasonable
representations, warranties or agreements regarding such holder, such holder's
Registrable Securities and such holder's intended method or methods of
disposition and any other representation required by law.
(b) Incidental Underwritten Offerings. If any Registrable
Securities are to be included in a registration statement as contemplated by
Section 7.3 among the securities to be distributed by or through one or more
<PAGE>
underwriters, the holder of Registrable Securities to be distributed by such
underwriters shall be a party to the underwriting agreement between the Company
and such underwriters and the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters, shall also be made to and for the benefit of such holder of
Registrable Securities, and the Company will cooperate with such holder of
Registrable Securities to the end that the conditions precedent to the
obligations of such holder of Registrable Securities under such underwriting
agreement shall not include conditions that are not customary in underwriting
agreements with respect to combined primary and secondary distributions and
shall be otherwise reasonably satisfactory to such holder. Such holder of
Registrable Securities shall not be required by the Company to make any
representations or warranties to or agreements with the Company or the
underwriters other than reasonable representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such holder's
intended method or methods of distribution and any other representation required
by law.
(c) Selection of Underwriters. Whenever a registration requested
pursuant to Section 7.2 is for an underwritten offering, the holder of the
Registrable Securities included in such registration shall have the right to
select the managing underwriter to administer the offering subject to the
approval of the Company, such approval not to be unreasonably withheld. If the
Company at any time proposes to register any of its securities under the
Securities Act for sale for its own account and such securities are to be
distributed by or through one or more underwriters, the managing underwriter
shall be selected by the Company.
(d) Holdback Agreements. If any registration pursuant to Section
7.2 or 7.3 shall be in connection with an underwritten public offering, each
holder of Registrable Securities agrees by acquisition of such Registrable
Securities, if so required by the managing underwriter, not to effect any public
sales or distribution of Registrable Securities (other than as part of such
underwritten public offering) within the period from ten days prior to the
effective date of such registration statement to 90 days after the effective
date of such registration statement.
SECTION 7.6. PREPARATION; REASONABLE INVESTIGATION. In connection
with the preparation and filing of each registration statement registering
Registrable Securities under the Securities Act, the Company will give the
holders of Registrable Securities on whose behalf such Registrable Securities
are to be so registered and their underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such holders and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
<PAGE>
SECTION 7.7. INDEMNIFICATION.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to Section 7.2 or 7.3, the Company will, and hereby does, indemnify and hold
harmless the Buyer, its directors and officers, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls Buyer or any such underwriter within the
meaning of the Securities Act, and their agents, against any losses, claims,
damages, liabilities or expenses, joint or several, to which Buyer or any such
director or officer or participating or controlling Person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) arise out
of or are based upon (x) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such securi
ties were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment thereof or
supplement thereto, or any document incorporated by reference therein, or (y)
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, and
the Company will reimburse the Buyer and each of the Buyer's directors,
officers, participating Persons, controlling Persons or agents for any legal or
other expenses reasonably incurred by them in connection with investigation or
defending any such loss, claim, liability, action or proceeding, or (z) any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration; provided that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense (or action or proceed ing in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such prelimi nary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Buyer or any of the Buyer's
directors, officers, participating Persons, controlling Persons or agents
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Buyer or any of the Buyer's directors, officers,
participating Persons, controlling Persons or agents and shall survive any
transfer of such securities by the Buyer. The Company shall agree to a provision
for contribution relating to such indemnity as shall be reasonably requested by
the Buyer or the underwriters.
<PAGE>
(b) Indemnification by the Buyer. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 7.4, that the Company shall have received an
undertaking satisfactory to it from the Buyer as prospective seller of such
securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 7.7) the Company, each
director of the Company, each officer of the Company who shall sign such
registration statement, each other Person who participates as an underwriter in
the offering or sale of such securities and each other Person, if any, who
controls the Company within the meaning of the Securities Act, with respect to
any statement in or omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus included therein, or any
amendment thereof or supplement thereto, if such statement or omission was made
in reliance upon and in conformity with written information furnished to the
Company by the Buyer specifically stating that it is for use in the preparation
of such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company or any such director, officer, participating Person or controlling
Person and shall survive the transfer of such securities by the Buyer. The Buyer
shall agree to a provision for contribution relating to such indemnity as shall
be reasonably requested by the Company or the underwriters.
(c) Notice of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 7.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 7.7. In case any such action is
brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation.
<PAGE>
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 7.7 (with appropriate
modifications) shall be given by the Company and the Buyer with respect to any
required registration or other qualification of such Registrable Securities
under any federal or state law or regulation of a governmental authority other
than the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 7.7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
SECTION 7.8. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The
Company will not effect or permit to occur any combination or subdivision of
Capital Stock which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in any
registration of securities contemplated by this Article VII or the marketability
of such Registrable Securities under any such registration.
SECTION 7.9. RULE 144. The Company will timely file the reports
and any other documents required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, the Company
will, upon the request of any holder of Registrable Securities, make publicly
available other information), and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell shares of Registrable Securities
without registration under the Securities Act within the limitations of the
exemptions provided by (i) Rule 144 under the Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement, if such is the case, to
the effect that the Company has complied with the reporting requirements of Rule
144 and of the Securities Act and the Exchange Act and will supply a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents so filed by the Company as may be reasonably requested in order to
avail the Buyer of any rule or regulation of the Commission permitting the sale
of any such securities without registration.
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NOTICES. All notices, requests and other communications to either
party hereunder shall be in writing (including bank wire, telecopy, facsimile,
telex or similar writing), and shall be given to such party at the following
addresses:
if to the Company,
501 North Church Street
Smithfield, Virginia 23430
Attn.: Aaron D. Trub, Vice President, Secretary and
Treasurer
telephone: (804) 357-1373
telecopier: (804) 357-1331
with a copy to,
Robert L. Burrus, Esquire
McGuire, Woods, Battle & Boothe, L.L.P.
One James Center
Richmond, Virginia 23219
telephone: (804) 775-1000
telecopier: (804) 775-1061
and, if to the Buyer,
Sumitomo Corporation of America
San Francisco Office
1 California Street, Suite 2300
San Francisco, California 94111
telephone: (415) 984-3200
telecopier: (415) 984-3230
telex: 278202 "278202 SUM UR:
with a copy to,
Sumitomo Corporation
24-1, Kanda-nishikicho 3-chome,
Chiyoda-ku, Tokyo 100, Japan
Attention: Meat and Dairy Products Department
telecopier: 011-81-3-32962579
telex: 22202 "SUMIT X J22202
or such other address as such party may hereafter specify for that purpose. Each
such notice, request or other communication shall be effective as follows: if
given by mail, five days after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid; and if given by any other
means, when delivered at the address specified in this Section 8.1.
<PAGE>
SECTION 8.2. NO WAIVER. No failure or delay by the Buyer or the
Company in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 8.3. AMENDMENTS AND WAIVERS. Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and is signed by the Company and by the holders of a majority of the
Series C Preferred Shares including for such purposes, on a proportional basis,
any Registrable Securities. Any amendment or waiver effected in accordance with
this Section shall be binding upon each holder of Series C Preferred Shares or
Registrable Securities at the time outstanding, upon each future holder of any
such securities and upon the Company.
SECTION 8.4. RESTRICTIVE LEGENDS. The Buyer and the Company agree
that the Company shall permit transfers of the Shares or the Common Shares into
which any such Shares are converted only when the Shares or such Common Shares
shall have been registered under the Securities Act and any applicable state
securities law or when the Buyer's request for transfer is accompanied by an
opinion of counsel, which opinion and counsel shall be reasonably acceptable to
the Company and its counsel, to the effect that the sale or other proposed
transfer does not require registration under the Securities Act or any state
securities laws. Any certificate representing Shares shall, if the Company so
desires, bear a legend in the following form:
"Neither the securities represented by this certificate nor the
securities into which such securities may be converted have been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state, and none may be sold, transferred or
otherwise disposed of unless they have been registered under the Act and
such state laws or in the opinion of counsel (which opinion and counsel
shall be reasonably acceptable to the Company) exemptions are
available."
Any Registrable Securities shall bear a corresponding legend. Other legends
required by applicable state or federal law shall be placed on such
certificates. The Buyer acknowledges receipt prior to its execution of this
Agreement of written disclosure that neither the Shares nor the Common Shares
into which the Shares may be converted have been registered under the Securities
Act and, therefore, none can be resold unless they are registered under the Act
or an exemption from registration is available.
<PAGE>
SECTION 8.5. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the internal laws of the Commonwealth of
Virginia. To the full extent lawful, each of the Company and the Buyer hereby
consents irrevocably to personal service, jurisdiction and venue in connection
with any claim arising out of this Agreement, the Certificate of Designations
the Shares or the Registrable Securities, in the courts of the Commonwealth of
Virginia located in Richmond, Virginia and in the federal courts in the Eastern
District of Virginia.
SECTION 8.6. SUCCESSORS AND ASSIGNS. All of the provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Neither the Buyer nor the
Company may assign or transfer any of its rights or obligations under this
Agreement (as distinguished from rights granted to the holder(s) of the Shares
under the Certificate of Designations) other than by operation of law; provided,
however, that in the event of the Buyer's transferring (consistent with the
other terms of this Agreement) (i) to Sumitomo Corporation, a Japanese
corporation and the parent of the Buyer, or to any wholly-owned subsidiary of
the Buyer, any amount of Shares or Registrable Securities, or (ii) to any other
third party, 1,000 or more Shares or an equivalent amount of Registrable
Securities into which such Shares have been converted, and such parent's,
subsidiary's or third party's agreeing in writing to become bound by this
Agreement as fully as the Buyer hereunder, then in any such case such parent,
subsidiary or third party, as the case may be, shall be entitled to registration
rights in respect of such Series C Preferred Shares or Registrable Securities to
the same extent as the Buyer pursuant to Article VII hereof. No purchaser (if
any) of any Shares from the Buyer shall be deemed a successor or assign by
reason merely of such purchase. Nothing in this Section 8.6 overrides the
restrictions contained in Section 5.5 above.
SECTION 8.7. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in counterparts, each of which shall be an original, and all of which
taken together shall constitute a single agreement, with the same effect as if
the signatures thereto and hereto were upon the same instrument. Either party's
execution and delivery of this Agreement may be evidenced by physical delivery
or by telegraphic, telecopier, facsimile or other written communication of such
executed Agreement or executed counterpart to the other party. This Agreement
embodies the entire agreement and understanding between the parties and
supersedes any prior agreements and understandings related to its subject
matter. If any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect, such determination shall not affect such provision
in any other respect or any other provision of this Agreement, which shall
remain in full force and effect.
<PAGE>
SECTION 8.8. SURVIVAL OF REPRESENTATION, WARRANTIES AND
COVENANTS. All of the representations, warranties and covenants contained in
this Agreement shall survive, and shall continue in effect following, the
Closing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SMITHFIELD FOODS, INC.
By: /s/ JOSEPH W. LUTER, III
JOSEPH W. LUTER, III
Title: Chairman and Chief
Executive Officer
Attest
By: /s/ AARON D. TRUB
AARON D. TRUB
Title: Vice President, Secretary
and Treasurer
SUMITOMO CORPORATION OF AMERICA
By: /s/ KOICHI WATANABE
KOICHI WATANABE
Title: Vice President and
General Manager
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
of
SERIES C 6 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
SMITHFIELD FOODS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------------
Smithfield Foods, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on October 23, 1995:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Composite
Certificate of Incorporation, as amended, the Board of Directors hereby creates
a series of Preferred Stock, par value $1.00 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of shares, and
fixes the relative powers, rights, preferences, and limitations thereof as
follows:
Series C 6 3/4% Cumulative Convertible Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series C 6 3/4% Cumulative Convertible Preferred Stock" (the
"Series C Preferred Stock") and the number of shares constituting the Series C
Preferred Stock shall be 2,000.
Section 2. Dividends. The holders of the outstanding shares of Series
C Preferred Stock shall be entitled to receive, if, when and as declared by the
Board of Directors of the
<PAGE>
Corporation, and when not prohibited by law, cash dividends at the rate and
payable on the dates hereinafter set forth. The rate of dividends payable on the
shares of Series C Preferred Stock shall be $675.00 per share per annum (rounded
upward to the nearest whole $.01) and no more. Dividends shall be payable in
equal quarterly installments on the first day of January, April, July and
October of each year (the "Payment Dates"), commencing, in the case of any share
of Series C Preferred Stock, on January 1, 1996. The initial dividend payment
will be computed by multiplying the annual rate divided by 360 times the number
of days in the period from and including the Issuance Date of Series C Preferred
Stock to the first installment Payment Date. Dividends shall be cumulative and
accumulate on the Series C Preferred Stock from and after the Issuance Date.
Dividends payable on the first installment Payment Date following issuance and
on the date fixed for any redemption of shares of Series C Preferred Stock
pursuant to Sections 7 or 8 hereof which is not a Payment Date, shall be
calculated on the basis of a 360-day year and the actual number of days elapsed.
Dividends will be payable to holders of record as they appear on the stock books
of the Corporation on such record dates as shall be fixed by the Board of
Directors of the Corporation (the "Record Dates").
Section 3. Voting Rights. The holders of shares of Series C Preferred
Stock shall have the following voting rights:
(A) Except for the voting rights expressly conferred by this Section 3
and except to the extent provided by law, the holders of shares of Series C
Preferred Stock shall not be entitled (a) to vote on any matter or (b) to
receive notice of, or to participate in, any meeting of stockholders of the
Corporation at which the holders of shares of Series C Preferred Stock are not
entitled to vote.
(B) The approval of a majority of the outstanding shares of the Series C
Preferred Stock, voting as a separate voting group, shall be required for (i)
the adoption of any amendment to the Composite Certificate of Incorporation, as
amended through the time of filing of this Certificate of Designations, that
materially adversely affects the powers, preferences, limitations and rights of
the Series C Preferred Stock (it being expressly stated that an increase in the
number of Directors of the Corporation is not such an adverse change, provided
that this statement is made as a matter of clarification and shall not be read
as implying that in the absence of this parenthetical statement such an increase
would constitute such an adverse change) or (ii) for the issuance of any shares
of Capital Stock other than Junior Stock. Except for cases covered by the
preceding sentence of this paragraph (B), whenever the holders of the Series C
Preferred Stock are entitled under the Delaware General Corporation Law to vote
as a separate voting group on an amendment of the Composite Certificate of
Incorporation, as amended, a plan of merger, or a plan of share exchange, the
vote required for the approval of such amendment shall be a majority
<PAGE>
of all votes cast on the amendment, plan of merger or plan of share exchange by
the holders of the Series C Preferred Stock at a meeting at which the holders of
a majority of the outstanding shares of Series C Preferred Stock are represented
in person or by proxy.
(C) The holders of the outstanding shares of Series C Preferred Stock
shall also have the right, voting as a separate voting group, to elect two
members of the Board of Directors of the Corporation at any time four or more
quarterly dividends on any shares of Series C Preferred Stock shall be in
arrears and unpaid, in whole or in part, whether or not declared and whether or
not any funds shall be or have been legally available for payment thereof. In
such event, unless a regular meeting of the stockholders of the Corporation is
to be held within 60 days thereof for the purpose of electing Directors, the
Corporation shall promptly thereafter cause the number of Directors of the
Corporation to be increased by two, and, within 15 days thereafter, shall call a
special meeting of the holders of the outstanding shares of Series C Preferred
Stock for the purpose of electing such Directors to take place at the time
specified in the notice of the meeting, to be not more than 60 days after such
holders become so entitled to elect two Directors and not less than ten nor more
than 50 days after the date on which such notice is mailed. If such special
meeting shall not have been so called by the Corporation, or such regular
meeting shall not be so held, a special meeting may be called for such purpose
at the expense of the Corporation by the holders of not less than 10% of the
outstanding shares of Series C Preferred Stock; and notice of any such special
meeting shall be given by the person or persons calling the same to the holders
of the outstanding shares of the Series C Preferred Stock by first-class mail,
postage prepaid, at their last addresses as shall appear on the stock transfer
records of the Corporation (which records the Corporation hereby agrees to make
available for such purpose at reasonable times upon request and as otherwise
required by applicable law). At any such special meeting the holders of a
majority of the outstanding shares of Series C Preferred Stock shall elect two
members of the Board of Directors of the Corporation. If a regular meeting of
the stockholders of the Corporation for the purpose of electing Directors is to
be held within 60 days after the time the holders of the outstanding shares of
Series C Preferred Stock become so entitled to elect two Directors, then the
holders of the outstanding shares of Series C Preferred Stock shall be given
notice thereof in the same manner as other stockholders of the Corporation
entitled to vote thereat; and at such regular meeting, the holders of the
outstanding shares of Series C Preferred Stock, voting as a separate voting
group with each share having one vote, shall elect two members of the Board of
Directors. The right of the holders of the Series C Preferred Stock, voting as a
separate voting group, to elect two members of the Board of Directors of the
Corporation shall continue until such time as no dividends on any outstanding
shares of Series C Preferred Stock are in arrears and unpaid, in whole or in
part,
<PAGE>
at which time (i) the voting power of the holders of the outstanding shares of
Series C Preferred Stock so to elect two directors shall cease, but always
subject to the same provisions of this paragraph (C) for the vesting of such
voting power upon the occurrence of each and every like arrearage of dividends,
and (ii) the term of office of each member of the Board of Directors who was
elected pursuant to this paragraph (C) shall automatically expire.
(D) Except as set forth herein, or as otherwise provided by law, holders
of Series C Preferred Stock shall have no special voting rights, and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series C Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of Junior Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of Parity Stock, except dividends paid ratably on the
Series C Preferred Stock and all such Parity Stock on which dividends
are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any Junior Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such Junior
Stock in exchange solely for shares of any other Junior Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Parity Stock, except in ac cordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any Subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation
<PAGE>
could, under paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Composite Certificate of Incorporation, as amended, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of Junior Stock unless, prior thereto, the holders of
shares of Series C Preferred Stock shall have received $10,000 per share, plus
an amount equal to Dividends Accumulated and distributions thereon, whether or
not declared, to the date of such payment, or (2) to the holders of shares of
Parity Stock except distributions made ratably on the Series C Preferred Stock
and all such Parity Stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up.
Section 7. Optional Redemption.
(A) The Corporation may, at its option, redeem shares of Series C
Preferred Stock, in whole or in part, at any time from time to time at a
redemption price of $10,000 per share, plus in each case a premium of (i) prior
to October 25, 1998, $1,000 per share, (ii) from October 25, 1998 through
October 24, 2001, $600.00 per share, and (iii) from October 25, 2001 through
October 24, 2005, $400.00 per share, in each case with any Dividends Accumulated
to the date fixed for redemption.
(B) In case less than all of the outstanding shares of Series C
Preferred Stock are to be redeemed, not more than 60 days prior to the date
fixed for redemption the Corporation shall select the shares to be redeemed. The
Corporation shall select by proration, by lot or otherwise the shares to be so
redeemed among the holders thereof. The Corporation shall make such adjustments,
reallocations and eliminations as it shall deem proper by increasing or
decreasing or eliminating the number of shares to be redeemed which would be
allocable to any one holder on the basis of exact proration, selection by lot or
any such other method of selection by not more than ten shares to the end that
the number of shares so prorated shall be integral multiples of ten shares. The
Corporation in its discretion may elect the particular certificates (if there
are more than one) representing
<PAGE>
shares registered in the name of a holder that are to be redeemed.
(C) Not less than 30 nor more than 60 days prior to the date fixed for
any redemption pursuant to this Section 7, notice of redemption shall be given
by first-class mail, postage prepaid, to the holders of record of the
outstanding shares of the Series C Preferred Stock to be redeemed at their last
addresses as shown by the Corporation's stock transfer records. The notice of
redemption shall set forth the number of shares to be redeemed, the date fixed
for redemption, the applicable redemption price or prices (including the amount
of Dividends Accumulated to the date fixed for the redemption), and the place or
places where certificates representing shares to be redeemed may be surrendered.
In case less than all outstanding shares are to be redeemed, the notice of
redemption shall also set forth the numbers of the certificates representing
shares to be redeemed and, in case less than all shares represented by any such
certificate are to be redeemed, the number of shares represented by such
certificate to be redeemed.
(D) If notice of redemption of any outstanding shares of Series C
Preferred Stock shall have been duly mailed as herein provided, on or before the
date fixed for redemption the Corporation shall deposit in cash funds sufficient
to pay the redemption price (including Dividends Accumulated to the date fixed
for redemption) of such shares in trust for the benefit of the holders of shares
to be redeemed with any bank or trust company in the City of Richmond, State of
Virginia, or Borough of Manhattan, City and State of New York, having capital
and surplus aggregating at least $50,000,000 as of the date of its most recent
report of financial condition (with the Corporation giving preference to such a
bank or trust company having long-term debt obligations rated by Standard &
Poors, Inc. in one of its three highest rating categories), named in such
notice, to be applied to the redemption of the shares so called for redemption
against surrender for cancellation of the certificates representing shares so
redeemed. From and after the time of such deposit all shares for the redemption
of which such deposit shall have been made shall, whether or not the
certificates therefor shall have been surrendered for cancellation, be deemed no
longer to be outstanding for any purpose, and all rights with respect to such
shares shall thereupon cease and determine except the right to receive payment
of the redemption price (including Dividends Accumulated to the date fixed for
redemption), but without interest. Any interest earned on funds so deposited
shall be paid to the Corporation from time to time. Any funds so deposited and
unclaimed at the end of two years (or such longer period as may be required by
law) from the date fixed for redemption shall be repaid to the Corporation free
of trust, and the holders of the shares called for redemption who have not
surrendered certificates representing such shares prior to such repayment shall
be deemed to be unsecured creditors of the Corporation for the amount of the
redemption price (including
<PAGE>
Dividends Accumulated to the date fixed for redemption) thereof and shall look
only to the Corporation for payment thereof, without interest, subject to the
Delaware General Corporation Law.
(E) The Corporation shall also have the right to acquire outstanding
shares of Series C Preferred Stock otherwise than by redemption pursuant to this
Section 7 from time to time for such consideration as may be acceptable to the
holders thereof.
(F) Shares of Series C Preferred Stock purchased, redeemed or otherwise
acquired by the Corporation shall become authorized and unissued shares of
Preferred Stock which may be designated as shares of any other series. No
additional shares of Preferred Stock, however, may be classified as Series C
Preferred Stock.
Section 8. Mandatory Redemption. On the tenth anniversary of the
Issuance Date (or, if such date is not a Business Day, the Business Day
immediately following such anniversary), the Corporation shall redeem all then
outstanding shares of Series C Preferred Stock, at a redemption price of $10,000
per share, plus an amount equal to Dividends Accumulated thereon. Such
redemption shall in all relevant respects be conducted in accordance with the
terms and procedures set forth in Paragraphs (C) and (D) of Section 7 above.
Section 9. Conversion. The holders of the Series C Preferred Stock
shall have conversion rights (the "Conversion Rights") as follows:
(A) Right to Convert. Each share of Series C Preferred Stock shall be
convertible at the option of the holder thereof, and, except as otherwise
provided by this Section 9, such right to convert may be exercised at any time
after the date of issuance of such share.
(i) Series C Conversion. If such right of conversion is exercised
as to any share of Series C Preferred Stock, such share shall convert into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $10,000 by the Conversion Price hereinafter defined in effect at the
time of the conversion.
(ii) Effect of Redemption on Conversion. In the event of a call
for redemption of any shares of Series C Preferred Stock pursuant to Sections 7
or 8 hereof, the Conversion Rights shall cease to be exercisable as to the
number of shares designated for redemption at the close of business on the
thirtieth day after notice of redemption, and any right to receive payment of
the redemption price (including Dividends Accumulated to the date fixed for
redemption) shall terminate as to such shares upon the conversion of such shares
into Common Stock pursuant to this Section; provided, however, that if such
shares shall not have been converted under this Section because
<PAGE>
of default in payment of the redemption price (that is, default by the
Corporation on its obligation under Section 7(D) to make the required cash
deposit on or before the date fixed for redemption), the Conversion Rights for
such shares shall continue. A holder's rights with respect to current and
accumulated dividends on any share for which such right of conversion is
exercised shall continue (but no further dividends shall cumulate) in the manner
specified in Section 2, and shall be declarable and payable to the holder of
record for such share as of the date of such exercise at such time and to the
same extent that dividends with respect to the same fiscal quarters are declared
and paid to all holders of Series C Preferred Stock.
(iii) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series C Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Preferred Stock may exercise
his right to convert the same into full shares of Common Stock pursuant to this
Section, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
such shares, and shall give written notice to the Corporation at such office
that he elects to convert the same and shall state therein his name or the name
or names of his nominees in which he wishes the certificate or certificates for
shares of Common Stock to be issued and his agreement to pay any applicable
transfer taxes. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Preferred Stock, or to his nominee
or nominees, a certificate or certificates for the number of shares of Common
Stock to which he shall be entitled pursuant to this Section, together with cash
in lieu of any fraction of a share, if applicable. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted and the
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such time. Notwithstanding the above, if the
holder of Preferred Stock is exercising his right of conversion pursuant to this
Section subsequent to notice, and in anticipation, of any redemption, he may so
specify in his written notice to the Corporation and such shares shall be
converted only if there has been no default in payment of the redemption price
(that is, no default by the Corporation on its obligation under Section 7(D) to
make the required cash deposit on or before the date fixed for redemption). Any
such conversion shall be deemed to have been made immediately prior to such
redemption, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such instant and
shall have no right
<PAGE>
to receive payment of the redemption price (including Dividends Accumulated to
the date fixed for redemption).
(B) Conversion Price. The "Conversion Price" with respect to the Series
C Preferred Stock shall be, as of the Issuance Date, $30.00 per share of Common
Stock. Such initial Conversion Price shall be subject to adjustment as
hereinafter provided.
(C) Adjustments to Conversion Price of Diluting Events.
(i) Stock Dividends, Splits, or Recapitalizations. In the event
at any time, or from time to time after the Issuance Date, there is (i) a
subdivision, combination, or consolidation of the Corporation's Common Stock
into a greater or lesser number of shares of Common Stock (by capital
reorganization, reclassification or otherwise than by payment of a dividend in
Common Stock); (ii) the declaration or payment by the Corporation of any
dividend on the Common Stock which is payable in additional Common Stock; or
(iii) any other increase or decrease in the outstanding Common Stock of the
Corporation effected without receipt of consideration by the Corporation (other
than Common Stock issuable upon any conversion of Preferred Stock pursuant to
this Section), then and in any such event, the Conversion Price shall be
adjusted to the price (calculated to the nearest cent) determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to the diluting event
described hereinabove, and the denominator of which shall be the number of
shares of Common Stock outstanding after such diluting event. In the case of
any stock dividend, such adjustment shall be effective immediately after the
close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend. In the case of any other
such diluting event, such adjustment shall be effective at the close of business
on the date immediately prior to the date on which such corporate action becomes
effective. After such adjustment is made, the adjusted Conversion Price shall
constitute and remain the Conversion Price for all purposes hereunder unless and
until it is again subject to adjustment pursuant to the terms hereof.
(ii) Adjustments for Mergers or Reorganization, Etc. In the event
of any consolidation or merger of the Corporation with or into any other
corporation or the conveyance of all or substantially all of the assets of the
Corporation to another corporation in exchange for securities (in whole or in
part), each share of Series C Preferred Stock shall thereafter be convertible
into the number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Series C Preferred Stock, immediately prior to the
effectiveness of such consolidation, merger or conveyance would have been
entitled upon such consolidation, merger or conveyance. In addition, in any such
case, appropriate adjustment (as
<PAGE>
determined by the Board of Directors) shall be made in the application of the
provisions set forth in this Section with respect to the rights and interest,
after any such conversion, of the holders of the Series C Preferred Stock, to
the end that the provisions set forth in this Section (including without
limitation provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably
possible, in relation to the shares of stock or other securities or property
thereafter deliverable upon the conversion of the Series C Preferred Stock.
(D) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in reasonable detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the reasonable
written request at any time of any holder of Series C Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Price with respect to
such holder's Series C Preferred Stock at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received by such holder upon the conversion of such
Preferred Stock.
(E) Notices of Common Stock Record Dates. In the event of any taking by
the Corporation of a record of the holders of the Common Stock or any other
class of securities into which the Series C Preferred Stock is convertible for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, the Corporation shall mail to each holder of
Series C Preferred Stock, at least ten days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
(F) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
all the Series C Preferred Stock.
Section 10. Definitions. For the purpose of this resolution, the word
"corporation" shall be deemed to include corporations, associations, companies
and business trusts and, unless the context otherwise requires, the following
terms shall have the following meanings:
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking
<PAGE>
institutions in Richmond, Virginia are authorized or obligated by law to close.
"Capital Stock" means any capital stock of any class or series (however
designated) of the Corporation.
"Common Stock" means the Common Stock, par value $.50 per share, of the
Corporation.
"Dividends Accumulated" means with respect to any shares of Series C
Preferred Stock, an amount equal to the dividends thereon at the dividend rate
per annum computed from the Issuance Date to the date to which reference is
made, whether such amount or any part thereof shall have been declared as
dividends and whether there shall be or have been any funds out of which such
dividends might legally be paid, less the amount of dividends declared and paid
thereon and, if any dividends thereon have been declared but not paid, the
amount set apart for the payment of such dividends.
"Issuance Date" shall mean the first date of issuance of any shares of
Series C Preferred Stock.
"Junior Stock" means any Capital Stock ranking as to dividends or as to
rights in liquidation, dissolution or winding up of the affairs of the
Corporation junior to Series C Preferred Stock. At the date hereof, the
Corporation's Junior Stock is comprised solely of the Common Stock and the
Series A Junior Participating Preferred Stock, par value $1.00 per share.
"Parity Stock" means any Capital Stock ranking as to dividends or as to
rights in liquidation, dissolution or winding up the affairs of the Corporation
equally with the Series C Preferred Stock. At the date hereof, the Corporation's
Parity Stock is comprised solely of the Series B 6 3/4% Cumulative Convertible
Preferred Stock, par value $1.00 per share.
"Payment Date" is defined in Section 2 hereof.
"Record Date" is defined in Section 2 hereof.
"Subsidiary" means any corporation a majority of the outstanding Voting
Stock of which is owned, directly or indirectly, by the Corporation or by one or
more Subsidiaries or by the Corporation and one or more Subsidiaries. For this
purpose, "Voting Stock" means stock of any class or classes (however designated)
having ordinary voting power for the election of a majority of the members of
the board of directors (or other governing body) of such corporation, other than
stock having such powers only by reason of the happening of a contingency.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chairman and Chief Executive Officer and
attested by its Secretary this 23rd day of October, 1995.
------------------------------------
(Corporate Seal) Joseph W. Luter, III
Chairman and Chief Executive Officer
Attest:
- -------------------------------
Aaron D. Trub
Vice President, Secretary and
Treasurer
<PAGE>
EXHIBIT B
Dated as of the Closing Date under
the Agreement referred to below
Smithfield Foods, Inc.
Gentlemen:
In connection with its purchase of 2,000 shares of Series C 6 3/4% Cumulative
Convertible Preferred Stock, par value $1.00 per share (the "Shares"),
convertible by their terms into shares of Common Stock, par value $.50 per share
("Common Shares"),of Smithfield Foods, Inc. (the "Company") to be issued
pursuant to a Subscription Agreement (the "Agreement") dated as of October 25,
1995 between the Company and Sumitomo Corporation of America, a New York
corporation (the "Buyer"), the Buyer represents to the Company the following:
1. The Buyer acknowledges that the Shares and the Common Shares into which
the Shares may be converted have not been offered or sold to the Buyer
by any form of general solicitation or general advertising. The Buyer
agrees that it will not, directly or indirectly, offer, transfer, sell,
pledge, hypothecate or otherwise dispose of any Shares or Common Shares
(or solicit any offers to buy, purchase or otherwise acquire or take a
pledge of any Shares or Common Shares), except in compliance with the
Securities Act and the rules and regulations of the Commission
thereunder and with any applicable state securities laws.
2. The Buyer is subscribing for and acquiring the Shares (and the Common
Shares into which such Shares may be converted) for its own account for
investment and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933.
3. The Buyer has such knowledge and experience in financial and business
matters that the Buyer is capable of evaluating the merits and risks of
the investment in the Shares (and the Common Shares into which such
Shares may be converted) and is able to bear the economic risk of such
investment for an indefinite period.
4. The Buyer is an "accredited investor" within the meaning of Rule 501 of
Regulation D of the Rules and Regulations of the Securities and Exchange
Commission as presently in effect,
<PAGE>
because the Buyer is a corporation, not formed for the specific purpose
of acquiring the Series C Preferred Shares, with total assets in excess
of $5,000,000. The Buyer is aware that none of the Shares or the Common
Shares into which the Shares may be converted have been registered under
the Securities Act or any state securities law, that the Shares and such
Common Shares must be held indefinitely unless they are subsequently
registered or an exemption from such registration is available and that,
except as may be provided in the Agreement the Company is under no
obligation to register any of the Shares or such Common Shares under the
Securities Act or any state securities law. The Buyer further
acknowledges that there is not, nor is there expected to be, any market
for the purchase and sale of the Shares.
5. Because the transactions contemplated by the Agreement have been
negotiated, the Buyer has not been furnished with any formal offering
memorandum or prospectus, but to the best of the Buyer's knowledge the
Buyer has received from the Company copies of all such information as
the Buyer or its agents have requested. Representatives of the Buyer
have had full opportunity to examine the financial and business affairs
of the Company and to ask questions of its management. Notwithstanding
such opportunities and examinations, the Buyer disclaims any reliance
upon any Company financial projections beyond the extent to which such
reliance is expressly contemplated therein.
Very truly yours,
SUMITOMO CORPORATION OF AMERICA
By: _____________________________
Name: ___________________________
Title: __________________________
<PAGE>
EXHIBIT C
October 25, 1995
Sumitomo Corporation of America
345 Park Avenue
New York, New York 10154
Ladies and Gentlemen:
We have acted as counsel for Smithfield Foods, Inc., a Delaware
corporation (the "Company"), in connection with the issuance and sale by it of
2,000 shares (the "Shares") of the Company's Series C 6 3/4% Cumulative
Convertible Preferred Stock, par value $1.00 per share (the "Series C Preferred
Shares"), pursuant to a Subscription Agreement dated October 25, 1995 (the
"Subscription Agreement") between you and the Company. This opinion is rendered
pursuant to Section 3.1(vi) of the Subscription Agreement. Capitalized terms
used but not separately defined in this opinion have the same meanings herein as
in the Subscription Agreement.
In connection with this opinion we have investigated such questions of
law, and we have examined and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of the Subscription Agreement, such
corporate documents and records of the Company, such certificates of public
officials, officers and representatives of the Company and other persons and
such other documents and information (in each case including the representations
and warranties as to factual matters contained therein, if any) as in our
judgment are necessary to enable us to render the opinions expressed below.
Based on the foregoing and having regard for such legal considerations
as we deem relevant, we are of the opinion that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to enter into and perform its
obligations under the Subscription Agreement; the Company's execution,
delivery and performance of the Subscription Agreement have been duly
authorized by the Company and require as of the date hereof no further
action by or in respect of, or filing with, any governmental body,
agency or official (except as may be required or appropriate to secure
exemptions under the Securities Act and under applicable state
securities or Blue
<PAGE>
Sky laws and except as contemplated by the Subscription Agreement), such
that the failure to take such action or make such filing would
materially adversely affect the Company's ability to perform its
obligations under the Subscription Agreement; and the Subscription
Agreement (other than the indemnification provisions thereof, as to
which we express no opinion) is the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(ii) The Series C Preferred Shares and their issuance and delivery
pursuant to the Subscription Agreement have been duly authorized and,
when issued, sold and delivered in accordance with the Subscription
Agreement, the Series C Preferred Shares will be validly issued, fully
paid and nonassessable and will have the powers, rights, preferences and
limitations provided for in the Series C Preferred Shares Certificate of
Designations. The Common Shares to be issued upon conversion of the
Series C Preferred Shares have been duly authorized and reserved for
issuance and, when issued upon conversion in accordance with the
Subscription Agreement and the Series C Preferred Shares Certificate of
Designations, will be validly issued, fully paid and nonassessable.
(iii) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of the Subscription Agreement
and the consummation of the transactions therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known to
us to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, which conflict, breach, violation or default could reasonably
be expected to have a material adverse effect on the Company's ability
to perform its obligations under the Subscription Agreement, nor will
such action result in any violation of the provisions of the Composite
Certificate of Incorporation, as amended, or By-laws of the Company or
any statute or any order, rule or regulation known to us of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties.
(iv) The issuance, sale and delivery of the Shares and the issuance and
delivery of Common Shares upon conversion of the Shares, under the
circumstances contemplated by the Subscription Agreement and the Series
C Preferred Shares
<PAGE>
Certificate of Designations, will be transactions exempt from the
registration requirements of the Securities Act.
In rendering the above opinions, we have assumed that the certificates
for the Series C Preferred Shares and the Common Shares issuable upon conversion
thereof will be in appropriate form and will be appropriately executed; that the
Subscription Agreement has been duly authorized, executed and delivered by you
and such agreement is valid, binding and enforceable against you in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles; and that the signatures on all
documents examined by us are genuine, which assumptions we have not
independently verified.
Our opinion is limited to the effect of the laws of the Commonwealth of
Virginia, the General Corporation Law of the State of Delaware and the federal
laws of the United States of America.
This opinion is furnished by us as counsel to the Company to you as the
Buyer and is solely for your benefit.
Very truly yours,
SMITHFIELD FOODS, INC.
1997 INCENTIVE BONUS PLAN
(Applicable to John O. Nielson as President and
Chief Operating Officer of the Company)
1. Purpose. Smithfield Foods, Inc. hereby establishes an Incentive
Bonus Plan (the "Plan") applicable to John O. Nielson, as President and Chief
Operating Officer of the Company ("Executive"). The Company intends to provide
the Executive with incentive bonuses that are related to and measured by the
Company's performance under a program intended to meet the requirements of Code
section 162(m) and regulations thereunder. The Plan was adopted by the
Committee and ratified by the Board on May 24, 1996, and is subject to approval
of the Company's stockholders. The Plan is effective as of April 29, 1996.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated.
(a) "Auditor" means the independent public accounting firm then
employed by the Company to prepare the Company's financial statements.
(b) "Beneficiary" means the person or persons designated by the
Executive in a writing filed with the Company to receive his Bonus Payment upon
his death.
(c) "Board" means the board of directors of the Company.
(d) "Bonus Base" means the consolidated net income of the
Company and its subsidiaries prepared in accordance with generally accepted
accounting principles before (i) Bonus Payments to Executive, (ii) accounting
for minority ownership interests in subsidiaries, (iii) incentive payments due
officers based on income approved by the Board, and (iv) applicable federal and
state income taxes.
-1-
<PAGE>
(e) "Bonus Payment" means the amount due the Executive under the
Bonus Plan, as computed by the Company, and certified by the Committee.
(f) "Cause" means (i) continued neglect by Executive of his
employment duties (as reasonably determined by the Company's Board of Directors)
after delivery of written notice thereof to Executive specifying with
particularity the duties Executive has neglected, (ii) willful misconduct in
connection with the performance of Executive's duties, including by way of
example but without limitation, intentional misappropriation of funds or
property of the Company or any of its subsidiaries, or securing or attempting to
secure personally any profit in connection with any transaction entered into on
behalf of the Company or any of its subsidiaries, (iii) conduct by Executive
that would result in material injury to the reputation of the Company or any of
its subsidiaries (whether publicly known or unknown), including by way of
example but without limitation, pleading guilty to or conviction of a felony
involving moral turpitude, or (iv) certification by a physician that Executive
is unable to regularly perform his duties hereunder by reason of Executive's
addiction to alcohol or a controlled substance.
(g) "Code" means the Internal Revenue Code of 1986, as amended,
and regulations thereunder.
(h) "Committee" means two or more directors appointed by the
Board who are "outside directors" within the meaning of section 162(m) of the
Internal Revenue Code. The Committee may be a duly appointed sub-committee of
the Compensation Committee.
-2-
<PAGE>
(i) "Company" means Smithfield Foods, Inc., a Delaware
corporation.
(j) "Disabled" means, in general, the inability to perform the
services for which the Executive was employed. The Committee shall determine
whether a Disability exists and such determination shall be conclusive.
(k) "Executive" means John O. Nielson.
3. Incentive Bonuses.
(a) Subject to subsection 3(c) below, Executive shall be entitled
to receive as a Bonus Payment with respect to the fiscal year beginning April
29, 1996, and each fiscal year thereafter, and until the Plan is terminated by
the Company, an amount in cash equal to one percent (1.0%) of the Bonus Base for
such year.
(b) The Committee may before the first day of each fiscal year
beginning on or after April 29, 1996, establish such other threshold and
percentage requirements for receipt of a Bonus Payment as the Committee shall
deem appropriate.
(c) Notwithstanding the provisions of subsections 3(a) and (b)
above, the Committee expressly reserves the right to reduce or eliminate
entirely any Bonus Payment if the Committee determines in its sole discretion
that it is in the best interests of the Company to do so. Such determination
shall be conclusive and binding.
4. Payment of Incentive Bonuses. The Bonus Payment will be made (i)
after the date the Company's audited financial statements have been certified by
the Auditor for the relevant fiscal year of computation and the Committee has
certified that the performance criteria have been met, and
-3-
<PAGE>
(ii) before the date by which the Bonus Payment must be made to be otherwise
deductible by the Company.
5. Termination of Employment. If Executive ceases to be employed, his
right to receive a Bonus Payment shall be governed by the following principles:
(a) If the termination occurs as a result of death, Disability,
termination by the Company without Cause, retirement or voluntarily by the
Executive, the Executive (or the Executive's Beneficiary in the event of death)
shall be entitled to receive an amount equal to the Bonus Payment Executive
would have received if the last day of the fiscal year coincided with the date
of Executive's termination of employment, computed based on unaudited financial
information.
(b) If the termination of employment occurs for Cause, the
Executive shall forfeit all rights to a Bonus Payment for the fiscal year in
which such termination of employment occurs.
6. Administration.
(a) The Plan shall be administered by the Compensation Committee
of the Board of Directors (the "Committee"), which shall be comprised solely of
two or more "outside directors", as that term is defined for purposes of Code
section 162(m).
(b) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee. Insofar as
it is necessary to satisfy the requirements of Section 16(b) of the Securities
Exchange Act of 1934, no member of the Committee shall be eligible to
participate in the Plan or in any other similar plan of the Company or any
Parent or Subsidiary of the Company.
-4-
<PAGE>
(c) If any member of the Committee fails to qualify as an
"outside director" or otherwise meet the requirements of this section, such
person shall immediately cease to be a member of the Committee solely for
purposes of the Plan and shall not take part in future Committee deliberations.
(d) The Committee may adopt rules and regulations for carrying
out the Plan, and the Committee may take such actions as it deems appropriate to
ensure that the Plan is administered in the best interests of the Company. The
Committee has the authority to construe and interpret the Plan, resolve any
ambiguities, and make determinations with respect to the eligibility for or
amount of any award. The interpretation, construction and administration of the
Plan by the Committee shall be final and conclusive. The Committee may consult
with counsel, who may be counsel to the Company, and shall not incur any
liability for any action taken in good faith in reliance upon the advice of
counsel.
7. Rights. Participation in the Plan and the right to receive cash
awards under the Plan shall not give Executive any proprietary interest in the
Company, any subsidiary or any of their assets. No trust fund shall be created
in connection with the Plan, and there shall be no required funding of amounts
that may become payable under the Plan. Executive shall for all purposes be a
general creditor of the Company. The interests of Executive cannot be assigned,
anticipated, sold, encumbered or pledged and shall not be subject to the claims
of his creditors. Nothing in the Plan shall confer upon Executive the right to
continue in the employ of the Company or any subsidiary or shall interfere with
or restrict in any way the right of the Company and its subsidiaries to
discharge Executive at any time for any reason whatsoever, with or without
cause.
-5-
<PAGE>
8. Successors. The Plan shall be binding on the Executive and his
personal representatives. If the Company becomes a party to any merger,
consolidation, reorganization or other corporate transaction, the Plan shall
remain in full force and effect as an obligation of the Company or its successor
in interest.
9. Amendment and Termination. The Board may amend or terminate the Plan
at any time as it deems appropriate; provided that (a) no amendment or
termination of the Plan after the end of a fiscal year may increase the Bonus
Payment for the fiscal year just ended, and (b) to the extent required to meet
the requirements of Code section 162(m) for performance-based compensation, any
amendment that makes a material change to the Plan must be approved by the
stockholders of the Company. The Board is specifically authorized to amend the
Plan and take such other action as necessary or appropriate to comply with Code
section 162(m) and regulations issued thereunder, and to comply with or avoid
administration of the Plan in a manner that could cause any participant to incur
liability under Section 16(b) of the Securities Exchange Act of 1934 and
regulations issued thereunder.
10. Construction. The Plan shall be construed in accordance with the
laws of the State of Delaware. The headings in this Plan have been inserted for
convenience of reference only and are to be ignored in any construction of the
provisions. If a provision of this Plan is not valid, that invalidity does not
affect other provisions.
-6-
EXHIBIT 11
SMITHFIELD FOODS, INC.
COMPUTATION OF NET INCOME PER SHARE
Income and the number of shares used in the computation of net income per common
and common equivalent shares were computed as follows:
<TABLE>
<CAPTION>
52 weeks 52 weeks 52 weeks
ended ended ended
Income April 28,1996 April 30,1995 May 1, 1994
- ------ ------------- ------------- -----------
<S> <C>
Net income $15,886 $27,840 $19,702
Dividends accumulated for Series B
and Series C preferred stock (1,152) (675) (675)
------- ------- -------
Net income available to common
stockholders $14,734 $27,165 $19,027
======= ======= =======
Shares
Weighted average common shares:
Outstanding 16,962 16,397 16,276
Incremental common shares for
outstanding stock options
and dilutive preferred shares 568 662 492
------ ------ ------
Common shares for computation 17,530 17,059 16,768
====== ====== ======
Net income per common share $ .84 $1.59 $1.13
===== ===== =====
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Set forth below is a list of each of the subsidiaries of Smithfield Foods, Inc.
(other than subsidiaries whose names have been omitted in accordance with
Regulation S-K Item 601(21)(ii)) and their respective jurisdictions of
organization.
JURISDICTION
NAME OF SUBSIDIARY OF ORGANIZATION
------------------ ---------------
Brown's of Carolina, Inc. North Carolina
Gwaltney of Smithfield, Ltd. Delaware
John Morrell & Co. Delaware
Patrick Cudahy Incorporated Delaware
Smithfield International, Inc. Delaware
The Smithfield Packing
Company, Incorporated Virginia
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent auditors, we hereby consent to the incorporation by reference in
this Form 10-K Annual Report of our report dated June 11, 1996, in the following
Registration Statements:
Registration
Form: Number: Relating to:
- -------------------------------------------------------------------------------
S-8 33-14219 Smithfield Foods, Inc. 401(k) Plan
for Salaried Employees
S-8 33-53024 1984 Stock Option Plan
S-3 33-6137 Offering of Common Stock by the
selling stockholder named therein
It should be noted that we have not audited any financial statements of the
Company subsequent to April 28, 1996 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
July 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-28-1996
<PERIOD-END> APR-28-1996
<CASH> 28,529
<SECURITIES> 0
<RECEIVABLES> 146,040
<ALLOWANCES> 1,084
<INVENTORY> 210,759
<CURRENT-ASSETS> 420,407
<PP&E> 536,589
<DEPRECIATION> 163,866
<TOTAL-ASSETS> 857,619
<CURRENT-LIABILITIES> 332,381
<BONDS> 188,618
20,000
0
<COMMON> 9,227
<OTHER-SE> 233,290
<TOTAL-LIABILITY-AND-EQUITY> 857,619
<SALES> 2,383,893
<TOTAL-REVENUES> 2,383,893
<CGS> 2,203,626
<TOTAL-COSTS> 2,203,626
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,942
<INCOME-PRETAX> 30,251
<INCOME-TAX> 10,465
<INCOME-CONTINUING> 19,786
<DISCONTINUED> (3,900)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,886
<EPS-PRIMARY> .84
<EPS-DILUTED> 0
</TABLE>
