- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 27, 1997
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.)
999 Waterside Drive
Suite 900
Norfolk, Virginia 23510
(Address of principal executive offices) (Zip Code)
(757) 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 11, 1997 was approximately $679,269,961. This
figure was calculated by multiplying (i) the $52-1/8 last sales price of
Registrant's Common Stock as reported on The Nasdaq National Market on July 11,
1997 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 11, 1997, 18,763,681 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 27, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ITEM
NUMBER PAGE
PART I
1. Business............................................................. 3
General............................................................ 3
Business Strategy.................................................. 3
Revenue by Source...................................................4
Fresh Pork Products ............................................... 5
Processed Meat Products............................................ 5
Raw Materials ..................................................... 5
Customers and Marketing ........................................... 6
Distribution....................................................... 7
Competition ....................................................... 7
Regulation ........................................................ 7
Employees ......................................................... 9
Other .............................................................9
2. Properties ..........................................................10
3. Legal Proceedings .................................................. 11
4. Submission of Matters to a Vote
of Security Holders .................................... 11
4A. Executive Officers of the Company ...................................12
PART II
5. Market for Company's Common Equity
and Related Stockholder Matters ..................................14
6. Selected Financial Data .............................................15
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....................16
8. Financial Statements and Supplementary Data .........................19
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ...........................19
PART III
10. Directors and Executive Officers of the Company .....................20
11. Executive Compensation ..............................................20
12. Security Ownership of Certain Beneficial Owners
and Management ...................................................20
13. Certain Relationships and Related Transactions ......................20
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K...........................................21
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 five 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; Patrick Cudahy Incorporated
("Patrick Cudahy"), based in Cudahy, Wisconsin; and Lykes Meat Group, Inc.
("Lykes"), based in Plant City, Florida. The Company also conducts hog
production operations through its Brown's of Carolina, Inc. subsidiary
("Brown's") and through 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. of 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, 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 leaner pork products combined 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 Pork 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 lunch 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 deli 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.
- 3 -
<PAGE>
In December 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, lunch meats,
bacon and smoked hams complements the strong smoked meats, hot dog and bacon
business of the Company's Eastern operations. The acquisition of John Morrell
also presented substantial opportunities for cost savings in the areas of
processing, marketing, purchasing and distribution.
In November 1996, the Company acquired the assets and businesses of the
Lykes Meat Group of Lykes Bros. Inc. of Plant City, Florida. The Lykes Meat
Group is a pork processor with primary markets in the South and Southeast. Lykes
produces branded processed meats, including bacon, hot dogs, and breakfast and
dinner sausages, under the Lykes and Sunnyland brands.
In June 1997, the Company acquired the assets and business of Curly's
Foods, Inc., which operates a meat processing plant in Sioux City, Iowa. Curly's
Foods, Inc. produces a variety of further processed meat products for customers,
primarily food service, throughout the United States and internationally.
The Company's business is based around five 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;
(iv) continued growth through selective acquisitions of regional pork processors
and brands; and (v) a heightened emphasis on expansion into international
markets.
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 1997, the Company processed 1.6 million NPD
hogs and expects to increase that number substantially in future years.
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.
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Fresh Pork................. 59% 59% 51% 48% 41%
Processed Meats............ 37% 37% 45% 49% 55%
Other Products............. 4% 4% 4% 3% 4%
--- ---- ---- ---- ----
100% 100% 100% 100% 100%
=== === === === ===
- 4 -
<PAGE>
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 its Bladen County, North Carolina plant. 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 the largest fresh pork processor in the United States.
The Company slaughters hogs at five of its plants (three in the Southeast and
two in the Midwest), with a current aggregate slaughter capacity of 73,000 per
day. The Company is currently seeking permit authority to increase the slaughter
capacity at its Bladen County plant by an additional 8,000 hogs per day. The
Company owns a fourth plant in the Southeast not currently in operation, which
has the capacity to slaughter an additional 6,500 hogs per day. The Company
currently slaughters approximately 62,000 hogs daily. 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 open
market purchases.
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,
will 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 lunch meats and specialty products such as pepperoni and dry salami. The
Company markets its processed meat products under labels that include, among
others, Smithfield, Smithfield Premium, Gwaltney, Patrick Cudahy and John
Morrell, as well as Dinner Bell, Esskay, Great, Jamestown, Kretschmar, Luter's,
Lykes, 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
healthy 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. The Company markets a lower-fat line of value-priced
lunch meats, smoked sausage and hot dogs, as well as fat-free hot dogs and
fat-free deli hams.
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.
- 5 -
<PAGE>
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 10.1% of the hogs it processed in
fiscal 1997 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 of vertical integration and reduces the Company's exposure
to fluctuations in 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 51.6% of the hogs processed by the Company in fiscal
1997.
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 lunch 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.
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 1997, 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. In fiscal 1997, international sales comprised
approximately 6% of the Company's 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. In connection with export sales to Japan,
the Company maintains a distributorship arrangement with Sumitomo Corporation of
America. The Company also had export sales to Russia, Mexico and to more than
two dozen other foreign countries in fiscal 1997. 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 and China 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 U.S.
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 lunch meats are the summer months. The Company
typically builds substantial inventories of hams in anticipation of its seasonal
holiday business.
- 6 -
<PAGE>
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 uses 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
1998, 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 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
- ----------
REGULATION GENERALLY. 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 ("VSWCB"), the Virginia Department of Environmental
Quality ("VDEQ"), 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.
PERMIT VIOLATIONS AT SMITHFIELD PACKING AND GWALTNEY PLANTS;
ADMINISTRATIVE CONSENT ORDERS; CONNECTION TO HRSD SYSTEM. The wastewater
discharge permit for Smithfield Packing's and Gwaltney's plants in Smithfield,
Virginia, which was last reissued in 1992, imposed more stringent effluent
limitations on phosphorus and two species of nitrogen (ammonia and total
Keldjahl nitrogen) than the wastewater treatment facilities at those plants were
designed to meet or can meet. To achieve compliance, the Company agreed in 1991
to discontinue its wastewater discharges into the Pagan River and connect its
wastewater treatment facilities to the regional sewage collection and treatment
system operated by the Hampton Roads Sanitation District ("HRSD"), when
available. This agreement was embodied in a consent order issued by the VSWCB in
1991 (the "1991 Order"). The entry of the 1991 Order followed several years of
extensive negotiations and litigation, including an application for a variance
from the phosphorus limitations, and preceded the reissuance of the wastewater
discharge permit in 1992. The 1991 Order excused the Company from compliance
with the permit's phosphorus effluent limitations and allowed the Company to
operate under less stringent
- 7 -
<PAGE>
limitations on total Keldjahl nitrogen than the permit would otherwise require,
pending connection of the two wastewater treatment facilities to the HRSD
system. Another VSWCB consent order (the "1994 Order") excused the Company from
compliance with certain other permit terms pending connection to the HRSD
system.
The Company connected its Gwaltney wastewater treatment facilities to
the HRSD system in June 1996 and is connecting its Smithfield Packing facilities
to that system in July 1997. The HRSD system was not available for the Company's
use prior to these dates. The Company has made more than $2.7 million in capital
expenditures to upgrade its existing wastewater treatment facilities (and must
continue to operate these facilities) to produce a wastewater that is suitable
for treatment by the HRSD system. In addition to these continuing operational
costs, the Company expects to pay HRSD sewer use charges in excess of $1.5
million per year. The Company will account for these wastewater treatment costs
as current period charges in the years in which such costs are incurred.
Prior to connecting to the HRSD system, the Smithfield Packing and
Gwaltney plants were operated under the 1991 Order and the 1994 Order. During a
period from May 1994 to January 1995, the two plants had a number of violations
of the permit and the consent orders. Although the Company corrected the
conditions that caused these violations, the Company continued to experience
intermittent exceedances and permit compliance problems at its Gwaltney and
Smithfield Packing plants prior to connecting to the HRSD system.
RECORD-KEEPING VIOLATIONS BY FORMER EMPLOYEE. 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 and criminal sanctions
may be imposed in the event of false reporting or destruction of records. In the
course of a VSWCB inspection of its Smithfield Packing and Gwaltney plants in
July 1994, it was discovered that records of certain tests conducted by the
Company from 1991 through early 1994 could not be located. The employee
responsible for the supervision of the tests and maintenance of the test records
was replaced. The U.S. Department of Justice ("DOJ"), EPA and the Federal Bureau
of Investigation undertook an investigation of possible criminal charges of
false reporting and destruction of records. The Company cooperated fully with
this federal investigation. On October 22, 1996, the former employee entered a
guilty plea and was convicted in the United States District Court for the
Eastern District of Virginia on 23 violations of the federal Clean Water Act,
including making false reports. Eight of these violations related to his duties
as the Company's employee at its Smithfield Packing and Gwaltney plants, while
15 violations were committed in connection with the former employee's outside
consulting business activities for public and private entities unrelated to the
Company. Neither the Company nor any of its other present or former employees
has been charged with any criminal violation arising from this investigation.
SUIT BY THE COMMONWEALTH OF VIRGINIA. On August 30, 1996, VDEQ filed a
civil suit against the Company in the Circuit Court of the County of Isle of
Wight, Virginia, concerning permit exceedances at the Company's Smithfield
Packing and Gwaltney plant. This suit, which was filed under the Virginia State
Water Control Law, concerns all permit violations, including record-keeping
violations, from 1986 to date that were not excused by the 1991 Order and the
1994 Order, as well as several violations of effluent limitations that were
prescribed by such orders. Each violation is subject to a maximum penalty of
$25,000. In March 1997, the Virginia Attorney General filed a bill of
particulars specifying approximately 23,000 alleged violations, the vast
majority of which concern the requirement to conduct certain tests of chlorine
levels at each plant on each hour of each day. The case was initially brought to
trial in state court on July 7, 1997. At the initial trial, VDEQ contended that
the Company received an economic benefit of $4 million, and that the Company
should pay civil penalties in that amount plus $2 million for the violations. On
July 9, 1997, VDEQ withdrew its suit against the Company, but stated its
intention to refile the suit at a later time. On July 16, 1997, VDEQ refiled the
suit in Isle of Wight County Circuit Court. The Company intends to defend this
second suit vigorously, and expects to prove that essentially no economic
benefit accrued to the Company and no environmental damage occurred as a result
of the violations.
- 8 -
<PAGE>
EPA SUIT. On December 16, 1996, DOJ, on behalf of EPA, filed a civil
suit against the Company, Gwaltney and Smithfield Packing under the federal
Clean Water Act in the United States District Court for the Eastern District of
Virginia in Norfolk, Virginia. This action seeks to recover civil penalties
against the Company for approximately 5,500 alleged violations of the federal
Clean Water Act at the Company's Smithfield Packing and Gwaltney plants in
Smithfield, Virginia. Each violation is subject to a civil penalty not to exceed
$25,000. The vast majority of the alleged violations concern permit exceedances
during the last five years that were expressly excused by the 1991 Order and the
1994 Order. The remaining alleged violations duplicate VDEQ's allegations. The
Commonwealth of Virginia, acting through the VSWCB, which has primary
enforcement responsibility in the Clean Water Act's cooperative federal-State
permitting scheme, advised federal authorities of the 1991 Order and the 1994
Order when issued. Notwithstanding this, in its suit, EPA asserted that the
State-issued administrative consent orders do not bar a federal action seeking
relief for permit violations.
In an opinion dated May 30, 1997, the District Court granted EPA's
motion for summary judgment in part on liability issues, holding that the 1991
Order and the 1994 Order did not excuse the alleged permit violations and that
the federal action was not otherwise precluded or barred by estoppel. In the
initial suit by the Commonwealth of Virginia discussed above, however, the
Circuit Court of the County of Isle of Wight, Virginia, based upon a cross claim
filed by the Company, issued a judicial decree reforming the Company's permit
and setting the compliance deadlines consistent with the Company's connection
deadlines to the HRSD system. The EPA suit has been set for trial on July 21,
1997, on the liability issues and on the issue of appropriate civil penalties.
In determining the civil penalties to be assessed, the federal Clean Water Act
requires that the District Court consider the seriousness of the violations, the
economic benefit (if any) resulting from the violations, any history of such
violations, any good-faith efforts to comply with the applicable requirements,
the economic impact of the penalties on the Company, and such other matters as
justice may require. The Company intends to defend the suit vigorously.
EPA is expected to contend at trial that the Company should have spent
approximately $10 million in 1990 to comply with the phosphorus permit
limitation in addition to connecting its facilities to the HRSD system when
available. EPA is expected to seek civil penalties which include this claimed
economic benefit plus an additional gravity-based amount for the permit
violations. The Company expects to prove that no economic benefit accrued to the
Company and that no environmental damage occurred as a result of the violations.
The Company will also show that it has acted in good faith and has complied with
the VSWCB's consent order requirements, at great expense, to connect to the HRSD
system and discontinue its discharges into the Pagan River.
Based on its knowledge, as summarized above, of the facts and
circumstances surrounding the alleged violations in these suits, the Company
believes that the ultimate resolution of the suits will not have a material
adverse effect on the Company's financial position or annual results of
operations.
Employees
- ---------
The Company has approximately 17,500 employees, approximately 9,600 of
whom are covered by collective bargaining agreements expiring between July 29,
1997, and February 5, 2002. 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 described 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.
- 9 -
<PAGE>
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,
Smithfield, Virginia smoked 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 7.8 136,000
5801 Columbia Park Drive and other smoked meat products
Landover, Maryland
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, lunch meats 13.1 200,000
3515 Airline Boulevard and sausage products
Portsmouth, Virginia
Gwaltney Plant No. 3 Manufacture of bacon, smoked 11.0 152,000
1013 Iowa Street sausage 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, lunch 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,
Sioux City, Iowa butts and picnics
John Morrell Plant No. 3 Production of hot dogs, lunch meats, 21.0 177,000
801 East Kemper Road smoked sausage and smoked hams
Springdale, Ohio
</TABLE>
- 10 -
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION (ACRES) (SQ. FT.)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
John Morrell Plant No. 4 Production of bacon and smoked hams 60.0 150,000
South 281 Highway
Great Bend, Kansas
Lykes Meat Group Plant No. 1 Production of hot dogs, lunch meats 55.0 206,763
4811 Lykes Road and sausage products
Plant City, Florida
Lykes Meat Group Plant No. 2 Production of hot dogs, lunch meats, 78.0 312,466
603 Cassidy Road cured meats, bacon, boneless cooked
Thomasville, Georgia and smoked ham and other smoked
bone-in meat products
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, which John Morrell exercised in
January 1997. Completion of the purchase is expected to occur prior to October
1997.
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.
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.
- 11 -
<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 (58) Chairman of the Board and Mr. Luter has served as Chairman
Chief Executive Officer of the of the Board and Chief Executive
Company Officer since 1975. Prior to May
1995, he also served as President
of the Company.
Lewis R. Little (53) President and Chief Operating Mr. Little was elected President
Officer of the Company and and Chief Operating Officer of the
Smithfield Packing Company and Smithfield Packing
in November 1996. From May
1993 until November 1996, he was
President and Chief Operating
Officer of Gwaltney. Prior to May
1993, Mr. Little served as
Executive Vice President of
Gwaltney.
Timothy A. Seely (47) President and Chief Operating Mr. Seely was elected President
Officer of Gwaltney and Chief Operating Officer of
Gwaltney in November 1996. Prior
to that time, he was Vice
President, Sales and Marketing\
Fresh Meats, of Gwaltney.
Roger R. Kapella (55) President and Chief Operating Mr. Kapella has served as
Officer of Patrick Cudahy President and Chief Operating
Officer of Patrick Cudahy
since 1986.
Joseph B. Sebring (50) President and Chief Operating Mr. Sebring has served as
Officer of John Morrell President 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.
</TABLE>
- 12 -
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE
NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Larry P. Swafford (50) President and Chief Operating Mr. Swafford has served as
Officer of Lykes President and Chief Operating
Officer of Lykes since
November 1996. Between February
1996 and November 1996, he was
Vice President, Sales and
Marketing, of the Company.
Between February 1995 and
February 1996, he was President
of the Wilson Foods Division
of Foodbrands America, Inc.
Prior to February 1995,
Mr. Swafford served as Vice
President of Sales and Marketing
for the Bryan Foods Division
of Sara Lee Corp.
C. Larry Pope (42) 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 (62) Vice President, Secretary and Mr. Trub has served as Vice
Treasurer of the Company President, Secretary and Treasurer
of the Company since 1978.
</TABLE>
- 13 -
<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 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
Fiscal year ended April 27, 1997
First quarter ....................... 30.00 22.62
Second quarter ...................... 32.50 23.25
Third quarter ....................... 38.62 28.50
Fourth quarter ...................... 49.50 32.37
Holders
- -------
As of July 11, 1997, there were 1,160 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.
- 14 -
<PAGE>
ITEM 6. SELECTED 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 27, April 28, April 30, May 1, May 2,
1997 1996 1995 1994 1993
--------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C>
INCOME STATEMENT DATA:
Sales........................................ $3,870,611 $2,383,893 $1,526,518 $1,403,485 $1,113,712
Cost of sales ............................... 3,549,673 2,203,626 1,380,586 1,287,880 1,037,628
--------------------------------------------------------------------------
Gross profit ................................ 320,938 180,267 145,932 115,605 76,084
Selling, general and administrative
expenses .................................. 191,225 103,095 61,723 50,738 42,924
Depreciation expense......................... 35,825 25,979 19,717 21,327 18,418
Interest expense............................. 26,211 20,942 14,054 11,605 6,183
Plant closing costs.......................... - - - - 3,598
--------------------------------------------------------------------------
Income from continuing operations before
income taxes and change in accounting
for income taxes.......................... 67,677 30,251 50,438 31,935 4,961
Income taxes................................. 22,740 10,465 18,523 12,616 1,690
--------------------------------------------------------------------------
Income from continuing operations
before change in accounting for
income taxes.............................. 44,937 19,786 31,915 19,319 3,271
Income (loss) from discontinued operations... - (3,900) (4,075) 383 (420)
Cumulative effect of change in accounting
for income taxes.......................... - - - - 1,138
--------------------------------------------------------------------------
Net income................................ $ 44,937 $ 15,886 $ 27,840 $ 19,702 $ 3,989
==========================================================================
NET INCOME (LOSS) PER SHARE:
Continuing operations before cumulative
effect of change in accounting for
income taxes.............................. $ 2.34 $ 1.06 $ 1.83 $ 1.11 $ .18
Discontinued operations...................... - (.22) (.24) .02 (.03)
Cumulative effect of change in
accounting for income taxes............... - - - - .07
--------------------------------------------------------------------------
Net income................................... $ 2.34 $ .84 $ .1.59 $ 1.13 $ .22
==========================================================================
Weighted average shares outstanding......... 18,685 17,530 17,059 16,768 16,372
BALANCE SHEET DATA:
Working capital.............................. $ 158,601 $ 88,026 $ 60,911 $ 81,529 $ 64,671
Total assets................................. 995,254 857,619 550,225 452,279 399,567
Long term debt and capital lease
obligations............................... 288,486 188,618 155,047 118,942 124,517
Stockholders' equity......................... 307,486 242,516 184,015 154,950 135,770
OPERATING DATA:
Fresh pork sales (pounds).................... 2,280,729 1,635,300 955,290 820,203 588,284
Processed meats sales (pounds)............... 1,444,052 839,341 774,615 661,783 631,521
Total hogs purchased......................... 16,869 12,211 8,678 7,414 5,767
</TABLE>
-15-
<PAGE>
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.
Operations
- ----------
In December 1995, the Company acquired all of the capital stock of John
Morrell & Co. ("John Morrell"). The Company's fiscal 1997 operating results
include those of John Morrell for the full fiscal year compared to an 18-week
period in fiscal 1996. In November 1996, the Company acquired the assets and
business of the Lykes Meat Group, Inc. ("Lykes") from Lykes Bros. Inc. The
fiscal 1997 operating results include those of Lykes for the 25-week period from
its date of acquisition. Accordingly, the substantial increases in sales, cost
of sales, gross profit, selling, general and administrative expenses,
depreciation expense and interest expense in fiscal 1997 reflect the impact of
these acquisitions.
Fiscal 1997 Compared to Fiscal 1996
- -----------------------------------
Sales in fiscal 1997 increased $1.49 billion, or 62.4%, from fiscal
1996. This increase was due to the inclusion of the sales of John Morrell and
Lykes, significant increases in unit sales prices of both fresh pork and
processed meats and increased sales of fresh pork related to an increase in the
number of hogs slaughtered at the Company's Bladen County, North Carolina plant.
The increase in unit sales prices reflected the pass-through of higher raw
material costs due to an 18.8% increase in live hog costs. The increase in sales
reflected a 41.9% increase in fresh pork tonnage and a 45.2% increase in
processed meats tonnage, primarily related to the John Morrell and Lykes
acquisitions.
Cost of sales increased $1.35 billion, or 61.1%, in fiscal 1997,
reflecting the increased sales tonnage and increased live hog costs. Gross
profit increased $140.7 million, or 78.0%, in fiscal 1997 compared to fiscal
1996, reflecting the inclusion of the operations of John Morrell and Lykes and
increased overall margins at the Company's other operating subsidiaries. The
increase in gross profit reflected significantly improved margins on sales of
processed meats (37.3% of dollar sales) which were somewhat offset by lower
margins on sales of fresh pork (58.9% of dollar sales). Fresh pork margins were
adversely impacted by high hog costs due to a shortage of live hogs, excess
industry slaughter capacity and strong competition at the retail level from
comparatively lower-priced beef and chicken. This trend has persisted for the
past two fiscal years and is continuing in the first quarter of fiscal 1998.
Gross profit was also favorably affected by a $20.7 million reduction in cost of
sales reflecting the profitability of the Company's hog production group in
fiscal 1997 compared to a $10.8 million reduction in cost of sales in fiscal
1996. The Company's hog production group consists of Brown's of Carolina, Inc.,
an 86%-owned subsidiary of the Company ("Brown's"); a 50%-interest in the
Smithfield-Carroll's joint hog production arrangement ("Smithfield-Carroll's"),
and a 33%-interest in the Circle Four joint hog production arrangement ("Circle
Four"). During fiscal 1997, the Company obtained 10.1% of the hogs it processed
from Brown's and Smithfield-Carroll's. The hogs produced by Circle Four are sold
to an unrelated party.
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 (hams 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 the
hedges are lifted. As of April 27, 1997, the Company had deferred $2.2 million
of unrealized hedging gains on outstanding futures contracts pending delivery of
hogs in the future and lifting of the related hedges, and the completion of open
sales transactions and lifting of the related hedges.
- 16 -
<PAGE>
Selling, general and administrative expenses increased $88.1 million,
or 85.5%, in fiscal 1997. This increase was primarily due to the inclusion of
the operations of John Morrell and Lykes.
Depreciation expense increased $9.8 million, or 37.9%, in fiscal 1997.
The increase was primarily due to the inclusion of the operations of John
Morrell and Lykes.
Interest expense increased $5.3 million, or 25.2%, in fiscal 1997,
reflecting borrowings to finance the acquisition of Lykes, increased carrying
costs on higher levels of inventories and accounts receivable related to higher
live hog costs, and the higher cost of long-term debt placed during the fiscal
year.
The effective income tax rate in fiscal 1997 decreased to 33.6% from
34.6% in fiscal 1996, reflecting a lower tax rate on increased foreign sales and
a reduction in the effective rate of state income taxes. The Company had no
valuation allowance related to income tax assets as of April 27, 1997, and there
was no change in the valuation allowance during fiscal 1997.
Income from continuing operations increased $37.4 million in fiscal
1997, reflecting the operating results of John Morrell for the full fiscal year,
significantly improved margins on processed meats and substantially increased
profitability at the Company's hog production group.
Reflecting the factors discussed above, net income increased to $44.9
million in fiscal 1997, up from $15.9 million in the prior fiscal year.
Fiscal 1996 Compared to Fiscal 1995
- -----------------------------------
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 18-week period, an increase in unit sales prices of both fresh
pork and processed meats and increased sales of fresh pork related to increased
slaughter levels at the Bladen County plant. The increase in unit sales prices
reflected the pass-through of higher raw material costs due to a 20.0% increase
in live hog costs. The increase in sales tonnage reflected a 71.2% increase in
fresh pork tonnage and an 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, increased live hog costs and higher
warehousing and distribution costs associated with the increase in sales
tonnage. 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 reflecting the profitability of the Company's hog
production group. In fiscal 1995, gross profit was adversely affected by a $0.2
million increase in cost of sales as a result of a loss at the group. During
fiscal 1996, the Company obtained 11.3% of the hogs it processed from Brown's
and Smithfield-Carroll's. As of April 28, 1996, the Company had deferred $2.2
million of unrealized hedging gains on outstanding futures contracts pending the
completion of open sales transactions and lifting of the related 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.
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
- 17 -
<PAGE>
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.
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. John Morrell made a
significant contribution to the Company's overall profitability in fiscal 1996.
In fiscal 1996, the Company completed the disposition of the assets and
business of Ed Kelly, Inc., resulting in a loss from discontinued operations of
$3.9 million.
Reflecting the factors discussed above, net income decreased to
$15.9 million in fiscal 1996 from $27.8 million in fiscal 1995.
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
the hams are collected.
As of April 27, 1997, the Company had credit facilities totaling $300
million, consisting of a 364-day $225 million revolving credit facility and a
two-year $75 million revolving credit facility. The short-term facility is used
for seasonal inventory and receivable needs, and the long-term facility is used
for working capital and capital expenditures. Borrowings under the facilities
are secured by substantially all of the Company's inventories and accounts
receivable. Weighted average borrowings under the facilities were $165.1 million
in fiscal 1997, $133.4 million in fiscal 1996 and $69.9 million in fiscal 1995,
at weighted average interest rates of approximately 7%, 7% and 6%, respectively.
Maximum borrowings were $215.0 million in fiscal 1997, $179.8 million in fiscal
1996 and $117.0 million in fiscal 1995. The outstanding balances under the
facilities totaled $150.0 million and $151.3 million as of April 27, 1997 and
April 28, 1996, respectively, at a weighted average interest rate of 7% for both
years.
The Company has recently negotiated $350 million of senior secured
revolving credit facilities with a bank group which will replace its existing
$300 million credit facilities. The new facilities will consist of a 5-year $300
million revolving credit facility and a 364-day $50 million revolving credit
facility. This financing is scheduled to close in the first quarter of fiscal
1998.
During fiscal 1997, the Company privately placed $140 million of senior
secured notes with a group of institutional lenders. The placement consisted of
$40 million of seven-year 8.34% notes and $100 million of 10-year 8.52% notes,
secured by four of the Company's major processing plants. The proceeds of the
financing were used to repay $65.2 million of long-term bank debt and reduce
short-term borrowings. In conjunction with the placement of the senior secured
notes, the Company refinanced $59.7 million of existing institutional long-term
debt with the same institutional lenders. The refinancing resulted in revised
maturity dates and repayment schedules for the refinanced debt; however, no
additional proceeds resulted from this refinancing.
- 18 -
<PAGE>
In November 1996, the Company acquired substantially all of the assets
and business of Lykes from Lykes Bros. Inc. for $34.8 million in cash, which was
borrowed under the Company's revolving credit facilities, and the assumption of
$10.6 million of current liabilities.
The Company expended $69.1 million in fiscal 1997, primarily for
additional hog production facilities and a feedmill at Brown's and for plant
renovation and expansion projects at certain of its processing plants. The
capital expenditures were financed with internally generated funds and with a
portion of the net proceeds from the placement of the $140 million of notes.
During fiscal 1997, all of the Company's Series C 6.75% preferred
stock was converted into 666,666 shares of the Company's common stock at
$30.00 per share.
In fiscal 1998, the Company plans to increase its processed meats and
value-added fresh pork capacity at several of its processing plants and to
continue to expand its hog production operations. The Company anticipates that
these expansion plans will be financed with internally generated funds.
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.
The Company and certain subsidiaries are defendants in two civil
actions alleging violations of their wastewater discharge permits; one brought
by the Virginia Department of Environmental Quality and the other by the
Environmental Protection Agency. The Company believes that the ultimate
resolution of these two suits will not have a material adverse effect on its
financial position or annual results of operations. (See Note 12 to Consolidated
Financial Statements for a full discussion of these cases.)
Cautionary Statement Pursuant to Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------
This report may contain "forward-looking" information within the
meaning of the federal securities laws. The forward-looking information may
include, among other information, statements concerning the Company's outlook
for fiscal 1998, volume trends, industry conditions and expectations for capital
expenditures. There may also be other statements of exceptions, beliefs, future
plans and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. The forward-looking
information and statements in this report are subject to risks and
uncertainties, including availability and prices of raw materials, product
pricing, competitive environment and related market conditions, operating
efficiencies, access to capital and actions of governments, that could cause
actual results to differ materially from those expressed in or implied by the
information or statements.
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.
- 19 -
<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, 1997.
(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, 1997.
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, 1997.
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, 1997.
- 20 -
<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 3.2 -- By-Laws of the Company, as amended to date (incorporated
by reference to Exhibit 3.2 to the Company's Form 10-K
Annual Report for the fiscal year ended April 28, 1996).
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 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 4.4 -- 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 4.5 -- Five-Year Credit Agreement dated as of July 10, 1997,
among Smithfield Foods, Inc., the Subsidiary Guarantors
party thereto, the Lenders party thereto, and The Chase
Manhattan Bank, as Administrative Agent, relating to a
$300,000,000 secured five-year revolving credit facility.
Exhibit 4.5(a) -- 364-Day Credit Agreement dated as of July 10, 1997, among
Smithfield Foods, Inc., the Subsidiary Guarantors party
thereto, the Lenders party thereto, and The Chase
Manhattan Bank, as Administrative Agent, relating to a
$50,000,000 secured 364-day revolving credit facility.
Exhibit 4.5(b) -- Collateral Agency, Pledge and Security Agreement dated as
of July 10, 1997, among Smithfield Foods, Inc., the
Subsidiary Guarantors party thereto, The Chase Manhattan
Bank, as Collateral Agent, relating to the Company's
five-year revolving credit facility and its 364- day
revolving credit facility.
Exhibit 4.6 -- Note Purchase Agreement dated as of July 15, 1996, among
Smithfield Foods, Inc. and each of the Purchasers listed
on Annex 1 thereto, relating to $140,000,000 in senior
secured notes (incorporated by reference to Exhibit 4.7
to the Company's Form 10-Q Quarterly Report for the
fiscal quarter ended July 28, 1996); and Amendment Number
One to the Note Purchase Agreement dated as of July 15,
1997.
- 21 -
<PAGE>
Exhibit 4.6(a) -- Joint and Several Guaranty dated as of July 15,
1996, by Gwaltney of Smithfield, Ltd., John Morrell &
Co., The Smithfield Packing Company, Incorporated, SFFC,
Inc., Patrick Cudahy Incorporated, and Brown's of
Carolina, Inc. (incorporated by reference to Exhibit
4.7(a) to the Company's Form 10-Q Quarterly Report for
the fiscal quarter ended July 28, 1996); and Amendment
Number One to the Note Purchase Agreement dated as of
July 15, 1997 (incorporated by reference to Exhibit 4.6
of this Form 10-K).
Exhibit 4.6(b) -- Joint and Several Guaranty dated as of July 15, 1997, by
Lykes Meat Group, Inc., Sunnyland, Inc., Valleydale
Foods, Inc., Hancock's Old Fashioned Country Hams, Inc.,
Copaz Packing Corporation, and Smithfield Packing -
Landover, Inc.
Exhibit 4.7 -- 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 4.7(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 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 -- 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 10.3 -- 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 10.4 -- 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 10.5 -- Smithfield Foods, Inc. 1997 Incentive Bonus Plan
applicable to the Company's President and Chief Operating
Officer (incorporated by reference to Exhibit 10.6 to the
Company's Form 10-K Annual Report for the fiscal year
ended April 28, 1996).
Exhibit 10.6 -- Smithfield Foods, Inc. 1998 Incentive Bonus Plan
applicable to the Company's Chief Operating Officer.
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
None.
- 22 -
<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 23, 1997 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 23, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Chairman of the Board and Chief Executive
/s/ JOSEPH W. LUTER, III Officer and Director
- -------------------------------------------------------
Joseph W. Luter, III
President and Chief Operating Officer
/s/ LEWIS R. LITTLE and Director
- -------------------------------------------------------
Lewis R. Little
Vice President, Secretary and Treasurer
/s/ AARON D. TRUB and Director
- ------------------------------------------------------- (Principal-Financial-Officer)
Aaron D. Trub
Vice President and Controller
/s/ C. LARRY POPE (Principal Accounting Officer)
- -------------------------------------------------------
C. Larry Pope
/s/ ROBERT L. BURRUS, JR. Director
- -------------------------------------------------------
Robert L. Burrus, Jr.
/s/ F. J. FAISON, JR. Director
- -------------------------------------------------------
F. J. Faison, Jr.
/s/ JOEL W. GREENBERG Director
- -------------------------------------------------------
Joel W. Greenberg
Director
- -------------------------------------------------------
Cecil W. Gwaltney
- S-1 -
<PAGE>
/s/ GEORGE E. HAMILTON, JR. Director
- -------------------------------------------------------
George E. Hamilton, Jr.
/s/ RICHARD J. HOLLAND Director
- -------------------------------------------------------
Richard J. Holland
/s/ ROGER R. KAPELLA Director
- -------------------------------------------------------
Roger R. Kapella
/s/ H. GORDON MAXWELL, III Director
- -------------------------------------------------------
H. Gordon Maxwell, III
/s/ WENDELL H. MURPHY Director
- -------------------------------------------------------
Wendell H. Murphy
/s/ WILLIAM H. PRESTAGE Director
- -------------------------------------------------------
William H. Prestage
/s/ JOSEPH B. SEBRING Director
- -------------------------------------------------------
Joseph B. Sebring
</TABLE>
- S-2 -
<PAGE>
SMITHFIELD FOODS, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................... F-2
Consolidated Statements of Income for the Years Ended April 27, 1997,
April 28, 1996, and April 30, 1995................................................. F-3
Consolidated Balance Sheets at April 27, 1997 and April 28, 1996....................... F-4
Consolidated Statements of Cash Flows for the Years ended April 27,
1997, April 28, 1996, and April 30, 1995 .......................................... F-5
Consolidated Statements of Stockholders' Equity for the Years ended
April 27, 1997, April 28, 1996, and April 30, 1995 ................................ F-6
Notes to Consolidated Financial Statements............................................. F-7 to F-21
FINANCIAL STATEMENT SCHEDULE
Independent Public Accountants' Report on Financial Statement Schedule................. F-22
Schedule I - Condensed Financial Information of Registrant ............................ F-23 to F-27
</TABLE>
- 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 27, 1997, and
April 28, 1996, and the related consolidated statements of income, cash flows,
and stockholders' equity for each of the three years in the period ended April
27, 1997. 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 27, 1997, and April 28, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
April 27, 1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Richmond, Virginia
June 6, 1997
F-2
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------
APRIL 27, APRIL 28,
1997 1996
--------- ---------
<S> <C>
(IN THOUSANDS)
ASSETS
Current assets:
Cash.............................................................................................. $ 25,791 $ 28,529
Accounts receivable less allowances of $1,499 and $1,084.......................................... 166,094 144,956
Inventories....................................................................................... 253,276 210,759
Net advances to joint hog production arrangements................................................. - 7,578
Prepaid expenses and other current assets......................................................... 43,217 28,585
--------- ---------
Total current assets........................................................................... 488,378 420,407
--------- ---------
Property, plant and equipment:
Land.............................................................................................. 13,964 12,453
Buildings and improvements........................................................................ 205,523 146,545
Machinery and equipment........................................................................... 344,328 303,384
Construction in progress.......................................................................... 50,578 74,207
--------- ---------
614,393 536,589
Less accumulated depreciation..................................................................... (187,518) (163,866)
--------- ---------
Net property, plant and equipment.............................................................. 426,875 372,723
--------- ---------
Other assets:
Investments in partnerships....................................................................... 44,582 29,662
Deferred income taxes............................................................................. - 10,235
Other............................................................................................. 35,419 24,592
--------- ---------
Total other assets............................................................................. 80,001 64,489
--------- ---------
$ 995,254 $ 857,619
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................................................... $ 77,500 $ 110,563
Current portion of long-term debt and capital lease obligations................................... 7,800 13,392
Accounts payable.................................................................................. 132,268 113,344
Accrued expenses and other current liabilities.................................................... 106,498 95,082
--------- ---------
Total current liabilities...................................................................... 324,066 332,381
--------- ---------
Long-term debt and capital lease obligations........................................................ 288,486 188,618
--------- ---------
Other noncurrent liabilities:
Pension and postretirement benefits............................................................... 55,320 59,128
Deferred income taxes............................................................................. 7,260 -
Other............................................................................................. 12,636 14,975
--------- ---------
Total other noncurrent liabilities............................................................. 75,216 74,103
--------- ---------
Commitments and contingencies
Convertible preferred stock......................................................................... - 20,000
--------- ---------
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 authorized shares..................................... - -
Common stock, $.50 par value, 25,000,000 authorized shares;
19,196,681 and 18,453,015 issued............................................................... 9,598 9,227
Additional paid-in capital........................................................................ 113,661 92,762
Retained earnings................................................................................. 191,870 148,171
Treasury stock, at cost, 437,000 shares........................................................... (7,643) (7,643)
--------- ---------
Total stockholders' equity..................................................................... 307,486 242,517
--------- ---------
$ 995,254 $ 857,619
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales............................................................................... $3,870,611 $2,383,893 $1,526,518
Cost of sales....................................................................... 3,549,673 2,203,626 1,380,586
---------- ---------- ----------
Gross profit...................................................................... 320,938 180,267 145,932
Selling, general and administrative expenses........................................ 191,225 103,095 61,723
Depreciation expense................................................................ 35,825 25,979 19,717
Interest expense.................................................................... 26,211 20,942 14,054
---------- ---------- ----------
Income from continuing operations before income taxes............................... 67,677 30,251 50,438
Income taxes........................................................................ 22,740 10,465 18,523
---------- ---------- ----------
Income from continuing operations................................................... 44,937 19,786 31,915
Loss from discontinued operations, net of tax....................................... - (3,900) (4,075)
---------- ---------- ----------
Net income.......................................................................... $ 44,937 $ 15,886 $ 27,840
---------- ---------- ----------
---------- ---------- ----------
Net income available to common stockholders......................................... $ 43,699 $ 14,734 $ 27,165
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per common share:
Continuing operations............................................................. $ 2.34 $ 1.06 $ 1.83
Discontinued operations........................................................... - (.22) (.24)
---------- ---------- ----------
---------- ---------- ----------
Net income........................................................................ $ 2.34 $ .84 $ 1.59
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net income........................................................................ $ 44,937 $ 15,886 $ 27,840
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................ 39,057 28,299 22,127
Increase in accounts receivable.............................................. (12,606) (9,251) (6,141)
Increase in inventories...................................................... (30,008) (41,316) (1,717)
(Increase) decrease in prepaid expenses and other current assets............. (1,605) 1,535 (2,802)
(Increase) decrease in other assets.......................................... (10,410) 22,682 (8,121)
Increase in accounts payable, accrued expenses and other liabilities......... 9,377 19,166 8,272
Increase (decrease) in deferred income taxes................................. 7,810 (27,059) 6,637
(Gain) loss on sale of property and equipment................................ (3,288) 2,168 1,130
---------- ---------- ----------
Net cash provided by operating activities........................................... 43,264 12,110 47,225
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures.............................................................. (69,147) (74,888) (90,550)
Business acquisitions, net of cash acquired....................................... (34,835) (14,079) -
Investments in partnerships....................................................... (7,293) (2,486) (4,037)
Net advances to joint hog production arrangements................................. (113) 6,464 (6,364)
Proceeds from sale of property and equipment...................................... 4,141 82 969
---------- ---------- ----------
Net cash used in investing activities............................................... (107,247) (84,907) (99,982)
---------- ---------- ----------
Cash flows from financing activities:
Net (repayments) borrowings on notes payable...................................... (33,063) 33,592 17,560
Proceeds from issuance of long-term debt and capital lease obligations............ 171,250 50,000 50,000
Principal payments on long-term debt and capital lease obligations................ (76,974) (16,672) (13,588)
Proceeds from issuance of preferred stock......................................... - 20,000 -
Exercise of common stock options.................................................. 1,270 768 1,900
Dividends on preferred stock...................................................... (1,238) (1,152) (675)
---------- ---------- ----------
Net cash provided by financing activities........................................... 61,245 86,536 55,197
---------- ---------- ----------
Net (decrease) increase in cash..................................................... (2,738) 13,739 2,440
Cash at beginning of year........................................................... 28,529 14,790 12,350
---------- ---------- ----------
Cash at end of year................................................................. $ 25,791 $ 28,529 $ 14,790
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of cash flow information:
Interest paid, net of amount capitalized.......................................... $ 25,751 $ 20,684 $ 14,630
---------- ---------- ----------
Income taxes paid, net............................................................ $ 15,043 $ 1,685 $ 16,254
---------- ---------- ----------
Non-cash investing and financing activities:
Refinancing of long-term debt.................................................. $ 59,707 $ - $ -
---------- ---------- ----------
Conversion of preferred stock to common stock.................................. $ 20,000 $ 10,000 $ -
---------- ---------- ----------
Common stock issued for acquisition............................................ $ - $ 33,000 $ -
---------- ---------- ----------
Conversion of advances to joint hog production arrangements to investments in
partnerships.................................................................. $ 7,691 $ - $ 12,500
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated 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>
(IN THOUSANDS)
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)
Net income.................................................................... - - 44,937 -
Conversion of preferred stock................................................. 333 19,667 - -
Exercise of stock options..................................................... 38 1,232 - -
Dividends on preferred stock.................................................. - - (1,238) -
------ ---------- -------- --------
Balance, April 27, 1997......................................................... $9,598 $ 113,661 $191,870 $ (7,643)
------ ---------- -------- --------
------ ---------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated 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"), Gwaltney of
Smithfield, Ltd. ("Gwaltney"), John Morrell & Co. ("John Morrell"), Lykes Meat
Group, Inc. ("Lykes"), Patrick Cudahy Incorporated ("Patrick Cudahy") and The
Smithfield Packing Company, Incorporated ("Smithfield Packing"). 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. All years presented were 52 week periods.
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
27, 28,
1997 1996
-------- --------
<S> <C>
(IN THOUSANDS)
Fresh and processed meats................................................... $183,480 $156,232
Hogs on farms............................................................... 44,563 36,337
Manufacturing supplies...................................................... 15,732 12,686
Other....................................................................... 9,501 5,504
-------- --------
$253,276 $210,759
-------- --------
-------- --------
</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 20 to 40 years. Machinery and equipment is depreciated over
periods from 2 to 15 years. Repair and maintenance charges are expensed as
incurred. Improvements 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.
Interest on capital projects is capitalized during the construction period.
Total interest capitalized was $2,640,000 in fiscal 1997, $2,021,000 in fiscal
1996 and $842,000 in fiscal 1995. Repair and maintenance expenses totaled
$89,670,000, $59,951,000 and $50,975,000 in fiscal 1997, 1996 and 1995,
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 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 (See Note 12).
F-7
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
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 (hams 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 27, 1997 and April 28, 1996, the Company had deferred
unrealized hedging gains of $2,183,000 and $2,160,000, respectively, on
outstanding futures contracts. As of April 27, 1997 and April 28, 1996, the
Company had open futures contracts with contract values of $44,291,000 and
$31,819,000, respectively.
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 18,685,000 in fiscal 1997, 17,530,000 in fiscal 1996 and 17,059,000 in
fiscal 1995.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This new
standard defines a fair value method of accounting for employee stock option
plans. SFAS 123 allows the choice of recognizing compensation expense for stock
option plans by adopting the new fair value standard or to continue measuring
compensation using the intrinsic value approach of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). If APB 25
is elected, SFAS 123 requires supplemental disclosure to show the pro forma
effects as if the new method was applied. The Company has elected to continue
applying APB 25 to account for its stock option plans and adopt the supplemental
disclosure requirements of SFAS 123 (see Note 7). Accordingly, SFAS 123 does not
affect the Company's financial position or results of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the Company's financial position and amounts reported in
results of operations. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been restated to conform to 1997
presentations.
NOTE 2 -- ACQUISITIONS
In November 1996, the Company acquired substantially all of the assets and
business of Lykes from Lykes Bros. Inc. for $34,835,000 in cash and the
assumption of $10,616,000 of current liabilities.
The following unaudited pro forma information combines the operating
results of the Company and Lykes assuming the acquisition had been made as of
the beginning of each of the periods presented.
F-8
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- ACQUISITIONS -- Continued
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales............................................................................. $3,948,091 $2,630,031
Income from continuing operations................................................. 37,214 12,291
Net income........................................................................ 37,214 8,391
Income per common share:
Continuing operations........................................................... $ 1.93 $ .61
Net income...................................................................... 1.93 .40
</TABLE>
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 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 each of the periods presented.
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <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>
The Company accounted for these acquisitions using the purchase method of
accounting. The results of operations of these acquired businesses are included
in the accompanying consolidated statements of income from the respective dates
of acquisition.
The pro forma amounts above are not intended to be projections of future
results or trends and do not purport to be indicative of what actual
consolidated results of operations might have been if the acquisitions had been
effective as of the beginning of the periods presented.
NOTE 3 -- JOINT HOG PRODUCTION ARRANGEMENTS
SMITHFIELD-CARROLL'S
The Company has an arrangement with certain 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
("Smithfield-Carroll's"), 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, obligating the Company to purchase all the hogs produced by CFOV at
prices 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 27, 1997 and April 28, 1996, the Company had investments of
$27,943,000 and $20,252,000, respectively, in the partnership which are
accounted for using the equity method. Profits and losses are shared equally
under the arrangement. During fiscal 1997 and 1995, the Company converted
$7,691,000 and $12,500,000, respectively, of advances to partners' equity, which
are included in the investments above. In addition, as of April 27, 1997, the
Company had $1,414,000 of working capital loans outstanding to the partnership.
These demand loans are expected to be repaid in fiscal 1998.
F-9
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- JOINT HOG PRODUCTION ARRANGEMENTS -- Continued
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 1997, 1996 and 1995, revenues were $8,227,000,
$8,912,000 and $9,479,000, respectively.
Pursuant to the long-term purchase contract, the Company purchased
$93,049,000, $70,540,000 and $54,081,000 of live hogs from CFOV in fiscal years
1997, 1996 and 1995, respectively. The contract resulted in decreased raw
material costs (as compared to market costs) of $5,245,000 and $2,617,000 in
fiscal 1997 and 1996, respectively, and increased raw material costs of
$2,615,000 in fiscal 1995. In fiscal 1997, the Company received $6,905,000 from
CFOV in repayment of all outstanding demand loans. Pursuant to the agreement
with CFI, the Company purchased $269,499,000, $201,878,000 and $134,937,000 of
hogs in fiscal 1997, 1996 and 1995, 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 27, 1997, the Company had a 33% interest
in the arrangement, which is accounted for using the equity method. As of April
27, 1997 and April 28, 1996, the Company had investments of $12,673,000 and
$7,083,000, 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
27, 1997 and April 28, 1996, B&G had advanced $1,430,000 and $1,527,000,
respectively, to Brown's for working capital. As of April 27, 1997 and April 28,
1996, the Company had investments of $1,291,000 and $1,260,000, respectively, in
B&G.
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 $6,439,000 and $7,990,000 of
hogs in fiscal 1997 and 1996, respectively.
The summarized unaudited financial information which follows represents an
aggregation of the financial position of the unconsolidated hog production
operations of Smithfield-Carroll's, Circle Four and B&G.
<TABLE>
<CAPTION>
APRIL 27, APRIL 28,
1997 1996
-------------- --------------
<S> <C>
(IN THOUSANDS)
Current assets.......................................................... $ 17,116 $ 6,532
Property and equipment, net............................................. 134,937 107,996
Other assets............................................................ 6,978 6,094
-------------- --------------
$159,031 $120,622
-------------- --------------
-------------- --------------
Current liabilities..................................................... $ 15,721 $ 11,785
Long-term debt.......................................................... 71,094 54,926
Equity.................................................................. 72,216 53,911
-------------- --------------
$159,031 $120,622
-------------- --------------
-------------- --------------
</TABLE>
F-10
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 27, APRIL 28,
1997 1996
--------- ---------
<S> <C>
(IN THOUSANDS)
Notes payable to institutional lenders:
8.52% notes, payable through August 2006............................................................ $ 100,000 $ -
8.34% notes, payable through August 2003............................................................ 40,000 -
8.41% notes, payable through August 2004............................................................ 14,779 15,000
9.85% notes, payable through November 2006.......................................................... 13,000 14,333
8.41% notes, payable through August 2006............................................................ 9,853 10,000
10.75% notes, payable through August 2005........................................................... 8,500 9,500
9.80% notes, payable through August 2003............................................................ 8,437 9,187
6.24% notes, payable through November 1998.......................................................... 1,977 3,108
7.15% notes, payable through October 1997........................................................... 1,052 3,044
7.00% notes, payable through September 1998......................................................... 895 1,429
Notes payable to banks:
Long-term credit facility, expiring July 1998....................................................... 75,000 43,750
Notes based on prime rate........................................................................... - 45,000
6.48% notes......................................................................................... - 20,700
7.10% notes......................................................................................... - 2,290
Other notes payable................................................................................... 112 407
--------- ---------
273,605 177,748
Less current portion.................................................................................. (5,949) (11,810)
--------- ---------
$ 267,656 $ 165,938
--------- ---------
--------- ---------
</TABLE>
Scheduled maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Fiscal year
1998....................................................................... $ 5,949
1999....................................................................... 79,253
2000....................................................................... 3,083
2001....................................................................... 3,084
2002....................................................................... 3,083
Thereafter................................................................. 179,153
--------------
$273,605
--------------
--------------
</TABLE>
In fiscal 1997, the Company privately placed $140,000,000 of senior secured
notes with a group of institutional lenders. The placement consisted of
$40,000,000 of seven-year 8.34% notes and $100,000,000 of 10-year 8.52% notes
secured by four of the Company's major processing plants. The proceeds of the
financing were used to repay $65,200,000 of long-term bank debt and to reduce
short-term borrowings. In conjunction with the placement of the senior secured
notes, the Company refinanced $59,707,000 of existing institutional long-term
debt with the same institutional lenders. The refinancing resulted in revised
maturity dates and repayment schedules for the refinanced debt; however, no
additional proceeds resulted from this refinancing.
As of April 27, 1997, the Company had credit facilities totaling
$300,000,000, consisting of a 364-day $225,000,000 revolving credit facility and
a two-year $75,000,000 revolving credit facility. The short-term facility is
used for seasonal inventory and receivable needs, and the long-term facility is
used for working capital and capital expenditures. The line expires in July 1997
(the two-year facility expires in July 1998) and is expected to be refinanced in
the first quarter of fiscal
F-11
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- DEBT -- Continued
1998. The facilities have no compensating balance requirements but require
commitment fees of one-quarter of one percent per annum on the unused portion.
Weighted average borrowings under the facilities were $165,071,000 in
fiscal 1997, $133,400,000 in fiscal 1996 and $69,900,000 in fiscal 1995 at
weighted average interest rates of approximately 7%, 7% and 6%, respectively.
Maximum borrowings were $215,000,000 in fiscal 1997, $179,800,000 in fiscal 1996
and $117,000,000 in fiscal 1995. The outstanding balances under the facilities
totaled $150,000,000 and $151,300,000 as of April 27, 1997 and April 28, 1996,
respectively, at a weighted average interest rate of 7% for both years.
Notes payable to institutional lenders are secured by four of the Company's
major processing plants and certain other property, plant and equipment. The
credit facilities are collateralized with substantially all of the Company's
inventories and accounts receivable. As of April 27, 1997, the fair value of
long-term debt, based on the market value of debt with similar maturities and
covenants, approximates recorded values.
The Company's various debt agreements contain covenants regarding current
ratio, fixed charges coverage, minimum net worth and, among other restrictions,
limit additional borrowings, the acquisition, disposition and leasing of assets
and payments of dividends to stockholders.
NOTE 5 -- INCOME TAXES
Total income tax expense (benefit) was allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C>
(IN THOUSANDS)
Income from continuing operations...................................... $22,740 $10,465 $18,523
Discontinued operations................................................ - (2,600) (2,716)
------- ------- -------
$22,740 $ 7,865 $15,807
------- ------- -------
------- ------- -------
</TABLE>
Income tax expense attributable to income from continuing operations
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C>
(IN THOUSANDS)
Current tax expense:
Federal.............................................................. $12,765 $ 8,850 $10,373
State................................................................ 2,805 1,530 1,835
------- ------- -------
15,570 10,380 12,208
------- ------- -------
Deferred tax expense (benefit):
Federal.............................................................. 9,424 (129) 5,301
State................................................................ (2,254) 214 1,014
------- ------- -------
7,170 85 6,315
------- ------- -------
$22,740 $10,465 $18,523
------- ------- -------
------- ------- -------
</TABLE>
A reconciliation of taxes computed at the federal statutory rate to the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C>
(IN THOUSANDS)
Federal income taxes at statutory rate................................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit......................... 1.7 3.9 3.6
Other.................................................................. (3.1) (4.3) (1.9)
----- ----- -----
33.6% 34.6% 36.7%
----- ----- -----
----- ----- -----
</TABLE>
F-12
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- INCOME TAXES -- Continued
The tax effects of temporary differences consist of the following:
<TABLE>
<CAPTION>
APRIL APRIL
27, 28,
1997 1996
------- -------
<S> <C>
(IN THOUSANDS)
Deferred tax assets:
Employee benefits................................................................... $28,986 $35,925
Alternative minimum tax credit...................................................... 12,278 5,607
Tax credits, carryforwards and net operating losses................................. 11,807 12,523
Inventories......................................................................... 1,377 1,297
Other assets........................................................................ (903) 317
Accrued expenses.................................................................... 12,519 12,004
------- -------
$66,064 $67,673
------- -------
------- -------
Deferred tax liabilities:
Property, plant and equipment....................................................... $35,072 $33,643
Investments in subsidiaries......................................................... 3,154 574
Start-up costs...................................................................... 1,197 1,805
------- -------
$39,423 $36,022
------- -------
------- -------
</TABLE>
As of April 27, 1997 and April 28, 1996, the Company had $33,901,000 and
$21,416,000, 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 27, 1997 or April 28, 1996,
and there was no change in the valuation allowance during fiscal 1997 and 1996.
The tax credits, carryforwards, and net operating losses expire from fiscal
1998 to 2011. The alternative minimum tax credits do not expire.
NOTE 6 -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
APRIL 27, APRIL 28,
1997 1996
-------- --------
<S> <C>
(IN THOUSANDS)
Payroll and related benefits...................................................... $ 43,723 $ 42,737
Self-insurance reserves........................................................... 18,112 18,914
Pension and postretirement benefits............................................... 17,518 16,006
Other............................................................................. 27,145 17,425
-------- --------
$106,498 $ 95,082
-------- --------
-------- --------
</TABLE>
NOTE 7 -- 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, none of which are issued. 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.
F-13
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK -- Continued
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. In fiscal 1997, all of these shares were converted into 666,666
shares of the Company's common stock at $30.00 per share.
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.
STOCK OPTIONS
In fiscal 1997, as discussed in Note 1, the Company adopted SFAS 123 and
elected to continue to account for its stock option plans under APB 25.
Under the Company's 1984 Stock Option Plan (the "1984 Plan"), 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 1984 Plan has expired with the exception of outstanding options.
Under the Company's 1992 Stock Incentive Plan (the "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 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 27, 1997, there were 354,500 options available for grant under
the 1992 Plan.
The following is a summary of transactions for the 1984 Plan and the 1992
Plan during fiscal 1995, 1996 and 1997.
<TABLE>
<CAPTION>
AVERAGE PRICE
STOCK OPTIONS PER SHARE
------------- -------------
<S> <C>
(IN THOUSANDS)
Outstanding at May 1, 1994..................................................................... 1,652,000 $ 14.79
Granted...................................................................................... 60,000 30.63
Exercised.................................................................................... (120,900) 7.89
Canceled..................................................................................... (25,000) 23.06
------------- -------------
Outstanding at April 30, 1995.................................................................. 1,566,100 15.80
Granted...................................................................................... 345,000 25.30
Exercised.................................................................................... (59,600) 6.59
Canceled..................................................................................... (50,000) 23.06
------------- -------------
Outstanding at April 28, 1996.................................................................. 1,801,500 17.72
Granted...................................................................................... 80,000 31.34
Exercised.................................................................................... (77,000) 6.22
Canceled..................................................................................... (270,000) 24.57
------------- -------------
Outstanding at April 27, 1997.................................................................. 1,534,500 $ 17.81
------------- -------------
------------- -------------
</TABLE>
As of April 27, 1997, April 28, 1996 and April 30, 1995, the number of
options exercisable were 639,000, 716,000 and 775,600, respectively, at average
per share exercise prices of $8.13, $7.92 and $7.82, respectively.
F-14
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK -- Continued
The following table summarizes information about stock options outstanding
as of April 27, 1997.
WEIGHTED
STOCK OPTIONS AVERAGE WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE
PRICE RANGE APRIL 27, 1997 CONTRACTUAL LIFE EXERCISE PRICE
- ---------------- -------------- ---------------- --------------
$ 8.13 639,000 2.1 $ 8.13
21.44 to 23.06 620,500 6.5 23.01
27.25 to 30.62 225,000 8.7 27.40
32.93 to 35.69 50,000 9.6 33.76
Stock options with an exercise price of $8.13 are the only options
exercisable as of April 27, 1997.
The fair value of each stock option granted in fiscal 1997 and 1996 is
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for both years: dividend yield of 0%, expected
volatility of 35%, weighted average risk-free interest rate of 5.8% and expected
lives of six years. The weighted average fair value of options granted is $15.23
and $12.02 for fiscal 1997 and 1996, respectively. Pro forma net income and
income per share based on the fair value method as defined in SFAS 123 for
fiscal 1997 and 1996 approximate recorded values.
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 8 -- PENSION AND OTHER RETIREMENT PLANS
The Company sponsors several defined benefit pension plans covering
substantially all employees. Plans covering salaried employees provide benefits
based on years of service and average salary levels. Plans covering hourly
employees provide benefits of stated amounts for each year of service. The
Company's funding policy is to contribute annually the minimum amount required
under ERISA. The plans' assets are invested primarily in equities, debt
securities, insurance contracts and money market funds.
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 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.
F-15
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- PENSION AND OTHER RETIREMENT PLANS -- Continued
The status of the Company's plans and the components of pension expense are
as follows:
<TABLE>
<CAPTION>
APRIL 27, 1997 APRIL 28, 1996
------------------------- -------------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
PLANS PLANS PLANS PLANS
---------- ----------- ---------- -----------
<S> <C>
(IN THOUSANDS)
Accumulated benefit obligation....................................... $ 30,974 $ 170,850 $ 29,548 $ 175,103
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Vested benefit obligation............................................ $ 26,483 $ 168,222 $ 25,591 $ 169,468
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Plan assets at fair value............................................ $ 47,179 $ 123,417 $ 39,127 $ 116,542
Projected benefit obligation......................................... (38,805) (177,114) (36,434) (181,306)
---------- ----------- ---------- -----------
Excess (deficiency) of plan assets
over projected benefit obligation.................................. 8,374 (53,697) 2,693 (64,764)
Items not recorded on balance sheets:
Unrecognized net transition gain................................... (90) - (181) -
Unrecognized net gain from experience differences.................. (6,799) (10,173) (3,356) (8,710)
Unrecognized prior service cost.................................... 992 88 1,188 175
---------- ----------- ---------- -----------
Prepaid (accrued) pension costs.................................... $ 2,477 $ (63,782) $ 344 $ (73,299)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C>
Net periodic pension cost included the following:
Service costs for benefits earned........................................................... $ 4,054 $ 2,662 $ 2,079
Interest accrued on projected benefit obligation............................................ 16,299 7,532 3,089
Actual return on plan assets................................................................ (15,556) (6,691) (2,558)
Net amortization and deferral............................................................... 878 (200) (304)
------- ------- -------
Net periodic pension cost................................................................ $ 5,675 $ 3,303 $ 2,306
------- ------- -------
------- ------- -------
</TABLE>
In determining the projected benefit obligation in fiscal 1997 and 1996,
the weighted average assumed discount rate was 8% and 7.75%, respectively, while
the assumed rate of increase in future compensation was 5% in fiscal 1997 and 5%
to 6% in fiscal 1996. The weighted average expected long-term rate of return on
plan assets was 9% in fiscal 1997 and 1996.
The Company provides health care and life insurance benefits for certain
retired employees. These plans are unfunded and generally pay covered costs
reduced by retiree premium contributions, co-payments and deductibles. The
Company retains the right to modify or eliminate these benefits.
The status of the Company's plans are as follows:
<TABLE>
<CAPTION>
APRIL 27, APRIL 28,
1997 1996
------- -------
<S> <C>
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees and dependents...................................................................... $ 8,226 $ 8,996
Active plan participants..................................................................... 1,404 1,300
------- -------
Total accumulated postretirement benefit obligation.......................................... 9,630 10,296
Unrecognized net gain........................................................................ 651 -
------- -------
Accrued postretirement benefit cost............................................................ $10,281 $10,296
------- -------
------- -------
</TABLE>
In determining the accumulated postretirement benefit obligation in fiscal
1997 and 1996, the weighted average assumed discount rate was 8% and 7.75%,
respectively. The assumed annual rate of increase in per capita cost of covered
health care benefits is 7.5% for fiscal 1997, 6.5% for fiscal 1998 and 5.5%
thereafter.
F-16
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- PENSION AND OTHER RETIREMENT PLANS -- Continued
The total cost of postretirement benefits was $1,072,000, $673,000 and
$406,000 in fiscal 1997, 1996 and 1995, respectively.
NOTE 9 -- LEASE OBLIGATIONS AND COMMITMENTS
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 1997, 1996 and 1995, the Company paid $5,372,000,
$4,641,000 and $5,986,000, respectively, in fees for use of the facilities. As
of April 27, 1997 and April 28, 1996, the Company had investments of $1,137,000
and $1,067,000, 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
1998............................................................................. $ 19,083
1999............................................................................. 16,995
2000............................................................................. 14,938
2001............................................................................. 12,970
2002............................................................................. 17,023
Thereafter....................................................................... 24,239
--------------
$105,248
--------------
--------------
</TABLE>
Rental expense was $24,270,000 in fiscal 1997, $17,664,000 in fiscal 1996
and $15,025,000 in fiscal 1995. Rental expense in fiscal 1997, 1996 and 1995
included $3,593,000, $3,389,000 and $2,681,000 of contingent maintenance fees,
respectively.
The Company has 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 27, 1997
consists of land of $2,659,000, buildings and improvements of $7,017,000 and
machinery and equipment of $6,701,000, less accumulated depreciation of
$5,361,000.
F-17
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- LEASE OBLIGATIONS AND COMMITMENTS -- Continued
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
1998............................................................................. $ 3,876
1999............................................................................. 3,991
2000............................................................................. 4,046
2001............................................................................. 3,672
2002............................................................................. 3,190
Thereafter....................................................................... 12,793
--------------
31,568
Less amounts representing interest............................................... (8,888)
--------------
Present value of net minimum obligations......................................... 22,680
Less current portion............................................................. (1,851)
--------------
Long-term capital lease obligations.............................................. $ 20,829
--------------
--------------
</TABLE>
As of April 27, 1997, the Company had outstanding commitments for
construction of hog production facilities and plant expansion projects of
approximately $20,964,000.
NOTE 10 -- RELATED PARTY TRANSACTIONS
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 $433,861,000, $330,033,000 and $232,130,000 of hogs in fiscal
1997, 1996 and 1995, respectively.
A director of the Company is the chairman, president 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 $182,576,000, $129,577,000 and $79,292,000 of hogs in fiscal
1997, 1996 and 1995, respectively.
A director of the Company is a director and owns 50% of the voting stock of
Maxwell Foods, Inc. ("MFI"). The Company has a long-term agreement to purchase
hogs from MFI at prices, which in the opinion of management, are equivalent to
market. Pursuant to this agreement with MFI, the Company purchased $109,470,000,
$76,448,000 and $7,784,000 of hogs in fiscal 1997, 1996 and 1995, respectively.
In fiscal 1997, 1996 and 1995, the Company purchased raw materials totaling
$12,772,000, $10,069,000 and $7,535,000, respectively, from a company which is
48% owned by the chairman and chief executive officer's children. In the opinion
of management, these purchases are made at prices which are equivalent to
market.
The Company is engaged in hog production arrangements with several related
parties. See Note 3 for additional information regarding these arrangements.
NOTE 11 -- DISCONTINUED OPERATIONS
In fiscal 1996, the Company completed the disposition of the assets and
business of Ed Kelly, Inc., its former retail electronics subsidiary, which is
reported separately as discontinued operations in the consolidated statements of
income. A loss from discontinued operations of $3,900,000 and $4,100,000 is
reflected in fiscal 1996 and 1995, respectively.
F-18
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- REGULATION AND LITIGATION
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
("VSWCB"), the Virginia Department of Environmental Quality ("VDEQ"), 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.
The wastewater discharge permit for Smithfield Packing's and Gwaltney's
plants in Smithfield, Virginia, which was last reissued in 1992, imposed more
stringent effluent limitations on phosphorus and two species of nitrogen
(ammonia and total Keldjahl nitrogen) than the wastewater treatment facilities
at those plants were designed to meet or can meet. To achieve compliance, the
Company agreed in 1991 to discontinue its wastewater discharges into the Pagan
River and connect its wastewater treatment facilities to the regional sewage
collection and treatment system operated by the Hampton Roads Sanitation
District ("HRSD"), when available. This agreement was embodied in a consent
order issued by the VSWCB in 1991 (the "1991 Order"). The entry of the 1991
Order followed several years of extensive negotiations and litigation, including
an application for a variance from the phosphorus limitations, and preceded the
reissuance of the wastewater discharge permit in 1992. The 1991 Order excused
the Company from compliance with the permit's phosphorus effluent limitations
and allowed the Company to operate under less stringent limitations on total
Keldjahl nitrogen than the permit would otherwise require, pending connection of
the two wastewater treatment facilities to the HRSD system. Another VSWCB
consent order (the "1994 Order") excused the Company from compliance with
certain other permit terms pending connection to the HRSD system.
The Company connected its Gwaltney wastewater treatment facilities to the
HRSD system in June 1996 and is connecting its Smithfield Packing facilities to
that system in July 1997. The HRSD system was not available for the Company's
use prior to these dates. The Company has made more than $2,700,000 in capital
expenditures to upgrade its existing wastewater treatment facilities (and must
continue to operate these facilities) to produce a wastewater that is suitable
for treatment by the HRSD system. In addition to these continuing operational
costs, the Company expects to pay HRSD sewer use charges in excess of $1,500,000
per year. The Company will account for these wastewater treatment costs as
current period charges in the years in which such costs are incurred.
Prior to connecting to the HRSD system, the Smithfield Packing and Gwaltney
plants were operated under the 1991 Order and the 1994 Order. During a period
from May 1994 to January 1995, the two plants had a number of violations of the
permit and the consent orders. Although the Company corrected the conditions
that caused these violations, the Company continued to experience intermittent
exceedances and permit compliance problems at its Gwaltney and Smithfield
Packing plants prior to connecting to the HRSD system.
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, and
criminal sanctions may be imposed in the event of false reporting or destruction
of records. In the course of a VSWCB inspection of the Smithfield Packing and
Gwaltney plants in July 1994, it was discovered that records of certain tests
conducted by the Company from 1991 through early 1994 could not be located. The
employee responsible for the supervision of the tests and maintenance of the
test records was replaced. The U.S. Department of Justice ("DOJ"), EPA and the
Federal Bureau of Investigation undertook an investigation of possible criminal
charges of false reporting and destruction of records. The Company cooperated
fully with this federal investigation. On October 22, 1996, the former employee
entered a guilty plea and was convicted in the United States District Court for
the Eastern District of Virginia on 23 violations of the federal Clean Water
Act, including making false reports. Eight of these violations related to his
duties as the Company's employee at its Smithfield Packing and Gwaltney plants,
while 15 violations were committed in connection with the former employee's
outside consulting business activities for public and private entities unrelated
to the Company. Neither the Company nor any of its other present or former
employees has been charged with any criminal violation arising from this
investigation.
On August 30, 1996, VDEQ filed a civil suit against the Company in the
Circuit Court of the County of Isle of Wight, Virginia, concerning permit
exceedances at the Company's Smithfield Packing and Gwaltney plants. This suit,
which was
F-19
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- REGULATION AND LITIGATION -- Continued
filed under the Virginia State Water Control Law, concerns all permit
violations, including record-keeping violations, from 1986 to date that were not
excused by the 1991 Order and the 1994 Order, as well as several violations of
effluent limitations that were prescribed by such orders. Each violation is
subject to a maximum penalty of $25,000. In March 1997, the Virginia Attorney
General filed a bill of particulars specifying approximately 23,000 alleged
violations, the vast majority of which concern the requirement to conduct
certain tests of chlorine levels at each plant on each hour of each day. The
case was initially brought to trial in state court on July 7, 1997. The VDEQ
contended that the Company received an economic benefit of $4,000,000, and
should pay civil penalties in that amount plus $2,000,000 for the violations. On
July 9, 1997, the VDEQ withdrew its suit against the Company, but stated its
intention to refile the suit at a later time. The Company intends to defend the
suit vigorously, and expects to prove that essentially no economic benefit
accrued to the Company and no environmental damage occurred as a result of the
violations.
On December 16, 1996, the DOJ, on behalf of the EPA, filed a civil suit
against the Company, Gwaltney and Smithfield Packing under the federal Clean
Water Act in the United States District Court for the Eastern District of
Virginia in Norfolk, Virginia. This action seeks to recover civil penalties
against the Company for approximately 5,500 alleged federal Clean Water Act
violations at the Company's Smithfield Packing and Gwaltney plants in
Smithfield, Virginia. Each violation is subject to a civil penalty not to exceed
$25,000. The vast majority of the alleged violations concern permit exceedances
during the last five years that were expressly excused by the 1991 Order and the
1994 Order. The remaining alleged violations duplicate the VDEQ's allegations.
The Commonwealth of Virginia, acting through the VSWCB, which has primary
enforcement responsibility in the Clean Water Act's cooperative federal-State
permitting scheme, advised federal authorities of the 1991 Order and the 1994
Order when issued. Not-withstanding this, in its suit, the EPA asserted that the
State-issued administrative consent orders do not bar a federal action seeking
relief for permit violations.
In an opinion dated May 30, 1997, the District Court granted the EPA's
motion for summary judgment in part on liability issues, holding that the 1991
Order and the 1994 Order did not excuse the alleged permit violations and that
the federal action was not otherwise precluded or barred by estoppel. In the
suit by the Commonwealth of Virginia discussed above, however, the Circuit Court
of the County of Isle of Wight, Virginia, based upon a cross claim filed by the
Company, issued a judicial decree reforming the Company's permit and setting the
compliance deadlines consistent with the Company's connection deadlines to the
HRSD system. This matter has been set for trial on July 21, 1997, on the
liability issues and on the issue of appropriate civil penalties. In determining
the civil penalties to be assessed, the federal Clean Water Act requires that
the District Court consider the seriousness of the violations, the economic
benefit (if any) resulting from the violations, any history of such violations,
any good-faith efforts to comply with the applicable requirements, the economic
impact of the penalties on the Company, and such other matters as justice may
require. The Company intends to defend the suit vigorously.
The EPA is expected to contend that the Company should have spent
approximately $10,000,000 in 1990 to comply with the phosphorus permit
limitation in addition to connecting its facilities to the HRSD system when
available. The EPA is expected to seek civil penalties which include this
claimed economic benefit plus an additional gravity-based amount for the permit
violations. The Company expects to prove that no economic benefit accrued to the
Company and that no environmental damage occurred as a result of the violations.
The Company will also show that it has acted in good faith and has complied with
the VSWCB's consent order requirements, at great expense, to connect to the HRSD
system and discontinue its discharges into the Pagan River.
Based on its knowledge, as summarized above, of the facts and circumstances
surrounding the alleged violations in these suits, the Company believes that the
ultimate resolution of the suits will not have a material adverse effect on the
Company's financial position or annual results of operations.
F-20
<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>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1997
Sales...................................................................... $892,870 $969,226 $1,080,979 $927,536
Gross profit............................................................. 58,762 73,577 88,704 99,895
Net income................................................................. 746 9,017 15,734 19,440
Net income per common share................................................ .02 .46 .82 1.01
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
</TABLE>
F-21
<PAGE>
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 27, 1997, and have issued our report
thereon dated June 6, 1997. 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 6, 1997
- F-22 -
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY BALANCE SHEETS
As of April 27, 1997 and April 28, 1996
<TABLE>
<CAPTION>
APRIL 27, APRIL 28,
ASSETS 1997 1996
- -------------------------------------------------------------------- ----------------------------------------
<S> <C>
(in thousands)
Current assets:
Cash $ 38 $ 563
Accounts receivable 3,675 2,346
Receivables from related parties 1,414 9,150
Deferred income taxes 33,901 6,857
Other 5,137 1,770
----------------------------------------
Total current assets 44,165 20,686
----------------------------------------
Investments in and net advances to subsidiaries,
at cost plus equity in undistributed earnings 444,149 303,642
----------------------------------------
Other assets:
Investments in partnerships 41,753 28,402
Property, plant and equipment, net 9,838 8,612
Other 16,476 15,071
----------------------------------------
Total other assets 68,067 52,085
----------------------------------------
$556,381 $376,413
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------
Current liabilities:
Note payable $ 2,500 $ 3,000
Current portion of long-term debt 4,263 3,304
Accounts payable 5,167 1,325
Accrued expenses 28,617 16,763
Income taxes payable 1,789 229
----------------------------------------
Total current liabilities 42,336 24,621
----------------------------------------
Long-term debt 192,384 64,836
----------------------------------------
Deferred income taxes and other noncurrent liabilities 14,175 24,439
----------------------------------------
Redeemable preferred stock - 20,000
----------------------------------------
Stockholders' equity 307,486 242,517
----------------------------------------
$556,381 $376,413
========================================
</TABLE>
The accompanying notes are an integral part of these balance sheets
F-23
<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 27, APRIL 28, APRIL 30,
1997 1996 1995
---------------------------------------------------------
<S> <C>
(in thousands)
Sales $ - $ - $ -
Cost of sales 1,820 (2,540) (1,368)
---------------------------------------------------------
Gross profit (1,820) 2,540 1,368
General and administrative expenses,
net of allocation to subsidiaries 10,911 5,780 2,680
Depreciation expense 903 892 496
Interest expense 16,434 2,556 2,596
-------------------------------------------------------
Loss before income taxes and equity
in earnings of subsidiaries (30,068) (6,688) (4,404)
Income tax benefit (12,562) (2,400) (1,003)
--------------------------------------------------------
Loss before equity in earnings
of subsidiaries (17,506) (4,288) (3,401)
Equity in earnings of subsidiaries 62,443 20,174 31,241
--------------------------------------------------------
Net income $ 44,937 $15,886 $27,840
=======================================================
</TABLE>
The accompanying notes are an integral part of these statements
F-24
<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 27, APRIL 28, APRIL 30,
1997 1996 1995
--------------------------------------------------------------
<S> <C>
(in thousands)
Cash flows from operating activities:
Net income $ 44,937 $ 15,886 $ 27,840
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,040 1,162 619
Gain on sale of property and equipment (2,328) (1) (5)
Change in deferred income taxes and
other noncurrent liabilities (37,308) 5,343 6,748
Increase in accounts receivable (1,329) (2,171) (55)
Decrease (increase) in receivables from
related parties 45 6,615 (9,431)
(Increase) decrease in other current
assets (3,367) (1,318) 65
Increase in accounts payable and
accrued expenses 15,696 260 546
(Increase) decrease in refundable
income taxes - 3,458 (3,458)
Increase (decrease) in income taxes
payable 1,560 229 (3,154)
Increase in other assets (1,541) (4,778) (8,558)
--------------------------------------------------------------
Net cash provided by operating activities 17,405 24,685 11,157
--------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,226) (2,987) (4,534)
Proceeds from sale of property, plant
and equipment 3,424 38 7
Increase in investments in and advances
to subsidiaries, net of common stock
issued to acquire John Morrell & Co. (80,800) (36,649) (49,669)
Investment in partnerships (5,660) (2,376) (4,123)
--------------------------------------------------------------
Net cash used in investing activities (86,262) (41,974) (58,319)
------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of short-term debt (500) 500 2,500
Proceeds from issuance of long-term debt 140,000 - 50,000
Principal payments on long-term debt (71,200) (2,420) (6,738)
Exercise of options 1,270 767 1,901
Issuance of preferred stock - 20,000 -
Preferred dividends (1,238) (1,152) (675)
--------------------------------------------------------------
Net cash provided by financing activities 68,332 17,695 46,988
--------------------------------------------------------------
Net (decrease) increase in cash (525) 406 (174)
Cash at beginning of year 563 157 331
------------------------------------------------------------
Cash at end of year $ 38 $ 563 $ 157
============================================================
</TABLE>
The accompanying notes are an integral part of these statements
F-25
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
April 27, 1997 and April 28, 1996
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 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 27, 1997 and April 28, 1996 are as follows:
(In thousands) 1997 1996
-------------- ---- ----
Self-insurance reserves $14,151 $ 8,784
Payroll and related benefits 6,465 5,696
Interest expense 4,162 402
Other 3,839 1,881
------- -------
$28,617 $16,763
======= =======
4. Long-Term Debt:
In fiscal 1997, the Registrant privately placed $140,000,000 of senior
secured notes. The proceeds of the financing were used to repay $65,200,000
of long-term bank debt and for investments in and advances to subsidiaries.
In conjunction with the placement of these notes, the Registrant refinanced
$59,707,000 of existing long-term debt previously recorded by its
subsidiaries. The result of the refinancing was to transfer debt to the
parent and revise maturity dates and repayment schedules for the refinanced
debt. No additional proceeds resulted from this refinancing.
As of April 27, 1997, the Registrant is guaranteeing $20,173,000 of capital
lease obligations of its subsidiaries and lines of credit aggregating
$300,000,000 of which $150,000,000 is outstanding.
Scheduled maturities of the Registrant's long-term debt consists of the
following:
Fiscal Year (In thousands)
----------- ---------
1998 $ 4,263
1999 3,981
2000 3,083
2001 3,083
2002 3,083
Thereafter 179,154
---------
$196,647
=========
5. The amount of dividends received from subsidiaries in fiscal 1997 and 1996
was $65,316,000 and $5,000,000, respectively.
6. In fiscal 1997, all of the Series C 6.75% cumulative convertible redeemable
preferred stock, totaling $20,000,000, was converted into the Registrant's
common stock.
F-26
<PAGE>
7. Supplemental disclosures of cash flow information (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Interest paid, net of amount capitalized $11,106 $ 1,807 $ 2,403
======= ======= =======
Income taxes $15,043 $ 1,685 $16,254
======= ======= =======
Noncash investing and financing activities:
Refinancing of long-term debt $59,707 $ - $ -
======= ======= =======
Conversion of preferred stock to
common stock $20,000 $10,000 $ -
======= ======= =======
Common stock issued for acquisition $ - $33,000 $ -
======= ======= =======
Conversion of receivables from related
parties to investments in partnerships $ 7,691 $ - $12,500
======= ======= =======
</TABLE>
F-27
EXHIBIT 4.5
Execution Counterpart
============================================================================
FIVE-YEAR CREDIT AGREEMENT
dated as of
July 15, 1997
among
SMITHFIELD FOODS, INC.,
THE SUBSIDIARY GUARANTORS PARTY HERETO,
THE LENDERS PARTY HERETO
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
-------------------------
CHASE SECURITIES INC.,
as Arranger
and
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH,
as Co-Agent
=============================================================================
<PAGE>
FIVE-YEAR CREDIT AGREEMENT dated as of July 15, 1997, among
SMITHFIELD FOODS, INC., a Delaware corporation (the "Borrower"), each of the
Subsidiaries of the Borrower identified under the caption "SUBSIDIARY
GUARANTORS" on the signature pages hereto or that, pursuant to Section 5.09
hereof, shall become a "Subsidiary Guarantor" hereunder (individually, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and,
together with the Borrower, the "Obligors"), each of the lenders that is a party
hereto identified under the caption "LENDERS" on Schedule 2.01 hereto or that,
pursuant to Sections 2.08 or 10.04 hereof, shall become a "Lender" hereunder
(individually, a "Lender" and, collectively, the "Lenders") and THE CHASE
MANHATTAN BANK, in its capacity as administrative agent for the Lenders
hereunder (the "Administrative Agent").
The Borrower and its subsidiaries are engaged as an integrated
group in the business of pork production, hog farming, pork processing and
manufacturing spices and chemicals, and in related businesses, and in furnishing
the required supplies, services, equipment, credit and other facilities for such
integrated operation. The integrated operation requires financing on such a
basis that credit supplied to the Borrower be made available from time to time
to the Subsidiary Guarantors, as required for the continued successful operation
of the Obligors, separately, and the integrated operation as a whole. In that
connection, the Obligors have requested that the Lenders extend credit to the
Borrower (to be made available by the Borrower directly or indirectly to the
Subsidiary Guarantors and other of its Subsidiaries in the circumstances
specified herein) in an aggregate principal or face amount not exceeding
$300,000,000 to refinance certain existing indebtedness of the Obligors and to
finance the working capital needs and for other general corporate purposes of
the Borrower and its subsidiaries in the ordinary course of business.
To induce the Lenders to extend such credit, the Obligors, the
Lenders and the Administrative Agent propose to enter into this Agreement
pursuant to which the Lenders will make loans to the Borrower, and issue letters
of credit for account of the Obligors, and each Subsidiary Guarantor will
guarantee the credit so extended to the Borrower and each of the Obligors will
agree to execute and deliver a security agreement providing for security
interests and liens to be granted by the Obligors on certain of their respective
properties as collateral security for the obligations of the Obligors to the
Lenders and the Administrative Agent hereunder and, in the case of each Obligor
(other than the Borrower) as collateral security for the payment of certain of
the Intercompany Notes (as defined below). Each of the Obligors expects to
derive benefit, directly or indirectly, from the credit so extended to the
Borrower and each other Subsidiary Guarantor, both in its separate capacity and
as a member of the integrated group, since the successful operation of each of
the Obligors is dependent on the continued successful performance of the
functions of the integrated group as a whole.
<PAGE>
Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Acquisition" means any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the
Borrower and/or any of its Subsidiaries (a) acquires any going business or all
or substantially all of the assets of any Person, whether through purchase of
assets, merger or otherwise, (b) directly or indirectly acquires control of at
least a majority (in number of votes) of the securities of a corporation that
have ordinary voting power for the election of directors or (c) directly or
indirectly acquires control of at least a majority of the partner, member or
other ownership interests of any Person that is not a corporation.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Aggregate Consideration" means, in connection with any
Acquisition, an amount equal to (a) the aggregate consideration, in whatever
form (including, without limitation, cash payments, the principal amount of
promissory notes and Indebtedness assumed, the aggregate amounts payable to
acquire, extend and exercise any option, the aggregate amount payable under non-
<PAGE>
competition agreements and management agreements, and the fair market value of
other property delivered) paid, delivered or assumed by the Borrower and its
Subsidiaries for such Acquisition minus (b) the amount, if any, of any increase
in the Consolidated Borrowing Base resulting from such Acquisition on the date
of the Consummation thereof.
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base
CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due
to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective
Rate shall be effective from and including the effective date of such change in
the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the Total Commitment represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Total Commitment most recently in effect, giving
effect to any assignments.
"Applicable Rate" means, with respect to any ABR Loan,
Eurodollar Revolving Loan, Federal Funds Loan or Swingline Loan, or with respect
to the Commitment Fees payable hereunder, for each Rate Period (as defined
below), the respective rate per annum indicated below for Loans of such Type or
Commitment Fees, as applicable, opposite the applicable Interest Coverage Ratio
(as defined below) indicated below for such Rate Period:
Applicable Rate
for Eurodollar
Loans, Federal
Applicable Funds Loans and
Interest Coverage Rate for Letters of Commitment
Ratio ABR Loans Credit Fees
- ----------------- ---------- --------------- ----------
Greater than or -0- 0.750% 0.200%
equal to 5.0 to 1
("Tier I")
Less than 5.0 to 1 -0- 0.875% 0.225%
and greater than or
equal to 4.5 to 1
("Tier II")
<PAGE>
Less than 4.5 to 1 -0- 1.000% 0.250%
and greater than or
equal to 4.0 to 1
("Tier III")
Less than 4.0 to 1 0.125% 1.125% 0.275%
and greater than or
equal to 3.5 to 1
("Tier IV")
Less than 3.5 to 1 0.250% 1.250% 0.300%
("Tier V")
For purposes hereof, (i) a "Rate Period" means (x) initially,
the period commencing on the date hereof to but not including the first Rate
Reset Date (as defined below) thereafter and (y) thereafter, the period
commencing on a Rate Reset Date to but not including the immediately following
Rate Reset Date; (ii) a "Rate Reset Date" means, with respect to any fiscal
quarter or fiscal year, the earlier of (x) the date on which the Borrower
delivers the certificate referred to in Section 5.01(c) (a "Compliance
Certificate") in respect of such fiscal quarter or fiscal year, as the case may
be, and (y) the date on which the Borrower is required to have delivered the
financial statements under Section 5.01(a) or (b) in respect of such fiscal
quarter or fiscal year, as the case may be (provided that the first Rate Reset
Date shall be determined by reference to the fiscal quarter of the Borrower
ending on October 30, 1997); and (iii) "Interest Coverage Ratio" means, for any
Rate Period, the ratio of Consolidated EBITDA for the period of four fiscal
quarters of the Borrower ending on or most recently prior to the first day of
such Rate Period to Consolidated Interest Expense for such period of four
consecutive fiscal quarters.
Anything in this Agreement to the contrary notwithstanding,
but subject to Section 2.12(d), the Applicable Rate shall be (i) the applicable
rate provided for in Tier V in the table set forth above in this definition (x)
during any period when an Event of Default shall have occurred and be
continuing, or (y) if the applicable Compliance Certificate shall not be
delivered within the time that the applicable financial statements are required
to be delivered by Section 5.01(a) or (b), as the case may be (but only, in the
case of this clause (y), with respect to the portion of such Rate Period prior
to the delivery of such Compliance Certificate) and (ii) subject to the
preceding clause (i), the applicable rate provided for in Tier III in the table
set forth above in this definition during the first Rate Period.
<PAGE>
"Arranger" means Chase Securities Inc.
"Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 10.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Assuming Lender" has the meaning assigned to such term in
Section 2.08(d).
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary
CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrowing" means (a) Revolving Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect or (b) a Swingline Loan.
"Borrowing Base" means, at any time for any First Tier
Subsidiary, an amount equal to (a) 75% of the result obtained from the following
calculation: (i) the aggregate amount of Eligible Inventory (valued at the lower
of (x) cost, on a first- in-first-out basis or (y) fair market value) of such
First Tier Subsidiary and its subsidiaries that are Subsidiary Guarantors,
determined on a consolidated basis, plus (ii) the aggregate amount of Eligible
Receivables of such First Tier Subsidiary and its subsidiaries that are
Subsidiary Guarantors at such time, in each case as reflected in the Borrowing
Base Certificate then most recently received by the Administrative Agent
<PAGE>
hereunder minus (iii) reserves maintained by such First Tier Subsidiary and its
subsidiaries that are Subsidiary Guarantors in respect of Eligible Receivables
relating to discounts, advertising, allowances and similar items minus (b) the
aggregate amount of outstanding checks for the purchase of Farm Products (as
defined in the Security Agreement) drawn by such First Tier Subsidiary and its
Subsidiaries that have not cleared.
"Borrowing Base Certificate" means a certificate substantially
in the form of Exhibit B hereto signed by a Financial Officer.
"Borrowing Request" means a request by the Borrower for a
Revolving Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Expenditures" means, with respect to any Person, for
any period, all expenditures made and liabilities incurred during such period
for the acquisition of assets (including any replacement in the ordinary course
of business without reduction for sales, retirements or replacements) which are
not, in accordance with GAAP, 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 Capital Lease Obligations and (ii) an amount
(not less than zero) equal to any net increase from the beginning of such period
through the end of such period in the aggregate outstanding principal amount of
advances to hog production operations (other than Subsidiaries) in which the
Borrower or any of its Subsidiaries has invested as a joint venturer or partner.
The amount of Capital Expenditures in any period shall be calculated without
duplication in accordance with GAAP. Notwithstanding the foregoing, with respect
to the acquisition of replacement sows by the Borrower or any of its
Subsidiaries in the ordinary course of business, the amount included in Capital
Expenditures shall be the acquisition cost of such sows, reduced by the proceeds
received by the Borrower or any of its Subsidiaries from the sale of the
replaced sows.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
<PAGE>
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Cash Flow" means, for any period, the sum, for the Borrower
and its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following: (a) Consolidated Net Income plus (b)
depreciation and amortization (to the extent deducted in determining
Consolidated Net Income) for such period.
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date hereof),
of shares representing more than 25% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower; (b)
occupation of a majority of the seats (other than vacant seats) on the board of
directors of the Borrower by Persons who were neither (i) nominated by the board
of directors of the Borrower nor (ii) appointed by directors so nominated; or
(c) the acquisition of direct or indirect Control of the Borrower by any Person
or group.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender or
Issuing Bank (or, for purposes of Section 2.14(b), by any lending office of such
Lender or by such Lender's or Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank.
"Class", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans or Swingline Loans.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral Agent" means Chase, as collateral agent
under the Security Agreement.
<PAGE>
"Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans and to acquire participations
in Letters of Credit and Swingline Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Revolving Credit
Exposure hereunder, as such commitment may be (a) reduced or increased from time
to time pursuant to Section 2.08 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 10.04. The
initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in
the Assignment and Acceptance pursuant to which such Lender shall have assumed
its Commitment, as applicable. The initial aggregate amount of the Total
Commitment is $300,000,000.
"Commitment Fee" means the fees payable at the Applicable Rate
pursuant to Section 2.11(a).
"Commitment Increase" has the meaning assigned to such term in
Section 2.08(d).
"Commitment Increase Date" has the meaning assigned to such
term in Section 2.08(d).
"Competitive Loan" means a Loan made pursuant to Section 2.04.
"Consolidated Borrowing Base" means, at any time, the
aggregate amount of the Borrowing Bases at such time of the First Tier
Subsidiaries that are Subsidiary Guarantors.
"Consolidated Current Ratio" means, on any date, the ratio of
(i) the consolidated current assets of the Borrower and its Subsidiaries on such
date to (ii) the sum on such date (without duplication) of the consolidated
current liabilities of the Borrower and its Subsidiaries plus the aggregate
outstanding principal amount of the Loans and Pari Passu Debt plus the aggregate
principal amount of Indebtedness of the Borrower and its Subsidiaries that would
be characterized as current liabilities but for the existence of the Commitments
hereunder or any commitments of lenders to make Pari Passu Debt available to the
Borrower or any of its Subsidiaries.
"Consolidated EBITDA" means, for any period, an amount equal
to (a) the sum for such period of Consolidated Net Income and, to the extent
subtracted in determining such Consolidate 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 (i) not
realized in the ordinary course of business or (ii) the result of any sale of
assets.
<PAGE>
"Consolidated Fixed Charges" means, on any date, the sum
(without duplication) of (i) the aggregate amount of all Capital Expenditures
and the Aggregate Consideration for all Acquisitions by the Borrower and its
Subsidiaries during the preceding four quarters plus (ii) scheduled principal
payments on Indebtedness of the Borrower and 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, but excluding
principal payments at maturity of Pari Passu Debt) plus (iii) the gross interest
accrued on such Indebtedness during the preceding four quarters plus (iv) the
aggregate amount of any dividends paid or other distributions made during the
preceding four quarters.
"Consolidated Intangible Assets" means, on any date, the
aggregate amount of Intangible Assets of the Borrower and its Subsidiaries,
determined on a consolidated basis at such time.
"Consolidated Interest Expense" means, for any period, the
consolidated interest expense of the Borrower and its Subsidiaries (whether cash
or non-cash interest expense or deferred or accrued interest expense and the
interest portion of all Capital Lease Obligations during such period).
"Consolidated Net Income" means, for any period, the net
income (or deficit) of the Borrower 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 or is
merged into or consolidated with the Borrower or such Person's assets are
acquired by the Borrower, (ii) the income (or deficit) of any Person (other than
a consolidated Subsidiary) in which the Borrower has an ownership interest,
except to the extent that any such income has been actually received by the
Borrower in the form of dividends or similar distributions, (iii) the
undistributed earnings of any Subsidiary 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 Borrower or its Subsidiaries.
<PAGE>
"Consolidated Shareholders' Equity" means, on any date, the
aggregate amount of shareholders' equity of the Borrower and its Subsidiaries on
such date, determined on a consolidated basis.
"Consolidated Tangible Net Worth" means, on any date, the
excess of Consolidated Shareholders' Equity over Consolidated Intangible Assets
on such date.
"Consolidated Total Liabilities" means, on any date, the
aggregate amount at which all liabilities of the Borrower and its Subsidiaries
(including, without limitation, (a) all Guarantees of Indebtedness by such
Persons and (b) all amounts attributable to Mandatorily Redeemable Stock of the
Borrower and its Subsidiaries to the extent that such Mandatorily Redeemable
Stock is redeemable within one year of such date) would be shown on a
consolidated balance sheet of such Persons at such time.
"Consolidated Working Capital" means, on any date, the excess
of (i) the consolidated current assets of the Borrower and its Subsidiaries on
such date over (ii) the sum on such date (without duplication) of the
consolidated current liabilities of the Borrower and its Subsidiaries plus the
aggregate outstanding principal amount of the Loans and Pari Passu Debt plus the
aggregate principal amount of any commercial paper or other short-term
Indebtedness of the Borrower and its Subsidiaries that would be characterized as
current liabilities but for the existence of the Commitments hereunder or any
commitments of lenders to make Pari Passu Debt available to the Borrower or any
of its Subsidiaries.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Debt Issuance" means any issuance or incurrence by the
Borrower or any of its Subsidiaries of any Indebtedness.
"Debt Service" means, for any period, the sum, for the
Borrower and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all regularly
scheduled payments or prepayments of principal of Indebtedness made during such
period plus (b) all Interest Expense for such period.
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings
and the environmental matters disclosed in Schedule 3.06. "Disposition" means
any sale, assignment, transfer or other disposition of any property (whether now
owned or hereafter acquired) by the Borrower or any of its Subsidiaries to any
other Person excluding any sale, assignment, transfer or other disposition of
any property sold or disposed of in the ordinary course of business or the
revenue from which would otherwise be included in the calculation of Cash Flow.
<PAGE>
"dollars" or "$" refers to lawful money of the United States
of America.
"Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
10.02).
"Eligible Inventory" means, as at any date with respect to any
Person, all Inventory (i) that is owned by (and in the possession or under the
control of) such Person as at such date, (ii) that is located in a jurisdiction
in the United States of America, (iii) as to which (before the Security
Termination Date) appropriate Uniform Commercial Code financing statements have
been filed naming such Person as "debtor" and the Collateral Agent as "secured
party", and over which (before the Security Termination Date) the Collateral
Agent has a perfected security interest subject to no prior or equal Lien (other
than the pari passu security interest securing the Pari Passu Debt), subject to
Section 10.13, (iv) that meets all standards imposed by any governmental agency
or department or division thereof having regulatory authority over such
inventory, its use or sale, (v) for which such Person has made full and final
payment and (vi) that is currently usable in the manufacturing process or
saleable in the normal course of such Person's business without any notice to,
or consent of, any governmental agency or department or division thereof
(excluding however, except to the extent that the Required Lenders otherwise
agree with respect to any specific customer or third-party processor, any such
Inventory that has been shipped to a customer of such Person, including
third-party processors, even if on a consignment or "sale or return" basis, and
excluding repair and replacement parts for machinery and equipment).
Notwithstanding anything in clause (vi) of the foregoing sentence to the
contrary (but subject to clauses (i) through (v) of the foregoing sentence),
Eligible Inventory shall include but not be limited to all barrows, gilts,
boars, sows, feeder pigs, suckling pigs, nursery pigs and commercial sows and
boars, multiplier hogs, nucleus hogs and other hogs (collectively, "Hogs") at
the time of determination owned and being raised at facilities owned by such
Person or at facilities subject to an exclusive contract with such Person (i.e.,
the operator of such facility has no similar contract with any other Person) for
the feeding and raising of Hogs.
<PAGE>
"Eligible Receivables" means, as at any date with respect to
any Person, the aggregate amount of all accounts (as defined in the Uniform
Commercial Code) of such Person arising from the sale by such Person of
Inventory in the ordinary course of its business and (before the Security
Termination Date) over which the Collateral Agent has a perfected security
interest subject to no prior or equal Lien (other than the pari passu security
interest securing the Pari Passu Debt), subject to Section 10.13, other than the
following (determined without duplication):
(a) any account not payable in Dollars,
(b) any account that is not paid within 60 days (subject to
the last sentence of this definition of "Eligible Receivables") after
the date of the invoice for the related inventory,
(c) any account owing from a subsidiary or Affiliate
of such Person,
(d) any account (other than an LC-Backed Receivable) owing
from an account debtor whose principal place of business is located
outside of the United States of America, provided that the aggregate
amount of accounts that are not excluded from the definition of
"Eligible Receivables" pursuant to this clause (d) by virtue of their
constituting LC-Backed Receivables (other than LC-Backed Receivables
the related letter of credit for which has been delivered to the
Collateral Agent in pledge under the Security Agreement) may not exceed
10% of the Consolidated Borrowing Base,
(e) any account owing from an account debtor that is
insolvent or the subject of a bankruptcy case,
(f) any account that is more than 28 days (subject to the last
sentence of this definition of "Eligible Receivables") past due,
(g) all accounts of any account debtor if more than 20% of the
aggregate amount of the accounts owing from such account debtor are
more than 28 days (subject to the last sentence of this definition of
"Eligible Receivables") past due,
(h) all accounts owing from any account debtor if the
accounts owing from such account debtor and its Affiliates at the time
exceed 10% of all accounts then payable to the Obligors,
<PAGE>
(i) any account as to which there is any unresolved dispute
with the respective account debtor (but only to the extent of the
amount thereof in dispute),
(j) any account evidenced by an instrument (as defined
in the Uniform Commercial Code) not in the possession of the
Collateral Agent and containing all necessary endorsements,
(k) any account representing an obligation for goods sold on
consignment, approval or a sale-or-return basis or subject to any other
repurchase, return or offset arrangement,
(l) any amount as to which there is an offsetting liability
from the Borrower, any Subsidiary or any Affiliate of the Borrower (but
only to the extent of the amount of such offsetting liability), and
(m) all amounts reserved by any Subsidiary or Affiliate of the
Borrower related to advertising and promotional programs for the
respective account debtor (excluding general promotional reserves that
are not reserved on a specific account basis).
In recognition of the fact that, on the date of this Agreement, the accounting
systems of certain Subsidiaries are unable to track the number of days specified
in clauses (b), (f) and (g) above, such numbers of days for each such Subsidiary
shall be deemed for purposes hereof to be the number of days that the accounting
system of such Subsidiary can track that is closest to such specified number of
days, provided that (i) if such specified number of days is exactly equidistant
from two numbers of days that can be so tracked, such specified number of days
shall be deemed to be the lower of such two numbers, (ii) if the closest such
number of days that can be so tracked is more than seven days higher than such
specified number of days, such specified number of days shall be deemed to be
the closest number of days that can be so tracked that is lower than such number
of specified days and (iii) this sentence shall cease to have any effect after
the date falling six months after the date hereof.
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
<PAGE>
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"Equity Issuance" means any issuance or sale by the Borrower
after the Effective Date of any of its capital stock.
"Equity Rights" means, with respect to any Person, any
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any
<PAGE>
ERISA Affiliate from the PBGC or a plan administrator of any notice relating to
an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal
from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any
ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the
Borrower or any ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excluded Taxes" means, with respect to the Administrative
Agent, any Lender, the Issuing Banks or any other recipient of any payment to be
made by or on account of any obligation of the Obligors hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income by the United States
of America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which an Obligor is located and (c) in the case of
a Foreign Lender (other than an assignee pursuant to a request by the Obligors
under Section 2.18(b)), any withholding tax that is imposed on amounts payable
to such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office) or is attributable to such
Foreign Lender's failure to comply with Section 2.16(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.16(a).
"Existing Credit Agreement" means the Fourth Amended, Restated
and Continued Revolving Credit Agreement, dated as of April 30, 1996, among the
Subsidiary Guarantors, Rabobank Nederland, as agent, and the banks referred to
therein, as amended.
<PAGE>
"Existing Letters of Credit" means all letters of credit
issued by Rabobank under the Existing Credit Agreement that are outstanding as
of the Effective Date and listed on Schedule 1.01 hereto.
"Federal Funds", when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing,
are bearing interest at a rate determined by reference to the Federal Funds
Rate.
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Federal Funds Rate" means the "offered rate", as determined
by the Administrative Agent, for overnight federal funds.
"Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or controller of the Borrower.
"First Tier Subsidiary" means (i) a Subsidiary all of the
issued and outstanding capital stock of which is owned directly by the Borrower
or (ii) Brown's of Carolina, Inc.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
<PAGE>
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any swap agreement, cap agreement,
collar agreement, put or call, futures contract, forward contract or similar
agreement or arrangement entered into in respect of interest rates, foreign
exchange rates or prices of commodities.
"Increasing Lender" has the meaning assigned to such term in
Section 2.08(d).
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding accounts
payable incurred in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the
<PAGE>
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on property owned or acquired by such Person, whether or
not the Indebtedness secured thereby has been assumed, (g) all Guarantees by
such Person of Indebtedness of others, (h) all Capital Lease Obligations of such
Person, (i) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty and (j)
all obligations, contingent or otherwise, of such Person in respect of bankers'
acceptances. The Indebtedness of any Person shall include the Indebtedness of
any other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness provide that such Person is not liable
therefor. The Indebtedness of a Person shall not include obligations of such
Person to pay rent under operating leases to the extent that such obligations do
not constitute Capital Lease Obligations.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Intangible Assets" means, with respect to any Person
on any date, the following:
(a) patents, copyrights, trademarks, trade names, service
marks, brand names, franchises, goodwill, experimental expenses and
other similar intangibles;
(b) deferred assets (other than prepaid taxes, prepaid
insurance, prepaid contract payments, prepaid license fees and other
prepaid expenses which are refundable);
(c) unamortized debt discount and expense; and
(d) all other property or assets (whether real, personal or
mixed, and whether tangible or intangible) which would be considered to
be intangible under GAAP.
"Intercompany Note" has the meaning assigned to such
term in Section 5.08(a).
"Intercreditor Agreement" means an intercreditor agreement
substantially in the form of Exhibit G hereto, as the same shall be modified and
supplemented and in effect from time to time.
<PAGE>
"Interest Election Request" means a request by the Borrower to
convert or continue a Revolving Borrowing in accordance with Section 2.07.
"Interest Expense" means, for any period, the sum, for the
Borrower (determined without duplication in accordance with GAAP), of the
following: (a) all interest in respect of Indebtedness accrued or capitalized
during such period (whether or not actually paid during such period) plus (b)
the net amounts payable (or minus the net amounts receivable) under Hedging
Agreements related to interest and accrued during such period (whether or not
actually paid or received during such period).
"Interest Payment Date" means (a) with respect to any ABR
Revolving Loan, the last day of each March, June, September and December, (b)
with respect to any Eurodollar Loan, the last day of the Interest Period
applicable to the Borrowing of which such Loan is a part and, in the case of a
Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such Interest Period,
(c) with respect to any Federal Funds Revolving Loan, the last day of each month
and (d) with respect to any Swingline Loan, the day that such Loan is required
to be repaid.
"Interest Period" means with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the Borrower may elect; provided, that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"Inventory" means, collectively, "Inventory" and "Farm
Products" as defined in the Security Agreement.
"Investment" means, for any Person: (a) the acquisition
(whether for cash, property, services or securities or otherwise) of capital
stock, bonds, notes, debentures,
<PAGE>
partnership or other ownership interests or other securities of any other Person
or any agreement to make any such acquisition (including, without limitation,
any "short sale" or any sale of any securities at a time when such securities
are not owned by the Person entering into such short sale); (b) the making of
any deposit with, or advance, loan or other extension of credit to, any other
Person (including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property to
such Person, but excluding any such advance, loan or extension of credit having
a term not exceeding 90 days representing the purchase price of programming,
advertising, inventory or supplies sold in the ordinary course of business); (c)
the entering into of any Guarantee of, or other contingent obligation with
respect to, Indebtedness or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person or (d) any Hedging Agreement having the commercial effect of a synthetic
or derivative Investment.
"Issuing Bank" means Chase or Rabobank, in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.05(i). Chase may, in its discretion, arrange for one or
more Letters of Credit to be issued by its Affiliates, in which case the term
"Issuing Bank" shall include any such Affiliate with respect to Letters of
Credit issued by such Affiliate. Any references herein to the "relevant" Issuing
Bank shall mean the issuer of the related Letter of Credit.
"LC-Backed Receivable" means an account (as defined in the
Uniform Commercial Code) to the extent that the payment thereof is backed by a
letter of credit issued for account of the related account debtor, or confirmed,
by a domestic office of a commercial bank organized under the laws of the United
States of America or any state thereof the short term deposits of which are
rated A-1 or better by S&P or P-1 by Moody's.
"LC Disbursement" means a payment made by an Issuing Bank
pursuant to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of any Obligor at such time. The LC Exposure of any Lender at any time
shall be its Applicable Percentage of the total LC Exposure at such time.
"Letter of Credit" means any letter of credit issued pursuant
to this Agreement and any Existing Letter of Credit.
<PAGE>
"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Telerate Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities. The interest of a lessor in any property leased pursuant to an
operating lease shall not constitute a Lien over such property securing
obligations of the related lessee to pay rent under such lease to the extent
that such obligations do not constitute Capital Lease Obligations.
"Loan Documents" means this Agreement, any promissory notes
evidencing Loans hereunder, any Intercompany Notes, and the Security Documents.
"Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
"Mandatorily Redeemable Stock" means, with respect to any
Person, each share of such Person's capital stock to the extent that it is (a)
redeemable, payable or required to be purchased or otherwise retired or
extinguished, or convertible into Indebtedness of such Person (i) at a fixed or
determinable date, whether by operation of a sinking fund or otherwise, (ii)
at the option of any Person other than such Person or (iii) upon
<PAGE>
the occurrence of a condition not solely within the control of such Person, such
as redemption required to be made out of future earnings or (b) convertible into
other Mandatorily Redeemable Stock of such Person.
"Margin Stock" means margin stock within the meaning of
Regulations G, U and X.
"Material Adverse Effect" means a material adverse effect on
(a) the Transactions, (b) the business, assets, operations, property, prospects
or condition, financial or otherwise, of the Obligors taken as a whole, (c) the
ability of any Obligor to perform any of its obligations under this Agreement or
the other Loan Documents or (d) the rights of or benefits available to the
Lenders under this Agreement or the other Loan Documents.
"Material Indebtedness" means Indebtedness (other than the
Loans and Letters of Credit), or obligations in respect of one or more Hedging
Agreements, of any one or more of the Borrower and its Subsidiaries in an
aggregate principal amount exceeding $5,000,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of the Borrower
or any Subsidiary in respect of any Hedging Agreement at any time shall be the
maximum aggregate amount (giving effect to any netting agreements) that the
Borrower or such Subsidiary would be required to pay if such Hedging Agreement
were terminated at such time.
"Maturity Date" means the fifth anniversary of the date
hereof.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Funds Flow" means, on any date, the amount (not less than
zero) resulting from the following calculation (without duplication): (i) Cash
Flow for the period commencing on June 30, 1997 and ending on the last day of
the fiscal quarter of the Borrower ending on or most recently ended prior to
such date plus (ii) the proceeds of any Debt Issuance (other than Indebtedness
incurred hereunder or Pari Passu Debt) or Equity Issuance received during the
period (the "Calculation Period") commencing on the date hereof and ending on
such date plus (iii) the aggregate amount of proceeds of Dispositions received
by the Borrower and its Subsidiaries during the Calculation Period (in the case
of each of (i), (ii) and (iii) above, to the extent the proceeds thereof have
been applied to reduce Indebtedness
<PAGE>
incurred hereunder or Pari Passu Debt) minus (iv) Restricted Payments made in
cash during the Calculation Period to any Person other than the Borrower or any
wholly-owned Subsidiary minus (v) Capital Expenditures and the Aggregate
Consideration for all Acquisitions to the extent paid in cash during the
Calculation Period (except to the extent made directly from the proceeds of
Indebtedness incurred hereunder or Pari Passu Debt) minus (vi) the aggregate
principal amount of all payments or prepayments of Indebtedness (other than
Indebtedness incurred hereunder or Pari Passu Debt) of the Borrower and its
Subsidiaries made during the Calculation Period.
"Obligors" means the Borrower and the Subsidiary
Guarantors.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
"Pari Passu Debt" means any Indebtedness (a) in respect of
which the Borrower is primarily liable as the borrower and the Subsidiary
Guarantors (but no other Subsidiary) are liable as guarantors, (b) that is
secured, and only secured, by the Lien created by the Security Agreement and (c)
that all of the Lenders consent to as being treated as Pari Passu Debt. All of
the requirements set forth in the preceding clauses (a), (b) and (c) must be
satisfied in order for any Indebtedness to be Pari Passu Debt.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet
due or are being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than 30 days or are being contested in compliance with
Section 5.04;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
<PAGE>
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business;
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Borrower or any
Subsidiary;
(f) Liens securing judgments to the extent, for an
amount and for a period not resulting in an Event of Default
under Article VII(k); and
(g) Liens created under the Federal Packers and
Stockyards Act, as amended;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America),
in each case maturing within one year from the date of acquisition
thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or from
Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of
any commercial bank organized under the laws of the United States of
America or any State thereof which has a combined capital and surplus
and undivided profits of not less than $500,000,000; and
(d) fully collateralized repurchase agreements with a
term of not more than 30 days for securities described in
clause (a) above and entered into with a financial institution
satisfying the criteria described in clause (c) above.
<PAGE>
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Rabobank" means COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "Rabobank Nederland", New York Branch.
"Register" has the meaning set forth in Section 9.04.
"Regulations G, U and X" means, respectively, Regulations G, U
and X of the Board, as the same may be amended from time to time.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Issuing Banks" means Chase, in its capacity as the
Issuing Bank and, for so long as any Existing Letters of Credit of Rabobank are
then outstanding, Rabobank.
"Required Lenders" means, at any time, Lenders having
Revolving Credit Exposures and unused Commitments representing more than 50% of
the sum of the total Revolving Credit Exposures
and unused Commitments at such time.
"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of the Borrower or any Subsidiary, or any payment
(whether in cash, securities or other property), including any sinking fund or
<PAGE>
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such shares of capital stock of
the Borrower or any Subsidiary or any option, warrant or other right to acquire
any such shares of capital stock of the Borrower or any Subsidiary.
"Revolving Credit Exposure" means, with respect to any Lender
at any time, the sum of the outstanding principal amount of such Lender's
Revolving Loans and its LC Exposure and Swingline Exposure at such time.
"Revolving Loan" means a Loan made pursuant to
Section 2.03.
"Solvent" has the meaning assigned to such term in
Section 4.01(1).
"S&P" means Standard & Poor's Ratings Services.
"Security Agreement" means a Collateral Agency, Pledge and
Security Agreement substantially in the form of Exhibit C hereto between the
Borrower, the Subsidiary Guarantors, the Administrative Agent, the agent for the
holders from time to time of the Pari Passu Debt, and the Collateral Agent, as
the same shall be modified and supplemented and in effect from time to time.
"Security Documents" means the Security Agreement and all
Uniform Commercial Code financing statements required by the Security Agreement
to be filed with respect to the security interests in personal property created
pursuant to the Security Agreement.
"Security Termination Date" means the date, if any, that the
Security Agreement is terminated in accordance with Section 10.02(c)(ii).
"Senior Note Documents" means (i) the Note Purchase Agreement
dated as of July 15, 1996 among the Borrower and the Purchasers referred to
therein and (ii) the Joint and Several Guaranty, the Notes and the Security
Documents referred to in said Note Purchase Agreement, in each of the cases
referred to in the foregoing clauses (i) and (ii), as the same shall, subject to
Section 6.09, be modified and supplemented and in effect from time to time.
"Special Counsel" means Milbank, Tweed, Hadley & McCloy, in
its capacity as special counsel to Chase, as Administrative Agent of the credit
facility contemplated hereby.
<PAGE>
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
(i) three months, in the case of the Base CD Rate, and (b) with respect to the
Adjusted LIBO Rate, for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Swingline Exposure" means, at any time, the aggregate
principal amount of all Swingline Loans outstanding at such time. The Swingline
Exposure of any Lender at any time shall be its Applicable Percentage of the
total Swingline Exposure at such time.
"Swingline Lender" means Chase, in its capacity as
lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to
Section 2.04.
<PAGE>
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day) or, if such rate is not so reported on such
day or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next preceding Business
Day) by the Administrative Agent from three negotiable certificate of deposit
dealers of recognized standing selected by it.
"Total Commitment" means, at any time, the aggregate amount of
the Lenders' Commitments as in effect at such time.
"Transactions" means (i) with respect to the Borrower, the
execution, delivery and performance by the Borrower of Loan Documents to which
it is a party, the borrowing of Loans, the use of the proceeds thereof and the
issuance of Letters of Credit hereunder and (ii) with respect to any Obligor
(other than the Borrower), the execution, delivery and performance by such
Obligor of the Loan Documents to which it is a party.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate, the
Alternate Base Rate or the Federal Funds Rate.
"Unguaranteed Exposure" means, on any date, the amount (not
less than zero) resulting from the following calculation: (i) the aggregate
principal amount of all Loans made to the Borrower that are outstanding on such
date to the extent that the proceeds thereof (without double-counting) have been
advanced, directly or indirectly, by First Tier Subsidiaries to Subsidiaries
that are not Subsidiary Guarantors plus (ii) the aggregate LC Exposure relating
to Letters of Credit issued for account of Subsidiaries that are not Subsidiary
Guarantors that are outstanding on such date minus the Net Funds Flow on such
date.
<PAGE>
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class
and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type
(e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such
<PAGE>
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to make Revolving Loans to the Borrower
from time to time during the Availability Period in an aggregate principal
amount (i) that will not result in such Lender's Revolving Credit Exposure
exceeding such Lender's Commitment and (ii) that will not result in the sum of
the aggregate amount of the Revolving Credit Exposures of all of the Lenders
plus the aggregate principal amount of all Pari Passu Debt then outstanding
exceeding the Consolidated Borrowing Base. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings.
(a) Each Revolving Loan shall be made as part of a Borrowing
consisting of Revolving Loans made by the Lenders ratably in accordance with
their respective Commitments. The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments of the Lenders are several and no
Lender shall be responsible for any other Lender's failure to make Loans as
required.
(b) Subject to Section 2.13, each Revolving Borrowing shall be
comprised entirely of ABR Loans, Federal Funds Loans or Eurodollar Loans as the
Borrower may request in accordance herewith and each Swingline Loan shall be
comprised of a Federal Funds Loan for the period commencing on the date such
Loan is made and ending on the fourth Business Day thereafter, and from and
after the fifth Business Day following such date shall (automatically and
without further action by any Person) be comprised of an ABR Loan. Each Lender
at its option may make any Eurodollar Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan; provided that any exercise
of such option shall not affect the obligation of the Borrower to repay such
Loan in accordance with the terms of this Agreement.
<PAGE>
(c) At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000. At the time that
each ABR Borrowing and each Federal Funds Borrowing is made, such Borrowing
shall be in an aggregate amount that is an integral multiple of $1,000,000 and
not less than $5,000,000; provided that an ABR Borrowing or a Federal Funds
Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the Total Commitment or that is required to finance the reimbursement
of an LC Disbursement as contemplated by Section 2.05(e). Each Swingline Loan
shall be in an amount that is an integral multiple of $500,000 and not less than
$1,000,000. Borrowings of more than one Type and Class may be outstanding at the
same time; provided that there shall not at any time be more than a total of 3
Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Revolving Loan. To request a
Revolving Loan, the Borrower shall notify the Administrative Agent of such
request by telephone (a) in the case of a Eurodollar Borrowing, not later than
11:00 a.m., New York City time, three Business Days before the date of the
proposed Borrowing, (b) in the case of an ABR Borrowing, not later than 11:00
a.m., New York City time, one Business Day before the date of the proposed
Borrowing or (c) in the case of a Federal Funds Borrowing, not later than 12:00
noon, New York City time, on the date of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested
Borrowing;
(ii) the date of such Borrowing, which shall be a
Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing,
a Federal Funds Borrowing or a Eurodollar Borrowing;
<PAGE>
(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account
to which funds are to be disbursed, which shall comply with the
requirements of Section 2.06.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be a Federal Funds Borrowing. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Swingline Loans.
(a) Subject to the terms and conditions set forth herein, the
Swingline Lender agrees to make Swingline Loans to the Borrower from time to
time during the Availability Period, in an aggregate principal amount at any
time outstanding that will not result in (i) the aggregate principal amount of
outstanding Swingline Loans exceeding $15,000,000, (ii) the sum of the aggregate
amount of the Revolving Credit Exposures of all of the Lenders plus the
aggregate principal amount of all Pari Passu Debt then outstanding exceeding the
Consolidated Borrowing Base or (iii) the sum of the total Revolving Credit
Exposures exceeding the Total Commitment; provided that the Swingline Lender
shall not be required to make a Swingline Loan to refinance an outstanding
Swingline Loan. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify
the Administrative Agent of such request by telephone (confirmed by telecopy),
not later than 3:00 p.m., New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested date
(which shall be a Business Day) and amount of the requested Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any such
notice received from the Borrower. The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.05(e), by remittance to the relevant Issuing Bank) by 4:00
p.m., New York City time, on the requested date of such Swingline Loan.
<PAGE>
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Lenders to acquire participations on such Business Day
in all or a portion of the Swingline Loans outstanding. Such notice shall
specify the aggregate amount of Swingline Loans in which Lenders will
participate. Promptly upon receipt of such notice, the Administrative Agent will
give notice thereof to each Lender, specifying in such notice such Lender's
Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby
absolutely and unconditionally agrees, upon receipt of notice as provided above,
to pay to the Administrative Agent, for the account of the Swingline Lender,
such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender
acknowledges and agrees that its obligation to acquire participations in
Swingline Loans pursuant to this paragraph is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including the occurrence
and continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever. Each Lender shall comply with its obligation under this
paragraph by wire transfer of immediately available funds, in the same manner as
provided in Section 2.06 with respect to Loans made by such Lender (and Section
2.06 shall apply, mutatis mutandis, to the payment obligations of the Lenders),
and the Administrative Agent shall promptly pay to the Swingline Lender the
amounts so received by it from the Lenders. The Administrative Agent shall
notify the Borrower of any participations in any Swingline Loan acquired
pursuant to this paragraph, and thereafter payments in respect of such Swingline
Loan shall be made to the Administrative Agent and not to the Swingline Lender.
Any amounts received by the Swingline Lender from the Borrower (or other party
on behalf of the Borrower) in respect of a Swingline Loan after receipt by the
Swingline Lender of the proceeds of a sale of participations therein shall be
promptly remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Lenders that shall have made their payments pursuant to this paragraph and
to the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
the Borrower of any default in the payment thereof. Notwithstanding the
foregoing, a Lender shall not have any obligation to acquire a participation in
a Swingline Loan pursuant to this paragraph if an Event of Default shall have
occurred and be continuing at the time such Swingline Loan was made and such
Lender shall have notified the Swingline Lender in writing, at least one
Business Day prior to the time such Swingline Loan was made, that such Event of
Default has occurred
<PAGE>
and that such Lender will not acquire participations in Swingline Loans made
while such Event of Default is continuing.
SECTION 2.05. Letters of Credit.
(a) General. Subject to the terms and conditions set
forth herein, the Borrower may request the issuance of Letters of Credit by
either of the Issuing Banks for its own account or for the account of any
Subsidiary Guarantor, in a form reasonably acceptable to the Administrative
Agent and the relevant Issuing Bank, at any time and from time to time during
the Availability Period, provided that notwithstanding anything contained herein
to the contrary (a) in no event shall Rabobank issue any Letters of Credit after
the date hereof, the Letters of Credit of Rabobank hereunder being comprised
solely of the Existing Letters of Credit issued by Rabobank, and (b) Rabobank
shall not extend, renew or increase the amount of any Letter of Credit issued by
it, or permit any such Letter of Credit to be extended or renewed or the amount
of any thereof to be increased. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower to,
or entered into by the Borrower with, the Issuing Banks relating to any Letter
of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. To request the issuance of a Letter of Credit (or the
amendment, renewal or extension of an outstanding Letter of Credit), the
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the relevant
Issuing Bank) to the relevant Issuing Bank and the Administrative Agent
(reasonably in advance of the requested date of issuance, amendment, renewal or
extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, the date of
issuance, amendment, renewal or extension, the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit. If requested by the relevant Issuing Bank, the
Borrower also shall submit a letter of credit application on the such Issuing
Bank's standard form in connection with any request for a Letter of Credit. A
Letter of Credit shall be issued, amended, renewed or extended only if (and upon
issuance, amendment, renewal or extension of each Letter of Credit the Borrower
shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension (i) the LC
<PAGE>
Exposure shall not exceed $40,000,000, (ii) the sum of the aggregate amount of
the Revolving Credit Exposures of all of the Lenders plus the aggregate
principal amount of all Pari Passu Debt then outstanding shall not exceed the
Consolidated Borrowing Base and (iii) the sum of the total Revolving Credit
Exposures shall not exceed the Total Commitment.
(c) Expiration Date. Each Letter of Credit shall expire
at or prior to the close of business on the earlier of (i) the date one year
after the date of the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, one year after such renewal or extension) and (ii)
the date that is five Business Days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of
Credit (or an amendment to a Letter of Credit increasing the amount thereof),
or, in the case of the Existing Letters of Credit by maintaining such Letter of
Credit, and without any further action on the part of either of the Issuing
Banks or the Lenders, each Issuing Bank hereby grants to each Lender (other than
such Issuing Bank), and each Lender hereby acquires from such Issuing Bank, a
participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of each Issuing Bank, such Lender's Applicable Percentage of each LC
Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the
date due as provided in paragraph (e) of this Section, or of any reimbursement
payment required to be refunded to the Borrower for any reason. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than
<PAGE>
12:00 noon, New York City time, on the date that such LC Disbursement is made,
if the Borrower shall have received notice of such LC Disbursement prior to
10:00 a.m., New York City time, on such date, or, if such notice has not been
received by the Borrower prior to such time on such date, then not later than
12:00 noon, New York City time, on (i) the Business Day that the Borrower
receives such notice, if such notice is received prior to 10:00 a.m., New York
City time, on the day of receipt, or (ii) the Business Day immediately following
the day that the Borrower receives such notice, if such notice is not received
prior to such time on the day of receipt; provided that the Borrower may,
subject to the conditions to borrowing set forth herein, request in accordance
with Section 2.03 or 2.04 that such payment be financed with an ABR Revolving
Borrowing, a Federal Funds Borrowing or Swingline Loan in an equivalent amount
and, to the extent so financed, the Borrower's obligation to make such payment
shall be discharged and replaced by the resulting ABR Revolving Borrowing,
Federal Funds Borrowing or Swingline Loan. If the Borrower fails to make such
payment when due, the Administrative Agent shall notify each Lender of the
applicable LC Disbursement, the payment then due from the Borrower in respect
thereof and such Lender's Applicable Percentage thereof. Promptly following
receipt of such notice, each Lender shall pay to the Administrative Agent its
Applicable Percentage of the payment then due from the Borrower, in the same
manner as provided in Section 2.06 with respect to Loans made by such Lender
(and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of
the Lenders), and the Administrative Agent shall promptly pay to the relevant
Issuing Bank, the amounts so received by it from the Lenders. Promptly following
receipt by the Administrative Agent of any payment from the Borrower pursuant to
this paragraph, the Administrative Agent shall distribute such payment to the
relevant Issuing Bank or, to the extent that Lenders have made payments pursuant
to this paragraph to reimburse such Issuing Bank, then to such Lenders and such
Issuing Bank, as their interests may appear. Any payment made by a Lender
pursuant to this paragraph to reimburse an Issuing Bank for any LC Disbursement
(other than the funding of ABR Revolving Loans, Federal Funds Loans or a
Swingline Loan as contemplated above) shall not constitute a Loan and shall not
relieve the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of:
(i) any lack of validity or enforceability of any Letter
of Credit or this Agreement, or any term or provision therein;
(ii) any amendment or waiver of or any consent to
departure from all or any of the provisions of any Letter of
Credit or this Agreement;
(iii) the existence of any claim, setoff, defense or
other right that the Borrower, any other party guaranteeing, or
otherwise obligated with, the Borrower, any Subsidiary or other
Affiliate thereof or any other Person may at any time have against the
beneficiary under any Letter of Credit, either Issuing Bank, the
Administrative Agent or any Lender or any other Person, whether in
connection with this Agreement or any other related or unrelated
agreement or transaction;
(iv) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being untrue or inaccurate in any
respect;
(v) payment by an Issuing Bank under a Letter of Credit
against presentation of a draft or other document that does not comply
strictly with the terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any
kind of either Issuing Bank, the Lenders, the Administrative Agent or
any other Person or any other event or circumstance whatsoever, whether
or not similar to any of the foregoing, that might, but for the
provisions of this Section, constitute a legal or equitable discharge
of the Borrower's obligations hereunder.
Neither the Administrative Agent, the Lenders, the Issuing Banks, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of
either Issuing Bank; provided that the foregoing shall not be construed to
excuse either Issuing Bank from liability to the Borrower to the extent of any
direct damages (as opposed to consequential damages, claims in respect of which
are hereby waived by the Borrower to the extent permitted by applicable law)
suffered by the Borrower that are caused by such Issuing Bank's failure to
exercise the standard of care agreed hereunder
<PAGE>
(as set forth in the next sentence) to be applicable when determining whether
drafts and other documents presented under a Letter of Credit comply with the
terms thereof. The parties hereto expressly agree that each Issuing Bank shall
be deemed to have exercised the agreed standard of care in the absence of gross
negligence or wilful misconduct on the part of such Issuing Bank when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof, and shall be deemed to have failed to
exercise the agreed standard of care only if it shall have engaged in gross
negligence or wilful misconduct when making such determination (as determined by
a court of competent jurisdiction). In furtherance of the foregoing and without
limiting the generality thereof, it is understood that each Issuing Bank may
accept documents that appear on their face to be in substantial compliance with
the terms of a Letter of Credit without responsibility for further
investigation, regardless of any notice or information to the contrary, and may
make payment upon presentation of documents that appear on their face to be in
substantial compliance with the terms of such Letter of Credit; provided that,
notwithstanding the foregoing, each Issuing Bank shall have the right, in its
sole discretion, to decline to accept such documents and to make such payment if
such documents are not in strict compliance with the terms of such Letter of
Credit.
(g) Disbursement Procedures. Each Issuing Bank shall,
promptly following its receipt thereof, examine all documents purporting to
represent a demand for payment under a Letter of Credit issued by it. Each
Issuing Bank shall promptly notify the Administrative Agent and the Borrower by
telephone (confirmed by telecopy) of such demand for payment and whether such
Issuing Bank has made or will make an LC Disbursement thereunder; provided that
any failure to give or delay in giving such notice shall not relieve the
Borrower of its obligation to reimburse the Issuing Bank and the Lenders with
respect to any such LC Disbursement.
(h) Interim Interest. If an Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Loans; provided that,
if the Borrower fails to reimburse such LC Disbursement when due pursuant to
paragraph (e) of this Section, then Section 2.12(e) shall apply. Interest
accrued pursuant to this paragraph shall be for the account of the relevant
Issuing Bank, except that interest accrued on and after the date of payment by
any Lender pursuant to paragraph (e) of this Section
<PAGE>
to reimburse such Issuing Bank shall be for the account of such Lender to the
extent of such payment.
(i) Replacement of the Issuing Bank. An Issuing Bank may be
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of an
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.11(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If (i) any Event of Default shall
have occurred and be continuing, (ii) the aggregate amount of Revolving Credit
Exposure of all Lenders hereunder exceeds $300,000,000, (iii) the sum of the
aggregate amount of Revolving Credit Exposure of all Lenders hereunder plus the
aggregate principal amount of all Pari Passu Debt then outstanding exceeds the
then-current Consolidated Borrowing Base on the Business Day that the Borrower
receives notice from the Administrative Agent or the Required Lenders (or, if
the maturity of the Loans has been accelerated, Lenders with LC Exposure
representing greater than 50% of the total LC Exposure) demanding the deposit of
cash collateral pursuant to this paragraph, or (iv) the Existing Letters of
Credit remain outstanding more than 30 days after the Effective Date, the
Borrower shall deposit in an account with the Administrative Agent, in the name
of the Administrative Agent and for the benefit of the Lenders, an amount in
cash equal to (w) the LC Exposure as of such date (in the case of the foregoing
clause (i)), (x) the amount of the relevant excess (in the case of the foregoing
clause (ii)), (y) the lesser of the Revolving Credit Exposure or the amount of
the relevant excess (in the case of the foregoing clause (iii)), or (z) the
portion of the LC Exposure related to such outstanding Existing Letters of
Credit (in the case of the foregoing clause (iv)), plus (in each of the cases
referred to in the foregoing clauses (i), (ii), (iii) and (iv)) any accrued and
unpaid
<PAGE>
interest thereon; provided that the obligation to deposit such cash collateral
shall become effective immediately, and such deposit shall become immediately
due and payable, without demand or other notice of any kind, upon the occurrence
of any Event of Default with respect to the Borrower described in clause (h) or
(i) of Article VII. Such deposit shall be held by the Administrative Agent as
collateral for the payment and performance of the obligations of the Borrower
under this Agreement, provided that, such deposit made pursuant to clause (iv)
of the first sentence of this Section 2.05(j), shall only be used as a
collateral for the payment and performance of the obligations of the Borrower to
Rabobank under Section 2.05(e). The Administrative Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such
account. Other than any interest earned on the investment of such deposits,
which investments shall be made at the option and sole discretion of the
Administrative Agent and at the Borrower's risk and expense, such deposits shall
not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall be applied by the
Administrative Agent to reimburse the relevant Issuing Bank for LC Disbursements
for which it has not been reimbursed and, to the extent not so applied, shall be
held for the satisfaction of the reimbursement obligations of the Borrower for
the LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of Lenders with LC Exposure representing
greater than 50% of the total LC Exposure), be applied to satisfy other
obligations of the Obligors under this Agreement, provided that such moneys
attributable to a deposit made pursuant to clause (iv) of the first sentence of
this Section 2.05(j), shall only be used to satisfy the obligations of the
Borrower to Rabobank under Section 2.05(e). If the Borrower is required to
provide an amount of cash collateral hereunder as a result of the occurrence of
an Event of Default or the renewal of a Letter of Credit or an excess of the
Revolving Credit Exposure (either in and of itself or together with the Pari
Passu Debt), as the case may be, such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower within three Business Days after
all Events of Default have been cured or waived or, in the case of a renewal of
a Letter of Credit that would cause the expiration date of such Letter of Credit
to extend beyond the Maturity Date, after all amounts drawn or able to be drawn
under Letters of Credit have been reimbursed by the Borrower or, in the case of
an excess of the Revolving Credit Exposure, after such excess has been
eliminated.
<PAGE>
SECTION 2.06. Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately available
funds by 1:00 p.m., New York City time, to the account of the Administrative
Agent most recently designated by it for such purpose by notice to the Lenders;
provided that Swingline Loans shall be made as provided in Section 2.04. The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
maintained with the Administrative Agent in New York City and designated by the
Borrower in the applicable Borrowing Request; provided that ABR Revolving Loans
or Federal Funds Loans made to finance the reimbursement of an LC Disbursement
as provided in Section 2.05(e) shall be remitted by the Administrative Agent to
the relevant Issuing Bank.
(b) Unless the Administrative Agent shall have received
notice from a Lender prior to the proposed date of any Borrowing that such
Lender will not make available to the Administrative Agent such Lender's share
of such Borrowing, the Administrative Agent may assume that such Lender has made
such share available on such date in accordance with paragraph (a) of this
Section and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to the Borrower to but excluding the date of payment to the Administrative
Agent, at (i) for the first three Business Days, (A) in the case of such Lender,
the greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation or (B) in the case of the Borrower, the Federal Funds Rate and (ii)
thereafter, the interest rate applicable to ABR Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
SECTION 2.07. Interest Elections.
(a) Each Revolving Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Revolving Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing
to a different Type or to continue such Borrowing and, in the case of
<PAGE>
a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The Borrower may elect different options with respect
to different portions of the affected Borrowing, in which case each such portion
shall be allocated ratably among the Lenders holding the Loans comprising such
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing. This Section shall not apply to Swingline Borrowings, which
may not be converted or continued.
(b) To make an election pursuant to this Section, the
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if the
Borrower were requesting a Revolving Borrowing of the Type resulting from such
election to be made on the effective date of such election. Each such telephonic
Interest Election Request shall be irrevocable and shall be confirmed promptly
by hand delivery or telecopy to the Administrative Agent of a written Interest
Election Request in a form approved by the Administrative Agent and signed by
the Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election
Request applies and, if different options are being elected with
respect to different portions thereof, the portions thereof to be
allocated to each resulting Borrowing (in which case the information to
be specified pursuant to clauses (iii) and (iv) below shall be
specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to
such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing, a Federal Funds Borrowing or a Eurodollar
Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar
Borrowing, the Interest Period to be applicable thereto after giving
effect to such election, which shall be a period contemplated by the
definition of the term "Interest Period".
If any such Interest Election Request requests a Eurodollar
Borrowing but does not specify an Interest Period,
<PAGE>
then the Borrower shall be deemed to have selected an Interest Period of one
month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Revolving Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to a Federal Funds Borrowing. Notwithstanding any contrary
provision hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing (i) no outstanding
Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing
and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted
to a Federal Funds Borrowing at the end of the Interest Period applicable
thereto.
SECTION 2.08. Termination, Reduction and Increase of
Commitments.
(a) Unless previously terminated, the Commitments shall
terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to
time reduce, the Commitments; provided that (i) each reduction of the
Commitments shall be in an amount that is an integral multiple of $5,000,000 and
not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce
the Commitments if, after giving effect to any concurrent prepayment of the
Loans in accordance with Section 2.10, the sum of the Revolving Credit Exposures
would exceed the Total Commitment.
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities,
in which case such notice may be revoked by the Borrower (by
<PAGE>
notice to the Administrative Agent on or prior to the specified effective date)
if such condition is not satisfied. Any termination or reduction of the
Commitments shall be permanent. Each reduction of the Commitments shall be made
ratably among the Lenders in accordance with their respective Commitments.
(d) The Borrower may at any time, by notice to the
Administrative Agent, propose that the Total Commitment be increased by having
one or more Lenders agree to increase the amount of such Lender's Commitment
hereunder or by having one or more banks or other financial institutions become
a "Lender" party to this Agreement (or by a combination of the foregoing), in
each case effective as of a date more than 45 days prior to the then-current
date of termination of the Commitments (a "Commitment Increase Date"); provided
that (i) the Borrower may not propose more than two Commitment Increase Dates
occurring in any period of 12 months ending on an anniversary of the Effective
Date, (ii) the addition of any bank or other financial institution to this
Agreement that is not already a Lender shall be subject to the consent of the
Administrative Agent (which consent shall not be unreasonably withheld) and the
Issuing Bank in its sole discretion, (iii) the increase in the Commitment of any
Lender already party to this Agreement shall in each case be subject to the
agreement of the affected Lender in its sole discretion and to the consent of
the Issuing Bank in its sole discretion, (iv) in no event shall the Total
Commitment at any time exceed $450,000,000, (v) the Commitment of any bank or
other financial institution becoming a "Lender" party to this Agreement (an
"Assuming Lender") shall be in an amount not less than $20,000,000 which is an
integral multiple of $1,000,000, (vi) any increase in the amount of the
Commitment of any Lender already party to this Agreement (an "Increasing
Lender"), shall be in an amount not less than $10,000,000 which is an integral
multiple of $1,000,000 and (vii) no such increase may result in any Lender
holding more than 25% of the Commitments and no Lender that holds more than 25%
of the Commitments may be an Increasing Lender. The Administrative Agent shall
notify the Lenders thereof promptly upon its receipt of such notice.
(e) Any increase in the Total Commitment pursuant to Section
2.08(d) (a "Commitment Increase") shall be effective only upon the execution and
delivery to the Borrower and the Administrative Agent of a commitment increase
letter, which commitment increase letter shall be delivered to the
Administrative Agent not fewer than five Business Days prior to the Commitment
Increase Date and shall specify (i) the amount of the Commitment of any Assuming
Lender and of any increase in the Commitment of any Increasing Lender and (ii)
the Commitment Increase Date.
<PAGE>
(f) On the applicable Commitment Increase Date, (i) each
Increasing Lender and each Assuming Lender shall make available to the
Administrative Agent, in same day funds, in the case of such Assuming Lender, an
amount equal to such Assuming Lender's ratable portion of the Borrowings then
outstanding (calculated based on its Commitment as a percentage of the Total
Commitment outstanding after giving effect to the relevant Commitment Increase)
and, in the case of such Increasing Lender, an amount equal to the excess of (A)
such Increasing Lender's ratable portion of the Revolving Loans then outstanding
(calculated based on its Commitment as a percentage of the Total Commitment
outstanding after giving effect to the relevant Commitment Increase) over (B)
such Increasing Lender's pro rata share of the Revolving Loans then outstanding
(calculated based on its Commitment (without giving effect to the relevant
Commitment Increase) as a percentage of a Total Commitment (without giving
effect to the relevant Commitment Increase) and (ii) the amounts of the
participations held by all of the Lenders under Section 2.05(d) shall
automatically and without any further action on the part of the Issuing Bank or
the Lenders be adjusted to reflect their Applicable Percentages (after giving
effect to the relevant Commitment Increases). After the Administrative Agent's
receipt of such funds from each such Increasing Lender and each such Assuming
Lender, the Administrative Agent will promptly thereafter cause to be
distributed like funds to the other Lenders in an amount to each other Lender
such that the aggregate amount of the outstanding Revolving Loans owing to each
Lender after giving effect to such distribution equals such Lender's pro rata
share of the Revolving Loans then outstanding (calculated based on its
Applicable Percentage after giving effect to the relevant Commitment Increase).
Interest accrued to but excluding the Commitment Increase Date shall be paid by
the Borrower in respect of any principal so distributed. After giving effect to
the foregoing, each Lender (including each Assuming Lender) shall be deemed to
hold its pro rata share, based on its Applicable Percentage (after giving effect
to the relevant Commitment Increase) of each outstanding Borrowing hereunder.
Any payments in respect of Eurodollar Loans received by a Lender under this
Section other than on the last day of the Interest Period relating thereto shall
be subject to indemnification by the Borrower pursuant to the provisions of
Section 2.15.
(g) Any Commitment Increase shall not be effective unless:
(i) the representations and warranties set forth in Article
III shall be true and correct in all material respects on and as of the
Commitment Increase Date with the same effect as though made on and as
of such date, excep to
<PAGE>
the extent such representations and warranties expressly relate to an
earlier date;
(ii) on the Commitment Increase Date, no Default shall
have occurred and be continuing;
(iii) no notice of borrowing of Eurodollar Loans shall
have been or be outstanding, in each case, on and as of such Commitment
Increase Date;
(iv) each Assuming Lender shall have delivered to the
Administrative Agent and the Issuing Bank an assumption agreement in
form and substance reasonably satisfactory to the Administrative Agent
and the Issuing Bank, duly executed by such Assuming Lender and the
Borrower pursuant to which such Assuming Lender agrees to become a
"Lender" party hereto;
(v) each Increasing Lender shall have delivered to the
Administrative Agent a confirmation in writing satisfactory to the
Administrative Agent as to its increased Commitment;
(vi) each Subsidiary Guarantor shall have delivered to
the Administrative Agent a consent in form and substance reasonably
satisfactory to the Administrative Agent, pursuant to which such
Subsidiary Guarantor consents to such Commitment Increase; and
(vii) the Administrative Agent shall have received (with
sufficient copies for each of the Lenders) documents consistent with
those delivered on the Closing Date under clauses (b) and (e) of
Section 4.01 as to such Commitment Increase.
Each notice requesting a Commitment Increase shall constitute a certification to
the effect set forth in clauses (i) and (ii) of the preceding sentence.
SECTION 2.09. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay (i)
to the Administrative Agent for the account of each Lender the then unpaid
principal amount of each Revolving Loan on the Maturity Date and (ii) to the
Swingline Lender the then unpaid principal amount of each Swingline Loan on the
earlier of the Maturity Date and the first date after such Swingline Loan is
made that is the 15th or last day of a calendar month and is at least two
Business Days after such Swingline Loan is made; provided that on each date that
a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans then
outstanding.
<PAGE>
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced
by a promissory note. In such event, the Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Administrative Agent. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.10. Prepayment of Loans.
(a) The Borrower shall have the right at any time and from
time to time to prepay any Borrowing in whole or in part, subject to prior
notice in accordance with paragraph (b) of this Section and provided that the
aggregate principal amount of any prepayment that does not result in the
prepayment of a Borrowing in full shall be in an integral multiple of
$1,000,000.
(b) Until the Maturity Date, the Borrower shall from time to
time prepay the Revolving Loans and Swingline Loans (and/or provide cover for LC
Exposures as specified in Section 2.05(j)) in such amounts as shall be necessary
so that at all
<PAGE>
times the sum of the aggregate outstanding amount of Revolving Credit Exposure
plus the aggregate principal amount of Pari Passu Debt then outstanding shall
not exceed the Consolidated Borrowing Base, such amounts to be applied, first,
to Swingline Loans outstanding, second, to Revolving Loans outstanding and,
third, as cover for LC Exposures outstanding.
(c) The Borrower shall notify the Administrative Agent (and,
in the case of prepayment of a Swingline Loan, the Swingline Lender) by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment, (ii) in the
case of prepayment of an ABR Revolving Borrowing or a Federal Funds Revolving
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before the date of prepayment or (iii) in the case of prepayment of a Swingline
Loan, not later than 12:00 noon, New York City time, on the date of prepayment.
Each such notice shall be irrevocable and shall specify the prepayment date and
the principal amount of each Borrowing or portion thereof to be prepaid;
provided that, if a notice of prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.08, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.08. Promptly following
receipt of any such notice relating to a Revolving Borrowing, the Administrative
Agent shall advise the Lenders of the contents thereof. Each partial prepayment
of any Revolving Borrowing shall be in an amount that would be permitted in the
case of an advance of a Revolving Borrowing of the same Type as provided in
Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied
by accrued interest to the extent required by Section 2.12.
SECTION 2.11. Fees.
(a) The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a Commitment Fee, which shall accrue at the
Applicable Rate on the daily unused amount of the Commitment of such Lender
during the period from and including the date hereof to but excluding the date
on which such Commitment terminates. For purposes of this Section 2.11(a) only,
Swingline Loans shall not be deemed to constitute a use of any Lender's
Commitment. Accrued Commitment Fees shall be payable in arrears on the last day
of March, June, September and December of each year and on the date on which the
Commitments terminate, commencing on the first such date to occur after the date
hereof; provided that any Commitment Fees accruing after the date on which the
Commitments terminate shall be payable on
<PAGE>
demand. All Commitment Fees shall be computed on the basis of a year of 360 days
and shall be payable for the actual number of days elapsed (including the first
day but excluding the last day).
(b) The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the Applicable Rate
for Letters of Credit on the average daily amount of such Lender's LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the
later of the date on which such Lender's Commitment terminates and the date on
which such Lender ceases to have any LC Exposure, (ii) to the Issuing Bank a
fronting fee, which shall accrue at the rate of 1/8 of 1% per annum on the
average daily amount of the LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date of
termination of the Commitments and the date on which there ceases to be any LC
Exposure, (iii) to Rabobank a fronting fee in the amount of $5,000 if there are
any Existing Letters of Credit outstanding as of the Effective Date, and (iv) to
the relevant Issuing Bank its standard fees with respect to the issuance,
amendment, renewal or extension of any Letter of Credit or processing of
drawings thereunder. Participation fees and fronting fees accrued through and
including the last day of March, June, September and December of each year shall
be payable on the third Business Day following such last day, commencing on the
first such date to occur after the Effective Date; provided that all such fees
shall be payable on the date on which the Commitments terminate and any such
fees accruing after the date on which the Commitments terminate shall be payable
on demand. Any other fees payable to either Issuing Bank pursuant to this
paragraph shall be payable within 10 days after demand. All participation fees
and fronting fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent (or to the relevant
Issuing Bank, in the case of fees payable to it) for distribution, in the case
of Commitment Fees
<PAGE>
and participation fees, to the Lenders. Fees paid shall not be refundable under
any circumstances.
SECTION 2.12. Interest.
(a) The Loans comprising each ABR Borrowing (including each
Swingline Loan comprised of an ABR Borrowing in accordance with Section 2.02(b))
shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Federal Funds Borrowing
(including each Swingline Loan comprised of a Federal Funds Borrowing in
accordance with Section 2.02(b)) shall bear interest at the Federal Funds Rate
plus the Applicable Rate.
(c) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(d) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section.
(e) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and upon termination of the
Commitments; provided that (i) interest accrued pursuant to paragraph (d) of
this Section shall be payable on demand, (ii) in the event of any repayment or
prepayment of any Loan (other than a prepayment of an ABR Revolving Loan or a
Federal Funds Revolving Loan prior to the end of the Availability Period),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment and (iii) in the event of any
conversion of any Eurodollar Revolving Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(f) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in
<PAGE>
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate,
Federal Funds Rate and Adjusted LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.
SECTION 2.13. Alternate Rate of Interest. If prior to
the commencement of any Interest Period for a Eurodollar
Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate for such
Interest Period; or
(b) the Administrative Agent is advised by the Required
Lenders that the Adjusted LIBO Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders (or Lender) of
making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be
ineffective and (ii) if any Borrowing Request requests a Eurodollar Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing.
SECTION 2.14. Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, any Lender (except any
such reserve requirement reflected in the Adjusted LIBO Rate) or any
Issuing Bank; or
(ii) impose on any Lender or any Issuing Bank or the
London interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan
<PAGE>
(or of maintaining its obligation to make any such Loan) or to increase the cost
to such Lender or Issuing Bank of participating in, issuing or maintaining any
Letter of Credit or to reduce the amount of any sum received or receivable by
such Lender or Issuing Bank hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender or the relevant Issuing
Bank such additional amount or amounts as will compensate such Lender or the
relevant Issuing Bank for such additional costs incurred or reduction suffered.
(b) If any Lender or Issuing Bank determines that any Change
in Law regarding capital requirements has or would have the effect of reducing
the rate of return on such Lender's or Issuing Bank's capital or on the capital
of such Lender's or Issuing Bank's holding company, if any, as a consequence of
this Agreement or the Loans made by, or participations in Letters of Credit held
by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a
level below that which such Lender, such Issuing Bank or such Lender's or
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or such Issuing Bank's policies and the
policies of such Lender's or such Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
or Issuing Bank such additional amount or amounts as will compensate such Lender
or Issuing Bank or such Lender's or Issuing Bank's holding company for any such
reduction suffered.
(c) A certificate of a Lender or an Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or Issuing Bank
or its holding company, as the case may be, as specified in paragraph (a) or (b)
of this Section shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender or Issuing Bank, as
the case may be, the amount shown as due on any such certificate within 10 days
after receipt thereof.
(d) Failure or delay on the part of any Lender or Issuing Bank
to demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or Issuing Bank's right to demand such compensation; provided that
the Borrower shall not be required to compensate a Lender or an Issuing Bank
pursuant to this Section 2.14 for any increased costs or reductions incurred
more than 270 days prior to the date that such Lender or Issuing Bank, as the
case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or Issuing Bank's intention
to claim compensation therefor; provided further that, if the Change in Law
giving rise to such increased costs or reductions is
<PAGE>
retroactive, then the 270-day period referred to above shall be extended to
include the period of retroactive effect thereof.
SECTION 2.15. Break Funding Payments. In the event of
(a) the payment of any principal of any Eurodollar Loan other than on the last
day of an Interest Period applicable thereto (including as a result of an Event
of Default), (b) the conversion of any Eurodollar Loan other than on the last
day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Revolving Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice may be
revoked under Section 2.10(b) and is revoked in accordance therewith) or (d) the
assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.18, then, in any such event, the Borrower shall compensate each Lender
for the loss, cost and expense attributable to such event. In the case of a
Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
SECTION 2.16. Taxes.
(a) Any and all payments by or on account of any obligation
of the Borrower hereunder shall be made free and clear of and without deduction
for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an
<PAGE>
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent,
each Lender and each Issuing Bank, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or such Issuing Bank, as the case may be, on
or with respect to any payment by or on account of any obligation of the
Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or an Issuing Bank, or by the Administrative Agent on its
own behalf or on behalf of a Lender or an Issuing Bank, shall be conclusive
absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or reasonably requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate.
SECTION 2.17. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs.
(a) The Borrower shall make each payment required to be made
by it hereunder and under the other Loan Documents (whether of principal,
interest, fees or reimbursement of LC Disbursements, or of amounts payable under
Section 2.14, 2.15 or 2.16, or otherwise) prior to 12:00 noon, New York City
time, on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at 270
Park Avenue, New York, New York, except payments to be made directly to an
Issuing Bank or the Swingline Lender as expressly provided herein and except
that payments pursuant to Sections 2.14, 2.15, 2.16 and 10.03 shall be made
directly to the Persons entitled thereto. The Administrative Agent shall
distribute any such payments received by it for the account of any other Person
to the appropriate recipient promptly following receipt thereof. If any payment
hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension. All payments hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and (ii) second, towards
payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or participations in LC Disbursements or
Swingline Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Revolving Loans and participations in
LC Disbursements and Swingline Loans and accrued interest thereon than the
proportion received by any other Lender, then the Lender receiving such greater
proportion shall purchase (for cash at face value) participations in the
Revolving Loans and participations in LC Disbursements and Swingline Loans of
other
<PAGE>
Lenders to the extent necessary so that the benefit of all such payments shall
be shared by the Lenders ratably in accordance with the aggregate amount of
principal of and accrued interest on their respective Revolving Loans and
participations in LC Disbursements and Swingline Loans; provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by any Obligor pursuant to and in accordance with the express terms
of this Agreement or the other Loan Documents or any payment obtained by a
Lender as consideration for the assignment of or sale of a participation in any
of its Loans or participations in LC Disbursements to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). Each Obligor
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of such Obligor in the amount of such participation.
(d) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Banks
hereunder that the Borrower will not make such payment, the Administrative Agent
may assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders or
the relevant Issuing Bank, as the case may be, the amount due. In such event, if
the Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Banks, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b) or 2.17(d),
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
<PAGE>
obligations under such Sections until all such unsatisfied obligations are fully
paid.
SECTION 2.18. Mitigation Obligations; Replacement of
Lenders.
(a) If any Lender requests compensation under Section 2.14,
or if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 2.14 or 2.16 as the case may be,
in the future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.14,
or if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.04), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Commitment is being assigned, the Issuing Bank and the Swingline Lender),
which consent shall not unreasonably be withheld, (ii) such Lender shall have
received payment of an amount equal to the outstanding principal of its Loans
and participations in LC Disbursements and Swingline Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.14 or payments required to be made pursuant to Section 2.16, such assignment
will result in a reduction in such compensation or payments. A Lender shall not
be required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and
its Subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions
are within each Obligor's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. Each of this Agreement
and the other Loan Documents has been duly executed and delivered by each
Obligor and constitutes a legal, valid and binding obligation of each Obligor,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except for
filings and recordings in respect of the Liens created pursuant to the Security
Documents, (b) will not violate any applicable law or regulation or the charter,
by-laws or other organizational documents of the Borrower or any of its
Subsidiaries or any order of any Governmental Authority, (c) will not violate or
result in a default under any indenture, agreement or other instrument binding
upon the Borrower or any of its Subsidiaries or its assets, or give rise to a
right thereunder to require any payment to be made by the Borrower or any of its
Subsidiaries, and (d) except for the Lien created by the Security Documents,
will not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.
<PAGE>
SECTION 3.04. Financial Condition; No Material Adverse
Change.
(a) The Borrower has heretofore furnished to the Lenders (i)
its consolidated balance sheet, statements of income, stockholders equity and
cash flows and pro forma information as of and for the fiscal year ended April
28, 1996, reported on by Arthur Andersen LLP, independent public accountants and
(ii) its consolidated balance sheet, statements of income, stockholders equity
and cash flows and pro forma information as of and for the three fiscal periods
ended January 26, 1997. Such financial statements present fairly, in all
material respects, the financial position and results of operations and cash
flows of the Borrower and its consolidated Subsidiaries as of such dates and for
such periods in accordance with GAAP, subject to year-end audit adjustments and
the absence of footnotes in the case of the statements referred to in clause
(ii) above.
(b) Since April 28, 1996, there has been no event,
development or circumstance that has had or could reasonably be expected to have
a Material Adverse Effect, except as reflected in the financial statements
referred to in Section 3.04(a) as of and for the three fiscal periods ended
January 26, 1997.
(c) The Borrower does not have on the date of this Agreement
any contingent liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable commitments
in each case that are material, except as referred to or reflected in the
balance sheets as at April 28, 1996 and January 26, 1997 referred to above.
SECTION 3.05. Properties.
(a) Each of the Borrower and its Subsidiaries has good title
to, or valid leasehold interests in, all its real and personal property material
to its business, except for minor defects in title that do not materially
interfere with its ability to conduct its business as currently conducted or to
utilize such properties for their intended purposes.
(b) Each of the Borrower and its Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Borrower and its Subsidiaries does not infringe upon the rights of any other
Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
<PAGE>
SECTION 3.06. Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before
any arbitrator or Governmental Authority pending against or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries (i) as to which an adverse determination is reasonably likely and
that, if adversely determined, could reasonably be expected, individually or in
the aggregate, to result in a Material Adverse Effect or (ii) that involve this
Agreement, the other Loan Documents or the Transactions.
(b) Except with respect to any other matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i)
has failed to comply with any Environmental Law or to obtain, maintain or comply
with any permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, (iii) has received
notice of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no
change in the status of the Disclosed Matters that, individually or in the
aggregate, has resulted in, or materially increased the likelihood of, a
Material Adverse Effect. As of the date hereof, the Borrower does not believe
that the Disclosed Matters individually or in the aggregate are reasonably
likely to have a Material Adverse Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither
the Borrower nor any of its Subsidiaries is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused
<PAGE>
to be paid all Taxes required to have been paid by it, except (a) Taxes that are
being contested in good faith by appropriate proceedings and for which the
Borrower or such Subsidiary, as applicable, has set aside on its books adequate
reserves or (b) to the extent that the failure to do so could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed by more than $50,000,000 the fair market value of the assets of such
Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$50,000,000 the fair market value of the assets of all such underfunded Plans.
SECTION 3.11. Disclosure. The Borrower and its Subsidiaries
have disclosed to the Lenders all agreements, instruments and corporate or other
restrictions to which they are subject, and all other matters known to them,
that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect. None of the reports, financial statements,
certificates or other information furnished by or on behalf of the Obligors to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Obligors represent only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time.
SECTION 3.12. Regulations G, U and X.
Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying Margin Stock and no part of the proceeds of any extension of credit
hereunder will be used to buy or carry any Margin Stock.
<PAGE>
SECTION 3.13. Material Agreements and Liens.
(a) Part A of Schedule 3.13 hereto is a complete and correct
list, as of the date of this Agreement, of each credit agreement, loan
agreement, indenture, note purchase agreement, guarantee, letter of credit or
other arrangement providing for or otherwise relating to any Indebtedness or any
extension of credit (or commitment for any extension of credit) to, or guarantee
by, the Borrower or any of its Subsidiaries (other than the Existing Credit
Agreement and the Senior Note Documents) the aggregate principal or face amount
of which equals or exceeds (or may equal or exceed) $100,000 and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule 3.13.
(b) Part B of Schedule 3.13 hereto is a complete and correct
list, as of the date of this Agreement, of each Lien securing Indebtedness of
any Person covering any property of the Borrower or any of its Subsidiaries, and
the aggregate Indebtedness secured (or which may be secured) by each such Lien
and the property covered by each such Lien is correctly described in Part B of
said Schedule 3.13.
SECTION 3.14. Subsidiaries, Etc.
(a) Set forth in Part A of Schedule 3.14 hereto is a
complete and correct list, as of the date hereof, of all of the
Subsidiaries of the Borrower, together with, for each Subsidiary, (i)
the jurisdiction of organization of such Subsidiary, (ii) each Person
holding ownership interests in such Subsidiary and (iii) the nature of
the ownership interests held by each such Person and the percentage of
ownership of such Subsidiary represented by such ownership interests.
Except as disclosed in Part A of Schedule 3.14 hereto, (x) each of the
Borrower and its Subsidiaries owns, free and clear of Liens (other than
Liens created pursuant to the Security Documents), and has the
unencumbered right to vote, all outstanding ownership interests in each
Person shown to be held by it in Part A of Schedule 3.14 hereto, (y)
all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and
nonassessable and (z) there are no outstanding Equity Rights with
respect to such Person.
(b) Set forth in Part B of Schedule 3.14 hereto is a complete
and correct list, as of the date of this Agreement, of all Investments
(other than Investments disclosed in Part
<PAGE>
A of said Schedule 3.14 hereto) held by the Borrower or any of its
Subsidiaries in Person and, for each such Investment, (x) the identity
of the Person or Persons holding such Investment and (y) the nature of
such Investment. Except as disclosed in Part B of Schedule 3.14 hereto,
each of the Borrower and its Subsidiaries owns, free and clear of all
Liens (other than Liens created pursuant to the Security Documents),
all such Investments.
SECTION 3.15. Solvency.
On and as of the Effective Date, immediately prior to and
after consummation of the Transactions and after giving effect to all Loans and
other obligations and liabilities being incurred on such date in connection
therewith, and on the date of each subsequent Loan or other extension of credit
hereunder and after giving effect to application of the proceeds thereof in
accordance with the terms of the Loan Documents, the Borrower and its
Subsidiaries, taken as a whole, are, and each Obligor is, and will be Solvent
(as defined in Section 4.01(l)).
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders
to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall
not become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 10.02):
(a) The Administrative Agent (or Special Counsel) shall have
received from each party hereto either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and good
standing of each Obligor, the authorization of the Transactions and any
other legal matters relating to each Obligor, this Agreement, the other
Loan Documents or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.
(c) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a
Vice President or a Financial Officer of the Borrower, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02.
(d) The Administrative Agent shall have received a Borrowing
Base Certificate not more than 3 days prior to the Effective Date.
(e) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of McGuire Woods Battle & Boothe LLP,
counsel for the Obligors, substantially in the form of Exhibit D, and
covering such other matters relating to the Obligors, this Agreement,
the other Loan Documents or the Transactions as the Required Lenders
shall reasonably request (and the Borrower hereby requests such counsel
to deliver such opinion).
(f) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of Special Counsel substantially in the
form of Exhibit E hereto (and the Administrative Agent hereby requests
such counsel to deliver such opinion).
(g) The Administrative Agent shall have received evidence
satisfactory to it of the execution by each First Tier Subsidiary
required to do so of an Intercompany Note.
(h) The Administrative Agent (or Special Counsel) shall have
received a counterpart of the Security Agreement duly executed and
delivered by all of the Persons stated to be parties thereto.
(i) The Administrative Agent (or Special Counsel) shall have
received a counterpart of copies of duly completed and executed Uniform
Commercial Code Financing Statements covering the personal property
subject to the Liens created by the Security Agreement, together with
evidence that such Financing Statements have been duly filed in all
jurisdictions in which such filing is necessary or appropriate.
(j) The Administrative Agent (or Special Counsel) shall have
received a counterpart of the results of Uniform Commercial Code, tax
and judgment searches as may be requested by the Administrative Agent
and which searches
<PAGE>
reveal no liens on any asset of the Borrower except for liens permitted
under this Agreement.
(k) The Administrative Agent (or Special Counsel) shall have
received evidence that the principal of and any interest on, and all
other amounts owing in respect of, the Indebtedness outstanding under
the Existing Credit Agreement shall have been (or shall be
simultaneously) repaid in full, that all commitments to extend credit
under the Existing Credit Agreement shall have been canceled or
terminated and that Liens securing any such Indebtedness shall have
been released; and such Uniform Commercial Code termination statements
and other instruments, in each case in proper form for recording, as
the Administrative Agent shall have requested to release and terminate
of record any Liens securing such Indebtedness.
(l) The Administrative Agent (or Special Counsel) shall have
received a certificate of the Borrower, to the effect that, as of the
Effective Date (after giving effect to the Transactions), (a) the
aggregate value of all properties of the Borrower and its Subsidiaries
at their present fair saleable value (i.e., the amount which may be
realized within a reasonable time, considered to be six months to one
year, either through collection or sale at the regular market value,
regular market value to mean the amount which could be obtained for the
property in question within such period by a capable and diligent
business person from an interested buyer who is willing to purchase
under ordinary selling conditions), exceed the amount of all the debts
and liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of the Borrower and its Subsidiaries, (b) the
Borrower and its Subsidiaries will not, on a consolidated basis, have
an unreasonably small capital with which to conduct its business
operations as contemplated to be conducted and (c) the Borrower and its
Subsidiaries will have, on a consolidated basis, sufficient cash flow
to enable them to pay their debts as they mature (satisfaction of items
(a) through (c) of this paragraph (m) is herein referred to as being
"Solvent").
(m) The Administrative Agent shall have received evidence
satisfactory to it that the Joint and Several Guaranty included in the
Senior Note Documents shall have been amended in a manner satisfactory
to the Administrative Agent to provide that (i) the Lenders shall be
entitled to benefit from Section 2.9 of the Joint and Several Guaranty,
on a pro rata basis, to the same extent as the holders of the senior
secured notes under the Note Purchase Agreements included in the Senior
Note Documents and (ii) for purposes
<PAGE>
of Section 2.18 of the Joint and Several Guaranty, the full amount of
the Loans shall be deemed to have been borrowed on the date of issuance
of the senior secured notes and to have remained continuously
outstanding thereafter.
(n) The Administrative Agent shall have received a
satisfactory independent audit prepared by Chase's Specialized Due
Diligence Group or another firm of national standing with respect to
such matters, as to the accounts receivable and inventory of the
Borrower and its Subsidiaries, both on an individual and a consolidated
basis.
(o) The Administrative Agent, the Lenders and the Arranger
shall have received all fees and other amounts due and payable on or
prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by the Obligors hereunder.
(p) The Administrative Agent (or Special Counsel) shall have
received a counterpart of the Intercreditor Agreement duly executed and
delivered by all of the Persons stated to be parties thereto.
(q) The Administrative Agent shall have received such other
documents as the Administrative Agent or any Lender or Special Counsel
may reasonably request.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 10.02)
at or prior to 3:00 p.m., New York City time, on July 15, 1997 (and, in the
event such conditions are not so satisfied or waived, the Commitments shall
terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to
issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:
(a) The representations and warranties of the Obligors
set forth in this Agreement and the other Loan Documents
shall be true and correct on and as of the date of such
<PAGE>
Borrowing or the date of issuance, amendment, renewal or extension of
such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to
such Borrowing or the issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, no Default shall have occurred and be
continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (a) and
(b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Borrower will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the
Borrower, (i) its audited consolidated balance sheet and related
statements of operations, stockholders' equity and cash flows as of the
end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by
Arthur Andersen LLP or other independent public accountants of
recognized national standing (without a "going concern" or like
modification, qualification or exception and without any modification,
qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied and (ii) its consolidating
balance sheet and related statements of operations, stockholders'
equity and cash flows as of the end of and for such year, setting forth
in each case in comparative form the figures for the previous fiscal
year, certified by one of its Financial Officers as presenting
<PAGE>
fairly in all material respects the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidating basis in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower, (i) its
consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year and (ii) its
consolidating balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects
the financial condition and results of operations of the Borrower and
its consolidated Subsidiaries on a consolidated basis or consolidating
basis, as the case may be, in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence
of footnotes;
(c) concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of a Financial Officer of
the Borrower (i) certifying as to whether a Default has occurred and,
if a Default has occurred, specifying the details thereof and any
action taken or proposed to be taken with respect thereto, (ii) setting
forth reasonably detailed calculations of the Interest Coverage Ratio
as at the last day of the fiscal quarter or fiscal year, as the case
may be, in respect of which such financial statements are delivered,
and demonstrating compliance with Section 6.12 and (iii) stating
whether any change in GAAP or in the application thereof has occurred
since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the
effect of such change on the financial statements accompanying such
certificate;
(d) concurrently with any delivery of financial statements
under clause (a) above, a certificate of the accounting firm that
reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial
statements of any
<PAGE>
Default (which certificate may be limited to the extent required by
accounting rules or guidelines);
(e) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by the Borrower or any Subsidiary with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or
all of the functions of said Commission, or with any national
securities exchange, or distributed by the Borrower to its shareholders
generally, as the case may be;
(f) as soon as available and in any event within 5 Business
Days after the end of each monthly accounting period, a Borrowing Base
Certificate certifying, in the case of the Borrower, as to the
Consolidated Borrowing Base, and, in the case of each First Tier
Subsidiary, as to its Borrowing Base, as at the last day of such
accounting period;
(g) as soon as available, and in any event within 90 days,
after the end of each fiscal year of the Borrower a report (prepared at
the expense of the Borrower) of an independent collateral auditor
(which may be, or be affiliated with, one of the Lenders) approved by
the Administrative Agent with respect to the Receivables and Inventory
components included in the Consolidated Borrowing Base as at the end of
such fiscal year which report shall indicate that, based upon a review
by such auditors of the Receivables (including, without limitation,
verification with respect to the amount, aging, identity and credit of
the respective account debtors and the billing practices of the
Borrower and its Subsidiaries) and Inventory (including, without
limitation, verification as to the value, location and respective
types), the information set forth in the Borrowing Base Certificate
delivered by the Borrower as at the end of such fiscal year is accurate
and complete in all material respects; and
(h) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary, or compliance with the
terms of this Agreement, as the Administrative Agent or any Lender may
reasonably request.
SECTION 5.02. Notices of Material Events. The Borrower will
furnish to the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
<PAGE>
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority
against or affecting the Borrower or any Affiliate thereof that, if
adversely determined, could reasonably be expected to result in a
Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrower and its Subsidiaries in
an aggregate amount exceeding $250,000; and
(d) any other development that results in, or could
reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower
will, and will cause each of its Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
any merger, consolidation, liquidation or dissolution permitted under Section
6.03.
SECTION 5.04. Payment of Obligations. The Borrower will, and
will cause each of its Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, (b)
the Borrower or such Subsidiary has set aside on its books adequate reserves
with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The
Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain
all property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies
<PAGE>
engaged in the same or similar businesses operating in the same or similar
locations.
SECTION 5.06. Books and Records; Inspection Rights. The
Borrower will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Borrower will, and
will cause each of its Subsidiaries to, comply with all laws, rules, regulations
and orders of any Governmental Authority, including all Environmental Laws, and
with all other material obligations, applicable to it or its property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds and Letters of Credit.
(a) The proceeds of each Loan shall be lent by the Borrower
to First Tier Subsidiaries that are Subsidiary Guarantors, provided that the
aggregate principal amount of loans owing by each First Tier Subsidiary to the
Borrower shall not exceed the Borrowing Base of such First Tier Subsidiary. All
such loans made to each First Tier Subsidiary shall be evidenced by a single
demand promissory note executed and delivered by such First Tier Subsidiary to
the Borrower substantially in the form of Exhibit F hereto (each, an
"Intercompany Note"), and pledged by the Borrower to the Collateral Agent under
the Security Agreement for the benefit of the Secured Parties referred to in the
Security Agreement. Each First Tier Subsidiary shall use the proceeds of such
loans for its own working capital and other general corporate purposes and
(subject to Section 6.13) to make advances to the Borrower and Subsidiaries. In
the event that the Borrower receives any payment of principal of any
Intercompany Note, it shall immediately lend the proceeds of such payment to
another First Tier Subsidiary (to be evidenced by an Intercompany Note of such
other First Tier Subsidiary that has been pledged by the Borrower to the
Collateral Agent under the Security Agreement for the benefit of the Secured
Parties referred to in the Security Agreement), or pay or prepay the Loans
and/or the Pari Passu Debt, such that at no time will the aggregate outstanding
<PAGE>
principal amount of the Loans and the Pari Passu Debt exceed the aggregate
outstanding principal amount of the Intercompany Notes.
(b) Subject to the foregoing paragraph (a), the proceeds of
the Loans will be used only (i) to pay Indebtedness outstanding under the
Existing Credit Agreement and (ii) for working capital and other general
corporate purposes of the Borrower and its Subsidiaries. No part of the proceeds
of any Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the Regulations of the Board, including
Regulations G, U and X.
(c) Subject to the paragraph (a) above, Letters of Credit
will be issued only to support obligations of the Borrower and its Subsidiaries.
SECTION 5.09. Additional Subsidiary Guarantors. The Borrower
will take such action, and will cause each of its Subsidiaries to take such
action, from time to time as shall be necessary to ensure that each Subsidiary
the inventory or receivables of which are included in the calculation of the
Consolidated Borrowing Base is a Subsidiary Guarantor and, thereby, an "Obligor"
hereunder and under the Security Agreement pursuant to documentation
satisfactory to the Administrative Agent in form and substance. In addition,
the Borrower may cause any of its other Subsidiaries to become a Subsidiary
Guarantor and, thereby, an "Obligor" hereunder and under the Security Agreement
pursuant to documentation satisfactory to the Administrative Agent in form and
substance. Each such new Subsidiary Guarantor shall deliver such proof of
corporate action, incumbency of officers, opinions of counsel and other
documents as is consistent with those delivered by each other Obligor pursuant
to Section 4.01 or as any Lender or the Administrative Agent shall have
reasonably requested.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that:
SECTION 6.01. Indebtedness. The Borrower will not, and will
not permit any Subsidiary to, create, incur or assume any Indebtedness, except:
<PAGE>
(a) Indebtedness created hereunder;
(b) Pari Passu Debt;
(c) any extensions, renewals or replacements of any
Indebtedness existing on the date hereof and set forth in Schedule
6.01, provided that the aggregate principal amount of such Indebtedness
is not thereby increased;
(d) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary;
(e) other Indebtedness in an aggregate principal amount not
exceeding $20,000,000 created, incurred or assumed in any fiscal year
of the Borrower; and
(f) other Indebtedness provided that, on the date (the
"Incurrence Date") such Indebtedness is created, incurred or assumed
(as the case may be), the Borrower furnishes to the Administrative
Agent reasonable projections demonstrating in reasonable detail that
the Borrower will be in compliance with Section 6.12(e) on the last day
of each of the next succeeding four fiscal quarters of the Borrower
that end after the Incurrence Date after giving effect to such
creation, incurrence or assumption, together with a certificate of a
Financial Officer to the effect that such projections are based upon
reasonable assumptions and reflect the Borrower's best estimate as to
the matters covered thereby.
For purposes of the foregoing paragraphs (e) and (f), the Acquisition of any
Person shall be deemed to constitute the assumption of the Indebtedness of such
Person by a Subsidiary of the Borrower at the time of the consummation of such
Acquisition.
SECTION 6.02. Liens. The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect of
any thereof, except:
(a) Permitted Encumbrances;
(b) Liens created by the Senior Note Documents as in effect on
the date hereof; provided that there shall be no Lien securing any
obligations under the Senior Note Documents at any time after the
Security Termination Date;
<PAGE>
(c) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02
(other than Liens created by the Senior Note Documents); provided that
(i) such Lien shall not apply to any other property or asset of the
Borrower or any Subsidiary and (ii) such Lien shall secure only those
obligations which it secures on the date hereof;
(d) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on
any property or asset of any Person that becomes a Subsidiary after the
date hereof prior to the time such Person becomes a Subsidiary;
provided that (i) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Subsidiary,
as the case may be, (ii) such Lien shall not apply to any other
property or assets of the Borrower or any Subsidiary and (iii) such
Lien shall secure only those obligations which it secures on the date
of such acquisition or the date such Person becomes a Subsidiary, as
the case may be;
(e) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary; provided that (i) such
security interests secure Indebtedness incurred to finance such
acquisition, construction or improvement, (ii) such security interests
and the Indebtedness secured thereby are incurred prior to or within 90
days after such acquisition or the completion of such construction or
improvement, (iii) the Indebtedness secured thereby does not exceed 80%
of the cost of acquiring, constructing or improving such fixed or
capital assets and (iv) such security interests shall not apply to any
other property or assets of the Borrower or any Subsidiary;
(f) the Lien created by the Security Agreement; provided that
there shall be no Lien securing any Pari Passu Debt at any time after
the Security Termination Date;
(g) any extensions, renewals or replacements of any of the
Liens permitted by the foregoing clauses (a) through (f) effected in
connection with any extension, renewal or replacement of the
Indebtedness secured thereby; provided that (i) the aggregate principal
amount of such Indebtedness is not thereby increased, (ii) such Lien
shall not be extended to cover any additional property and (iii) there
shall be no Lien securing any extension, renewal or replacement of the
Pari Passu Debt or any obligations under the Senior Note Documents at
any time after the Security Termination Date; and
<PAGE>
(h) other Liens that (whether before or after the Security
Termination Date) do not cover any Collateral (as defined in the
Security Agreement).
Notwithstanding anything contained herein to the contrary, the aggregate amount
of obligations of the Borrower and its Subsidiaries secured by Liens permitted
by any of clauses (c), (d), (e), (g) (to the extent extending, renewing or
replacing any of the Liens permitted by any of clauses (c), (d) and (e)) and (h)
shall not exceed 15% of Consolidated Tangible Net Worth at any time on or after
the Security Termination Date.
SECTION 6.03. Fundamental Changes.
(a) The Borrower will not, and will not permit any Subsidiary
to, merge into or consolidate with any other Person, or permit any other Person
to merge into or consolidate with it, or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions) all or
substantially all of its assets, or all or substantially all of the stock of any
of its Subsidiaries (in each case, whether now owned or hereafter acquired), or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing (i) any
Subsidiary may merge into the Borrower in a transaction in which the Borrower is
the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in
a transaction in which the surviving entity is a Subsidiary, provided that if
any such transaction shall be between a Subsidiary Guarantor and a Subsidiary
not a Subsidiary Guarantor, and such Subsidiary Guarantor is not the continuing
or surviving corporation, then the continuing or surviving corporation shall
have assumed all of the obligations of such Subsidiary Guarantor hereunder and
under the other Loan Documents pursuant to documentation satisfactory to the
Administrative Agent in form and substance, (iii) any Subsidiary may sell,
transfer, lease or otherwise dispose of its assets to the Borrower or to another
Subsidiary, provided that if any such transaction shall be between a Subsidiary
Guarantor and a Subsidiary not a Subsidiary Guarantor, and if such Subsidiary
Guarantor is not the continuing or surviving corporation, then the continuing or
surviving corporation shall have assumed all of the obligations of such
Subsidiary Guarantor hereunder and under the other Loan Documents pursuant to
documentation satisfactory to the Administrative Agent in form and substance,
(iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good
faith that such liquidation or dissolution is in the best interests of the
Borrower and is not materially disadvantageous to the Lenders; provided that any
such merger that would
<PAGE>
otherwise be permitted by this Section 6.03 involving a Person that is not a
wholly owned Subsidiary immediately prior to such merger shall not be permitted
unless also permitted by Section 6.04 and (v) the Borrower may merge into a
newly formed, "shell" corporation organized under the laws of the Commonwealth
of Virginia in a transaction intended merely to "reincorporate" the Borrower as
a Virginia corporation, provided that (i) the continuing or surviving
corporation shall have assumed all of the obligations of the Borrower hereunder
and under the other Loan Documents pursuant to documentation satisfactory to the
Administrative Agent in form and substance, (ii) no Default shall have occurred
and be continuing or would result therefrom and (iii) the Lenders shall have
received a legal opinion from counsel to the Borrower acceptable to the
Administrative Agent and in form, scope and substance acceptable to the
Administrative Agent as to such merger and such assumption.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and its Subsidiaries on the
date of execution of this Agreement and businesses reasonably related thereto.
SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries
to, purchase, hold or acquire (including pursuant to any merger with any Person
that was not a wholly owned Subsidiary prior to such merger) any capital stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments by the Borrower existing on the date
hereof in the capital stock of its Subsidiaries;
(c) loans or advances made by the Borrower to any
Subsidiary and made by any Subsidiary to the Borrower or any
other Subsidiary;
(d) Guarantees constituting Indebtedness permitted by
Section 6.01;
(e) Investments constituting Acquisitions permitted by
Section 6.12(f);
<PAGE>
(f) Investments in an aggregate amount not exceeding
$10,000,000 at any one time outstanding in a cold storage warehouse and
distribution center in Sioux Falls, South Dakota constituting a joint
venture between Freezer Services Inc., the Borrower and John Morrell &
Co.; and
(g) other Investments not exceeding $5,000,000 in the
aggregate amount outstanding at any time.
SECTION 6.05. Hedging Agreements. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any Hedging Agreement,
other than Hedging Agreements entered into in the ordinary course of business to
hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in
the conduct of its business or the management of its liabilities.
SECTION 6.06. Restricted Payments. The Borrower will not, and
will not permit any of its Subsidiaries to, declare or make, or agree to pay or
make, directly or indirectly, any Restricted Payment, except that (a) the
Borrower may declare and pay dividends with respect to its capital stock payable
solely in additional shares of its common stock, (b) Subsidiaries may declare
and pay dividends ratably with respect to their capital stock and (c) the
Borrower may make Restricted Payments pursuant to and in accordance with stock
option plans or other benefit plans for management or employees of the Borrower
and its Subsidiaries.
SECTION 6.07. Transactions with Affiliates. The Borrower will
not, and will not permit any of its Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) in the ordinary course of business at prices and
on terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's-length basis from unrelated third parties,
(b) transactions between or among the Borrower and its Subsidiaries not
involving any other Affiliate and (c) any Restricted Payment permitted by
Section 6.06.
SECTION 6.08. Restrictive Agreements. The Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of the
Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any
of its property or assets, or (b) the ability of any Subsidiary to pay dividends
or other distributions with respect to any shares of its capital stock or to
make or repay loans or advances
<PAGE>
to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the
Borrower or any other Subsidiary; provided that (i) the foregoing shall not
apply to restrictions and conditions imposed by law or by this Agreement or any
of the other Loan Documents, (ii) the foregoing shall not apply to restrictions
and conditions existing on the date hereof identified on Schedule 6.08 (but
shall apply to any extension or renewal of, or any amendment or modification
expanding the scope of, any such restriction or condition), (iii) the foregoing
shall not apply to customary restrictions and conditions contained in agreements
relating to the sale of a Subsidiary pending such sale, provided such
restrictions and conditions apply only to the Subsidiary that is to be sold and
such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement or any of the other Loan Documents if
such restrictions or conditions apply only to the property or assets securing
such Indebtedness, (v) clause (a) of the foregoing shall not apply to customary
provisions in leases restricting the assignment thereof and (vi) clause (a) of
the foregoing shall not apply to restrictions or conditions imposed by any
agreement under which the Indebtedness governed by the Senior Note Documents is
refinanced, provided that such restrictions or conditions are not materially
more restrictive than those contained in the Senior Note Documents on the date
hereof (and, if such agreement does not provide that the Indebtedness created
thereunder will be secured by Liens on property or assets of the Borrower or any
Subsidiary, such agreement may contain restrictions or conditions limiting Liens
on property or assets of the Borrower or any Subsidiary which are not the
subject of Liens granted under the Security Agreement and such restrictions or
conditions shall not be deemed more onerous than those contained in the Senior
Note Documents on the date hereof).
SECTION 6.09. Senior Note Documents. Promptly following the
execution thereof, the Borrower will supply each Lender with a copy of any
modification, supplement or waiver to a Senior Note Document.
SECTION 6.10. Limitation on Sale and Leaseback Transactions.
The Borrower will not, and will not permit any of its Subsidiaries to, enter
into, renew or extend any transaction or series of related transactions pursuant
to which the Borrower or such Subsidiary sells or transfers any property in
connection with the leasing, or the release against installment payments, or as
part of an arrangement involving the leasing or resale against installment
payments, of such property to the seller or transferor.
<PAGE>
SECTION 6.11. Fiscal Periods. If the Borrower changes the
manner of determining the last day of its fiscal year or the last days of the
first three fiscal quarters in each of its fiscal years, the parties hereto
shall negotiate in good faith to agree to modify any financial calculations and
determinations hereunder to reflect their original intent in light of such
changes, and if they fail so to agree all such financial calculations
determinations hereunder shall continue to be made as if such change had not
occurred.
SECTION 6.12. Financial Covenants.
(a) The Borrower will not permit the Consolidated Current
Ratio to be less than 1.05 to 1 at any time.
(b) The Borrower will not permit Consolidated Working Capital
to be less than $35,000,000 at any time.
(c) The Borrower will not permit the ratio of Consolidated
Total Liabilities to Consolidated Tangible Net Worth on any date to be
more than the ratio set forth below opposite the period during which
such date falls:
Period Ratio
From the Effective Date through
May 2, 1998 3.00 to 1
From May 3, 1998 and thereafter 2.75 to 1
(d) The Borrower will not permit Consolidated Tangible Net
Worth on any date (the "Determination Date") to be less than the sum of
(i) $225,000,000 plus (ii) 50% of the aggregate amount of Consolidated
Net Income for each quarter that ends after the Effective Date and on
or before the Determination Date in respect of which Consolidated Net
Income is greater than zero plus (iii) 50% of the aggregate amount of
increases in Consolidated Tangible Net Worth after the Effective Date
and on or before the Determination Date resulting from the issuance by
it of capital stock as consideration in Acquisitions made by it and its
Subsidiaries.
(e) The Borrower will not permit the ratio of Consolidated
EBITDA to Consolidated Fixed Charges for any period of four consecutive
fiscal quarters of the Borrower to be less than the ratio set forth
below opposite the period during which the last day of such period of
four consecutive fiscal quarters falls:
<PAGE>
Period Ratio
From the Effective Date through
January 31, 1998 0.85 to 1
From February 1, 1998 through
July 31, 1999 1.00 to 1
From August 1, 1999
and thereafter 1.10 to 1
(f) The Borrower will not permit the sum (without duplication)
of (i) Capital Expenditures made by the Borrower and its Subsidiaries
in any fiscal year of the Borrower plus (ii) the Aggregate
Consideration for all Acquisitions made by the Borrower and its
Subsidiaries in such fiscal year to exceed the higher of (x) the sum of
Consolidated Net Income plus depreciation for the Borrower and its
Subsidiaries for such fiscal year or (y) $100,000,000.
SECTION 6.13. Unguaranteed Exposure. Notwithstanding
anything contained herein to the contrary, the Borrower will not permit the
Unguaranteed Exposure to exceed $30,000,000.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
or any reimbursement obligation in respect of any LC Disbursement when
and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan
or any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement or any other
Loan Document, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of three or more
Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of any Obligor in or in connection with this Agreement or any
other Loan Document or any amendment or modification hereof or thereof
or waiver hereunder or thereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in
<PAGE>
connection with this Agreement or any other Loan Document or any
amendment or modification hereof or thereof or waiver hereunder or
thereunder, shall prove to have been incorrect in any material respect
when made or deemed made;
(d) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 (with
respect to the existence of the Borrower or any Subsidiary) or 5.08 or
in Article VI;
(e) any Obligor shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement or any
other Loan Document (other than those specified in clause (a), (b) or
(d) of this Article), and such failure shall continue unremedied for a
period of 30 days after notice thereof from the Administrative Agent to
the Borrower (which notice will be given at the request of any Lender);
(f) the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become
due and payable;
(g) any event or condition occurs that results in any
Material Indebtedness becoming due prior to its scheduled maturity or
that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause
any Material Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its scheduled
maturity; provided that this clause (g) shall not apply to secured
Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any
Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower or any Subsidiary or for a substantial part
of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
<PAGE>
(i) the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in
clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or
for a substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the
foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit
in writing or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $5,000,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets
of the Borrower or any Subsidiary to enforce any such judgment;
(l) the Borrower or any Subsidiary receives any notice,
notification, demand, request for information, citation, summons or
order or there has been filed any compliant or any penalty has been
assessed or an investigation or review is pending or threatened by any
governmental or other entity, in each case with respect to any alleged
failure by the Borrower or any of its Subsidiaries to have any
environmental, health or safety permit, license or other authorization
required under any Environmental Law in connection with the conduct of
the business of the Borrower or any of its Subsidiaries or with respect
to any generation, treatment, storage, recycling, transportation,
discharge or disposal, or any release of any Hazardous Materials
generated by the Borrower or any of its Subsidiaries, in each case
which could reasonably be expected to result in a Material Adverse
Effect.
(m) an ERISA Event shall have occurred that, in the
opinion of the Required Lenders, when taken together with
<PAGE>
all other ERISA Events that have occurred, could reasonably be expected
to result in liability of the Borrower and its Subsidiaries in an
aggregate amount exceeding (i) $2,000,000 in any year or (ii)
$10,000,000 for all periods;
(n) any of the following shall occur: (i) subject to Section
10.13, the Lien created by any Security Document shall at any time
cease to constitute a valid and perfected Lien on the collateral
intended to be covered thereby before the Security Termination Date;
(ii) subject to Section 10.13, except for expiration in accordance with
its terms, any Security Document shall for whatever reason be
terminated, or shall cease to be in full force and effect before the
Security Termination Date; or (iii) subject to Section 10.13, the
actual or asserted invalidity of any Security Document or of any
guarantee under Article VIII hereof or the validity of any Security
Document or of any guarantee under Article VIII hereof or the validity
of any subordination provision contained in Article VIII hereof shall
be contested by any party before (in the case of any Security Document)
the Security Termination Date; or
(o) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Obligors accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Obligors.
<PAGE>
ARTICLE VIII
Guarantee
SECTION 8.01 The Guarantee. The Subsidiary Guarantors hereby
jointly and severally guarantee to each Lender and the Administrative Agent and
their respective successors and assigns the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the principal of
and interest on the Loans (and, in the case of Letters of Credit, LC
Disbursements) made by the Lenders to the Borrower and all other amounts from
time to time owing to the Lenders or the Administrative Agent by the Borrower
under this Agreement and by any Obligor under any of the other Loan Documents,
and all obligations of the Borrower to any Lender in respect of any Hedging
Agreement, in each case strictly in accordance with the terms thereof (such
obligations being herein collectively called the "Guaranteed Obligations"). The
Subsidiary Guarantors hereby further jointly and severally agree that if the
Borrower shall fail to pay in full when due (whether at stated maturity, by
acceleration or otherwise) any of the Guaranteed Obligations, the Subsidiary
Guarantors will promptly pay the same, without any demand or notice whatsoever,
and that in the case of any extension of time of payment or renewal of any of
the Guaranteed Obligations, the same will be promptly paid in full when due
(whether at extended maturity, by acceleration or otherwise) in accordance with
the terms of such extension or renewal.
SECTION 8.02 Obligations Unconditional. The obligations of the
Subsidiary Guarantors under Section 8.01 hereof are absolute and unconditional,
joint and several, irrespective of the value, genuineness, validity, regularity
or enforceability of the obligations of the Borrower under this Agreement or any
other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 8.02 that the obligations of the
Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and
several, under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Subsidiary Guarantors hereunder
which shall remain absolute and unconditional as described above:
<PAGE>
(i) at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance
with any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of
this Agreement or any other agreement or instrument referred to herein
or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this
Agreement or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor
of, the Administrative Agent or any Lender or Lenders as security for
any of the Guaranteed Obligations shall fail to be perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that the
Administrative Agent or any Lender exhaust any right, power or remedy or proceed
against the Borrower under this Agreement or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
SECTION 8.03 Reinstatement. The obligations of the Subsidiary
Guarantors under this Article VIII shall be automatically reinstated if and to
the extent that for any reason any payment by or on behalf of the Borrower in
respect of the Guaranteed Obligations is rescinded or must be otherwise restored
by any holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise and the Subsidiary
Guarantors jointly and severally agree that they will indemnify the
Administrative Agent and each Lender on demand for all reasonable costs and
expenses (including, without limitation, fees of counsel) incurred by the
Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
<PAGE>
SECTION 8.04 Subrogation. The Subsidiary Guarantors hereby
jointly and severally agree that until the payment and satisfaction in full of
all Guaranteed Obligations and the expiration and termination of the Commitments
and Letters of Credit under this Agreement they shall not exercise any right or
remedy arising by reason of any performance by them of their guarantee in
Section 8.01 hereof, whether by subrogation or otherwise, against the Borrower
or any other guarantor of any of the Guaranteed Obligations or any security for
any of the Guaranteed Obligations.
SECTION 8.05 Remedies. The Subsidiary Guarantors jointly and
severally agree that, as between the Subsidiary Guarantors and the Lenders, the
obligations of the Borrower under this Agreement may be declared to be forthwith
due and payable as provided in Article VII hereof (and shall be deemed to have
become automatically due and payable in the circumstances provided in said
Article VII) for purposes of Section 8.01 notwithstanding any stay, injunction
or other prohibition preventing such declaration (or such obligations from
becoming automatically due and payable) as against the Borrower and that, in the
event of such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and payable
by the Borrower) shall forthwith become due and payable by the Subsidiary
Guarantors for purposes of said Section 8.01.
SECTION 8.06 Instrument for the Payment of Money. Each
Subsidiary Guarantor hereby acknowledges that the guarantee in this Article VIII
constitutes an instrument for the payment of money, and consents and agrees that
any Lender or the Administrative Agent, at its sole option, in the event of a
dispute by such Subsidiary Guarantor in the payment of any moneys due hereunder,
shall have the right to bring motion-action under New York CPLR Section 3213.
SECTION 8.07 Continuing Guarantee. The guarantee in this
Article VIII is a continuing guarantee, and shall apply to all Guaranteed
Obligations whenever arising.
SECTION 8.08 Rights of Contribution. The Subsidiary Guarantors
hereby agree, as between themselves, that if any Subsidiary Guarantor shall
become an Excess Funding Guarantor (as defined below) by reason of the payment
by such Subsidiary Guarantor of any Guaranteed Obligations, each other
Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but
subject to the next sentence), pay to such Excess Funding Guarantor an amount
equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and
determined, for this purpose, without reference to the Properties, debts and
liabilities of such Excess
<PAGE>
Funding Guarantor) of the Excess Payment (as defined below) in respect of such
Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any
Excess Funding Guarantor under this Section 8.08 shall be subordinate and
subject in right of payment to the prior payment in full of the obligations of
such Subsidiary Guarantor under the other provisions of this Article VIII and
such Excess Funding Guarantor shall not exercise any right or remedy with
respect to such excess until payment and satisfaction in full of all of such
obligations.
For purposes of this Section 8.08, (i) "Excess Funding
Guarantor" means, in respect of any Guaranteed Obligations, a Subsidiary
Guarantor that has paid an amount in excess of its Pro Rata Share of such
Guaranteed Obligations, (ii) "Excess Payment" means, in respect of any
Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess
of its Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata Share"
means, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of
(x) the amount by which the aggregate present fair saleable value of all
properties of such Subsidiary Guarantor (excluding any shares of stock of any
other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities
of such Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which
the aggregate fair saleable value of all properties of all of the Subsidiary
Guarantors exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding
the obligations of the Borrower and the Subsidiary Guarantors hereunder and
under the other Loan Documents) of all of the Subsidiary Guarantors, determined
(A) with respect to any Subsidiary Guarantor that is a party hereto on the
Effective Date, as of the Effective Date, and (B) with respect to any other
Subsidiary Guarantor, as of the date such Subsidiary Guarantor becomes a
Subsidiary Guarantor hereunder.
SECTION 8.09 General Limitation on Guarantee Obligations. In
any action or proceeding involving any state corporate law, or any state or
Federal bankruptcy, insolvency, reorganization or other law affecting the rights
of creditors generally, if the obligations of any Subsidiary Guarantor under
Section 8.01 would otherwise, taking into account the provisions of Section
8.08, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under said Section 8.01, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by such Subsidiary Guarantor, any Lender, the
<PAGE>
Administrative Agent or any other Person, be automatically limited and reduced
to the highest amount that is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding.
ARTICLE IX
The Administrative Agent
Each of the Lenders and the Issuing Banks hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing (a) the Administrative Agent shall not be subject to
any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing by the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 10.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Borrower or any of its Subsidiaries that is communicated to or obtained by the
bank serving as Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken
by it with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 10.02) or in the absence of its own gross
negligence or wilful misconduct. The Administrative Agent shall be deemed not to
have knowledge of any
<PAGE>
Default unless and until written notice thereof is given to the Administrative
Agent by the Borrower or a Lender, and the Administrative Agent shall not be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with this Agreement, (ii)
the contents of any certificate, report or other document delivered hereunder or
in connection herewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth herein, (iv) the
validity, enforceability, effectiveness or genuineness of this Agreement or any
other agreement, instrument or document, or (v) the satisfaction of any
condition set forth in Article IV or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall take such action (subject to
Section 10.02(b) hereof and subject to the right of the Administrative Agent to
receive further assurances to its satisfaction from the Lenders of their
indemnification obligations under Section 10.03(c) hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take such action) with respect to the notice of a Default referred
to in the preceding paragraph as shall be directed by the Required Lenders,
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
notice of Default as it shall deem advisable in the best interest of the Lenders
except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of the
Required Lenders or all of the Lenders.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The
<PAGE>
Administrative Agent and any such sub-agent may perform any and all its duties
and exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Related Parties of the Administrative Agent and any such
subagent, and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Required Issuing Banks and the
Borrower. Upon any such resignation, the Required Lenders shall have the right,
in consultation with the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the Required Issuing Banks, appoint a successor Administrative Agent
which shall be a bank with an office in New York, New York, or an Affiliate of
any such bank. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 10.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
<PAGE>
The Arranger identified on the cover page of this Agreement
shall have no duties or responsibilities hereunder. The Co-Agent identified on
the cover page of this Agreement shall have no duties or responsibilities
hereunder other than as a Lender and as an Issuing Bank hereunder.
ARTICLE X
Miscellaneous
SECTION 10.01. Notices. Except in the case of notices and
other communications expressly permitted to be given by telephone, all notices
and other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at Smithfield Foods, Inc. at
900 Dominion Tower, 999 Waterside Drive, Norfolk, VA, 23510, Attention:
Mr. Aaron D. Trub (Telecopy No. 757- 365-3017) and Michael H. Cole
(Telecopy No. 757-365-3023);
(b) if to any Subsidiary Guarantor, at the address for
notices to the Borrower as provided herein;
(c) if to the Administrative Agent or the Collateral Agent,
to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase
Manhattan Plaza, New York, New York 10017, Attention of Sandra Miklave
(Telecopy No. 212-552-5658), with a copy to The Chase Manhattan Bank,
270 Park Avenue, New York, New York 10017, Attention of Sue Herzog
(Telecopy No. 212-344-0246);
(d) if to Chase in its capacity as Issuing Bank, to it at 1
Chase Manhattan Plaza, New York, New York 10017, Attention of Rashdy
Botros, Supervisor L/C, (Telecopy No. 212-638-8200);
(e) if to the Swingline Lender, to The Chase Manhattan Bank,
Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York
10017, Attention of Pam Lambiese (Telecopy No. 212-344-0246); and
(f) if to any other Lender (including to Rabobank in its
capacity as the Issuing Bank), to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other
<PAGE>
parties hereto. All notices and other communications given to any party hereto
in accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt.
SECTION 10.02. Waivers; Amendments.
(a) No failure or delay by the Administrative Agent, any
Issuing Bank or any Lender in exercising any right or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Issuing Banks and the Lenders hereunder are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provision of this Agreement or consent to any departure by any
Obligor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, any Lender or any
Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof, nor the
Intercreditor Agreement nor any provision thereof, may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Obligors and the Required Lenders or by the Obligors and the
Administrative Agent with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, (v) change any of the provisions of this Section
or the definition of "Required Lenders" or any other provision hereof specifying
the number or percentage of Lenders required to waive, amend or
<PAGE>
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender, (vi) change the reference
to 75% in the definition of "Borrowing Base" to a higher percentage without the
written consent of each Lender; or (vii) release all or substantially all of the
Subsidiary Guarantors from their obligations in respect of their Guarantee
hereunder without the written consent of each Lender; provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent, either Issuing Bank or the Swingline Lender hereunder
without the prior written consent of the Administrative Agent, such Issuing Bank
or the Swingline Lender, as the case may be.
(c) Neither any Security Document nor any provision thereof
may be waived, amended or modified, nor may any collateral thereunder be
released, except pursuant to an agreement or agreements in writing entered into
by the Obligors party thereto, and by the Administrative Agent with the consent
of the Lenders. Notwithstanding the foregoing, the Administrative Agent shall,
at the request of the Borrower, (i) agree to release from the Lien of the
Security Agreement any property that is the subject of a permitted sale
hereunder to a Person other than the Borrower or a Subsidiary and (ii) agree to
terminate the Security Agreement if (w) at the time of such release, the
aggregate amount of obligations of the Borrower and its Subsidiaries secured by
Liens permitted by any of clauses (c), (d), (e), (g) (to the extent extending,
renewing or replacing any of the Liens permitted by any of clauses (c), (d) and
(e)) and (h) does not exceed 15% of Consolidated Tangible Net Worth, (x) the
long term senior, unsecured debt of the Borrower is rated at least Baa3 by
Moody's and is rated at least BBB- by S&P, (y) no Default has occurred and is
continuing and (z) all collateral security provided with respect to the Senior
Note Documents and the Pari Passu Debt shall have been released.
SECTION 10.03. Expenses; Indemnity: Damage Waiver.
(a) The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement and the other Loan
Documents or any amendments, modifications or waivers of the provisions hereof
or thereof (whether or not the transactions contemplated hereby or thereby shall
be consummated), (ii) all reasonable out-of-pocket expenses incurred by the
Issuing Bank in connection with the issuance, amendment, renewal or extension of
any Letter of Credit or any demand for
<PAGE>
payment thereunder, (iii) all reasonable out-of-pocket expenses incurred by
Rabobank in connection with any demand for payment under any Existing Letter of
Credit and (iv) all out-of-pocket expenses incurred by the Administrative Agent,
either Issuing Bank or any Lender, including the fees, charges and disbursements
of any counsel for the Administrative Agent, any Issuing Bank or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement and the other Loan Documents, including its rights under this
Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) The Borrower shall indemnify the Administrative Agent,
each Issuing Bank and each Lender, and each Related Party of any of the
foregoing Persons (each such Person being called an "Indemnitee") against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the fees, charges and disbursements
of any counsel for any Indemnitee, incurred by or asserted against any
Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of this Agreement or the other Loan Documents or any
agreement or instrument contemplated hereby or thereby, the performance by the
parties hereto of their respective obligations hereunder or thereunder or the
consummation of the Transactions or any other transactions contemplated hereby,
(ii) any Loan or Letter of Credit or the use of the proceeds therefrom
(including any refusal by the an Issuing Bank to honor a demand for payment
under a Letter of Credit if the documents presented in connection with such
demand do not strictly comply with the terms of such Letter of Credit), (iii)
any actual or alleged presence or release of Hazardous Materials on or from any
property owned or operated by the Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to the Borrower or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory and regardless of whether any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent, an Issuing Bank or the
Swingline Lender under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Administrative Agent, such Issuing Bank or the
Swingline Lender,
<PAGE>
as the case may be, such Lender's Applicable Percentage (determined as of the
time that the applicable unreimbursed expense or indemnity payment is sought) of
such unpaid amount; provided that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against the Administrative Agent, such Issuing Bank or the Swingline
Lender in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions, any Loan or Letter of Credit or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable
promptly after written demand therefor.
SECTION 10.04. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns permitted hereby (including any Affiliate of the Issuing Bank that
issues any Letter of Credit), except that an Obligor may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by such Obligor
without such consent shall be null and void). Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby
(including any Affiliate of an Issuing Bank that issues any Letter of Credit)
and, to the extent expressly contemplated hereby, the Related Parties of each of
the Administrative Agent, the relevant Issuing Bank and the Lenders) any legal
or equitable right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Administrative Agent (and, in the case of an
assignment of all or a portion of a Commitment or any Lender's obligations in
respect of its LC Exposure or Swingline Exposure, the Required Issuing Banks and
the Swingline Lender) must give their prior written consent to such assignment
(which consent
<PAGE>
shall not be unreasonably withheld or delayed), (ii) except in the case of an
assignment to a Lender or an Affiliate of a Lender or an assignment of the
entire remaining amount of the assigning Lender's Commitment, the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $10,000,000 unless
each of the Borrower and the Administrative Agent otherwise consent, (iii) each
partial assignment shall be made as an assignment of a proportionate part of all
the assigning Lender's rights and obligations under this Agreement, (iv) the
parties to each assignment shall execute and deliver to the Administrative Agent
an Assignment and Acceptance, together with a processing and recordation fee of
$3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; provided further that any
consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default under clause (h) or (i) of Article VII has
occurred and is continuing. Subject to acceptance and recording thereof pursuant
to paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and Acceptance,
have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.14, 2.15, 2.16 and 10.03). Any assignment or transfer by
a Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and the Borrower, the Administrative Agent,
the Required Issuing Banks and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding
<PAGE>
notice to the contrary. The Register shall be available for inspection by the
Borrower, the Required Issuing Banks and any Lender, at any reasonable time and
from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Issuing Banks or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) the Borrower, the
Administrative Agent, the Issuing Banks and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such agreement or instrument may provide that such Lender will not, without
the consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 10.02(b) that affects such
Participant. Subject to paragraph (f) of this Section, the Borrower agrees that
each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and
2.16 to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 10.08 as
though it were a Lender, provided such Participant agrees to be subject to
Section 2.17(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any
greater payment under Section 2.14 or 2.16 than the applicable
<PAGE>
Lender would have been entitled to receive with respect to the participation
sold to such Participant, unless the sale of the participation to such
Participant is made with the Borrower's prior written consent. A Participant
that would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 2.16 unless the Borrower is notified of the participation
sold to such Participant and such Participant agrees, for the benefit of the
Borrower, to comply with Section 2.16(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
SECTION 10.05. Survival. All covenants, agreements,
representations and warranties made by the Obligors herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement and the other Loan Documents shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, either
Issuing Bank or any Lender may have had notice or knowledge of any Default or
incorrect representation or warranty at the time any credit is extended
hereunder, and shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan or any fee or any other amount payable
under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.14, 2.15, 2.16 and 10.03 and Article IX shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Commitments or the termination of
this Agreement or any provision hereof.
SECTION 10.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any separate letter agreements with respect to fees
<PAGE>
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
SECTION 10.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 10.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates 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 obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of any Obligor against any of and all the obligations of such Obligor now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 10.09. Governing Law; Jurisdiction; Consent to
Service of Process.
(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
(b) EACH OBLIGOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE
SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE
UNITED STATES
<PAGE>
DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. Each of
the parties hereto 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. Nothing in this Agreement shall
affect any right that the Administrative Agent, either Issuing Bank or any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document against any Obligor or its properties in
the courts of any jurisdiction.
(c) Each Obligor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any other
Loan Document in any court referred to in paragraph (b) of this Section. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 10.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 10.11. Headings. Article and Section headings and
the Table of Contents used herein are for convenience of
<PAGE>
reference only, are not part of this Agreement and shall not affect the
construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 10.12. Confidentiality. Each of the Administrative
Agent, the Issuing Banks and the Lenders agrees to maintain the confidentiality
of the Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement or the other
Loan Documents, (e) in connection with the exercise of any remedies hereunder or
any suit, action or proceeding relating to this Agreement or the other Loan
Documents or the enforcement of rights hereunder or thereunder, (f) subject to
an agreement containing provisions substantially the same as those of this
Section, to any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or the
other Loan Documents, (g) with the consent of the Borrower or (h) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to the Administrative Agent,
either Issuing Bank or any Lender on a nonconfidential basis from a source other
than the Borrower. For the purposes of this Section, "Information" means all
information received from any Obligor relating to such Obligor or its business,
other than any such information that is available to the Administrative Agent,
either Issuing Bank or any Lender on a nonconfidential basis prior to disclosure
by the Borrower; provided that, in the case of information received from any
Obligor after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
SECTION 10.13. Perfection of Security Interests.
Notwithstanding anything contained herein or in any Security Document to the
contrary, neither the Borrower nor any of its Subsidiaries shall be responsible
for the failure of the Lien created by the Security Agreement to be perfected
(a) to the extent that such failure results from the failure by the
<PAGE>
Collateral Agent to file continuation statements under the Uniform Commercial
Code in respect of such Lien, (b) to the extent that such failure relates to
Liens over letters of credit supporting LC-Backed Receivables, provided that the
aggregate amount of LC-Backed Receivables in respect of which such Liens over
the related letters of credit are not perfected does not exceed 10% of the
Consolidated Borrowing Base, (c) to the extent that such failure relates to
Liens over Inventory stored in warehouses, provided that the amount of the
Consolidated Borrowing Base attributable to such Inventory shall not exceed
$250,000 for any single warehouse and that the amount of the Consolidated
Borrowing Base attributable to such Inventory and to Eligible Receivables
referred to in the following clause (d) shall not exceed $20,000,000 in the
aggregate or (d) to the extent that such failure relates to Liens over Eligible
Receivables and results from such Eligible Receivables being due from
Governmental Authorities, provided that the amount of the Consolidated Borrowing
Base attributable to such Eligible Receivables and to Inventory referred to in
the preceding clause (c) shall not exceed $20,000,000 in the aggregate. If the
amount of Collateral subject to any such failure exceeds any relevant amount
referred to in clause (a), (b) or (c) of the preceding sentence, then, (i) on
the date (the "Trigger Date") that the Borrower determines that such excess
exists, the Borrower shall immediately notify the Administrative Agent and the
Collateral Agent of such event, (ii) the Borrower shall furnish to the
Administrative Agent on the Trigger Date a Borrowing Base Certificate calculated
on the basis of the Borrowing Base Certificate most recently furnished hereunder
but recalculating the Borrowing Base with pro forma adjustments reflecting the
exclusion of such excess Collateral from the Eligible Receivables or Eligible
Inventory, as the case may be, (iii) the Borrower shall forthwith on the Trigger
Date comply with its obligations under Section 2.10(b) after giving effect to
the Borrowing Base as so calculated and (iv) not later than 30 days following
the Trigger Date, the Borrower shall have taken such action as shall be
necessary to eliminate such excess. If the Borrower is in compliance with the
preceding sentence, then (x) except as expressly provided in the preceding
sentence, no account or Inventory shall be excluded from Eligible Receivables or
Eligible Inventory, as the case may be, (y) no Obligor shall be deemed to have
breached any covenant or made any untrue representation or warranty and (z) no
Default or Event of Default shall be deemed to have occurred or be continuing,
in each of the cases referred to in the foregoing clauses (x), (y) and (z)
solely because any Lien created by the Security Agreement shall fail to be
perfected if such failure is described in clause (a), (b) or (c) of the first
sentence or this Section 10.13; except that, notwithstanding the preceding
provisions of this Section 10.13, the Borrower shall from time to time upon the
request of the Administrative Agent or the Required Lenders deliver or cause to
be delivered to the Collateral Agent in pledge under the Security Agreement the
letters of credit supporting LC-Backed Receivables.
<PAGE>
SECTION 10.14. Acknowledgements.
Each Obligor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan
Documents;
(b) neither the Administrative Agent nor any Lender or Issuing
Bank has any fiduciary relationship with or fiduciary duty to any
Obligor arising out of or in connection with this Agreement or any of
the other Loan Documents, and the relationship between the
Administrative Agent, the Lenders and the Issuing Banks, on the one
hand, and the Obligors, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among any party or parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
SMITHFIELD FOODS, INC.
By_________________________
Name: Aaron D. Trub
Title: Vice-President,
Secretary and Treasurer
THE SMITHFIELD PACKING COMPANY,
INCORPORATED
By_________________________
Name: Aaron D. Trub
Title: Secretary
GWALTNEY OF SMITHFIELD, LTD.
By_________________________
Name: Aaron D. Trub
Title: Secretary
PATRICK CUDAHY INCORPORATED
By_________________________
Name: Aaron D. Trub
Title: Secretary
JOHN MORRELL & CO.
By_________________________
Name: Aaron D. Trub
Title: Secretary
LYKES MEAT GROUP, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
BROWN'S OF CAROLINA, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
<PAGE>
HANCOCK'S OLD FASHIONED COUNTRY
HAMS, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
VALLEYDALE FOODS, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
COPAZ PACKING CORPORATION
By_________________________
Name: Aaron D. Trub
Title: Secretary
SUNNYLAND, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
SMITHFIELD PACKING-LANDOVER, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
<PAGE>
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
By_________________________
Name: Michael D. Peist
Title: Vice President
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN -
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH,
By_________________________
Name:
Title:
By_________________________
Name:
Title:
AGRIBANK, FCB,
By_________________________
Name:
Title:
CAISSE NATIONALE DE CREDIT
AGRICOLE,
By_________________________
Name:
Title:
DG BANK, DEUTSCHE
GENOSSENSCHAFTSBANK,
CAYMAN ISLANDS BRANCH,
By_________________________
Name:
Title:
By_________________________
Name:
Title:
<PAGE>
NATIONSBANK OF TEXAS, N.A.,
By_________________________
Name:
Title:
NATIONSBANK, N.A.,
By_________________________
Name:
Title:
BOATMEN'S FIRST NATIONAL BANK
OF KANSAS CITY,
By_________________________
Name:
Title:
<PAGE>
FBS AG CREDIT, INC.,
By_________________________
Name:
Title:
SUNTRUST BANK, ATLANTA,
By_________________________
Name:
Title:
By_________________________
Name:
Title:
BANK OF TOKYO-MITSUBISHI,
By_________________________
Name:
Title:
<PAGE>
DRESDNER BANK AG,
By_________________________
Name:
Title:
FARM CREDIT SERVICES OF THE
MIDLANDS, PCA,
By_________________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
By_________________________
Name:
Title:
SANWA BANK LIMITED,
By_________________________
Name:
Title:
SUMITOMO BANK, LIMITED,
NEW YORK BRANCH,
By_________________________
Name:
Title:
[SCHEDULES AND EXHIBITS OMITTED]
EXHIBIT 4.5(a)
Execution Counterpart
============================================================
364-DAY CREDIT AGREEMENT
dated as of
July 15, 1997
among
SMITHFIELD FOODS, INC.,
THE SUBSIDIARY GUARANTORS PARTY HERETO,
THE LENDERS PARTY HERETO
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
-------------------------
CHASE SECURITIES INC.,
as Arranger
and
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH,
as Co-Agent
============================================================
<PAGE>
Exhibit G -- Intercreditor Agreement
364-DAY CREDIT AGREEMENT dated as of July 15, 1997, among
SMITHFIELD FOODS, INC., a Delaware corporation (the "Borrower"), each of the
Subsidiaries of the Borrower identified under the caption "SUBSIDIARY
GUARANTORS" on the signature pages hereto or that, pursuant to Section 5.09
hereof, shall become a "Subsidiary Guarantor" hereunder (individually, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and,
together with the Borrower, the "Obligors"), each of the lenders that is a party
hereto identified under the caption "LENDERS" on Schedule 2.01 hereto or that,
pursuant to Section 10.04 hereof, shall become a "Lender" hereunder
(individually, a "Lender" and, collectively, the "Lenders") and THE CHASE
MANHATTAN BANK, in its capacity as administrative agent for the Lenders
hereunder (the "Administrative Agent").
The Borrower and its subsidiaries are engaged as an integrated
group in the business of pork production, hog farming, pork processing and
manufacturing spices and chemicals, and in related businesses, and in furnishing
the required supplies, services, equipment, credit and other facilities for such
integrated operation. The integrated operation requires financing on such a
basis that credit supplied to the Borrower be made available from time to time
to the Subsidiary Guarantors, as required for the continued successful operation
of the Obligors, separately, and the integrated operation as a whole. In that
connection, the Obligors have requested that the Lenders make loans (to be made
available by the Borrower directly or indirectly to the Subsidiary Guarantors
and other of its Subsidiaries in the circumstances specified herein) in an
aggregate principal or face amount not exceeding $50,000,000 to refinance
certain existing indebtedness of the Obligors and to finance the working capital
needs and for other general corporate purposes of the Borrower and its
subsidiaries in the ordinary course of business.
To induce the Lenders to extend such credit, the Obligors, the
Lenders and the Administrative Agent propose to enter into this Agreement
pursuant to which the Lenders will make loans to the Borrower and each
Subsidiary Guarantor will guarantee the credit so extended to the Borrower and
each of the Obligors will agree to execute and deliver a security agreement
providing for security interests and liens to be granted by the Obligors on
certain of their respective properties as collateral security for the
obligations of the Obligors to the Lenders and the Administrative Agent
hereunder and, in the case of each Obligor (other than the Borrower) as
collateral security for the payment of certain of the Intercompany Notes (as
defined below). Each of the Obligors expects to derive benefit, directly or
indirectly, from the credit so extended to the Borrower and each other
Subsidiary Guarantor, both in its separate capacity and as a member of the
integrated group, since the successful operation of each of the Obligors is
dependent on the continued successful performance of the functions of the
integrated group as a whole.
<PAGE>
Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this
Agreement, the following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Acquisition" means any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the
Borrower and/or any of its Subsidiaries (a) acquires any going business or all
or substantially all of the assets of any Person, whether through purchase of
assets, merger or otherwise, (b) directly or indirectly acquires control of at
least a majority (in number of votes) of the securities of a corporation that
have ordinary voting power for the election of directors or (c) directly or
indirectly acquires control of at least a majority of the partner, member or
other ownership interests of any Person that is not a corporation.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Aggregate Consideration" means, in connection with any
Acquisition, an amount equal to (a) the aggregate consideration, in whatever
form (including, without limitation, cash payments, the principal amount of
promissory notes and Indebtedness assumed, the aggregate amounts payable to
acquire, extend and exercise any option, the aggregate amount payable under
non-competition agreements and management agreements, and the fair market value
of other property delivered) paid, delivered or assumed by the Borrower and its
Subsidiaries for such Acquisition minus (b) the amount, if any, of any increase
in the Consolidated Borrowing Base resulting from such Acquisition on the date
of the Consummation thereof.
<PAGE>
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base
CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due
to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective
Rate shall be effective from and including the effective date of such change in
the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the Total Commitment represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Total Commitment most recently in effect, giving
effect to any assignments.
"Applicable Rate" means, with respect to any ABR Loan,
Eurodollar Loan or Federal Funds Loan, or with respect to the Commitment Fees
payable hereunder, for each Rate Period (as defined below), the respective rate
per annum indicated below for Loans of such Type or Commitment Fees, as
applicable, opposite the applicable Interest Coverage Ratio (as defined below)
indicated below for such Rate Period:
Interest Coverage Applicable Applicable Rate
Ratio Rate for for Eurodollar
ABR Loans Loans and Commitment
Federal Funds Fees
Loans
- ----------------- ---------- ---------------- ----------
Greater than or -0- 0.750% 0.100%
equal to 5.0 to 1
("Tier I")
Less than 5.0 to 1 -0- 0.875% 0.110%
and greater than or
equal to 4.5 to 1
("Tier II")
Less than 4.5 to 1 -0- 1.000% 0.125%
and greater than or
equal to 4.0 to 1
("Tier III")
Less than 4.0 to 1 0.125% 1.125% 0.140%
and greater than or
equal to 3.5 to 1
("Tier IV")
Less than 3.5 to 1 0.250% 1.250% 0.150%
("Tier V")
<PAGE>
For purposes hereof, (i) a "Rate Period" means (x) initially,
the period commencing on the date hereof to but not including the first Rate
Reset Date (as defined below) thereafter and (y) thereafter, the period
commencing on a Rate Reset Date to but not including the immediately following
Rate Reset Date; (ii) a "Rate Reset Date" means, with respect to any fiscal
quarter or fiscal year, the earlier of (x) the date on which the Borrower
delivers the certificate referred to in Section 5.01(c) (a "Compliance
Certificate") in respect of such fiscal quarter or fiscal year, as the case may
be, and (y) the date on which the Borrower is required to have delivered the
financial statements under Section 5.01(a) or (b) in respect of such fiscal
quarter or fiscal year, as the case may be (provided that the first Rate Reset
Date shall be determined by reference to the fiscal quarter of the Borrower
ending on October 30, 1997); and (iii) "Interest Coverage Ratio" means, for any
Rate Period, the ratio of Consolidated EBITDA for the period of four fiscal
quarters of the Borrower ending on or most recently prior to the first day of
such Rate Period to Consolidated Interest Expense for such period of four
consecutive fiscal quarters.
Anything in this Agreement to the contrary notwithstanding,
but subject to Section 2.12(d), the Applicable Rate shall be (i) the applicable
rate provided for in Tier V in the table set forth above in this definition (x)
during any period when an Event of Default shall have occurred and be
continuing, or (y) if the applicable Compliance Certificate shall not be
delivered within the time that the applicable financial statements are required
to be delivered by Section 5.01(a) or (b), as the case may be (but only, in the
case of this clause (y), with respect to the portion of such Rate Period prior
to the delivery of such Compliance Certificate) and (ii) subject to the
preceding clause (i), the applicable rate provided for in Tier III in the table
set forth above in this definition during the first Rate Period.
"Arranger" means Chase Securities Inc.
"Assessment Rate" means, for any day, the annual
assessment rate in effect on such day that is payable by a member of the Bank
Insurance Fund classified as "well-capitalized" and within supervisory subgroup
"B" (or a comparable successor risk classification) within the meaning of 12
C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance
Corporation for insurance by such Corporation of time deposits made in dollars
at the offices of such member in the United States; provided that if, as a
result of any change in any law, rule or regulation, it is no longer possible to
determine the Assessment Rate as aforesaid, then the Assessment Rate shall be
such annual rate as shall be determined by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
<PAGE>
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 10.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary
CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal
Reserve System of the United States of America.
"Borrowing" means Loans of the same Type, made, converted or
continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect.
"Borrowing Base" means, at any time for any First Tier
Subsidiary, an amount equal to (a) 75% of the result obtained from the following
calculation: (i) the aggregate amount of Eligible Inventory (valued at the lower
of (x) cost, on a first- in-first-out basis or (y) fair market value) of such
First Tier Subsidiary and its subsidiaries that are Subsidiary Guarantors,
determined on a consolidated basis, plus (ii) the aggregate amount of Eligible
Receivables of such First Tier Subsidiary and its subsidiaries that are
Subsidiary Guarantors at such time, in each case as reflected in the Borrowing
Base Certificate then most recently received by the Administrative Agent
hereunder minus (iii) reserves maintained by such First Tier Subsidiary and its
subsidiaries that are Subsidiary Guarantors in respect of Eligible Receivables
relating to discounts, advertising, allowances and similar items minus (b) the
aggregate amount of outstanding checks for the purchase of Farm Products (as
defined in the Security Agreement) drawn by such First Tier Subsidiary and its
Subsidiaries that have not cleared.
<PAGE>
"Borrowing Base Certificate" means a certificate substantially
in the form of Exhibit B hereto signed by a Financial Officer.
"Borrowing Request" means a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Expenditures" means, with respect to any Person, for
any period, all expenditures made and liabilities incurred during such period
for the acquisition of assets (including any replacement in the ordinary course
of business without reduction for sales, retirements or replacements) which are
not, in accordance with GAAP, 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 Capital Lease Obligations and (ii) an amount
(not less than zero) equal to any net increase from the beginning of such period
through the end of such period in the aggregate outstanding principal amount of
advances to hog production operations (other than Subsidiaries) in which the
Borrower or any of its Subsidiaries has invested as a joint venturer or partner.
The amount of Capital Expenditures in any period shall be calculated without
duplication in accordance with GAAP. Notwithstanding the foregoing, with respect
to the acquisition of replacement sows by the Borrower or any of its
Subsidiaries in the ordinary course of business, the amount included in Capital
Expenditures shall be the acquisition cost of such sows, reduced by the proceeds
received by the Borrower or any of its Subsidiaries from the sale of the
replaced sows.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
<PAGE>
"Cash Flow" means, for any period, the sum, for the Borrower
and its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following: (a) Consolidated Net Income plus (b)
depreciation and amortization (to the extent deducted in determining
Consolidated Net Income) for such period.
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date hereof),
of shares representing more than 25% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower; (b)
occupation of a majority of the seats (other than vacant seats) on the board of
directors of the Borrower by Persons who were neither (i) nominated by the board
of directors of the Borrower nor (ii) appointed by directors so nominated; or
(c) the acquisition of direct or indirect Control of the Borrower by any Person
or group.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender (or,
for purposes of Section 2.14(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral Agent" means Chase, as collateral agent
under the Security Agreement.
"Commitment" means, with respect to each Lender, the
commitment of such Lender to make Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Credit Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.08 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 10.04. The initial amount
of each Lender's Commitment is set forth on Schedule 2.01, or in
the Assignment and Acceptance pursuant to which such Lender shall have assumed
its Commitment, as applicable. The initial aggregate amount of the Total
Commitment is $50,000,000.
<PAGE>
"Commitment Fee" means the fees payable at the Applicable Rate
pursuant to Section 2.11(a).
"Consolidated Borrowing Base" means, at any time, the
aggregate amount of the Borrowing Bases at such time of the First Tier
Subsidiaries that are Subsidiary Guarantors.
"Consolidated Current Ratio" means, on any date, the ratio of
(i) the consolidated current assets of the Borrower and its Subsidiaries on such
date to (ii) the sum on such date (without duplication) of the consolidated
current liabilities of the Borrower and its Subsidiaries plus the aggregate
outstanding principal amount of the Loans and Pari Passu Debt plus the aggregate
principal amount of Indebtedness of the Borrower and its Subsidiaries that would
be characterized as current liabilities but for the existence of the Commitments
hereunder or any commitments of lenders to make Pari Passu Debt available to the
Borrower or any of its Subsidiaries.
"Consolidated EBITDA" means, for any period, an amount equal
to (a) the sum for such period of Consolidated Net Income and, to the extent
subtracted in determining such Consolidate 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 (i) not
realized in the ordinary course of business or (ii) the result of any sale of
assets.
"Consolidated Fixed Charges" means, on any date, the sum
(without duplication) of (i) the aggregate amount of all Capital Expenditures
and the Aggregate Consideration for all Acquisitions by the Borrower and its
Subsidiaries during the preceding four quarters plus (ii) scheduled principal
payments on Indebtedness of the Borrower and 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, but excluding
principal payments at maturity of Pari Passu Debt) plus (iii) the gross interest
accrued on such Indebtedness during the preceding four quarters plus (iv) the
aggregate amount of any dividends paid or other distributions made during the
preceding four quarters.
"Consolidated Intangible Assets" means, on any date, the
aggregate amount of Intangible Assets of the Borrower and its Subsidiaries,
determined on a consolidated basis at such time.
<PAGE>
"Consolidated Interest Expense" means, for any period, the
consolidated interest expense of the Borrower and its Subsidiaries (whether cash
or non-cash interest expense or deferred or accrued interest expense and the
interest portion of all Capital Lease Obligations during such period).
"Consolidated Net Income" means, for any period, the net
income (or deficit) of the Borrower 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 or is
merged into or consolidated with the Borrower or such Person's assets are
acquired by the Borrower, (ii) the income (or deficit) of any Person (other than
a consolidated Subsidiary) in which the Borrower has an ownership interest,
except to the extent that any such income has been actually received by the
Borrower in the form of dividends or similar distributions, (iii) the
undistributed earnings of any Subsidiary 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 Borrower or its Subsidiaries.
"Consolidated Shareholders' Equity" means, on any date, the
aggregate amount of shareholders' equity of the Borrower and its Subsidiaries on
such date, determined on a consolidated basis.
"Consolidated Tangible Net Worth" means, on any date, the
excess of Consolidated Shareholders' Equity over Consolidated Intangible Assets
on such date.
"Consolidated Total Liabilities" means, on any date, the
aggregate amount at which all liabilities of the Borrower and its Subsidiaries
(including, without limitation, (a) all Guarantees of Indebtedness by such
Persons and (b) all amounts attributable to Mandatorily Redeemable Stock of the
Borrower and its Subsidiaries to the extent that such Mandatorily Redeemable
Stock is redeemable within one year of such date) would be shown on a
consolidated balance sheet of such Persons at such time.
"Consolidated Working Capital" means, on any date, the excess
of (i) the consolidated current assets of the Borrower and its Subsidiaries on
such date over (ii) the sum on such date (without duplication) of the
consolidated current liabilities of the Borrower and its Subsidiaries plus the
aggregate outstanding principal amount of the Loans and Pari Passu Debt plus the
aggregate principal amount of any commercial paper or other short-term
Indebtedness of the Borrower and its Subsidiaries that would be characterized as
current liabilities but for the existence of the Commitments hereunder or any
commitments of lenders to make Pari Passu Debt available to the Borrower or any
of its Subsidiaries.
<PAGE>
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Credit Exposure" means, with respect to any Lender, at any
time, the aggregate outstanding principal amount of such Lender's Loans at such
time.
"Debt Issuance" means any issuance or incurrence by the
Borrower or any of its Subsidiaries of any Indebtedness.
"Debt Service" means, for any period, the sum, for the
Borrower and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all regularly
scheduled payments or prepayments of principal of Indebtedness made during such
period plus (b) all Interest Expense for such period.
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings
and the environmental matters disclosed in Schedule 3.06.
"Disposition" means any sale, assignment, transfer or other
disposition of any property (whether now owned or hereafter acquired) by the
Borrower or any of its Subsidiaries to any other Person excluding any sale,
assignment, transfer or other disposition of any property sold or disposed of in
the ordinary course of business or the revenue from which would otherwise be
included in the calculation of Cash Flow.
"dollars" or "$" refers to lawful money of the United
States of America.
"Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
10.02).
<PAGE>
"Eligible Inventory" means, as at any date with respect
to any Person, all Inventory (i) that is owned by (and in the possession or
under the control of) such Person as at such date, (ii) that is located in a
jurisdiction in the United States of America, (iii) as to which (before the
Security Termination Date) appropriate Uniform Commercial Code financing
statements have been filed naming such Person as "debtor" and the Collateral
Agent as "secured party", and over which (before the Security Termination Date)
the Collateral Agent has a perfected security interest subject to no prior or
equal Lien (other than the pari passu security interest securing the Pari Passu
Debt), subject to Section 10.13, (iv) that meets all standards imposed by any
governmental agency or department or division thereof having regulatory
authority over such inventory, its use or sale, (v) for which such Person has
made full and final payment and (vi) that is currently usable in the
manufacturing process or saleable in the normal course of such Person's business
without any notice to, or consent of, any governmental agency or department or
division thereof (excluding however, except to the extent that the Required
Lenders otherwise agree with respect to any specific customer or third-party
processor, any such Inventory that has been shipped to a customer of such
Person, including third-party processors, even if on a consignment or "sale or
return" basis, and excluding repair and replacement parts for machinery and
equipment). Notwithstanding anything in clause (vi) of the foregoing sentence to
the contrary (but subject to clauses (i) through (v) of the foregoing sentence),
Eligible Inventory shall include but not be limited to all barrows, gilts,
boars, sows, feeder pigs, suckling pigs, nursery pigs and commercial sows and
boars, multiplier hogs, nucleus hogs and other hogs (collectively, "Hogs") at
the time of determination owned and being raised at facilities owned by such
Person or at facilities subject to an exclusive contract with such Person (i.e.,
the operator of such facility has no similar contract with any other Person) for
the feeding and raising of Hogs.
"Eligible Receivables" means, as at any date with respect to
any Person, the aggregate amount of all accounts (as defined in the Uniform
Commercial Code) of such Person arising from the sale by such Person of
Inventory in the ordinary course of its business and (before the Security
Termination Date) over which the Collateral Agent has a perfected security
interest subject to no prior or equal Lien (other than the pari passu security
interest securing the Pari Passu Debt), subject to Section 10.13, other than the
following (determined without duplication):
(a) any account not payable in Dollars,
(b) any account that is not paid within 60 days (subject to
the last sentence of this definition of "Eligible Receivables") after
the date of the invoice for the related inventory,
<PAGE>
(c) any account owing from a subsidiary or Affiliate
of such Person,
(d) any account (other than an LC-Backed Receivable) owing
from an account debtor whose principal place of business is located
outside of the United States of America, provided that the aggregate
amount of accounts that are not excluded from the definition of
"Eligible Receivables" pursuant to this clause (d) by virtue of their
constituting LC-Backed Receivables (other than LC-Backed Receivables
the related letter of credit for which has been delivered to the
Collateral Agent in pledge under the Security Agreement) may not exceed
10% of the Consolidated Borrowing Base,
(e) any account owing from an account debtor that is
insolvent or the subject of a bankruptcy case,
(f) any account that is more than 28 days (subject to the last
sentence of this definition of "Eligible Receivables") past due,
(g) all accounts of any account debtor if more than 20% of the
aggregate amount of the accounts owing from such account debtor are
more than 28 days (subject to the last sentence of this definition of
"Eligible Receivables") past due,
(h) all accounts owing from any account debtor if the accounts
owing from such account debtor and its Affiliates at the time exceed
10% of all accounts then payable to the Obligors,
(i) any account as to which there is any unresolved dispute
with the respective account debtor (but only to the extent of the
amount thereof in dispute),
(j) any account evidenced by an instrument (as defined
in the Uniform Commercial Code) not in the possession of the
Collateral Agent and containing all necessary endorsements,
(k) any account representing an obligation for goods sold on
consignment, approval or a sale-or-return basis or subject to any other
repurchase, return or offset arrangement,
(l) any amount as to which there is an offsetting liability
from the Borrower, any Subsidiary or any Affiliate of the Borrower (but
only to the extent of the amount of such offsetting liability), and
<PAGE>
(m) all amounts reserved by any Subsidiary or Affiliate of the
Borrower related to advertising and promotional programs for the
respective account debtor (excluding general promotional reserves that
are not reserved on a specific account basis).
In recognition of the fact that, on the date of this Agreement, the accounting
systems of certain Subsidiaries are unable to track the number of days specified
in clauses (b), (f) and (g) above, such numbers of days for each such Subsidiary
shall be deemed for purposes hereof to be the number of days that the accounting
system of such Subsidiary can track that is closest to such specified number of
days, provided that (i) if such specified number of days is exactly equidistant
from two numbers of days that can be so tracked, such specified number of days
shall be deemed to be the lower of such two numbers, (ii) if the closest such
number of days that can be so tracked is more than seven days higher than such
specified number of days, such specified number of days shall be deemed to be
the closest number of days that can be so tracked that is lower than such number
of specified days and (iii) this sentence shall cease to have any effect after
the date falling six months after the date hereof.
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"Equity Issuance" means any issuance or sale by the Borrower
after the Effective Date of any of its capital stock.
<PAGE>
"Equity Rights" means, with respect to any Person, any
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
<PAGE>
"Event of Default" has the meaning assigned to such
term in Article VII.
"Excluded Taxes" means, with respect to the Administrative
Agent, any Lender or any other recipient of any payment to be made by or on
account of any obligation of the Obligors hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which an Obligor is located and (c) in the case of
a Foreign Lender (other than an assignee pursuant to a request by the Obligors
under Section 2.18(b)), any withholding tax that is imposed on amounts payable
to such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office) or is attributable to such
Foreign Lender's failure to comply with Section 2.16(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.16(a).
"Existing Credit Agreement" means the Fourth Amended, Restated
and Continued Revolving Credit Agreement, dated as of April 30, 1996, among the
Subsidiary Guarantors, Rabobank Nederland, as agent, and the banks referred to
therein, as amended.
"Federal Funds", when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing,
are bearing interest at a rate determined by reference to the Federal Funds
Rate.
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
<PAGE>
"Federal Funds Rate" means the "offered rate", as determined
by the Administrative Agent, for overnight federal funds.
"Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or controller of the Borrower.
"First Tier Subsidiary" means (i) a Subsidiary all of the
issued and outstanding capital stock of which is owned directly by the Borrower
or (ii) Brown's of Carolina, Inc.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP" means generally accepted accounting principles
in the United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
<PAGE>
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any swap agreement, cap agreement,
collar agreement, put or call, futures contract, forward contract or similar
agreement or arrangement entered into in respect of interest rates, foreign
exchange rates or prices of commodities.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding accounts
payable incurred in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h)
all Capital Lease Obligations of such Person, (i) all obligations, contingent or
otherwise, of such Person as an account party in respect of letters of credit
and letters of guaranty and (j) all obligations, contingent or otherwise, of
such Person in respect of bankers' acceptances. The Indebtedness of any Person
shall include the Indebtedness of any other entity (including any partnership in
which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor. The Indebtedness
of a Person shall not include obligations of such Person to pay rent under
operating leases to the extent that such obligations do not constitute Capital
Lease Obligations.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
<PAGE>
"Intangible Assets" means, with respect to any Person on any
date, the following:
(a) patents, copyrights, trademarks, trade names, service
marks, brand names, franchises, goodwill, experimental expenses and
other similar intangibles;
(b) deferred assets (other than prepaid taxes, prepaid
insurance, prepaid contract payments, prepaid license fees and other
prepaid expenses which are refundable);
(c) unamortized debt discount and expense; and
(d) all other property or assets (whether real, personal or
mixed, and whether tangible or intangible) which would be considered to
be intangible under GAAP.
"Intercompany Note" has the meaning assigned to such
term in Section 5.08(a).
"Intercreditor Agreement" means an intercreditor agreement
substantially in the form of Exhibit G hereto, as the same shall be modified and
supplemented and in effect from time to time.
"Interest Election Request" means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.07.
"Interest Expense" means, for any period, the sum, for the
Borrower (determined without duplication in accordance with GAAP), of the
following: (a) all interest in respect of Indebtedness accrued or capitalized
during such period (whether or not actually paid during such period) plus (b)
the net amounts payable (or minus the net amounts receivable) under Hedging
Agreements related to interest and accrued during such period (whether or not
actually paid or received during such period).
"Interest Payment Date" means (a) with respect to any ABR
Loan, the last day of each March, June, September and December, (b) with respect
to any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period and (c) with
respect to any Federal Funds Loan, the last day of each month.
<PAGE>
"Interest Period" means with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the Borrower may elect; provided, that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"Inventory" means, collectively, "Inventory" and "Farm
Products" as defined in the Security Agreement.
"Investment" means, for any Person: (a) the acquisition
(whether for cash, property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such short sale); (b) the making of any deposit with, or advance, loan or
other extension of credit to, any other Person (including the purchase of
property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such Person, but excluding
any such advance, loan or extension of credit having a term not exceeding 90
days representing the purchase price of programming, advertising, inventory or
supplies sold in the ordinary course of business); (c) the entering into of any
Guarantee of, or other contingent obligation with respect to, Indebtedness or
other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person or (d) any Hedging
Agreement having the commercial effect of a synthetic or derivative Investment.
"LC-Backed Receivable" means an account (as defined in the
Uniform Commercial Code) to the extent that the payment thereof is backed by a
letter of credit issued for account of the related account debtor, or confirmed,
by a domestic office of a commercial bank organized under the laws of the United
States of America or any state thereof the short term deposits of which are
rated A-1 or better by S&P or P-1 by Moody's.
<PAGE>
"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Telerate Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities. The interest of a lessor in any property leased pursuant to an
operating lease shall not constitute a Lien over such property securing
obligations of the related lessee to pay rent under such lease to the extent
that such obligations do not constitute Capital Lease Obligations.
"Loan Documents" means this Agreement, any promissory notes
evidencing Loans hereunder, any Intercompany Notes, and the Security Documents.
"Loans" means the loans made by the Lenders to the
Borrower pursuant to this Agreement.
"Mandatorily Redeemable Stock" means, with respect to any
Person, each share of such Person's capital stock to the extent that it is (a)
redeemable, payable or required to be purchased or otherwise retired or
extinguished, or convertible into Indebtedness of such Person (i) at a fixed or
determinable date, whether by operation of a sinking fund or otherwise, (ii) at
the option of any Person other than such Person or (iii) upon the occurrence of
a condition not solely within the control of such Person, such as redemption
required to be made out of future earnings or (b) convertible into other
Mandatorily Redeemable Stock of such Person.
<PAGE>
"Margin Stock" means margin stock within the meaning of
Regulations G, U and X.
"Material Adverse Effect" means a material adverse effect on
(a) the Transactions, (b) the business, assets, operations, property, prospects
or condition, financial or otherwise, of the Obligors taken as a whole, (c) the
ability of any Obligor to perform any of its obligations under this Agreement or
the other Loan Documents or (d) the rights of or benefits available to the
Lenders under this Agreement or the other Loan Documents.
"Material Indebtedness" means Indebtedness (other than the
Loans), or obligations in respect of one or more Hedging Agreements, of any one
or more of the Borrower and its Subsidiaries in an aggregate principal amount
exceeding $5,000,000. For purposes of determining Material Indebtedness, the
"principal amount" of the obligations of the Borrower or any Subsidiary in
respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that the Borrower or such
Subsidiary would be required to pay if such Hedging Agreement were terminated at
such time.
"Maturity Date" means July 14, 1998.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Funds Flow" means, on any date, the amount (not less than
zero) resulting from the following calculation (without duplication): (i) Cash
Flow for the period commencing on June 30, 1997 and ending on the last day of
the fiscal quarter of the Borrower ending on or most recently ended prior to
such date plus (ii) the proceeds of any Debt Issuance (other than Indebtedness
incurred hereunder or Pari Passu Debt) or Equity Issuance received during the
period (the "Calculation Period") commencing on the date hereof and ending on
such date plus (iii) the aggregate amount of proceeds of Dispositions received
by the Borrower and its Subsidiaries during the Calculation Period (in the case
of each of (i), (ii) and (iii) above, to the extent the proceeds thereof have
been applied to reduce Indebtedness incurred hereunder or Pari Passu Debt) minus
(iv) Restricted Payments made in cash during the Calculation Period to any
Person other than the Borrower or any wholly-owned Subsidiary minus (v) Capital
Expenditures and the Aggregate Consideration for all Acquisitions to the extent
paid in cash during the Calculation Period (except to the extent made directly
from the proceeds of Indebtedness incurred hereunder or Pari Passu Debt) minus
(vi) the aggregate principal amount of all payments or prepayments of
Indebtedness (other than Indebtedness incurred hereunder or Pari Passu Debt) of
the Borrower and its Subsidiaries made during the Calculation Period.
<PAGE>
"Obligors" means the Borrower and the Subsidiary Guarantors.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
"Pari Passu Debt" means any Indebtedness (a) in respect of
which the Borrower is primarily liable as the borrower and the Subsidiary
Guarantors (but no other Subsidiary) are liable as guarantors, (b) that is
secured, and only secured, by the Lien created by the Security Agreement and (c)
that all of the Lenders consent to as being treated as Pari Passu Debt. All of
the requirements set forth in the preceding clauses (a), (b) and (c) must be
satisfied in order for any Indebtedness to be Pari Passu Debt.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet
due or are being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than 30 days or are being contested in compliance with
Section 5.04;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
<PAGE>
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business;
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Borrower or any
Subsidiary;
(f) Liens securing judgments to the extent, for an
amount and for a period not resulting in an Event of Default
under Article VII(k); and
(g) Liens created under the Federal Packers and
Stockyards Act, as amended;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America),
in each case maturing within one year from the date of acquisition
thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or from
Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of
any commercial bank organized under the laws of the United States of
America or any State thereof which has a combined capital and surplus
and undivided profits of not less than $500,000,000; and
<PAGE>
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria
described in clause (c) above.
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 9.04.
"Regulations G, U and X" means, respectively, Regulations G, U
and X of the Board, as the same may be amended from time to time.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Credit
Exposures and unused Commitments representing more than 50% of the sum of the
total Credit Exposures and unused Commitments at such time.
"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of the Borrower or any Subsidiary, or any payment
(whether in cash, securities or other property), including any sinking fund or
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such shares of capital stock of
the Borrower or any Subsidiary or any option, warrant or other right to acquire
any such shares of capital stock of the Borrower or any Subsidiary.
<PAGE>
"Solvent" has the meaning assigned to such term in Section
4.01(1).
"S&P" means Standard & Poor's Ratings Services.
"Security Agreement" means a Collateral Agency, Pledge and
Security Agreement substantially in the form of Exhibit C hereto between the
Borrower, the Subsidiary Guarantors, the Administrative Agent, the agent for the
holders from time to time of the Pari Passu Debt, and the Collateral Agent, as
the same shall be modified and supplemented and in effect from time to time.
"Security Documents" means the Security Agreement and all
Uniform Commercial Code financing statements required by the Security Agreement
to be filed with respect to the security interests in personal property created
pursuant to the Security Agreement.
"Security Termination Date" means the date, if any, that the
Security Agreement is terminated in accordance with Section 10.02(c)(ii).
"Senior Note Documents" means (i) the Note Purchase Agreement
dated as of July 15, 1996 among the Borrower and the Purchasers referred to
therein and (ii) the Joint and Several Guaranty, the Notes and the Security
Documents referred to in said Note Purchase Agreement, in each of the cases
referred to in the foregoing clauses (i) and (ii), as the same shall, subject to
Section 6.09, be modified and supplemented and in effect from time to time.
"Special Counsel" means Milbank, Tweed, Hadley & McCloy, in
its capacity as special counsel to Chase, as Administrative Agent of the credit
facility contemplated hereby.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
(i) three months, in the case of the Base CD Rate, and (b) with respect to the
Adjusted LIBO Rate, for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such
Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
<PAGE>
"subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day) or, if such rate is not so reported on such
day or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next preceding Business
Day) by the Administrative Agent from three negotiable certificate of deposit
dealers of recognized standing selected by it.
"Total Commitment" means, at any time, the aggregate amount of
the Lenders' Commitments as in effect at such time.
<PAGE>
"Transactions" means (i) with respect to the Borrower, the
execution, delivery and performance by the Borrower of Loan Documents to which
it is a party, the borrowing of Loans hereunder and the use of the proceeds
thereof and (ii) with respect to any Obligor (other than the Borrower), the
execution, delivery and performance by such Obligor of the Loan Documents to
which it is a party.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate, the
Alternate Base Rate or the Federal Funds Rate.
"Unguaranteed Exposure" means, on any date, an amount equal to
the aggregate principal amount of all Loans made to the Borrower that are
outstanding on such date to the extent that the proceeds thereof (without
double-counting) have been advanced, directly or indirectly, by First Tier
Subsidiaries to Subsidiaries that are not Subsidiary Guarantors.
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans and Borrowings may be classified and referred
to by Type (e.g., a "Eurodollar Loan" or a "Federal Funds Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
<PAGE>
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to make Loans to the Borrower from time to
time during the Availability Period in an aggregate principal amount (i) that
will not result in such Lender's Credit Exposure exceeding such Lender's
Commitment and (ii) that will not result in the sum of the aggregate amount of
the Credit Exposures of all of the Lenders plus the aggregate principal amount
of all Pari Passu Debt then outstanding exceeding the Consolidated Borrowing
Base. Within the foregoing limits and subject to the terms and conditions set
forth herein, the Borrower may borrow, prepay and reborrow Loans.
SECTION 2.02. Loans and Borrowings.
(a) Each Loan shall be made as part of a Borrowing consisting
of Loans made by the Lenders ratably in accordance with their respective
Commitments. The failure of any Lender to make any Loan required to be made by
it shall not relieve any other Lender of its obligations hereunder; provided
that the Commitments of the Lenders are several and no Lender shall be
responsible for any other Lender's failure to make Loans as required.
<PAGE>
(b) Subject to Section 2.13, each Borrowing shall be comprised
entirely of ABR Loans, Federal Funds Loans or Eurodollar Loans as the Borrower
may request in accordance herewith. Each Lender at its option may make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the
terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000. At the time that
each ABR Borrowing and each Federal Funds Borrowing is made, such Borrowing
shall be in an aggregate amount that is an integral multiple of $1,000,000 and
not less than $5,000,000; provided that an ABR Borrowing or a Federal Funds
Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the Total Commitment. Borrowings of more than one Type may be
outstanding at the same time; provided that there shall not at any time be more
than a total of 3 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Loan. To request a Loan, the
Borrower shall notify the Administrative Agent of such request by telephone (a)
in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing, (b) in the
case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one
Business Day before the date of the proposed Borrowing or (c) in the case of a
Federal Funds Borrowing, not later than 12:00 noon, New York City time, on the
date of the proposed Borrowing. Each such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the
Administrative Agent and signed by the Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
<PAGE>
(ii) the date of such Borrowing, which shall be a
Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing,
a Federal Funds Borrowing or a Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account
to which funds are to be disbursed, which shall comply with the
requirements of Section 2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be a Federal Funds Borrowing. Promptly following receipt of a
Borrowing Request in accordance with this Section, the Administrative Agent
shall advise each Lender of the details thereof and of the amount of such
Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. [INTENTIONALLY OMITTED]
SECTION 2.05. [INTENTIONALLY OMITTED]
SECTION 2.06. Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately available
funds by 1:00 p.m., New York City time, to the account of the Administrative
Agent most recently designated by it for such purpose by notice to the Lenders.
The Administrative Agent will make such Loans available to the Borrower by
promptly crediting the amounts so received, in like funds, to an account of the
Borrower maintained with the Administrative Agent in New York City and
designated by the Borrower in the applicable Borrowing Request.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) for the first three Business Days, (A) in the case of such Lender, the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation or (B) in the case of the Borrower, the Federal Funds Rate and (ii)
thereafter, the interest rate applicable to ABR Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
<PAGE>
SECTION 2.07. Interest Elections.
(a) Each Borrowing initially shall be of the Type specified in
the applicable Borrowing Request and, in the case of a Eurodollar Borrowing,
shall have an initial Interest Period as specified in such Borrowing Request.
Thereafter, the Borrower may elect to convert such Borrowing to a different Type
or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may
elect Interest Periods therefor, all as provided in this Section. The Borrower
may elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders holding the Loans comprising such Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if the Borrower
were requesting a Borrowing of the Type resulting from such election to be made
on the effective date of such election. Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election
Request applies and, if different options are being elected with
respect to different portions thereof, the portions thereof to be
allocated to each resulting Borrowing (in which case the information to
be specified pursuant to clauses (iii) and (iv) below shall be
specified for each resulting Borrowing);
<PAGE>
(ii) the effective date of the election made pursuant
to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing, a Federal Funds Borrowing or a Eurodollar
Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar
Borrowing, the Interest Period to be applicable thereto after giving
effect to such election, which shall be a period contemplated by the
definition of the term "Interest Period".
If any such Interest Election Request requests a Eurodollar
Borrowing but does not specify an Interest Period, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to a Federal Funds Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing (i) no outstanding
Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii)
unless repaid, each Eurodollar Borrowing shall be converted to a Federal Funds
Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.08. Termination and Reduction of Commitments.
(a) Unless previously terminated, the Commitments
shall terminate on the Maturity Date.
<PAGE>
(b) The Borrower may at any time terminate, or from time to
time reduce, the Commitments; provided that (i) each reduction of the
Commitments shall be in an amount that is an integral multiple of $5,000,000 and
not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce
the Commitments if, after giving effect to any concurrent prepayment of the
Loans in accordance with Section 2.10, the sum of the Credit Exposures would
exceed the Total Commitment.
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
SECTION 2.09. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Loan on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Type thereof and
the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
<PAGE>
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced
by a promissory note. In such event, the Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Administrative Agent. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.10. Prepayment of Loans.
(a) The Borrower shall have the right at any time and from
time to time to prepay any Borrowing in whole or in part, subject to prior
notice in accordance with paragraph (b) of this Section and provided that the
aggregate principal amount of any prepayment that does not result in the
prepayment of a Borrowing in full shall be in an integral multiple of
$1,000,000.
(b) Until the Maturity Date, the Borrower shall from time to
time prepay the Loans in such amounts as shall be necessary so that at all times
the sum of the aggregate outstanding amount of Credit Exposure plus the
aggregate principal amount of Pari Passu Debt then outstanding shall not exceed
the Consolidated Borrowing Base.
(c) The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment or (ii) in the case of
prepayment of an ABR Borrowing or a Federal Funds Borrowing, not later than
11:00 a.m., New York City time, one Business Day before the date of prepayment.
Each such notice shall be irrevocable and shall specify the prepayment date and
the principal amount of each Borrowing or portion thereof to be prepaid;
provided that, if a notice of prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.08, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.08. Promptly following
receipt of any such notice relating to a Borrowing, the Administrative Agent
shall advise the Lenders of the contents thereof. Each partial prepayment of any
Borrowing shall be in an amount that would be permitted in the case of an
advance of a Borrowing of the same Type as provided in Section 2.02. Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.12.
<PAGE>
SECTION 2.11. Fees.
(a) The Borrower agrees to pay to the Administrative Agent for
the account of each Lender a Commitment Fee, which shall accrue at the
Applicable Rate on the daily unused amount of the Commitment of such Lender
during the period from and including the date hereof to but excluding the date
on which such Commitment terminates. Accrued Commitment Fees shall be payable in
arrears on the last day of March, June, September and December of each year and
on the date on which the Commitments terminate, commencing on the first such
date to occur after the date hereof; provided that any Commitment Fees accruing
after the date on which the Commitments terminate shall be payable on demand.
All Commitment Fees shall be computed on the basis of a year of 360 days and
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day).
(b) The Borrower agrees to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.
(c) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent for distribution, in
the case of Commitment Fees, and participation fees, to the Lenders. Fees paid
shall not be refundable under any circumstances.
SECTION 2.12. Interest.
(a) The Loans comprising each ABR Borrowing shall bear
interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Federal Funds Borrowing shall
bear interest at the Federal Funds Rate plus the Applicable Rate.
<PAGE>
(c) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(d) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section.
(e) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and upon termination of the
Commitments; provided that (i) interest accrued pursuant to paragraph (d) of
this Section shall be payable on demand, (ii) in the event of any repayment or
prepayment of any Loan (other than a prepayment of an ABR Loan or a Federal
Funds Loan prior to the end of the Availability Period), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.
(f) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate,
Federal Funds Rate and Adjusted LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.
SECTION 2.13. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate for such
Interest Period; or
<PAGE>
(b) the Administrative Agent is advised by the Required
Lenders that the Adjusted LIBO Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders (or Lender) of
making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.14. Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, any Lender (except any
such reserve requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market
any other condition affecting this Agreement or Eurodollar Loans made
by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender such additional amount or
amounts as will compensate such Lender for such additional costs incurred or
reduction suffered.
(b) If any Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Lender's capital or on the capital of such Lender's holding company, if
any, as a consequence of this Agreement or the Loans made by such Lender, to a
level below that which such Lender, or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
<PAGE>
(c) A certificate of a Lender setting forth the amount or
amounts necessary to compensate such Lender or its holding company, as the case
may be, as specified in paragraph (a) or (b) of this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; provided that the Borrower shall not
be required to compensate a Lender pursuant to this Section 2.14 for any
increased costs or reductions incurred more than 270 days prior to the date that
such Lender notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's intention to claim
compensation therefor; provided further that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the 270-day period
referred to above shall be extended to include the period of retroactive effect
thereof.
SECTION 2.15. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice may be revoked under Section
2.10(b) and is revoked in accordance therewith) or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.18, then,
in any such event, the Borrower shall compensate each Lender for the loss, cost
and expense attributable to such event. In the case of a Eurodollar Loan, such
loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
<PAGE>
SECTION 2.16. Taxes.
(a) Any and all payments by or on account of any obligation of
the Borrower hereunder shall be made free and clear of and without deduction for
any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and
each Lender, within 10 days after written demand therefor, for the full amount
of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender, as the case may be, on or with respect to any payment by or on account
of any obligation of the Borrower hereunder (including Indemnified Taxes or
Other Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability delivered
to the Borrower by a Lender or by the Administrative Agent on its own behalf or
on behalf of a Lender, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
<PAGE>
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or reasonably requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate.
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing
of Set-offs.
(a) The Borrower shall make each payment required to be made
by it hereunder and under the other Loan Documents (whether of principal,
interest or fees, or of amounts payable under Section 2.14, 2.15 or 2.16, or
otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim. Any amounts
received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except that payments pursuant to Sections 2.14, 2.15, 2.16 and
10.03 shall be made directly to the Persons entitled thereto. The Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt thereof. If
any payment hereunder shall be due on a day that is not a Business Day, the date
for payment shall be extended to the next succeeding Business Day, and, in the
case of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied (i) first,
towards payment of interest and fees then due hereunder, ratably among the
parties entitled thereto in accordance with the amounts of interest and fees
then due to such parties, and (ii) second, towards payment of principal then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal then due to such parties.
<PAGE>
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by any Obligor pursuant to and in accordance with the express terms of this
Agreement or the other Loan Documents or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans to any assignee or participant, other than to the Borrower or any
Subsidiary or Affiliate thereof (as to which the provisions of this paragraph
shall apply). Each Obligor consents to the foregoing and agrees, to the extent
it may effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of such Obligor in the amount
of such participation.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders hereunder that the Borrower
will not make such payment, the Administrative Agent may assume that the
Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to the Lenders the amount due. In such
event, if the Borrower has not in fact made such payment, then each of the
Lenders severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender with interest thereon, for each
day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation.
<PAGE>
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.06(b) or 2.17(d), then the Administrative
Agent may, in its discretion (notwithstanding any contrary provision hereof),
apply any amounts thereafter received by the Administrative Agent for the
account of such Lender to satisfy such Lender's obligations under such Sections
until all such unsatisfied obligations are fully paid.
SECTION 2.18. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.14, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 2.14 or 2.16 as the case may be,
in the future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.14, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.04), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and (iii)
in the case of any such assignment resulting from a claim for compensation under
Section 2.14 or payments required to be made pursuant to Section 2.16, such
assignment will result in a reduction in such compensation or payments. A Lender
shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances
entitling the Borrower to require such assignment and delegation cease to apply.
<PAGE>
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and
its Subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions
are within each Obligor's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. Each of this Agreement
and the other Loan Documents has been duly executed and delivered by each
Obligor and constitutes a legal, valid and binding obligation of each Obligor,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except for
filings and recordings in respect of the Liens created pursuant to the Security
Documents, (b) will not violate any applicable law or regulation or the charter,
by-laws or other organizational documents of the Borrower or any of its
Subsidiaries or any order of any Governmental Authority, (c) will not violate or
result in a default under any indenture, agreement or other instrument binding
upon the Borrower or any of its Subsidiaries or its assets, or give rise to a
right thereunder to require any payment to be made by the Borrower or any of its
Subsidiaries, and (d) except for the Lien created by the Security Documents,
will not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.
<PAGE>
SECTION 3.04. Financial Condition; No Material Adverse
Change.
(a) The Borrower has heretofore furnished to the Lenders (i)
its consolidated balance sheet, statements of income, stockholders equity and
cash flows and pro forma information as of and for the fiscal year ended April
28, 1996, reported on by Arthur Andersen LLP, independent public accountants and
(ii) its consolidated balance sheet, statements of income, stockholders equity
and cash flows and pro forma information as of and for the three fiscal periods
ended January 26, 1997. Such financial statements present fairly, in all
material respects, the financial position and results of operations and cash
flows of the Borrower and its consolidated Subsidiaries as of such dates and for
such periods in accordance with GAAP, subject to year-end audit adjustments and
the absence of footnotes in the case of the statements referred to in clause
(ii) above.
(b) Since April 28, 1996, there has been no event, development
or circumstance that has had or could reasonably be expected to have a Material
Adverse Effect, except as reflected in the financial statements referred to in
Section 3.04(a) as of and for the three fiscal periods ended January 26, 1997.
(c) The Borrower does not have on the date of this Agreement
any contingent liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable commitments
in each case that are material, except as referred to or reflected in the
balance sheets as at April 28, 1996 and January 26, 1997 referred to above.
SECTION 3.05. Properties.
(a) Each of the Borrower and its Subsidiaries has good title
to, or valid leasehold interests in, all its real and personal property material
to its business, except for minor defects in title that do not materially
interfere with its ability to conduct its business as currently conducted or to
utilize such properties for their intended purposes.
(b) Each of the Borrower and its Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Borrower and its Subsidiaries does not infringe upon the rights of any other
Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
<PAGE>
SECTION 3.06. Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before
any arbitrator or Governmental Authority pending against or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries (i) as to which an adverse determination is reasonably likely and
that, if adversely determined, could reasonably be expected, individually or in
the aggregate, to result in a Material Adverse Effect or (ii) that involve this
Agreement, the other Loan Documents or the Transactions.
(b) Except with respect to any other matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i)
has failed to comply with any Environmental Law or to obtain, maintain or comply
with any permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, (iii) has received
notice of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change
in the status of the Disclosed Matters that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect. As of the date hereof, the Borrower does not believe that the Disclosed
Matters individually or in the aggregate are reasonably likely to have a
Material Adverse Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither
the Borrower nor any of its Subsidiaries is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
<PAGE>
SECTION 3.09. Taxes. Each of the Borrower and its
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes required
to have been paid by it, except (a) Taxes that are being contested in good faith
by appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed by more than $50,000,000 the fair market value of the assets of such
Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$50,000,000 the fair market value of the assets of all such underfunded Plans.
SECTION 3.11. Disclosure. The Borrower and its Subsidiaries
have disclosed to the Lenders all agreements, instruments and corporate or other
restrictions to which they are subject, and all other matters known to them,
that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect. None of the reports, financial statements,
certificates or other information furnished by or on behalf of the Obligors to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Obligors represent only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time.
<PAGE>
SECTION 3.12. Regulations G, U and X.
Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying Margin Stock and no part of the proceeds of any extension of credit
hereunder will be used to buy or carry any Margin Stock.
SECTION 3.13. Material Agreements and Liens.
(a) Part A of Schedule 3.13 hereto is a complete and correct
list, as of the date of this Agreement, of each credit agreement, loan
agreement, indenture, note purchase agreement, guarantee, letter of credit or
other arrangement providing for or otherwise relating to any Indebtedness or any
extension of credit (or commitment for any extension of credit) to, or guarantee
by, the Borrower or any of its Subsidiaries (other than the Existing Credit
Agreement and the Senior Note Documents) the aggregate principal or face amount
of which equals or exceeds (or may equal or exceed) $100,000 and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule 3.13.
(b) Part B of Schedule 3.13 hereto is a complete and correct
list, as of the date of this Agreement, of each Lien securing Indebtedness of
any Person covering any property of the Borrower or any of its Subsidiaries, and
the aggregate Indebtedness secured (or which may be secured) by each such Lien
and the property covered by each such Lien is correctly described in Part B of
said Schedule 3.13.
SECTION 3.14. Subsidiaries, Etc.
(a) Set forth in Part A of Schedule 3.14 hereto is a
complete and correct list, as of the date hereof, of all of the
Subsidiaries of the Borrower, together with, for each Subsidiary, (i)
the jurisdiction of organization of such Subsidiary, (ii) each Person
holding ownership interests in such Subsidiary and (iii) the nature of
the ownership interests held by each such Person and the percentage of
ownership of such Subsidiary represented by such ownership interests.
Except as disclosed in Part A of Schedule 3.14 hereto, (x) each of the
Borrower and its Subsidiaries owns, free and clear of Liens (other than
Liens created pursuant to the Security Documents), and has the
unencumbered right to vote, all outstanding ownership interests in each
Person shown to be held by it in Part A of Schedule 3.14 hereto, (y)
all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and
nonassessable and (z) there are no outstanding Equity Rights with
respect to such Person.
<PAGE>
(b) Set forth in Part B of Schedule 3.14 hereto is a complete
and correct list, as of the date of this Agreement, of all Investments
(other than Investments disclosed in Part A of said Schedule 3.14
hereto) held by the Borrower or any of its Subsidiaries in Person and,
for each such Investment, (x) the identity of the Person or Persons
holding such Investment and (y) the nature of such Investment. Except
as disclosed in Part B of Schedule 3.14 hereto, each of the Borrower
and its Subsidiaries owns, free and clear of all Liens (other than
Liens created pursuant to the Security Documents), all such
Investments.
SECTION 3.15. Solvency.
On and as of the Effective Date, immediately prior to and
after consummation of the Transactions and after giving effect to all Loans and
other obligations and liabilities being incurred on such date in connection
therewith, and on the date of each subsequent Loan or other extension of credit
hereunder and after giving effect to application of the proceeds thereof in
accordance with the terms of the Loan Documents, the Borrower and its
Subsidiaries, taken as a whole, are, and each Obligor is, and will be Solvent
(as defined in Section 4.01(l)).
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders
to make Loans hereunder shall not become effective until the date on which each
of the following conditions is satisfied (or waived in accordance with Section
10.02):
(a) The Administrative Agent (or Special Counsel) shall have
received from each party hereto either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and good
standing of each Obligor, the authorization of the Transactions and any
other legal matters relating to each Obligor, this Agreement, the other
Loan Documents or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.
<PAGE>
(c) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a
Vice President or a Financial Officer of the Borrower, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02.
(d) The Administrative Agent shall have received a Borrowing
Base Certificate not more than 3 days prior to the Effective Date.
(e) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of McGuire Woods Battle & Boothe LLP,
counsel for the Obligors, substantially in the form of Exhibit D, and
covering such other matters relating to the Obligors, this Agreement,
the other Loan Documents or the Transactions as the Required Lenders
shall reasonably request (and the Borrower hereby requests such counsel
to deliver such opinion).
(f) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of Special Counsel substantially in the
form of Exhibit E hereto (and the Administrative Agent hereby requests
such counsel to deliver such opinion).
(g) The Administrative Agent shall have received evidence
satisfactory to it of the execution by each First Tier Subsidiary
required to do so of an Intercompany Note.
(h) The Administrative Agent (or Special Counsel) shall have
received a counterpart of the Security Agreement duly executed and
delivered by all of the Persons stated to be parties thereto.
(i) The Administrative Agent (or Special Counsel) shall have
received a counterpart of copies of duly completed and executed Uniform
Commercial Code Financing Statements covering the personal property
subject to the Liens created by the Security Agreement, together with
evidence that such Financing Statements have been duly filed in all
jurisdictions in which such filing is necessary or appropriate.
<PAGE>
(j) The Administrative Agent (or Special Counsel) shall have
received a counterpart of the results of Uniform Commercial Code, tax
and judgment searches as may be requested by the Administrative Agent
and which searches reveal no liens on any asset of the Borrower except
for liens permitted under this Agreement.
(k) The Administrative Agent (or Special Counsel) shall have
received evidence that the principal of and any interest on, and all
other amounts owing in respect of, the Indebtedness outstanding under
the Existing Credit Agreement shall have been (or shall be
simultaneously) repaid in full, that all commitments to extend credit
under the Existing Credit Agreement shall have been canceled or
terminated and that Liens securing any such Indebtedness shall have
been released; and such Uniform Commercial Code termination statements
and other instruments, in each case in proper form for recording, as
the Administrative Agent shall have requested to release and terminate
of record any Liens securing such Indebtedness.
(l) The Administrative Agent (or Special Counsel) shall have
received a certificate of the Borrower, to the effect that, as of the
Effective Date (after giving effect to the Transactions), (a) the
aggregate value of all properties of the Borrower and its Subsidiaries
at their present fair saleable value (i.e., the amount which may be
realized within a reasonable time, considered to be six months to one
year, either through collection or sale at the regular market value,
regular market value to mean the amount which could be obtained for the
property in question within such period by a capable and diligent
business person from an interested buyer who is willing to purchase
under ordinary selling conditions), exceed the amount of all the debts
and liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of the Borrower and its Subsidiaries, (b) the
Borrower and its Subsidiaries will not, on a consolidated basis, have
an unreasonably small capital with which to conduct its business
operations as contemplated to be conducted and (c) the Borrower and its
Subsidiaries will have, on a consolidated basis, sufficient cash flow
to enable them to pay their debts as they mature (satisfaction of items
(a) through (c) of this paragraph (m) is herein referred to as being
"Solvent").
(m) The Administrative Agent shall have received evidence
satisfactory to it that the Joint and Several Guaranty included in the
Senior Note Documents shall have been amended in a manner satisfactory
to the Administrative Agent to provide that (i) the Lenders shall be
entitled to benefit from Section 2.9 of the Joint and Several Guaranty,
on a pro rata basis, to the same extent as the holders of the senior
secured notes under the Note Purchase Agreements included in the Senior
Note Documents and (ii) for purposes of Section 2.18 of the Joint and
Several Guaranty, the full amount of the Loans shall be deemed to have
been borrowed on the date of issuance of the senior secured notes and
to have remained continuously outstanding thereafter.
<PAGE>
(n) The Administrative Agent shall have received a
satisfactory independent audit prepared by Chase's Specialized Due
Diligence Group or another firm of national standing with respect to
such matters, as to the accounts receivable and inventory of the
Borrower and its Subsidiaries, both on an individual and a consolidated
basis.
(o) The Administrative Agent, the Lenders and the Arranger
shall have received all fees and other amounts due and payable on or
prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by the Obligors hereunder.
(p) The Administrative Agent (or Special Counsel) shall have
received a counterpart of the Intercreditor Agreement duly executed and
delivered by all of the Persons stated to be parties thereto.
(q) The Administrative Agent shall have received such other
documents as the Administrative Agent or any Lender or Special Counsel
may reasonably request.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 10.02) at or prior to 3:00 p.m., New York City time, on July
15, 1997 (and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each
Lender to make a Loan on the occasion of any Borrowing is subject to the
satisfaction of the following conditions:
<PAGE>
(a) The representations and warranties of the Obligors set
forth in this Agreement and the other Loan Documents shall be true and
correct on and as of the date of such Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Borrower will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the
Borrower, (i) its audited consolidated balance sheet and related
statements of operations, stockholders' equity and cash flows as of the
end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by
Arthur Andersen LLP or other independent public accountants of
recognized national standing (without a "going concern" or like
modification, qualification or exception and without any modification,
qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied and (ii) its consolidating
balance sheet and related statements of operations, stockholders'
equity and cash flows as of the end of and for such year, setting forth
in each case in comparative form the figures for the previous fiscal
year, certified by one of its Financial Officers as presenting fairly
in all material respects the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidating basis in accordance with GAAP consistently applied;
<PAGE>
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower, (i) its
consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year and (ii) its
consolidating balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects
the financial condition and results of operations of the Borrower and
its consolidated Subsidiaries on a consolidated basis or consolidating
basis, as the case may be, in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence
of footnotes;
(c) concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of a Financial Officer of
the Borrower (i) certifying as to whether a Default has occurred and,
if a Default has occurred, specifying the details thereof and any
action taken or proposed to be taken with respect thereto, (ii) setting
forth reasonably detailed calculations of the Interest Coverage Ratio
as at the last day of the fiscal quarter or fiscal year, as the case
may be, in respect of which such financial statements are delivered,
and demonstrating compliance with Section 6.12 and (iii) stating
whether any change in GAAP or in the application thereof has occurred
since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the
effect of such change on the financial statements accompanying such
certificate;
(d) concurrently with any delivery of financial statements
under clause (a) above, a certificate of the accounting firm that
reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the
extent required by accounting rules or guidelines);
<PAGE>
(e) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by the Borrower or any Subsidiary with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or
all of the functions of said Commission, or with any national
securities exchange, or distributed by the Borrower to its shareholders
generally, as the case may be;
(f) as soon as available and in any event within 5 Business
Days after the end of each monthly accounting period, a Borrowing Base
Certificate certifying, in the case of the Borrower, as to the
Consolidated Borrowing Base, and, in the case of each First Tier
Subsidiary, as to its Borrowing Base, as at the last day of such
accounting period;
(g) as soon as available, and in any event within 90 days,
after the end of each fiscal year of the Borrower a report (prepared at
the expense of the Borrower) of an independent collateral auditor
(which may be, or be affiliated with, one of the Lenders) approved by
the Administrative Agent with respect to the Receivables and Inventory
components included in the Consolidated Borrowing Base as at the end of
such fiscal year which report shall indicate that, based upon a review
by such auditors of the Receivables (including, without limitation,
verification with respect to the amount, aging, identity and credit of
the respective account debtors and the billing practices of the
Borrower and its Subsidiaries) and Inventory (including, without
limitation, verification as to the value, location and respective
types), the information set forth in the Borrowing Base Certificate
delivered by the Borrower as at the end of such fiscal year is accurate
and complete in all material respects; and
(h) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary, or compliance with the
terms of this Agreement, as the Administrative Agent or any Lender may
reasonably request.
SECTION 5.02. Notices of Material Events. The Borrower will
furnish to the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority
against or affecting the Borrower or any Affiliate thereof that, if
adversely determined, could reasonably be expected to result in a
Material Adverse Effect;
<PAGE>
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrower and its Subsidiaries in
an aggregate amount exceeding $250,000; and
(d) any other development that results in, or could reasonably
be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower
will, and will cause each of its Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
any merger, consolidation, liquidation or dissolution permitted under Section
6.03.
SECTION 5.04. Payment of Obligations. The Borrower will, and
will cause each of its Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, (b)
the Borrower or such Subsidiary has set aside on its books adequate reserves
with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The
Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain
all property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
<PAGE>
SECTION 5.06. Books and Records; Inspection Rights. The
Borrower will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Borrower will, and
will cause each of its Subsidiaries to, comply with all laws, rules, regulations
and orders of any Governmental Authority, including all Environmental Laws, and
with all other material obligations, applicable to it or its property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds.
(a) The proceeds of each Loan shall be lent by the Borrower to
First Tier Subsidiaries that are Subsidiary Guarantors, provided that the
aggregate principal amount of loans owing by each First Tier Subsidiary to the
Borrower shall not exceed the Borrowing Base of such First Tier Subsidiary. All
such loans made to each First Tier Subsidiary shall be evidenced by a single
demand promissory note executed and delivered by such First Tier Subsidiary to
the Borrower substantially in the form of Exhibit F hereto (each, an
"Intercompany Note"), and pledged by the Borrower to the Collateral Agent under
the Security Agreement for the benefit of the Secured Parties referred to in the
Security Agreement. Each First Tier Subsidiary shall use the proceeds of such
loans for its own working capital and other general corporate purposes and
(subject to Section 6.13) to make advances to the Borrower and Subsidiaries. In
the event that the Borrower receives any payment of principal of any
Intercompany Note, it shall immediately lend the proceeds of such payment to
another First Tier Subsidiary (to be evidenced by an Intercompany Note of such
other First Tier Subsidiary that has been pledged by the Borrower to the
Collateral Agent under the Security Agreement for the benefit of the Secured
Parties referred to in the Security Agreement), or pay or prepay the Loans
and/or the Pari Passu Debt, such that at no time will the aggregate outstanding
principal amount of the Loans and the Pari Passu Debt exceed the aggregate
outstanding principal amount of the Intercompany Notes.
<PAGE>
(b) Subject to the foregoing paragraph (a), the proceeds of
the Loans will be used only (i) to pay Indebtedness outstanding under the
Existing Credit Agreement and (ii) for working capital and other general
corporate purposes of the Borrower and its Subsidiaries. No part of the proceeds
of any Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the Regulations of the Board, including
Regulations G, U and X.
SECTION 5.09. Additional Subsidiary Guarantors. The
Borrower will take such action, and will cause each of its Subsidiaries to take
such action, from time to time as shall be necessary to ensure that each
Subsidiary the inventory or receivables of which are included in the calculation
of the Consolidated Borrowing Base is a Subsidiary Guarantor and, thereby, an
"Obligor" hereunder and under the Security Agreement pursuant to documentation
satisfactory to the Administrative Agent in form and substance. In addition,
the Borrower may cause any of its other Subsidiaries to become a Subsidiary
Guarantor and, thereby, an "Obligor" hereunder and under the Security Agreement
pursuant to documentation satisfactory to the Administrative Agent in form and
substance. Each such new Subsidiary Guarantor shall deliver such proof of
corporate action, incumbency of officers, opinions of counsel and other
documents as is consistent with those delivered by each other Obligor pursuant
to Section 4.01 or as any Lender or the Administrative Agent shall have
reasonably requested.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness. The Borrower will not,
and will not permit any Subsidiary to, create, incur or assume
any Indebtedness, except:
(a) Indebtedness created hereunder;
(b) Pari Passu Debt;
(c) any extensions, renewals or replacements of any
Indebtedness existing on the date hereof and set forth in Schedule
6.01, provided that the aggregate principal amount of such Indebtedness
is not thereby increased;
<PAGE>
(d) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary;
(e) other Indebtedness in an aggregate principal amount not
exceeding $20,000,000 created, incurred or assumed in any fiscal year
of the Borrower; and
(f) other Indebtedness provided that, on the date (the
"Incurrence Date") such Indebtedness is created, incurred or assumed
(as the case may be), the Borrower furnishes to the Administrative
Agent reasonable projections demonstrating in reasonable detail that
the Borrower will be in compliance with Section 6.12(e) on the last day
of each of the next succeeding four fiscal quarters of the Borrower
that end after the Incurrence Date after giving effect to such
creation, incurrence or assumption, together with a certificate of a
Financial Officer to the effect that such projections are based upon
reasonable assumptions and reflect the Borrower's best estimate as to
the matters covered thereby.
For purposes of the foregoing paragraphs (e) and (f), the Acquisition of any
Person shall be deemed to constitute the assumption of the Indebtedness of such
Person by a Subsidiary of the Borrower at the time of the consummation of such
Acquisition.
SECTION 6.02. Liens. The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect of
any thereof, except:
(a) Permitted Encumbrances;
(b) Liens created by the Senior Note Documents as in effect on
the date hereof; provided that there shall be no Lien securing any
obligations under the Senior Note Documents at any time after the
Security Termination Date;
(c) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02
(other than Liens created by the Senior Note Documents); provided that
(i) such Lien shall not apply to any other property or asset of the
Borrower or any Subsidiary and (ii) such Lien shall secure only those
obligations which it secures on the date hereof;
(d) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on
any property or asset of any Person that becomes a Subsidiary after the
date hereof prior to the time such Person becomes a Subsidiary;
provided that (i) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Subsidiary,
as the case may be, (ii) such Lien shall not apply to any other
property or assets of the Borrower or any Subsidiary and (iii) such
Lien shall secure only those obligations which it secures on the date
of such acquisition or the date such Person becomes a Subsidiary, as
the case may be;
<PAGE>
(e) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary; provided that (i) such
security interests secure Indebtedness incurred to finance such
acquisition, construction or improvement, (ii) such security interests
and the Indebtedness secured thereby are incurred prior to or within 90
days after such acquisition or the completion of such construction or
improvement, (iii) the Indebtedness secured thereby does not exceed 80%
of the cost of acquiring, constructing or improving such fixed or
capital assets and (iv) such security interests shall not apply to any
other property or assets of the Borrower or any Subsidiary;
(f) the Lien created by the Security Agreement; provided that
there shall be no Lien securing any Pari Passu Debt at any time after
the Security Termination Date;
(g) any extensions, renewals or replacements of any of the
Liens permitted by the foregoing clauses (a) through (f) effected in
connection with any extension, renewal or replacement of the
Indebtedness secured thereby; provided that (i) the aggregate principal
amount of such Indebtedness is not thereby increased, (ii) such Lien
shall not be extended to cover any additional property and (iii) there
shall be no Lien securing any extension, renewal or replacement of the
Pari Passu Debt or any obligations under the Senior Note Documents at
any time after the Security Termination Date; and
(h) other Liens that (whether before or after the Security
Termination Date) do not cover any Collateral (as defined in the
Security Agreement).
Notwithstanding anything contained herein to the contrary, the aggregate amount
of obligations of the Borrower and its Subsidiaries secured by Liens permitted
by any of clauses (c), (d), (e), (g) (to the extent extending, renewing or
replacing any of the Liens permitted by any of clauses (c), (d) and (e)) and (h)
shall not exceed 15% of Consolidated Tangible Net Worth at any time on or after
the Security Termination Date.
<PAGE>
SECTION 6.03. Fundamental Changes.
(a) The Borrower will not, and will not permit any Subsidiary
to, merge into or consolidate with any other Person, or permit any other Person
to merge into or consolidate with it, or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions) all or
substantially all of its assets, or all or substantially all of the stock of any
of its Subsidiaries (in each case, whether now owned or hereafter acquired), or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing (i) any
Subsidiary may merge into the Borrower in a transaction in which the Borrower is
the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in
a transaction in which the surviving entity is a Subsidiary, provided that if
any such transaction shall be between a Subsidiary Guarantor and a Subsidiary
not a Subsidiary Guarantor, and such Subsidiary Guarantor is not the continuing
or surviving corporation, then the continuing or surviving corporation shall
have assumed all of the obligations of such Subsidiary Guarantor hereunder and
under the other Loan Documents pursuant to documentation satisfactory to the
Administrative Agent in form and substance, (iii) any Subsidiary may sell,
transfer, lease or otherwise dispose of its assets to the Borrower or to another
Subsidiary, provided that if any such transaction shall be between a Subsidiary
Guarantor and a Subsidiary not a Subsidiary Guarantor, and if such Subsidiary
Guarantor is not the continuing or surviving corporation, then the continuing or
surviving corporation shall have assumed all of the obligations of such
Subsidiary Guarantor hereunder and under the other Loan Documents pursuant to
documentation satisfactory to the Administrative Agent in form and substance,
(iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good
faith that such liquidation or dissolution is in the best interests of the
Borrower and is not materially disadvantageous to the Lenders; provided that any
such merger that would otherwise be permitted by this Section 6.03 involving a
Person that is not a wholly owned Subsidiary immediately prior to such merger
shall not be permitted unless also permitted by Section 6.04 and (v) the
Borrower may merge into a newly formed, "shell" corporation organized under the
laws of the Commonwealth of Virginia in a transaction intended merely to
"reincorporate" the Borrower as a Virginia corporation, provided that (i) the
continuing or surviving corporation shall have assumed all of the obligations of
the Borrower hereunder and under the other Loan Documents pursuant to
documentation satisfactory to the Administrative Agent in form and substance,
(ii) no Default shall have occurred and be continuing or would result therefrom
and (iii) the Lenders shall have received a legal opinion from counsel to the
Borrower acceptable to the Administrative Agent and in form, scope and substance
acceptable to the Administrative Agent as to such merger and such assumption.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and its Subsidiaries on the
date of execution of this Agreement and businesses reasonably related thereto.
SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries
to, purchase, hold or acquire (including pursuant to any merger with any Person
that was not a wholly owned Subsidiary prior to such merger) any capital stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments by the Borrower existing on the date
hereof in the capital stock of its Subsidiaries;
(c) loans or advances made by the Borrower to any
Subsidiary and made by any Subsidiary to the Borrower or any
other Subsidiary;
(d) Guarantees constituting Indebtedness permitted by
Section 6.01;
(e) Investments constituting Acquisitions permitted by
Section 6.12(f);
(f) Investments in an aggregate amount not exceeding
$10,000,000 at any one time outstanding in a cold storage warehouse and
distribution center in Sioux Falls, South Dakota constituting a joint
venture between Freezer Services Inc., the Borrower and John Morrell &
Co.; and
(g) other Investments not exceeding $5,000,000 in the
aggregate amount outstanding at any time.
<PAGE>
SECTION 6.05. Hedging Agreements. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any Hedging Agreement,
other than Hedging Agreements entered into in the ordinary course of business to
hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in
the conduct of its business or the management of its liabilities.
SECTION 6.06. Restricted Payments. The Borrower will not, and
will not permit any of its Subsidiaries to, declare or make, or agree to pay or
make, directly or indirectly, any Restricted Payment, except that (a) the
Borrower may declare and pay dividends with respect to its capital stock payable
solely in additional shares of its common stock, (b) Subsidiaries may declare
and pay dividends ratably with respect to their capital stock and (c) the
Borrower may make Restricted Payments pursuant to and in accordance with stock
option plans or other benefit plans for management or employees of the Borrower
and its Subsidiaries.
SECTION 6.07. Transactions with Affiliates. The Borrower will
not, and will not permit any of its Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) in the ordinary course of business at prices and
on terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's-length basis from unrelated third parties,
(b) transactions between or among the Borrower and its Subsidiaries not
involving any other Affiliate and (c) any Restricted Payment permitted by
Section 6.06.
SECTION 6.08. Restrictive Agreements. The Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of the
Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any
of its property or assets, or (b) the ability of any Subsidiary to pay dividends
or other distributions with respect to any shares of its capital stock or to
make or repay loans or advances to the Borrower or any other Subsidiary or to
Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that
(i) the foregoing shall not apply to restrictions and conditions imposed by law
or by this Agreement or any of the other Loan Documents, (ii) the foregoing
shall not apply to restrictions and conditions existing on the date hereof
identified on Schedule 6.08 (but shall apply to any extension or renewal of, or
any amendment or modification expanding the scope of, any such restriction or
condition), (iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary pending
such sale, provided such restrictions and conditions apply only to the
Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause
(a) of the foregoing shall not apply to restrictions or conditions imposed by
any agreement relating to secured Indebtedness permitted by this Agreement or
any of the other Loan Documents if such restrictions or conditions apply only to
the property or assets securing such Indebtedness, (v) clause (a) of the
foregoing shall not apply to customary provisions in leases restricting the
assignment thereof and (vi) clause (a) of the foregoing shall not apply to
restrictions or conditions imposed by any agreement under which the Indebtedness
governed by the Senior Note Documents is refinanced, provided that such
restrictions or conditions are not materially more restrictive than those
contained in the Senior Note Documents on the date hereof (and, if such
agreement does not provide that the Indebtedness created thereunder will be
secured by Liens on property or assets of the Borrower or any Subsidiary, such
agreement may contain restrictions or conditions limiting Liens on property or
assets of the Borrower or any Subsidiary which are not the subject of Liens
granted under the Security Agreement and such restrictions or conditions shall
not be deemed more onerous than those contained in the Senior Note Documents on
the date hereof).
<PAGE>
SECTION 6.09. Senior Note Documents. Promptly following the
execution thereof, the Borrower will supply each Lender with a copy of any
modification, supplement or waiver to a Senior Note Document.
SECTION 6.10. Limitation on Sale and Leaseback Transactions.
The Borrower will not, and will not permit any of its Subsidiaries to, enter
into, renew or extend any transaction or series of related transactions pursuant
to which the Borrower or such Subsidiary sells or transfers any property in
connection with the leasing, or the release against installment payments, or as
part of an arrangement involving the leasing or resale against installment
payments, of such property to the seller or transferor.
SECTION 6.11. Fiscal Periods. If the Borrower changes the
manner of determining the last day of its fiscal year or the last days of the
first three fiscal quarters in each of its fiscal years, the parties hereto
shall negotiate in good faith to agree to modify any financial calculations and
determinations hereunder to reflect their original intent in light of such
changes, and if they fail so to agree all such financial calculations
determinations hereunder shall continue to be made as if such change had not
occurred.
<PAGE>
SECTION 6.12. Financial Covenants.
(a) The Borrower will not permit the Consolidated Current
Ratio to be less than 1.05 to 1 at any time.
(b) The Borrower will not permit Consolidated Working Capital
to be less than $35,000,000 at any time.
(c) The Borrower will not permit the ratio of Consolidated
Total Liabilities to Consolidated Tangible Net Worth on any date to be
more than the ratio set forth below opposite the period during which
such date falls:
Period Ratio
------ -----
From the Effective Date through
May 2, 1998 3.00 to 1
From May 3, 1998 and thereafter 2.75 to 1
(d) The Borrower will not permit Consolidated Tangible Net
Worth on any date (the "Determination Date") to be less than the sum of
(i) $225,000,000 plus (ii) 50% of the aggregate amount of Consolidated
Net Income for each quarter that ends after the Effective Date and on
or before the Determination Date in respect of which Consolidated Net
Income is greater than zero plus (iii) 50% of the aggregate amount of
increases in Consolidated Tangible Net Worth after the Effective Date
and on or before the Determination Date resulting from the issuance by
it of capital stock as consideration in Acquisitions made by it and its
Subsidiaries.
(e) The Borrower will not permit the ratio of Consolidated
EBITDA to Consolidated Fixed Charges for any period of four consecutive
fiscal quarters of the Borrower to be less than the ratio set forth
below opposite the period during which the last day of such period of
four consecutive fiscal quarters falls:
Period Ratio
------ -------
From the Effective Date through
January 31, 1998 0.85 to 1
From February 1, 1998 through
July 31, 1999 1.00 to 1
From August 1, 1999
and thereafter 1.10 to 1
(f) The Borrower will not permit the sum (without duplication)
of (i) Capital Expenditures made by the Borrower and its Subsidiaries
in any fiscal year of the Borrower plus (ii) the Aggregate
Consideration for all Acquisitions made by the Borrower and its
Subsidiaries in such fiscal year to exceed the higher of (x) the sum of
Consolidated Net Income plus depreciation for the Borrower and its
Subsidiaries for such fiscal year or (y) $100,000,000.
<PAGE>
SECTION 6.13. Unguaranteed Exposure. Notwithstanding
anything contained herein to the contrary, the Borrower will not permit the
Unguaranteed Exposure to exceed $30,000,000.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement or any other Loan
Document, when and as the same shall become due and payable, and such
failure shall continue unremedied for a period of three or more
Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of any Obligor in or in connection with this Agreement or any
other Loan Document or any amendment or modification hereof or thereof
or waiver hereunder or thereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in
connection with this Agreement or any other Loan Document or any
amendment or modification hereof or thereof or waiver hereunder or
thereunder, shall prove to have been incorrect in any material respect
when made or deemed made;
(d) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 (with
respect to the existence of the Borrower or any Subsidiary) or 5.08 or
in Article VI;
<PAGE>
(e) any Obligor shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement or any other Loan
Document (other than those specified in clause (a), (b) or (d) of this
Article), and such failure shall continue unremedied for a period of 30
days after notice thereof from the Administrative Agent to the Borrower
(which notice will be given at the request of any Lender);
(f) the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become
due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any
Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower or any Subsidiary or for a substantial part
of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(i) the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in
clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or
for a substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the
foregoing;
<PAGE>
(j) the Borrower or any Subsidiary shall become
unable, admit in writing or fail generally to pay its debts
as they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $5,000,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets
of the Borrower or any Subsidiary to enforce any such judgment;
(l) the Borrower or any Subsidiary receives any notice,
notification, demand, request for information, citation, summons or
order or there has been filed any compliant or any penalty has been
assessed or an investigation or review is pending or threatened by any
governmental or other entity, in each case with respect to any alleged
failure by the Borrower or any of its Subsidiaries to have any
environmental, health or safety permit, license or other authorization
required under any Environmental Law in connection with the conduct of
the business of the Borrower or any of its Subsidiaries or with respect
to any generation, treatment, storage, recycling, transportation,
discharge or disposal, or any release of any Hazardous Materials
generated by the Borrower or any of its Subsidiaries, in each case
which could reasonably be expected to result in a Material Adverse
Effect.
(m) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability
of the Borrower and its Subsidiaries in an aggregate amount exceeding
(i) $2,000,000 in any year or (ii) $10,000,000 for all periods;
(n) any of the following shall occur: (i) subject to Section
10.13, the Lien created by any Security Document shall at any time
cease to constitute a valid and perfected Lien on the collateral
intended to be covered thereby before the Security Termination Date;
(ii) subject to Section 10.13, except for expiration in accordance with
its terms, any Security Document shall for whatever reason be
terminated, or shall cease to be in full force and effect
before the Security Termination Date; or (iii) subject to Section
10.13, the actual or asserted invalidity of any Security Document or of
any guarantee under Article VIII hereof or the validity of any Security
Document or of any guarantee under Article VIII hereof or the validity
of any subordination provision contained in Article VIII hereof shall
be contested by any party before (in the case of any Security Document)
the Security Termination Date; or
<PAGE>
(o) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Obligors accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Obligors.
ARTICLE VIII
Guarantee
SECTION 8.01 The Guarantee. The Subsidiary Guarantors hereby
jointly and severally guarantee to each Lender and the Administrative Agent and
their respective successors and assigns the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the principal of
and interest on the Loans made by the Lenders to the Borrower and all other
amounts from time to time owing to the Lenders or the Administrative Agent by
the Borrower under this Agreement and by any Obligor under any of the other Loan
Documents, and all obligations of the Borrower to any Lender in respect of any
Hedging Agreement, in each case strictly in accordance with the terms thereof
(such obligations being herein collectively called the "Guaranteed
Obligations"). The Subsidiary Guarantors hereby further jointly and severally
agree that if the Borrower shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Subsidiary Guarantors will promptly pay the same, without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full
when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
<PAGE>
SECTION 8.02 Obligations Unconditional. The obligations of the
Subsidiary Guarantors under Section 8.01 hereof are absolute and unconditional,
joint and several, irrespective of the value, genuineness, validity, regularity
or enforceability of the obligations of the Borrower under this Agreement or any
other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 8.02 that the obligations of the
Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and
several, under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Subsidiary Guarantors hereunder
which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance
with any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or any other agreement or instrument referred to herein or
therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this
Agreement or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
<PAGE>
(iv) any lien or security interest granted to, or in favor of,
the Administrative Agent or any Lender or Lenders as security for any
of the Guaranteed Obligations shall fail to be perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that the
Administrative Agent or any Lender exhaust any right, power or remedy or proceed
against the Borrower under this Agreement or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
SECTION 8.03 Reinstatement. The obligations of the Subsidiary
Guarantors under this Article VIII shall be automatically reinstated if and to
the extent that for any reason any payment by or on behalf of the Borrower in
respect of the Guaranteed Obligations is rescinded or must be otherwise restored
by any holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise and the Subsidiary
Guarantors jointly and severally agree that they will indemnify the
Administrative Agent and each Lender on demand for all reasonable costs and
expenses (including, without limitation, fees of counsel) incurred by the
Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
SECTION 8.04 Subrogation. The Subsidiary Guarantors hereby
jointly and severally agree that until the payment and satisfaction in full of
all Guaranteed Obligations and the expiration and termination of the Commitments
under this Agreement they shall not exercise any right or remedy arising by
reason of any performance by them of their guarantee in Section 8.01 hereof,
whether by subrogation or otherwise, against the Borrower or any other guarantor
of any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations.
<PAGE>
SECTION 8.05 Remedies. The Subsidiary Guarantors jointly and
severally agree that, as between the Subsidiary Guarantors and the Lenders, the
obligations of the Borrower under this Agreement may be declared to be forthwith
due and payable as provided in Article VII hereof (and shall be deemed to have
become automatically due and payable in the circumstances provided in said
Article VII) for purposes of Section 8.01 notwithstanding any stay, injunction
or other prohibition preventing such declaration (or such obligations from
becoming automatically due and payable) as against the Borrower and that, in the
event of such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and payable
by the Borrower) shall forthwith become due and payable by the Subsidiary
Guarantors for purposes of said Section 8.01.
SECTION 8.06 Instrument for the Payment of Money. Each
Subsidiary Guarantor hereby acknowledges that the guarantee in this Article VIII
constitutes an instrument for the payment of money, and consents and agrees that
any Lender or the Administrative Agent, at its sole option, in the event of a
dispute by such Subsidiary Guarantor in the payment of any moneys due hereunder,
shall have the right to bring motion-action under New York CPLR Section 3213.
SECTION 8.07 Continuing Guarantee. The guarantee in this
Article VIII is a continuing guarantee, and shall apply to all Guaranteed
Obligations whenever arising.
SECTION 8.08 Rights of Contribution. The Subsidiary Guarantors
hereby agree, as between themselves, that if any Subsidiary Guarantor shall
become an Excess Funding Guarantor (as defined below) by reason of the payment
by such Subsidiary Guarantor of any Guaranteed Obligations, each other
Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but
subject to the next sentence), pay to such Excess Funding Guarantor an amount
equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and
determined, for this purpose, without reference to the Properties, debts and
liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined
below) in respect of such Guaranteed Obligations. The payment obligation of a
Subsidiary Guarantor to any Excess Funding Guarantor under this Section 8.08
shall be subordinate and subject in right of payment to the prior payment in
full of the obligations of such Subsidiary Guarantor under the other provisions
of this Article VIII and such Excess Funding Guarantor shall not exercise any
right or remedy with respect to such excess until payment and satisfaction in
full of all of such obligations.
<PAGE>
For purposes of this Section 8.08, (i) "Excess Funding
Guarantor" means, in respect of any Guaranteed Obligations, a Subsidiary
Guarantor that has paid an amount in excess of its Pro Rata Share of such
Guaranteed Obligations, (ii) "Excess Payment" means, in respect of any
Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess
of its Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata Share"
means, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of
(x) the amount by which the aggregate present fair saleable value of all
properties of such Subsidiary Guarantor (excluding any shares of stock of any
other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities
of such Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which
the aggregate fair saleable value of all properties of all of the Subsidiary
Guarantors exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding
the obligations of the Borrower and the Subsidiary Guarantors hereunder and
under the other Loan Documents) of all of the Subsidiary Guarantors, determined
(A) with respect to any Subsidiary Guarantor that is a party hereto on the
Effective Date, as of the Effective Date, and (B) with respect to any other
Subsidiary Guarantor, as of the date such Subsidiary Guarantor becomes a
Subsidiary Guarantor hereunder.
SECTION 8.09 General Limitation on Guarantee Obligations. In
any action or proceeding involving any state corporate law, or any state or
Federal bankruptcy, insolvency, reorganization or other law affecting the rights
of creditors generally, if the obligations of any Subsidiary Guarantor under
Section 8.01 would otherwise, taking into account the provisions of Section
8.08, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under said Section 8.01, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by such Subsidiary Guarantor, any Lender, the Administrative Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.
<PAGE>
ARTICLE IX
The Administrative Agent
Each of the Lenders hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing (a) the Administrative Agent shall not be subject to
any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing by the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 10.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Borrower or any of its Subsidiaries that is communicated to or obtained by the
bank serving as Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken
by it with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 10.02) or in the absence of its own gross
negligence or wilful misconduct. The Administrative Agent shall be deemed not to
have knowledge of any Default unless and until written notice thereof is given
to the Administrative Agent by the Borrower or a Lender, and the Administrative
Agent shall not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made in or in connection with this
Agreement, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.
<PAGE>
The Administrative Agent shall take such action (subject to
Section 10.02(b) hereof and subject to the right of the Administrative Agent to
receive further assurances to its satisfaction from the Lenders of their
indemnification obligations under Section 10.03(c) hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take such action) with respect to the notice of a Default referred
to in the preceding paragraph as shall be directed by the Required Lenders,
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
notice of Default as it shall deem advisable in the best interest of the Lenders
except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of the
Required Lenders or all of the Lenders.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such subagent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
<PAGE>
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 10.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
The Arranger identified on the cover page of this Agreement
shall have no duties or responsibilities hereunder. The Co-Agent identified on
the cover page of this Agreement shall have no duties or responsibilities
hereunder other than as a Lender hereunder.
<PAGE>
ARTICLE X
Miscellaneous
SECTION 10.01. Notices. Except in the case of notices and
other communications expressly permitted to be given by telephone, all notices
and other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at Smithfield Foods, Inc. at
900 Dominion Tower, 999 Waterside Drive, Norfolk, VA, 23510, Attention:
Mr. Aaron D. Trub (Telecopy No. 757- 365-3017) and Michael H. Cole
(Telecopy No. 757-365-3023);
(b) if to any Subsidiary Guarantor, at the address for
notices to the Borrower as provided herein;
(c) if to the Administrative Agent, or the Collateral Agent,
to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase
Manhattan Plaza, New York, New York 10017, Attention of Sandra Miklave
(Telecopy No. 212-552-5658), with a copy to The Chase Manhattan Bank,
270 Park Avenue, New York, New York 10017, Attention of Sue Herzog
(Telecopy No. 212-344-0246); and
(d) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 10.02. Waivers; Amendments.
(a) No failure or delay by the Administrative Agent or any
Lender in exercising any right or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent and the
Lenders hereunder are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by any Obligor therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent or any Lender may have
had notice or knowledge of such Default at the time.
<PAGE>
(b) Neither this Agreement nor any provision hereof, nor the
Intercreditor Agreement nor any provision thereof, may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Obligors and the Required Lenders or by the Obligors and the
Administrative Agent with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing
of payments required thereby, without the written consent of each Lender, (v)
change any of the provisions of this Section or the definition of "Required
Lenders" or any other provision hereof specifying the number or percentage of
Lenders required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender, (vi) change the reference to 75% in the definition of "Borrowing
Base" to a higher percentage without the written consent of each Lender; or
(vii) release all or substantially all of the Subsidiary Guarantors from their
obligations in respect of their Guarantee hereunder without the written consent
of each Lender; provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
(c) Neither any Security Document nor any provision thereof
may be waived, amended or modified, nor may any collateral thereunder be
released, except pursuant to an agreement or agreements in writing entered into
by the Obligors party thereto, and by the Administrative Agent with the consent
of the Lenders. Notwithstanding the foregoing, the Administrative Agent shall,
at the request of the Borrower, (i) agree to release from the Lien of the
Security Agreement any property that is the subject of a permitted sale
hereunder to a Person other than the Borrower or a Subsidiary and (ii) agree to
terminate the Security Agreement if (w) at the time of such release, the
aggregate amount of obligations of the Borrower and its Subsidiaries secured by
Liens permitted by any of clauses (c), (d), (e), (g) (to the extent extending,
renewing or replacing any of the Liens permitted by any of clauses (c), (d) and
(e)) and (h) does not exceed 15% of Consolidated Tangible Net Worth, (x) the
long term senior, unsecured debt of the Borrower is rated at least Baa3 by
Moody's and is rated at least BBB- by S&P, (y) no Default has occurred and is
continuing and (z) all collateral security provided with respect to the Senior
Note Documents and the Pari Passu Debt shall have been released.
<PAGE>
SECTION 10.03. Expenses; Indemnity: Damage Waiver.
(a) The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement and the other Loan
Documents or any amendments, modifications or waivers of the provisions hereof
or thereof (whether or not the transactions contemplated hereby or thereby shall
be consummated) and (ii) all reasonable out-of-pocket expenses incurred by the
Administrative Agent or any Lender, including the fees, charges and
disbursements of any counsel for the Administrative Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement and the other Loan Documents, including its rights under this
Section, or in connection with the Loans made hereunder, including all such
out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.
(b) The Borrower shall indemnify the Administrative Agent and
each Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an "Indemnitee") against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of this Agreement or the
other Loan Documents or any agreement or instrument contemplated hereby or
thereby, the performance by the parties hereto of their respective obligations
hereunder or thereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or the use of the proceeds
therefrom, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrower or any of
its Subsidiaries, or any Environmental Liability related in any way to the
Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses resulted from the gross negligence or wilful
misconduct of such Indemnitee.
<PAGE>
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to the Administrative Agent
such Lender's Applicable Percentage (determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount; provided that the unreimbursed expense or indemnified loss, claim,
damage, liability or related expense, as the case may be, was incurred by or
asserted against the Administrative Agent in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions, any Loan or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable
promptly after written demand therefor.
SECTION 10.04. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that an Obligor may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by such Obligor
without such consent shall be null and void). Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby
and, to the extent expressly contemplated hereby, the Related Parties of each of
the Administrative Agent and the Lenders) any legal or equitable right, remedy
or claim under or by reason of this Agreement.
<PAGE>
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld or
delayed), (ii) except in the case of an assignment to a Lender or an Affiliate
of a Lender or an assignment of the entire remaining amount of the assigning
Lender's Commitment, the amount of the Commitment of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $10,000,000 unless each of the Borrower and the
Administrative Agent otherwise consent, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500, and (v)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire; provided further that any consent of the
Borrower otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.14, 2.15, 2.16 and 10.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive, and the Borrower, the Administrative Agent and the Lenders
may treat each Person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrower and any Lender, at any reasonable time and from time
to time upon reasonable prior notice.
<PAGE>
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 10.02(b) that affects such
Participant. Subject to paragraph (f) of this Section, the Borrower agrees that
each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and
2.16 to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 10.08 as
though it were a Lender, provided such Participant agrees to be subject to
Section 2.17(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.14 or 2.16 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.16 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.16(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
SECTION 10.05. Survival. All covenants, agreements,
representations and warranties made by the Obligors herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement and the other Loan Documents shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent or any Lender may have had notice or knowledge of
any Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid and so long as the
Commitments have not expired or terminated. The provisions of Sections 2.14,
2.15, 2.16 and 10.03 and Article IX shall survive and remain in full force and
effect regardless of the consummation of the transactions contemplated hereby,
the repayment of the Loans, the expiration or termination of the Commitments or
the termination of this Agreement or any provision hereof.
SECTION 10.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 10.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 10.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates 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 obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of any Obligor against any of and all the obligations of such Obligor now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 10.09. Governing Law; Jurisdiction; Consent to
Service of Process.
(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
(b) EACH OBLIGOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE
SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE
UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY
APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT,
AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT. Each of the parties hereto 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.
Nothing in this Agreement shall affect any right that the Administrative Agent
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement or any other Loan Document against any Obligor or its properties
in the courts of any jurisdiction.
(c) Each Obligor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any other
Loan Document in any court referred to in paragraph (b) of this Section. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 10.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
<PAGE>
SECTION 10.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 10.12. Confidentiality. Each of the Administrative
Agent and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement or the other Loan Documents, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or the other Loan Documents or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement or the other Loan
Documents, (g) with the consent of the Borrower or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section or (ii) becomes available to the Administrative Agent or any Lender
on a nonconfidential basis from a source other than the Borrower. For the
purposes of this Section, "Information" means all information received from any
Obligor relating to such Obligor or its business, other than any such
information that is available to the Administrative Agent or any Lender on a
nonconfidential basis prior to disclosure by the Borrower; provided that, in the
case of information received from any Obligor after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
<PAGE>
SECTION 10.13. Perfection of Security Interests.
Notwithstanding anything contained herein or in any Security Document to the
contrary, neither the Borrower nor any of its Subsidiaries shall be responsible
for the failure of the Lien created by the Security Agreement to be perfected
(a) to the extent that such failure results from the failure by the Collateral
Agent to file continuation statements under the Uniform Commercial Code in
respect of such Lien, (b) to the extent that such failure relates to Liens over
letters of credit supporting LC-Backed Receivables, provided that the aggregate
amount of LC-Backed Receivables in respect of which such Liens over the related
letters of credit are not perfected does not exceed 10% of the Consolidated
Borrowing Base, (c) to the extent that such failure relates to Liens over
Inventory stored in warehouses, provided that the amount of the Consolidated
Borrowing Base attributable to such Inventory shall not exceed $250,000 for any
single warehouse and that the amount of the Consolidated Borrowing Base
attributable to such Inventory and to Eligible Receivables referred to in the
following clause (d) shall not exceed $20,000,000 in the aggregate or (d) to the
extent that such failure relates to Liens over Eligible Receivables and results
from such Eligible Receivables being due from Governmental Authorities, provided
that the amount of the Consolidated Borrowing Base attributable to such Eligible
Receivables and to Inventory referred to in the preceding clause (c) shall not
exceed $20,000,000 in the aggregate. If the amount of Collateral subject to any
such failure exceeds any relevant amount referred to in clause (a), (b) or (c)
of the preceding sentence, then, (i) on the date (the "Trigger Date") that the
Borrower determines that such excess exists, the Borrower shall immediately
notify the Administrative Agent and the Collateral Agent of such event, (ii) the
Borrower shall furnish to the Administrative Agent on the Trigger Date a
Borrowing Base Certificate calculated on the basis of the Borrowing Base
Certificate most recently furnished hereunder but recalculating the Borrowing
Base with pro forma adjustments reflecting the exclusion of such excess
Collateral from the Eligible Receivables or Eligible Inventory, as the case may
be, (iii) the Borrower shall forthwith on the Trigger Date comply with its
obligations under Section 2.10(b) after giving effect to the Borrowing Base as
so calculated and (iv) not later than 30 days following the Trigger Date, the
Borrower shall have taken such action as shall be necessary to eliminate such
excess. If the Borrower is in compliance with the preceding sentence, then (x)
except as expressly provided in the preceding sentence, no account or Inventory
shall be excluded from Eligible Receivables or Eligible Inventory, as the case
may be, (y) no Obligor shall be deemed to have breached any covenant or made any
untrue representation or warranty and (z) no Default or Event of Default shall
be deemed to have occurred or be continuing, in each of the cases referred to in
the foregoing clauses (x), (y) and (z) solely because any Lien created by the
Security Agreement shall fail to be perfected if such failure is described in
clause (a), (b) or (c) of the first sentence or this Section 10.13; except that,
notwithstanding the preceding provisions of this Section 10.13, the Borrower
shall from time to time upon the request of the Administrative Agent or the
Required Lenders deliver or cause to be delivered to the Collateral Agent in
pledge under the Security Agreement the letters of credit supporting LC-Backed
Receivables.
<PAGE>
SECTION 10.14. Acknowledgements.
Each Obligor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan
Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or fiduciary duty to any Obligor arising
out of or in connection with this Agreement or any of the other Loan
Documents, and the relationship between the Administrative Agent and
the Lenders, on the one hand, and the Obligors, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor;
and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among any party or parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
SMITHFIELD FOODS, INC.
By_________________________
Name: Aaron D. Trub
Title: Vice-President,
Secretary and Treasurer
THE SMITHFIELD PACKING COMPANY,
INCORPORATED
By_________________________
Name: Aaron D. Trub
Title: Secretary
GWALTNEY OF SMITHFIELD, LTD.
By_________________________
Name: Aaron D. Trub
Title: Secretary
PATRICK CUDAHY INCORPORATED
By_________________________
Name: Aaron D. Trub
Title: Secretary
JOHN MORRELL & CO.
By_________________________
Name: Aaron D. Trub
Title: Secretary
LYKES MEAT GROUP, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
BROWN'S OF CAROLINA, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
HANCOCK'S OLD FASHIONED COUNTRY
HAMS, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
VALLEYDALE FOODS, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
COPAZ PACKING CORPORATION
By_________________________
Name: Aaron D. Trub
Title: Secretary
SUNNYLAND, INC.
By_________________________
Name: Aaron D Trub
Title: Secretary
SMITHFIELD PACKING-LANDOVER, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
<PAGE>
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
By_________________________
Name: Michael D. Peist
Title: Vice President
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN -
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH,
By_________________________
Name:
Title:
By_________________________
Name:
Title:
AGRIBANK, FCB,
By_________________________
Name:
Title:
CAISSE NATIONALE DE CREDIT
AGRICOLE,
By_________________________
Name:
Title:
DG BANK, DEUTSCHE
GENOSSENSCHAFTSBANK,
CAYMAN ISLANDS BRANCH,
By_________________________
Name:
Title:
By_________________________
Name:
Title:
<PAGE>
NATIONSBANK OF TEXAS, N.A.,
By_________________________
Name:
Title:
NATIONSBANK, N.A.,
By_________________________
Name:
Title:
BOATMEN'S FIRST NATIONAL BANK
OF KANSAS CITY,
By_________________________
Name:
Title:
<PAGE>
FBS AG CREDIT, INC.,
By_________________________
Name:
Title:
SUNTRUST BANK, ATLANTA,
By_________________________
Name:
Title:
By_________________________
Name:
Title:
BANK OF TOKYO-MITSUBISHI,
By_________________________
Name:
Title:
<PAGE>
DRESDNER BANK AG,
By_________________________
Name:
Title:
FARM CREDIT SERVICES OF THE
MIDLANDS, PCA,
By_________________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
By_________________________
Name:
Title:
SANWA BANK LIMITED,
By_________________________
Name:
Title:
SUMITOMO BANK, LIMITED,
NEW YORK BRANCH,
By_________________________
Name:
Title:
[SCHEDULES AND EXHIBITS OMITTED]
EXHIBIT 4.5(b)
EXECUTION COUNTERPART
COLLATERAL AGENCY, PLEDGE AND SECURITY AGREEMENT
COLLATERAL AGENCY, PLEDGE AND SECURITY AGREEMENT dated as of
July 15, 1997 (the "Agreement") among SMITHFIELD FOODS, INC., a corporation duly
organized and validly existing under the laws of the State of Delaware (the
"Borrower"); each of the Subsidiaries of the Borrower identified under the
caption "SUBSIDIARY GUARANTORS" on the signature pages hereof (individually, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and,
together with the Borrower, the "Obligors"); and THE CHASE MANHATTAN BANK, as
collateral agent for the Secured Parties referred to below (in such capacity,
together with its successors in such capacity, the "Collateral Agent").
WHEREAS, the Borrower, the Subsidiary Guarantors, certain
lenders (the "Five-Year Lenders") and The Chase Manhattan Bank, as agent for the
Five-Year Lenders (in such capacity, together with its successors in such
capacity, the "Five-Year Agent") are parties to a Five-Year Credit Agreement
dated as of July 15, 1997 (as modified and supplemented and in effect from time
to time, the "Five-Year Credit Agreement"), providing, subject to the terms and
conditions thereof, for extensions of credit (by making loans and issuing
letters of credit) to be made by the Five-Year Lenders to the Borrower in an
aggregate principal or face amount not exceeding $300,000,000, the Borrower may
use the proceeds of such loans to make advances to Subsidiary Guarantors that
are First Tier Subsidiaries (as hereinafter defined) (and such First Tier
Subsidiaries may lend the proceeds of such advances to other Subsidiaries of the
Borrower and the Borrower may use such letters of credit to support obligations
of its Subsidiaries;
WHEREAS, the Borrower, the Subsidiary Guarantors, certain
lenders (the "364-Day Lenders" and, together with the Five-Year Lenders, the
"Lenders") and The Chase Manhattan Bank, as agent for the 364-Day Lenders (in
such capacity, together with its successors in such capacity, the "364-Day
Agent") are parties to a 364-Day Credit Agreement dated as of July 15, 1997 (as
modified and supplemented and in effect from time to time, the "364-Day Credit
Agreement" and, together with the Five-Year Credit Agreement, the "Credit
Agreements"), providing, subject to the terms and conditions thereof, for loans
to be made by the 364-Day Lenders to the Borrower in an aggregate principal
amount not exceeding $50,000,000, and the Borrower may use the proceeds of such
loans to make advances to Subsidiary Guarantors that are First Tier Subsidiaries
(and such First Tier Subsidiaries may
<PAGE>
lend the proceeds of such advances to other Subsidiaries of the Borrower;
WHEREAS, the First Tier Subsidiaries of the Borrower that are
Subsidiary Guarantors have executed and delivered to the Borrower Intercompany
Notes (as hereinafter defined) to evidence their respective obligations to repay
such advances to the Borrower;
WHEREAS, one or more of the Lenders may enter into one or more
Hedging Agreements (as hereinafter defined) with the Borrower;
WHEREAS, to induce the Five-Year Lenders to enter into the
Five-Year Credit Agreement and to extend credit thereunder, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Obligor has agreed to pledge and grant a security interest in
the Collateral (as hereinafter defined) owned by it, as security for the Secured
Obligations (as hereinafter defined) owing by it thereunder;
WHEREAS, to induce the 364-Day Lenders to enter into the
364-Day Credit Agreement and to extend credit thereunder, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Obligor has agreed to pledge and grant a security interest in
the Collateral owned by it, as security for the Secured Obligations owing by it
thereunder;
WHEREAS, to induce the Borrower to make advances to each First
Tier Subsidiary that is a party hereto, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
such First Tier Subsidiary and each subsidiary of such First Tier Subsidiary
that is itself a Subsidiary Guarantor has agreed to pledge and grant a security
interest in the Collateral owned by it, as security for such Intercompany Note
(each of which Intercompany Notes and the Collateral securing the same is being
pledged and assigned by the Borrower hereunder as security for the Secured
Obligations owing by the Borrower);
WHEREAS, to induce the Lenders to enter into Hedging
Agreements with the Borrower, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower has
agreed to pledge and grant a
<PAGE>
security interest in the Collateral owned by it, as security for the obligations
owing by it under all Hedging Agreements entered into by it with one or more of
the Lenders; and
WHEREAS, for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
have agreed to enter into this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Definitions. Terms that are defined identically in
the Credit Agreements and that are not otherwise defined herein are used herein
as defined therein; and if any such definitions cease to be identical or if the
Secured Obligations under either Credit Agreement are paid in full, such terms
shall have the meanings herein as in effect immediately prior to their ceasing
to be identical or such payment in full, as the case may be. In addition, as
used herein:
"Accounts" shall have the meaning ascribed thereto in Section
3(c) hereof.
"Collateral" shall have the meaning ascribed thereto in
Section 3 hereof.
"Collateral Account" shall have the meaning ascribed thereto
in Section 4.01 hereof.
"Default" shall mean a "Default" under, and as defined in,
either Credit Agreement.
"Documents" shall have the meaning ascribed thereto in Section
3(h) hereof.
"Event of Default" shall mean an "Event of Default" under, and
as defined in, either Credit Agreement.
"Farm Products" shall have the meaning ascribed thereto in
Section 3(f) hereof.
"First Tier Subsidiaries" shall mean, collectively, the "First
Tier Subsidiaries" referred to in the Credit Agreements.
<PAGE>
"Hedging Agreement" shall mean any swap agreement, cap
agreement, collar agreement, put or call, futures contract, forward
contract or similar agreement or arrangement entered into in respect of
interest rates, foreign exchange rates or prices of commodities.
"Hedging Obligations" shall mean all obligations of the
Borrower owing to one or more of the Lenders under Hedging Agreements.
"Instruments" shall have the meaning ascribed thereto in
Section 3(d) hereof.
"Intercompany Notes" shall mean, collectively, the
"Intercompany Notes" referred to in the Credit Agreements.
"Inventory" shall have the meaning ascribed thereto in Section
3(e) hereof.
"Proceeds" of any Collateral shall mean cash, securities and
other property realized in respect of, and distributions in kind of,
Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Obligors or any issuer of or
obligor on any of the Collateral.
"Required Secured Parties" shall mean (i) the Lenders holding
more than a majority of the loans under the Credit Agreements,
unutilized commitments to extend credit under the Credit Agreements
that remain outstanding, and participations (or, in the case of the
issuer of letters of credit, retained interests) in outstanding letters
of credit, and unreimbursed drawings under letters of credit, issued
under the Five-Year Credit Agreement (collectively, "Credit Agreement
Obligations") or (ii) if no Credit Agreement Obligations are
outstanding, Lenders holding a majority of the obligations of the
Borrower owing to the Lenders under Hedging Agreements (calculated by
reference to the liquidated amounts that are then due or would be due
if such Hedging Agreements were then terminated by reason of a default
thereunder by the Borrower).
"Secured Obligations" shall mean (a) in the case of the
Borrower, (i) the principal of and interest on the loans made by the
Five-Year Lenders to the Borrower under the
<PAGE>
Five-Year Credit Agreement, the reimbursement obligations owing by the
Borrower in respect of letters of credit issued under the Five-Year
Credit Agreement and all other amounts from time to time owing by the
Borrower to the Five-Year Lenders or the Five-Year Agent under the
"Loan Documents" referred to in the Five-Year Credit Agreements, (ii)
the principal of and interest on the loans made by the 364-Day Lenders
to the Borrower under the 364-Day Credit Agreement and all other
amounts from time to time owing by the Borrower to the 364-Day Lenders
or the 364-Day Agent under the "Loan Documents" referred to in the
364-Day Credit Agreement and (iii) the Hedging Obligations, (b) in the
case of each Subsidiary Guarantor, (i) all obligations of such
Subsidiary Guarantor under the Five-Year Credit Agreement (including,
without limitation, in respect of its Guarantee under Article VIII of
the Five-Year Credit Agreement) and the other "Loan Documents" referred
to in the Five-Year Credit Agreement, (ii) all obligations of such
Subsidiary Guarantor under the 364-Day Credit Agreement (including,
without limitation, in respect of its Guarantee under Article VIII of
the 364-Day Credit Agreement) and the other "Loan Documents" referred
to in the 364-Day Credit Agreement and (iii) all obligations owing
under the Intercompany Note executed and delivered by such Subsidiary
Guarantor or, if such Subsidiary Guarantor is not a First Tier
Subsidiary, the Intercompany Note executed and delivered by the First
Tier Subsidiary of which such Subsidiary Guarantor is a subsidiary and
(d) in the case of each Obligor, all obligations of such Obligor to the
Secured Parties hereunder.
"Secured Parties" shall mean the Five-Year Agent, the 364-Day
Agent, the Collateral Agent, the Five-Year Lenders, the 364-Day Lenders
and the Borrower.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Section 2. Representations and Warranties. Each Obligor
represents and warrants to the Lenders and the Collateral Agent that:
<PAGE>
(a) Such Obligor is the sole beneficial owner of the
Collateral in which it purports to grant a security interest pursuant
to Section 3 hereof and no Lien exists or will exist upon such
Collateral at any time (and no right or option to acquire the same
exists in favor of any other Person), except for the pledge and
security interest in favor of the Collateral Agent for the benefit of
the Secured Parties created or provided for herein, which pledge and
security interest constitute a first priority perfected pledge and
security interest in and to all of such Collateral, except (i) as
permitted by the Credit Agreements or (ii) subject to no other Lien
except Liens created under the Federal Packers and Stockyards Act, as
amended.
(b) Annex 1 hereto is a complete and accurate list of all
Intercompany Notes outstanding on the date hereof. The Intercompany
Notes are legal valid and binding obligations of the respective makers
thereof. No Intercompany Note is overdue, has been dishonored, is
subject to any defense to payment or is subject to any claim by any
Person other than the Borrower and the Collateral Agent for the benefit
of the Secured Parties.
(c) Any goods now or hereafter produced by such Obligor
included in the Collateral have been and will be produced in compliance
with the requirements of the Fair Labor Standards Act, as amended.
Section 3. Collateral. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations owing by such Obligor, each Obligor hereby
pledges and grants to the Collateral Agent for the benefit of the Secured
Parties a security interest in all of such Obligor's right, title and interest
in the following property, whether now owned by such Obligor or hereafter
acquired and whether now existing or hereafter coming into existence (all being
collectively referred to herein as "Collateral"):
(a) all Intercompany Notes;
(b) all moneys due or to become due to the Borrower in
respect of the loans evidenced by the Intercompany Notes and all
<PAGE>
collateral security provided hereunder for the payment of the
Intercompany Notes;
(c) all accounts and general intangibles (each as defined in
the Uniform Commercial Code) of such Obligor constituting any right to
the payment of money in respect of any loans or advances or for
Inventory, Farm Products or other goods sold or leased or for services
rendered, all moneys due and to become due to such Obligor under any
guarantee (including a letter of credit) of any such account or general
intangible (such accounts, general intangibles and moneys due and to
become due being herein called collectively "Accounts");
(d) all instruments, chattel paper or letters of credit (each
as defined in the Uniform Commercial Code) of such Obligor evidencing,
representing, arising from or existing in respect of, relating to,
securing or otherwise supporting the payment of, any of the Accounts,
including (but not limited to) promissory notes, drafts, bills of
exchange and trade acceptances (herein collectively called
"Instruments");
(e) all inventory (as defined in the Uniform Commercial Code)
of such Obligor, in all of its forms, wherever located, now or
hereafter existing (including, but not limited to, (i) all livestock
purchased in the ordinary course of business and held for slaughter and
resale, 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 such Obligor has an interest in mass or a
joint or other interest or right of any kind (including, without
limitation, goods in which such Obligor has an interest or right as
consignee), (iii) goods which are returned to or repossessed by such
Obligor and all accessions thereto and products thereof and documents
therefor, and (iv) all goods obtained by such Obligor in exchange for
such inventory, and any products made or processed from such inventory
including all substances, if any, commingled therewith or added thereto
(any and all such inventory, accessions, products and documents herein
collectively called "Inventory");
<PAGE>
(f) all farm products (as defined in the Uniform Commercial
Code) of such Obligor, in all of their respective forms, wherever
located, now or hereafter existing, including but not limited to (i)
livestock, meat and products thereof and (ii) all agricultural supplies
used or consumed in such Obligor'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
herein collectively called "Farm Products");
(g) each contract and other agreement of such Obligor
relating to the sale or other disposition of Inventory or Farm
Products;
(h) all documents of title (as defined in the Uniform
Commercial Code) or other receipts of such Obligor covering, evidencing
or representing Inventory or Farm Products (herein collectively called
"Documents");
(i) all rights, claims and benefits of such Obligor against
any Person arising out of, relating to or in connection with Inventory
or Farm Products purchased by such Obligor, including, without
limitation, any such rights, claims or benefits against any Person
storing, raising, breeding or transporting such Inventory or Farm
Products;
(j) the balance from time to time in the Collateral Account;
and
(k) all proceeds, products, offspring (including unborn
offspring), accessions, rents, profits, income, benefits, substitutions
and replacements of and to any of the property of such Obligor
described in the preceding clauses of this Section 3 (including,
without limitation, any proceeds of insurance thereon and all causes of
action, claims and warranties now or hereafter held by any Obligor in
respect of any of the items listed above) and, to the extent related to
any property described in said clauses or such proceeds, products and
accessions, all books, correspondence, credit files, records, invoices
and other papers, including without limitation all tapes, cards,
<PAGE>
computer runs and other papers and documents in the possession or under
the control of such Obligor or any computer bureau or service company
from time to time acting for such Obligor.
Section 4. Cash Proceeds of Collateral.
4.01 Collateral Account. There is hereby established with the
Collateral Agent a cash collateral account (the "Collateral Account") in the
name and under the control of the Collateral Agent into which there shall be
deposited from time to time the cash Proceeds of any of the Collateral
(including proceeds of insurance thereon) required to be delivered to the
Collateral Agent pursuant hereto and into which the Obligors may from time to
time deposit any additional amounts that any of them wishes to pledge to the
Collateral Agent for the benefit of the Lenders as additional collateral
security hereunder. The balance from time to time in the Collateral Account
shall constitute part of the Collateral hereunder and shall not constitute
payment of the Secured Obligations until applied as hereinafter provided. Except
as expressly provided in the next sentence, the Collateral Agent shall remit the
collected balance outstanding to the credit of the Collateral Account to or upon
the order of the respective Obligor as such Obligor through the Borrower shall
from time to time instruct. However, at any time following the occurrence and
during the continuance of an Event of Default, the Collateral Agent may (and, if
instructed by the Required Secured Parties, shall) in its (or their) discretion
apply or cause to be applied (subject to collection) the balance from time to
time outstanding to the credit of the Collateral Account to the payment of the
Secured Obligations in the manner specified in Section 5.09 hereof. The balance
from time to time in the Collateral Account shall be subject to withdrawal only
as provided herein.
4.02 Proceeds of Accounts. Each Obligor shall, upon request of
the Collateral Agent made at any time that an Event of Default exists, instruct
all account debtors and other Persons obligated in respect of all Accounts to
make all payments in respect of the Accounts either (a) directly to the
Collateral Agent (by instructing that such payments be remitted to a post office
box which shall be in the name and under the control of the Collateral Agent) or
(b) to one or more other banks in the United States of America (by instructing
that such payments be remitted to a post office box which shall be in the name
<PAGE>
and under the control of the Collateral Agent) under arrangements, in form and
substance satisfactory to the Collateral Agent pursuant to which such Obligor
shall have irrevocably instructed such other bank (and such other bank shall
have agreed) to remit all proceeds of such payments directly to the Collateral
Agent for deposit into the Collateral Account. All payments made to the
Collateral Agent, as provided in the preceding sentence, shall be immediately
deposited in the Collateral Account. In addition to the foregoing, each Obligor
agrees that if the Proceeds of any Collateral hereunder (including the payments
made in respect of Accounts) shall be received by it at any time after the
Collateral Agent makes such request, such Obligor shall as promptly as possible
deposit such Proceeds into the Collateral Account. Until so deposited, all such
Proceeds shall be held in trust by such Obligor for and as the property of the
Collateral Agent and shall not be commingled with any other funds or property of
such Obligor.
4.03 Investment of Balance in Collateral Account. Amounts on
deposit in the Collateral Account shall be invested from time to time in such
Permitted Investments as the respective Obligor through the Borrower (or, after
the occurrence and during the continuance of an Event of Default, the Collateral
Agent) shall determine, which Permitted Investments shall be held in the name
and be under the control of the Collateral Agent, provided that (i) at any time
after the occurrence and during the continuance of an Event of Default, the
Collateral Agent may (and, if instructed by the Required Secured Parties, shall)
in its (or their) discretion at any time and from time to time elect to
liquidate any such Permitted Investments and to apply or cause to be applied the
proceeds thereof to the payment of the Secured Obligations in the manner
specified in Section 5.09 hereof and (ii) if requested by the respective Obligor
through the Borrower, such Permitted Investments may be held in the name and
under the control of one or more of the Lenders (and in that connection each
Lender, pursuant to a Credit Agreement) has agreed that such Permitted
Investments shall be held by such Lender as a collateral sub-agent for the
Collateral Agent hereunder).
4.04 Cover for Letter of Credit Liabilities. Amounts deposited
into the Collateral Account as cover for Letter of Credit Liabilities under the
Five-Year Credit Agreement pursuant to Section 2.10(b) or Article VII thereof
shall be held by the Collateral Agent in a separate sub-account (designated
"Letter of Credit Liabilities Sub-Account") and subject to Section 2.05(j) of
<PAGE>
the Five-Year Credit Agreement, all amounts held in such sub-account shall
constitute collateral security first for the Letter of Credit Liabilities (as
defined in the Five-Year Credit Agreement) outstanding from time to time and
second as collateral security for the other Secured Obligations hereunder.
Section 5. Further Assurances; Remedies. In furtherance of the
grant of the pledge and security interest pursuant to Section 3 hereof, the
Obligors hereby jointly and severally agree with each Secured Party and the
Collateral Agent as follows:
5.01 Delivery and Other Perfection. Each Obligor shall:
(a) if any Intercompany Notes are received by such Obligor,
forthwith transfer and deliver to the Collateral Agent such
Intercompany Notes so received by such Obligor (together with undated
bond powers duly executed in blank), all of which thereafter shall be
held by the Collateral Agent, pursuant to the terms of this Agreement,
as part of the Collateral;
(b) deliver and pledge to the Collateral Agent any and all
Instruments and Documents, endorsed and/or accompanied by such
instruments of assignment and transfer in such form and substance as
the Collateral Agent may request; provided, that so long as no Event of
Default shall have occurred and be continuing, such Obligor may retain
for presentation in the ordinary course any Instruments or Documents
received by such Obligor in the ordinary course of business and the
Collateral Agent shall, promptly upon request of such Obligor through
the Borrower, make appropriate arrangements for making any Instrument
or Document pledged by such Obligor available to such Obligor for
purposes of presentation, collection or renewal (any such arrangement
to be effected, to the extent deemed appropriate by the Collateral
Agent, against trust receipt or like document);
(c) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that
may be necessary or desirable (in the judgment of the Collateral Agent)
to create, preserve, perfect or validate the security interest granted
<PAGE>
pursuant hereto or to enable the Collateral Agent to exercise and
enforce its rights hereunder with respect to such pledge and security
interest, provided that notices to account debtors in respect of any
Accounts or Instruments shall be subject to the provisions of clause
(f) below;
(d) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Collateral Agent may reasonably require in order to
reflect the security interests granted by this Agreement;
(e) permit representatives of the Collateral Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its books and records pertaining to the
Collateral, and permit representatives of the Collateral Agent to be
present at such Obligor's place of business to receive copies of all
communications and remittances relating to the Collateral, and forward
copies of any notices or communications received by such Obligor with
respect to the Collateral, all in such manner as the Collateral Agent
may require; and
(f) upon the occurrence and during the continuance of any
Event of Default, upon request of the Collateral Agent, promptly notify
(and such Obligor hereby authorizes the Collateral Agent so to notify)
each account debtor in respect of any Accounts or Instruments that such
Collateral has been assigned to the Collateral Agent hereunder, and
that any payments due or to become due in respect of such Collateral
are to be made directly to the Collateral Agent.
5.02 Other Financing Statements. No Obligor shall file or
suffer to be on file, or authorize or permit to be filed or to be on file, in
any jurisdiction, any financing statement or like instrument with respect to the
Collateral in which the Collateral Agent is not named as the sole secured party
for the benefit of the Secured Parties.
5.03 Preservation of Rights. The Collateral Agent shall not be
required to take steps necessary to preserve any rights against prior parties to
any of the Collateral.
<PAGE>
5.04 Special Provisions Relating to Intercompany Notes.
(a) Each maker of an Intercompany Note shall make each payment
required to be made by it thereunder without set-off or counterclaim.
Upon the request of the Collateral Agent at any time that an Event of
Default has occurred and is continuing, each such maker hereby
unconditionally and irrevocably agrees that it shall make each such
payment to the Collateral Agent and waives any defense that it may have
against the Borrower in respect of such maker's obligations thereunder;
(b) The date and amount of each loan evidenced by an
Intercompany Note, and each payment made on account of the principal
thereof, shall be recorded by the Borrower on its books and, prior to
any enforcement of such Intercompany Note, endorsed by the Borrower on
the schedule attached to such Intercompany Note or any continuation
thereof; provided that the failure of the Borrower to make any such
recordation or endorsement shall not affect the obligations of the
maker of such Intercompany Note to make a payment when due of any
amount owing thereunder;
(c) The Borrower and each maker of an Intercompany Note shall
promptly respond to all reasonable requests of the Collateral Agent
regarding any information with respect to Intercompany Notes or any
other records or information kept in accordance with the preceding
clause (b), or any confirmations with respect thereof;
(d) The Borrower and each maker of an Intercompany Note hereby
authorize the Collateral Agent, but the Collateral Agent shall not be
required, to make entries in accordance with Section 5.04(b) on a
schedule attached to such Intercompany Note, or any continuation
thereof; and
(e) Until such time as an Event of Default shall exist, the
Borrower shall have the right to collect, enforce and account for all
proceeds in respect of the Intercompany Notes, except that it may not
(without the consent of the Collateral Agent) grant any compromise or
discharge thereof except for amounts actually received by it.
<PAGE>
5.05 Events of Default, Etc. During the period during which
an Event of Default shall have occurred and be continuing:
(a) each Obligor shall, at the request of the Collateral
Agent, assemble the Collateral owned by it at such place or places,
reasonably convenient to both the Collateral Agent and such Obligor,
designated in its request;
(b) the Collateral Agent may make any reasonable compromise or
settlement deemed desirable with respect to any of the Collateral and
may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, any of the Collateral;
(c) the Collateral Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under the
Uniform Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by law, to exercise all voting,
consensual and other powers of ownership pertaining to the Collateral
as if the Collateral Agent were the sole and absolute owner thereof
(and each Obligor agrees to take all such action as may be appropriate
to give effect to such right);
(d) the Collateral Agent in its discretion may, in its name or
in the name of the Obligors or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on
account of or in exchange for any of the Collateral, but shall be under
no obligation to do so; and
(e) the Collateral Agent may, upon ten business days' prior
written notice to the Obligors of the time and place, with respect to
the Collateral or any part thereof that shall then be or shall
thereafter come into the possession, custody or control of the
Collateral Agent, any Secured Party or any of their respective agents,
<PAGE>
sell, lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Collateral Agent deems best,
and for cash or for credit or for future delivery (without thereby
assuming any credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such disposition or of
the time or place thereof (except such notice as is required above or
by applicable statute and cannot be waived), and the Collateral Agent
or any Lender or anyone else may be the purchaser, lessee, assignee or
recipient of any or all of the Collateral so disposed of at any public
sale (or, to the extent permitted by law, at any private sale) and
thereafter hold the same absolutely, free from any claim or right of
whatsoever kind, including any right or equity of redemption (statutory
or otherwise), of the Obligors, any such demand, notice and right or
equity being hereby expressly waived and released. The Collateral Agent
may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at
the time and place fixed for the sale, and such sale may be made at any
time or place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.05 shall be applied in accordance with Section 5.09 hereof.
5.06 Deficiency. If the Proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 5.05 hereof are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations owing by it, each Obligor shall remain liable
for any deficiency.
5.07 Removals, Etc. Without at least 30 days' prior written
notice to the Collateral Agent, no Obligor shall (i) maintain any of its books
and records with respect to the Collateral at any office or maintain its
principal place of business at any place, (ii) except as permitted by Section
10.13 of each Credit Agreement, permit any Inventory or Farm Products to be
located anywhere, other than at the address indicated beneath the signature of
the Borrower to the Credit Agreement or at one of the locations identified in
Annex 2 hereto under its name or in transit from one of such locations to
<PAGE>
another location or (iii) change its name, or the name under which it does
business, from the name shown on the signature pages hereto.
5.08 Private Sale. The Collateral Agent and the Lenders shall
incur no liability as a result of the sale of the Collateral, or any part
thereof, at any private sale pursuant to Section 5.05 hereof conducted in a
commercially reasonable manner. Each Obligor hereby waives any claims against
the Collateral Agent or any Lender arising by reason of the fact that the price
at which the Collateral may have been sold at such a private sale was less than
the price that might have been obtained at a public sale or was less than the
aggregate amount of the Secured Obligations, even if the Collateral Agent
accepts the first offer received and does not offer the Collateral to more than
one offeree.
5.09 Application of Proceeds. Except as otherwise herein
expressly provided and except as provided below in this Section 5.09, the
Proceeds of any collection, sale or other realization of all or any part of the
Collateral pursuant hereto, and any other cash at the time held by the
Collateral Agent under Section 4 hereof or this Section 5, shall be applied by
the Collateral Agent:
First, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Collateral Agent and the fees
and expenses of its agents and counsel, and all expenses incurred and
advances made by the Collateral Agent in connection therewith;
Second, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Five-Year Agent and the 364-Day
Agent and the fees and expenses of its agents and counsel, and all
expenses incurred and advances made by the them in connection
therewith, pro rata in accordance with the respective amounts owing to
them;
Third, to the payment in full of the Secured Obligations other
than the Hedging Obligations (including the Guarantees thereof by the
Subsidiary Guarantors under Article VIII of each Credit Agreement), pro
rata in accordance with the respective amounts thereof;
<PAGE>
Fourth, to the payment in full of the Hedging Obligations, pro
rata in accordance with the respective amounts thereof; and
Fifth, to the payment to the respective Obligor, or their
respective successors or assigns, or as a court of competent
jurisdiction may direct, of any surplus then remaining.
Notwithstanding the foregoing, (a) the Proceeds of any Collateral that secures
both an Intercompany Note and other Secured Obligations may be applied under
clause Third above first either to such Intercompany Note or to such other
Secured Obligations, as the Required Secured Parties may elect, and next to such
other Secured Obligations or to the Intercompany Note, as the case may be, and
(b) the Proceeds of any cash or other amounts held in the "Letter of Credit
Liabilities Sub-Account" of the Collateral Account pursuant to Section 4.04
hereof shall be applied first to the Letter of Credit Liabilities outstanding
from time to time and second to the other Secured Obligations in the manner
provided above in this Section 5.09.
All payments required to be made hereunder shall be made (i)
if to the Five-Year Lenders, to the Five-Year Agent for account of the Lenders;
(ii) if to the 364-Day Lenders, to the 364-Day Administrative Agent for account
of the 364-Day Lenders; and (iii) if to any other Secured Party, to the trustee,
paying agent or other similar representative for such other Secured Party or, in
the absence of such a representative, directly to such other Secured Party.
For purposes of applying payments received in accordance with
this Section 5, the Collateral Agent shall be entitled to rely upon the
Five-Year Agent and the 364-Day Administrative Agent or directly on any other
Secured Party as necessary for a determination of the outstanding Secured
Obligations owed as the case may be. Each Secured Party hereby agrees to
provide, or to cause its representative to provide, on any date requested by the
Collateral Agent a certificate as to the outstanding Secured Obligations owed to
such Secured Party.
5.10 Attorney-in-Fact. Without limiting any rights or powers
granted by this Agreement to the Collateral Agent while no Event of Default has
occurred and is continuing, upon the occurrence and during the continuance of
<PAGE>
any Event of Default the Collateral Agent is hereby appointed the
attorney-in-fact of each Obligor for the purpose of carrying out the provisions
of this Section 5 and taking any action and executing any instruments that the
Collateral Agent may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, so long as the
Collateral Agent shall be entitled under this Section 5 to make collections in
respect of the Collateral, the Collateral Agent shall have the right and power
to receive, endorse and collect all checks made payable to the order of any
Obligor representing any dividend, payment or other distribution in respect of
the Collateral or any part thereof and to give full discharge for the same.
5.11 Perfection. Prior to or concurrently with the execution
and delivery of this Agreement, each Obligor shall (i) file such financing
statements and other documents in such offices as the Collateral Agent may
request to perfect the security interests granted by Section 3 of this Agreement
and (ii) the Borrower shall deliver to the Collateral Agent all Intercompany
Notes identified in Annex 1 hereto, accompanied by undated bond powers duly
executed in blank.
5.12 Termination. When all Secured Obligations owing under the
Credit Agreements and under Hedging Agreements shall have been paid in full, the
commitments of the Lenders to extend further credit under the Credit Agreements
have terminated, the letters of credit issued under Five-Year Credit Agreement
have expired or been canceled and all Hedging Agreements between the Borrower
and the Lenders have terminated, and irrespective of whether any Intercompany
Notes remain outstanding, this Agreement shall terminate, and the Collateral
Agent shall forthwith cause to be assigned, transferred and delivered, against
receipt but without any recourse, warranty or representation whatsoever, any
remaining Collateral and money received in respect thereof, to or on the order
of the respective Obligor. The Collateral Agent shall also execute and deliver
to the respective Obligor upon such termination such Uniform Commercial Code
termination statements and such other documentation as shall be reasonably
requested by the respective Obligor to effect the termination and release of the
Liens on the Collateral.
5.13 Prompt Payment to Livestock Sellers. Each Obligor who
purchases livestock, for whatever purpose, shall promptly deliver to the seller
<PAGE>
of such livestock or his duly authorized representative the full amount of the
purchase price and such obligations shall not remain outstanding for more than
three Business Days unless such amount is in dispute. Such Obligors shall also
file and maintain a bond with the United States Department of Agriculture for
the benefit of unpaid sellers in an amount required by the Federal Packers and
Stockyards Act, as amended, and the regulations promulgated thereunder.
5.14 Further Assurances. Each Obligor agrees that, from time
to time upon the written request of the Collateral Agent, such Obligor will
execute and deliver such further documents and do such other acts and things as
the Collateral Agent may reasonably request in order fully to effect the
purposes of this Agreement.
Section 6. The Collateral Agent and the Secured Parties
Each of the Five-Year Agent, on behalf of itself, and the
Five-Year Lenders, the 364-Day Administrative Agent, on behalf of itself and the
364-Day Lenders, and the Borrower hereby irrevocably appoints the Collateral
Agent as its agent and authorizes the Collateral Agent to take such actions on
its behalf and to exercise such powers as are delegated to the Collateral Agent
by the terms hereof, together with such actions and powers as are reasonably
incidental thereto.
The bank serving as the Collateral Agent hereunder shall have
the same rights and powers in its capacity as a Secured Party as any other
Secured Party and may exercise the same as though it were not the Collateral
Agent, and such bank and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of business with the Borrower or any Subsidiary
or other Affiliate thereof as if it were not the Collateral Agent hereunder.
The Collateral Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing (a) the Collateral Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether an Event of Default has occurred and
is continuing, (b) the Collateral Agent shall not have any duty to take any
<PAGE>
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby, and (c) except as expressly set
forth herein, the Collateral Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Borrower or any of its Subsidiaries that is communicated to or obtained by the
bank serving as Collateral Agent or any of its Affiliates in any capacity. The
Collateral Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Secured Parties or in the absence of
its own gross negligence or wilful misconduct. The Collateral Agent shall be
deemed not to have knowledge of any Default unless and until written notice
thereof is given to the Collateral Agent by the Borrower or a Secured Party, and
the Collateral Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with this Agreement, (ii) the contents of any certificate, report or
other document delivered hereunder or in connection herewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein, or (iv) the validity, enforceability, effectiveness
or genuineness of this Agreement or any other agreement, instrument or document,
other than to confirm receipt of items expressly required to be delivered to the
Collateral Agent.
The Collateral Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to be
genuine and to have been signed or sent by the proper Person. The Collateral
Agent also may rely upon any statement made to it orally or by telephone and
believed by it to be made by the proper Person, and shall not incur any
liability for relying thereon. The Collateral Agent may consult with legal
counsel (who may be counsel for the Borrower), independent accountants and other
experts selected by it, and shall not be liable for any action taken or not
taken by it in accordance with the advice of any such counsel, accountants or
experts.
The Collateral Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Collateral Agent. The Collateral Agent and any such sub-agent
may perform any and all its duties and exercise its rights and powers through
<PAGE>
their respective Related Parties. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Collateral Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Collateral Agent.
Subject to the appointment and acceptance of a successor
Collateral Agent as provided in this paragraph, the Collateral Agent may resign
at any time by notifying the Secured Parties and the Borrower. Upon any such
resignation, the Secured Parties shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Secured Parties and shall have accepted such appointment within 30 days
after the retiring Collateral Agent gives notice of its resignation, then the
retiring Collateral Agent may, on behalf of the Secured Parties, appoint a
successor Collateral Agent which shall be a bank with an office in New York, New
York, or an Affiliate of any such bank. Upon the acceptance of its appointment
as Collateral Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Collateral Agent and the retiring Collateral Agent shall be discharged
from its duties and obligations hereunder. The fees payable by the Borrower to a
successor Collateral Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Collateral Agent's resignation hereunder, the provisions of this Section 6 and
Section 7.03 shall continue in effect for the benefit of such retiring
Collateral Agent, its sub-agents and their respective Related Parties in respect
of any actions taken or omitted to be taken by any of them while it was acting
as Collateral Agent.
The Required Secured Parties shall have no responsibility or
liability to any of the other Secured Parties for any determinations made or
instructions given by them hereunder, except for any indemnities expressly
provided for herein or in either Credit Agreement in favor of the Collateral
Agent, the Five-Year Agent or the 364-Day Agent.
<PAGE>
Section 7. Miscellaneous.
7.01 No Waiver. No failure on the part of the Collateral Agent
or any Secured Party to exercise, and no course of dealing with respect to, and
no delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Collateral Agent
or any Lender of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
7.02 Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by telecopy, as
follows:
(a) if to the Borrower, to it at Smithfield Foods, Inc. at
900 Dominion Tower, 999 Waterside Drive, Norfolk, VA, 23510, Attention:
Mr. Aaron D. Trub (Telecopy No. 757- 365-3017) and Michael H. Cole
(Telecopy No. 757-365-3023);
(b) if to any Subsidiary Guarantor, at the address for
notices to the Borrower as provided herein;
(c) if to the Five-Year Agent, to The Chase Manhattan Bank,
Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York
10017, Attention of Sandra Miklave Telecopy No. (212-552-5658), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of Sue Herzog (Telecopy No. 212-344-0246);
(d) if to the 364-Day Agent, to The Chase Manhattan Bank,
Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York
10017, Attention of Sandra Miklave Telecopy No. (212-552-5658), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of Sue Herzog (Telecopy No. 212-344-0246); and
(e) if to the Collateral Agent, to The Chase Manhattan Bank,
Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York
10017, Attention of Sandra Miklave Telecopy No. (212-552-5658), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of Sue Herzog (Telecopy No. 212-344-0246).
<PAGE>
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
7.03 Expenses. The Obligors jointly and severally agree to
reimburse each of the Secured Parties (other than the Borrower) for all
reasonable costs and expenses of the Secured Parties (other than the Borrower)
(including, without limitation, the reasonable fees and expenses of legal
counsel) in connection with (i) any Event of Default and any enforcement or
collection proceeding resulting therefrom, including, without limitation, all
manner of participation in or other involvement with (w) performance by the
Collateral Agent of any obligations of the Obligors in respect of the Collateral
that the Obligors have failed or refused to perform, (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, or any actual
or attempted sale, or any exchange, enforcement, collection, compromise or
settlement in respect of any of the Collateral, and for the care of the
Collateral and defending or asserting rights and claims of the Collateral Agent
in respect thereof, by litigation or otherwise, including expenses of insurance,
(y) judicial or regulatory proceedings and (z) workout, restructuring or other
negotiations or proceedings (whether or not the workout, restructuring or
transaction contemplated thereby is consummated) and (ii) the enforcement of
this Section 7.03, and all such costs and expenses shall be Secured Obligations
entitled to the benefits of the collateral security provided pursuant to Section
3 hereof.
7.04 Amendments, Etc. The terms of this Agreement may be
waived, altered or amended only by an instrument in writing duly executed by the
parties hereto. Any such amendment or waiver shall be binding upon each holder
of any of the Secured Obligations and each Obligor.
7.05 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
parties hereto and each holder of any of the Secured Obligations (provided,
however, that no Obligor shall assign or transfer its rights hereunder without
the prior written consent of the Collateral Agent).
<PAGE>
7.06 Captions. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
7.07 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
7.08 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York.
7.09 Agents and Attorneys-in-Fact. The Collateral Agent may
employ agents and attorneys-in-fact in connection herewith and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith.
7.10 Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Collateral Agent
and the Lenders in order to carry out the intentions of the parties hereto as
nearly as may be possible and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Collateral Agency, Pledge and Security Agreement to be duly executed and
delivered as of the day and year first above written.
SMITHFIELD FOODS, INC.
By _________________________
Name: Aaron D. Trub
Title: Vice-President,
Secretary and Treasurer
SUBSIDIARY GUARANTORS
THE SMITHFIELD PACKING COMPANY,
INCORPORATED
By_________________________
Name: Aaron D. Trub
Title: Secretary
GWALTNEY OF SMITHFIELD, LTD.
By_________________________
Name: Aaron D. Trub
Title: Secretary
PATRICK CUDAHY INCORPORATED
By_________________________
Name: Aaron D. Trub
Title: Secretary
<PAGE>
JOHN MORRELL & CO.
By_________________________
Name: Aaron D. Trub
Title: Secretary
LYKES MEAT GROUP, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
BROWN'S OF CAROLINA, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
HANCOCK'S OLD FASHIONED COUNTRY
HAMS, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
VALLEYDALE FOODS, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
COPAZ PACKING CORPORATION
By_________________________
Name: Aaron D. Trub
Title: Secretary
SUNNYLAND, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
<PAGE>
SMITHFIELD PACKING-LANDOVER, INC.
By_________________________
Name: Aaron D. Trub
Title: Secretary
<PAGE>
THE CHASE MANHATTAN BANK
as Collateral Agent
By _________________________
Name: Michael D. Peist
Title: Vice President
THE CHASE MANHATTAN BANK
as Five-Year Agent
By _________________________
Name: Michael D. Peist
Title: Vice President
THE CHASE MANHATTAN BANK
as 364-Day Agent
By _________________________
Name: Michael D. Peist
Title: Vice President
[ANNEXES OMITTED]
EXHIBIT 4.6
================================================================================
--------------
SMITHFIELD FOODS, INC.
--------------
AMENDMENT NUMBER ONE
TO NOTE PURCHASE AGREEMENT DATED AS OF JULY 15, 1996
AMENDMENT DATED AS OF JULY 15, 1997
================================================================================
<PAGE>
AMENDMENT NUMBER ONE
AMENDMENT NUMBER ONE (this "Agreement"), dated as of July 15, 1997, to
the separate Note Purchase Agreements, each dated as of July 15, 1996, between
SMITHFIELD FOODS, INC., a Delaware corporation (the "Company") and each of the
Persons listed on Annex 1 thereto (collectively, the "Purchasers").
RECITALS:
A. The Company entered into those certain separate Note Purchase
Agreements, each dated as of July 15, 1996, (as amended from time to time and as
in effect immediately prior to the effectiveness of this Agreement, the
"Existing Note Purchase Agreement," and, as amended by this Agreement, the
"Amended Note Purchase Agreement"), with the Purchasers, pursuant to which the
Company authorized, issued and sold, and certain of the Purchasers purchased (as
set forth on Annex 1 thereto):
(a) $2,825,000 in aggregate principal amount of its six and
twenty-four one-hundredths percent (6.24%) Series A Senior Secured
Notes Due November 1, 1998 (as amended, restated or otherwise modified
from time to time, the "Series A Notes"),
(b) $9,852,942 in aggregate principal amount of its eight and
forty-one one-hundredths percent (8.41%) Series B Senior Secured Notes
Due August 1, 2006 (as amended, restated or otherwise modified from
time to time, the "Series B Notes"),
(c) $40,000,000 in aggregate principal amount of its eight and
thirty-four one-hundredths percent (8.34%) Series C Senior Secured
Notes Due August 1, 2003 (as amended, restated or otherwise modified
from time to time, the "Series C Notes"),
(d) $9,000,000 in aggregate principal amount of its nine and
eighty one-hundredths percent (9.80%) Series D Senior Secured Notes Due
August 1, 2003 (as amended, restated or otherwise modified from time to
time, the "Series D Notes"),
<PAGE>
(e) $9,250,000 in aggregate principal amount of its ten and
seventy five one-hundredths percent (10.75%) Series E Senior Secured
Notes Due August 1, 2005 (as amended, restated or otherwise modified
from time to time, the "Series E Notes"),
(f) $100,000,000 in aggregate principal amount of its eight
and fifty-two one-hundredths percent (8.52%) Series F Senior Secured
Notes Due August 1, 2006 (as amended, restated or otherwise modified
from time to time, the "Series F Notes"),
(g) $14,000,000 in aggregate principal amount of its nine and
eighty-five one-hundredths percent (9.85%) Series G Senior Secured
Notes Due November 1, 2006 (as amended, restated or otherwise modified
from time to time, the "Series G Notes"), and
(h) $14,779,412 in aggregate principal amount of its eight and
forty-one-hundredths percent (8.41%) Series H Senior Secured Notes Due
August 1, 2004 (as amended, restated or otherwise modified from time to
time, the "Series H Notes").
The Series A Notes, the Series B Notes, the Series C Notes, the Series D Notes,
the Series E Notes, the Series F Notes, the Series G Notes and the Series H
Notes are herein referred to, individually, as a "Note," and collectively, as
the "Notes".
B. As of the Effective Date (defined below), the Purchasers are the
holders of all of the outstanding Notes; the holders of the Notes on the
Effective Date are herein referred to as the "Holders."
C. Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield
Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated and
Brown's of Carolina, Inc. (collectively, the "Guarantors"), each a Wholly-Owned
Subsidiary, are guarantors of the obligations of the Company in respect of,
among other things, the Notes, pursuant to that certain Joint and Several
Guaranty dated as of July 15, 1996.
D. The Company has requested that the Holders agree to amend certain
provisions of the Existing Note Purchase Agreement.
E. Subject to the terms and conditions set forth in this Agreement, the
Company and the Holders are willing to agree to amend the Existing Note Purchase
<PAGE>
Agreement in the manner specified on certain Exhibits hereto and as more
particularly set forth herein.
AGREEMENT:
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and the Holders agree as follows:
SECTION 1. WARRANTIES AND REPRESENTATIONS.
To induce the Holders to enter into this Agreement, the Company and
each of the Guarantors represent and warrant to each of the Holders that as of
the Effective Date (as hereinafter defined):
1.1 Corporate Organization and Authority.
The Company and each Subsidiary:
(a) is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation;
(b) has all legal and corporate power and authority to own and
operate its Properties and to carry on its business as now conducted
and as presently proposed to be conducted;
(c) has all necessary licenses, certificates and permits to
own and operate its Properties and to carry on its business as now
conducted and as presently proposed to be conducted, except where the
failure to have such licenses, certificates and permits, in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect; and
(d) has duly qualified or has been duly licensed, and is
authorized to do business and is in good standing, as a foreign
corporation, in each state in the United States of America and in each
other jurisdiction where the failure to be so qualified or licensed and
authorized and in good standing, in the aggregate for all such
failures, could reasonably be expected to have a Material Adverse
Effect.
<PAGE>
1.2 Authorization, etc.
(a) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and each of the Guarantors.
Each of this Agreement, the Amended Note Purchase Agreement and each
other Financing Document (as defined in the Amended Note Purchase
Agreement, the "Financing Documents") constitutes a legal, valid and
binding obligation of the Company or the Guarantors, as applicable,
enforceable, in each case, against the Company or such Guarantor, as
applicable, in accordance with its terms, except as such enforceability
may be limited by
(i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law).
(b) The Holders are the record owners of all of the
outstanding Notes.
1.3 Litigation.
There are no proceedings pending, or, to the knowledge of the Company
or the Guarantors, threatened, against or affecting the Company, any Guarantor
or any other Subsidiary, or any of their respective Properties in any court or
before any governmental authority or arbitration board or tribunal that, either
individually or in the aggregate, conflict with or interfere with the ability of
the Company or any of the Guarantors to execute and deliver this Agreement and
to perform their respective obligations hereunder, under the Amended Note
Purchase Agreement and under each of the other Financing Documents.
1.4 No Conflicts, etc.
The execution and delivery by the Company and the Guarantors of this
Agreement and the performance by the Company and the Guarantors of their
respective obligations under each of this Agreement, the Amended Note Purchase
Agreement and the other Financing Documents to which they are a party do not
conflict with, result in any breach in any of the provisions of, constitute a
default under, violate or result in the creation of any Lien upon any Property
of the Company or any Subsidiary under the provisions of:
<PAGE>
(a) any charter document, agreement with shareholders or
bylaws of the Company or any Subsidiary;
(b) any agreement, instrument or conveyance by which the
Company or any Subsidiary or any of their respective Properties may be
bound or affected; or
(c) any statute, rule or regulation or any order, judgment or
award of any court, tribunal or arbitrator by which the Company or any
Subsidiary or any of their respective Properties may be bound or
affected.
1.5 Governmental Consent.
The execution and delivery by the Company and the Guarantors of this
Agreement and the performance by the Company and the Guarantors of their
respective obligations hereunder, under the Amended Note Purchase Agreement and
the other Financing Documents to which they are a party do not require any
consents, approvals or authorizations of, or filings, registrations or
qualifications with, any governmental authority on the part of the Company or
any Subsidiary under the circumstances and conditions contemplated by this
Agreement, the Amended Note Purchase Agreement or the other Financing Documents.
1.6 Compliance with Law.
Neither the Company nor any Subsidiary:
(a) is in violation of any law, ordinance, governmental rule
or regulation to which it is subject; or
(b) has failed to obtain any license, permit, franchise or
other governmental authorization necessary to the ownership of its
Property or to the conduct of its business;
which violation or failure to obtain might, either individually or in the
aggregate, have a material adverse effect on the business, prospects, profits,
Properties or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or the ability of the Company or the Guarantors
to perform any of their respective obligations set forth in this Agreement, the
Amended Note Purchase Agreement or the other Financing Documents.
<PAGE>
1.7 Existence of Defaults.
Immediately prior to, and after giving effect to, the Note Purchase
Agreement Amendment (as such term is defined in Section 2 hereof), no condition
exists that would constitute a Default or an Event of Default under the Note
Purchase Agreement or the Amended Note Purchase Agreement, as the case may be.
1.8 Disclosure.
Neither this Agreement nor any written statement furnished by the
Company or any Guarantor to any Holder in connection herewith contains any
untrue statement of a material fact or omits a material fact necessary to make
the statements contained therein or herein not misleading. There is no fact that
the Company has not disclosed to the Holders in writing that has had or, so far
as the Company can now reasonably foresee, could reasonably be expected to have
a material adverse effect on the business, prospects, profits, Properties or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or the ability of the Company or any Guarantor to perform any of their
respective obligations set forth in this Agreement, the Amended Note Purchase
Agreement or the other Financing Documents.
1.9 True and Correct Copies.
The Company has delivered to the Holders or their special counsel true
and correct copies of (i) the Five-Year Credit Agreement dated as of July 15,
1997, among the Company, certain of the Subsidiaries, certain lenders (the
"Five-Year Lenders"), and The Chase Manhattan Bank, as agent for the Five-Year
Lenders (the "Five-Year Credit Agreement"), and (ii) the 364-day Credit
Agreement among the Company, certain of the Subsidiaries, certain lenders (the
"364-Day Lenders"), and The Chase Manhattan Bank, as agent for the 364-Day
Lenders (the "364-Day Credit Agreement" and, together with the Five-Year Credit
Agreement, the "Credit Agreements"), including all schedules and exhibits to the
Credit Agreements and all agreements delivered in connection with the Credit
Agreements as in effect on the Effective Date (the Five Year Credit Agreement
and the 364-Day Credit Agreement herein collectively referred to as "Credit
Agreements").
<PAGE>
SECTION 2. AMENDMENT TO EXISTING DOCUMENTS; AFFIRMATION.
2.1 Amendment to Existing Documents.
The Company and the Guarantors, and, subject to the satisfaction of the
conditions set forth in Section 3 hereof, the Holders, each hereby consent and
agree that:
(a) the Existing Note Purchase Agreement is hereby amended in the
manner and as specified in Exhibit A to this Agreement (such amendment provided
for in Exhibit A is herein collectively referred to as the "Note Purchase
Agreement Amendment"); and
(b) Section 2.18 of the Joint and Several Guaranty is hereby amended to
read in full as follows:
"(a) Notwithstanding anything in Section 2.1 or elsewhere in
this Guaranty or any other Financing Document to the contrary, the
obligations of each Guarantor under this Guaranty shall at each point
in time be limited to an aggregate amount equal to the greatest amount
that would not result in such obligations being subject to avoidance,
or otherwise result in such obligations being unenforceable, at such
time under applicable law (including, without limitation, to the
extent, and only to the extent, applicable to each Guarantor, Section
548 of the Bankruptcy Code of the United States of America and any
comparable provisions of the law of any other jurisdiction, any capital
preservation law of any jurisdiction and any other law of any
jurisdiction that at such time limits the enforceability of the
obligations of such Guarantor under this Guaranty).
(b) For purposes of determining the obligations of the
Guarantors under this Guaranty it shall be assumed that: (i) any and
all stated obligations of any one or more of Guarantors in favor of one
or more commercial banks existing at any time on or after the Closing
Date and prior to July 15, 1997 were fully satisfied with the proceeds
of loans made under the Credit Facility and such loans were made on the
Closing Date; (ii) the Guarantors received $350,000,000 of the proceeds
of loans made pursuant to the Credit Facility on the Closing Date and
such loans remained outstanding at all times after the Closing Date
until all obligations under the Credit Facility shall have been fully
satisfied; and (iii) on the Closing Date the Guarantors were relieved
<PAGE>
of obligations in an aggregate amount equal to the aggregate principal
amounts of the Notes issued on the Closing Date in consideration for
such Guarantors entering into this Guaranty."
2.2 Affirmation of Obligations under Amended Note Purchase Agreement
and Notes.
The Company hereby acknowledges and affirms all of its obligations
under the terms of the Amended Note Purchase Agreement, the Notes and each of
the other Financing Documents to which it is a party.
2.3 Affirmation of Obligations under Joint and Several Guaranty and
Financing Documents.
Each of the Guarantors hereby acknowledges and affirms all of its
obligations under the terms of the Joint and Several Guaranty and each other
Financing Document to which it is a party.
SECTION 3. CONDITIONS TO EFFECTIVENESS OF NOTE PURCHASE AGREEMENT AMENDMENT.
The Note Purchase Agreement Amendment shall not become effective unless
all of the following conditions precedent shall have been satisfied in full on
or before 5:00 p.m. (Hartford, Connecticut time) on July 15, 1997 (the date of
such satisfaction being herein referred to as the "Effective Date"):
3.1 Execution and Delivery of this Agreement.
The Company and each of the Guarantors shall have executed and
delivered to each of the Holders an original counterpart of this Agreement.
3.2 No Defaults; Warranties and Representations True.
No Default or Event of Default shall exist, and the warranties and
representations set forth in Section 1 hereof shall be true and correct on the
Effective Date.
3.3 Authorization of Transactions.
The Company and each of the Guarantors shall have authorized, by all
necessary corporate action, the execution and delivery of this Agreement and the
<PAGE>
performance of all obligations of, and the satisfaction of all conditions
pursuant to this Section 3 by, and the consummation of all transactions
contemplated by the Amended Note Purchase Agreement and the other Financing
Documents by, the Company and each of the Guarantors.
3.4 Intercreditor Agreement; Additional Guaranties.
(a) The lenders party to the Credit Agreements on the Effective Date
shall have entered into an intercreditor agreement with the Holders in form and
substance satisfactory to the Holders.
(b) The Company shall have caused certain of its Subsidiaries to have
executed and delivered the Joint and Several Guaranty substantially in the form
of Exhibit C hereto.
3.5 Legal Opinions.
The Holders shall have received legal opinions as to such matters as
the Holders and their special counsel shall request in connection with the
transactions contemplated by this Agreement.
3.6 Expenses.
The Company shall have paid all costs and expenses of the Holders
relating to this Agreement in accordance with Section 4.5 hereof.
3.7 Confirmation of Holders' Satisfaction.
Each of the Holders shall have delivered to the Company a written
statement substantially in the form of Exhibit B hereto (and the Company shall
have acknowledged and agreed to such statement) confirming such Holder's
satisfaction with respect to the conditions specified in this Section 3.
SECTION 4. MISCELLANEOUS.
4.1 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, INTERNAL VIRGINIA LAW, EXCLUDING
CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE
APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
<PAGE>
4.2 Duplicate Originals.
Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument. This Agreement may be executed in one or
more counterparts and shall be effective when at least one counterpart shall
have been executed by each party hereto, and each set of counterparts that,
collectively, show execution by each party hereto shall constitute one duplicate
original.
4.3 Waivers and Amendments.
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, or by any action or inaction, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
4.4 Section Headings.
The titles of the Sections hereof appear as a matter of convenience
only, do not constitute a part of this Agreement and shall not affect the
construction hereof.
4.5 Costs and Expenses.
The Company shall pay all costs and expenses of the Holders relating to
this Agreement, including, but not limited to, the statement for reasonable fees
and disbursements of the Holders' special counsel presented to the Company on
the Effective Date. The Company will also pay, upon receipt thereof, each
additional statement for reasonable fees and disbursements of the Holders'
special counsel rendered after the Effective Date in connection with this
Agreement or the Financing Documents.
4.6 Survival.
All warranties, representations, certifications and covenants made by
the Company or any of the Guarantors in this Agreement shall be considered to
have been relied upon by the Holders and shall survive the execution and
delivery of this Agreement, regardless of any investigation made by or on behalf
of the Holders.
<PAGE>
4.7 Time of Essence.
Time is and shall be of the essence in the satisfaction of all the
conditions set forth in Section 3 of this Agreement.
4.8 Defined Terms.
Capitalized terms used herein and not defined herein shall have the
meanings assigned to them in the Amended Note Purchase Agreement.
[Remainder of page intentionally left blank; next page is signature page.]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf by a duly authorized officer or agent
thereof.
SMITHFIELD FOODS, INC.
By:________________________________
Name:
Title:
GWALTNEY OF SMITHFIELD, LTD.
By________________________________
Name:
Title:
JOHN MORRELL & CO.
By________________________________
Name:
Title:
THE SMITHFIELD PACKING COMPANY,
INCORPORATED
By________________________________
Name:
Title:
<PAGE>
SFFC, INC.
By________________________________
Name:
Title:
PATRICK CUDAHY INCORPORATED
By________________________________
Name:
Title:
BROWN'S OF CAROLINA, INC.
By________________________________
Name:
Title:
[HOLDERS]
By:________________________________
Name:
Title:
<PAGE>
EXHIBIT A
AMENDMENT TO EXISTING NOTE PURCHASE AGREEMENT
ss.1. Section 6.11 of the Existing Note Purchase Agreement is
hereby amended to read in its entirety as follows:
(a) Total Liabilities.
The Company shall not at any time permit the ratio of
Consolidated Total Liabilities to Consolidated Tangible Net Worth to
exceed the applicable ratio set forth with respect to such time in the
following table:
If such time is: the applicable ratio is:
===============================================================
On or before October 27, 1996 2.85 to 1.00
After October 27, 1996 and on or 2.75 to 1.00
before July 15, 1997
After July 15, 1997 and before May 3, 3.00 to 1.00
1998
On or after May 3, 1998 2.75 to 1.00
===============================================================
ss.2. The definition of "Consolidated Current Liabilities" in Section
9.1 of the Existing Note Purchase Agreement is hereby amended to read in its
entirety as follows:
Consolidated Current Liabilities -- means, at any time, the
aggregate amount at which the current liabilities of the Company and
the Subsidiaries would be shown on a consolidated balance sheet for
such Persons at such time, provided that such liabilities (a) shall
exclude (to the extent otherwise included therein) liabilities in
respect of Deemed Funded Debt and (b) shall include, without
duplication, liabilities in respect of Excluded Funded Debt.
ss.3. The definition of "Funded Debt" in Section 9.1 of the Existing
Note Purchase Agreement is hereby amended to read in its entirety as follows:
<PAGE>
Funded Debt -- means, at any time, with respect to any Person,
without duplication:
(a) all Debt of such Person (including, without
limitation, the current portion thereof) that by its terms or
by the terms of any instrument or agreement relating thereto
matures, or that is otherwise payable or unpaid, more than one
(1) year from, or is directly or indirectly renewable or
extendible at the option of such Person to a date more than
one (1) year (including, without limitation, an option of the
debtor under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a
period of more than one (1) year) from, the date of the
creation of such Debt (notwithstanding that such Debt may
under certain contingencies be payable on demand or within one
(1) year after such date of creation), provided that, with
respect to the Company and the Subsidiaries, such Debt (i)
shall exclude (to the extent otherwise included therein)
Excluded Funded Debt and (ii) shall include, without
duplication, Deemed Funded Debt;
(b) all Capital Lease Obligations of such Person; and
(c) all Debt of such Person of the type specified in
clause (e) of the definition of "Debt," provided that such
Debt of such Person is in respect of or in support of Funded
Debt of another Person.
ss.4. The definition of "Revolving Credit Agreement" in Section 9.1 of
the Existing Note Purchase Agreement is hereby amended to read in its entirety
as follows:
Revolving Credit Agreement -- means, with respect to the
Company or any Subsidiary, a credit or loan agreement to which the
Company or such Subsidiary is a party and pursuant to which the Company
or such Subsidiary is entitled to obtain working capital loans or other
loans from the commercial bank or commercial banks party thereto, and
shall include, without limitation, the Credit Facility.
ss.5. Section 9.1 of the Existing Note Purchase Agreement is hereby
amended to add the following definition of "Credit Facility" in the appropriate
alphabetical position in such Section:
<PAGE>
Credit Facility -- means, collectively, that certain Five-Year
Credit Agreement and that certain 364-Day Credit Agreement, in each
case among the Company, certain of the Subsidiaries, The Chase
Manhattan Bank as administrative agent and the lenders party thereto,
providing for an aggregate amount of up to $350,000,000 in loans to the
Company, and in each case as amended from time to time.
ss.6. Section 9.1 of the Existing Note Purchase Agreement is hereby
amended to add the following definition of "Deemed Funded Debt" in the
appropriate alphabetical position in such Section:
Deemed Funded Debt -- means, at any time, the lesser of (a)
the aggregate amount of Debt of the Company and the Subsidiaries
outstanding under the Credit Facility at such time and (b) $75,000,000.
ss.7. Section 9.1 of the Existing Note Purchase Agreement is hereby
amended to add the following definition of "Excluded Funded Debt" in the
appropriate alphabetical position in such Section:
Excluded Funded Debt -- means, at any time, the excess (if
any) of (a) the aggregate amount of Debt of the Company and the
Subsidiaries outstanding under the Credit Facility at such time over
(b) $75,000,000.
[EXHIBITS B AND C OMITTED]
EXHIBIT 4.6(b)
JOINT AND SEVERAL GUARANTY
THIS JOINT AND SEVERAL GUARANTY, dated as of July 15, 1997 (as amended
or restated from time to time, this "Guaranty"), by each of Lykes Meat Group,
Inc., a Delaware corporation (together with its successors and assigns,
"Lykes"), Hancock's Old Fashioned Country Hams, Inc., a Delaware corporation
(together with its successors and assigns, "Country Hams"), Valleydale Foods,
Inc., a Delaware corporation, (together with its successors and assigns,
"Valleydale"), Copaz Packing Corporation, an Ohio corporation (together with its
successors and assigns, "Copaz"), Sunnyland, Inc., a Georgia corporation
(together with its successors and assigns, "Sunnyland"), Smithfield Packing-
Landover, Inc., a Delaware corporation (together with its successors and
assigns, "Landover", and together with Lykes, Country Hams, Valleydale, Copaz
and Sunnyland, individually, a "Guarantor" and collectively, the "Guarantors"),
in favor of each of the Noteholders (as such term is hereinafter defined).
1. PRELIMINARY STATEMENT.
1.1 Smithfield Foods, Inc. (together with its successors and assigns,
the "Company"), a Delaware corporation, has authorized, pursuant to those
certain Note Purchase Agreements (collectively, as may be amended or restated
from time to time, the "Note Purchase Agreement"), each dated as of July 15,
1996, entered into separately between the Company and, respectively, each of the
purchasers of the Notes named on Annex 1 to the Note Purchase Agreement (the
"Purchasers"), the issuance of:
(a) $2,825,000 in aggregate principal amount of its six and
twenty-four one-hundredths percent (6.24%) Series A Senior Secured
Notes Due November 1, 1998 (as they may be amended, restated or
otherwise modified from time to time, the "Series A Notes," such term
to include each Series A Note delivered from time to time in accordance
with any of the Note Purchase Agreements);
(b) $9,852,942 in aggregate principal amount of its eight and
forty-one one-hundredths percent (8.41%) Series B Senior Secured Notes
Due August 1, 2006 (as they may be amended, restated or otherwise
modified from time to time, the "Series B Notes," such term to include
each Series B Note delivered from time to time in accordance with any
of the Note Purchase Agreements);
<PAGE>
(c) $40,000,000 in aggregate principal amount of its eight and
thirty-four one-hundredths percent (8.34%) Series C Senior Secured
Notes Due August 1, 2003 (as they may be amended, restated or otherwise
modified from time to time, the "Series C Notes," such term to include
each Series C Note delivered from time to time in accordance with any
of the Note Purchase Agreements);
(d) $9,000,000 in aggregate principal amount of its nine and
eighty one-hundredths percent (9.80%) Series D Senior Secured Notes Due
August 1, 2003 (as they may be amended, restated or otherwise modified
from time to time, the "Series D Notes," such term to include each
Series D Note delivered from time to time in accordance with any of the
Note Purchase Agreements);
(e) $9,250,000 in aggregate principal amount of its ten and
seventy five one-hundredths percent (10.75%) Series E Senior Secured
Notes Due August 1, 2005 (as they may be amended, restated or otherwise
modified from time to time, the "Series E Notes," such term to include
each Series E Note delivered from time to time in accordance with any
of the Note Purchase Agreements);
(f) $100,000,000 in aggregate principal amount of its eight
and fifty-two one-hundredths percent (8.52%) Series F Senior Secured
Notes Due August 1, 2006 (as they may be amended, restated or otherwise
modified from time to time, the "Series F Notes," such term to include
each Series F Note delivered from time to time in accordance with any
of the Note Purchase Agreements);
(g) $14,000,000 in aggregate principal amount of its nine and
eighty-five one-hundredths percent (9.85%) Series G Senior Secured
Notes Due November 1, 2006 (as they may be amended, restated or
otherwise modified from time to time, the "Series G Notes," such term
to include each Series G Note delivered from time to time in accordance
with any of the Note Purchase Agreements); and
(h) $14,779,412 in aggregate principal amount of its eight and
forty-one one-hundredths percent (8.41%) Series H Senior Secured Notes
Due August 1, 2004 (as they may be amended, restated or otherwise
modified from time to time, the "Series H Notes," such term to include
each Series H Note delivered from time to time in accordance with any
of the Note Purchase Agreements).
<PAGE>
The Series A Notes, the Series B Notes, the Series C Notes, the Series D Notes,
the Series E Notes, the Series F Notes, the Series G Notes and the Series H
Notes are herein referred to, individually, as a "Note," and collectively, as
the "Notes."
1.2 The Company has agreed, pursuant to the Note Purchase Agreement,
that the Guarantors are required to guaranty unconditionally all of the
obligations of the Company under and in respect of the Notes and the Note
Purchase Agreement pursuant to the terms and provisions hereof.
1.3 The Guarantors and the Company are operated as part of one
consolidated business entity and are directly dependent upon each other for and
in connection with their respective business activities and their respective
financial resources. Each Guarantor will receive direct and indirect economic,
financial and other benefits from the indebtedness incurred under the Note
Purchase Agreement and the Notes by the Company, and under this Guaranty by such
Guarantor, and the incurrence of such indebtedness is in the best interests of
such Guarantor. The Company and the Guarantors have explicitly induced the
Purchasers to purchase the Notes based on and in reliance on the consolidated
financial condition of the Company and its subsidiaries, including the
Guarantors.
1.4 All acts and proceedings required by law and by the certificates
or articles of incorporation, as the case may be, and bylaws of each Guarantor
necessary to constitute this Guaranty a valid and binding agreement for the uses
and purposes set forth herein in accordance with its terms have been done and
taken, and the execution and delivery hereof has been in all respects duly
authorized by each Guarantor.
2. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS
2.1 Guarantied Obligations.
Each Guarantor, in consideration of the execution and delivery of the
Note Purchase Agreement by the Purchasers and the purchase of the Notes and/or
exchange of certain promissory notes previously issued by certain of the
Guarantors for the Notes, hereby irrevocably, unconditionally, absolutely,
jointly and severally guarantees, on a continuing basis, to each Noteholder, as
and for such Guarantor's own debt, until final and indefeasible payment has been
made:
<PAGE>
(a) the due and punctual payment by the Company of the
principal of, and interest, and the Make-Whole Amount (if any) on, the
Notes at any time outstanding and the due and punctual payment of all
other amounts payable, and all other indebtedness owing, by the Company
to the Noteholders under the Note Purchase Agreement and the Notes, in
each case when and as the same shall become due and payable, whether at
maturity, pursuant to mandatory or optional prepayment, by acceleration
or otherwise, all in accordance with the terms and provisions hereof
and thereof; it being the intent of each Guarantor that the guaranty
set forth herein shall be a continuing guaranty of payment and not a
guaranty of collection; and
(b) the punctual and faithful performance, keeping,
observance, and fulfillment by the Company of all duties, agreements,
covenants and obligations of the Company contained in the Note Purchase
Agreement and the Notes.
All of the obligations set forth in subsection (a) and subsection (b) of this
Section 2.1 are referred to herein as the "Guarantied Obligations" and the
guaranty thereof contained herein is referred to herein as the "Unconditional
Guaranty". This Unconditional Guaranty is a primary, original and immediate
obligation of each Guarantor and is an absolute, unconditional, continuing and
irrevocable guaranty of payment and performance and shall remain in full force
and effect until the full, final and indefeasible payment of the Guarantied
Obligations.
2.2 Performance Under the Note Purchase Agreement.
In the event the Company fails to pay, perform, keep, observe, or
fulfill any Guarantied Obligation in the manner provided in the Notes or in the
Note Purchase Agreement, each of the Guarantors shall cause forthwith to be paid
the moneys, or to be performed, kept, observed, or fulfilled each of such
obligations, in respect of which such failure has occurred in accordance with
the terms and provisions of the Note Purchase Agreement and the Notes. In
furtherance of the foregoing, if an Event of Default shall exist, all of the
Guarantied Obligations shall, in the manner and subject to the limitations
provided in the Note Purchase Agreement for the acceleration of the maturity of
the Notes, forthwith become due and payable without notice, regardless of
whether the acceleration of the maturity of the Notes shall be stayed, enjoined,
delayed or otherwise prevented.
<PAGE>
2.3 Undertakings in Note Purchase Agreement.
Each of the Guarantors will comply with each of the undertakings of the
Company in the Note Purchase Agreement in respect of which the Company
undertakes to cause the Guarantors (in their capacity as Guarantors and as
Subsidiaries) to comply with such undertakings, as if such undertakings (as they
apply to the Guarantors) were set forth at length herein as the undertakings of
each such Guarantor.
2.4 Releases.
Each of the Guarantors consents and agrees that, without any notice
whatsoever to or by the Guarantors and without impairing, releasing, abating,
deferring, suspending, reducing, terminating or otherwise affecting the
obligations of any of the Guarantors hereunder, each Noteholder, by action or
inaction, may:
(a) compromise or settle, renew or extend the period of
duration or the time for the payment, or discharge the performance of,
or may refuse to, or otherwise not, enforce, or may, by action or
inaction, release all or any one or more parties to, any one or more of
this Guaranty, the Notes, the Note Purchase Agreement, any other
guaranty or agreement or instrument related thereto or hereto;
(b) assign, sell or transfer, or otherwise dispose of, any one
or more of the Notes;
(c) grant waivers, extensions, consents and other indulgences
of any kind whatsoever to the Company or any other guarantor in respect
of any one or more of this Guaranty, the Notes, the Note Purchase
Agreement, any other guaranty or any agreement or instrument related
thereto or hereto;
(d) amend, modify or supplement in any manner whatsoever and
at any time (or from time to time) any one or more of the Notes, the
Note Purchase Agreement, any other guaranty or any agreement or
instrument related hereto;
(e) release or substitute any one or more of the endorsers or
guarantors of the Guarantied Obligations, whether parties hereto or
not; and
<PAGE>
(f) sell, exchange, release, surrender or enforce, by action
or inaction, any Property at any time pledged or granted as security in
respect of the Guarantied Obligations in accordance with the terms and
conditions of the agreements and instruments pursuant to which such
Property was pledged or granted (as such agreements and instruments may
be amended from time to time, and without any requirement of notice of
such amendment to any Guarantor), whether so pledged or granted by the
Company, any Guarantor or another guarantor of the Company's
obligations under the Note Purchase Agreement, the Notes, any other
guaranty or any agreement or instrument related hereto.
2.5 Waivers.
To the fullest extent permitted by law, each of the Guarantors does
hereby waive:
(a) any notice of
(i) acceptance of this Unconditional Guaranty;
(ii) any purchase of the Notes under the Note
Purchase Agreement, or the creation, existence or acquisition
of any of the Guarantied Obligations, or the amount of the
Guarantied Obligations, subject to the Guarantors' right to
make inquiry of each Noteholder to ascertain the amount of the
Guarantied Obligations owing to such Noteholder at any
reasonable time, provided that the Guarantors will look solely
to the Company for the determination of the identities of the
Noteholders;
(iii) any transfer of Notes from one holder to
another;
(iv) any adverse change in the financial condition of
the Company or any other fact that might increase, expand or
affect any of the Guarantors' risk hereunder;
(v) presentment for payment, demand, protest,
and notice thereof as to the Notes or any other instrument;
(vi) any Default or Event of Default; and
<PAGE>
(vii) any kind or nature whatsoever to which any of
the Guarantors might otherwise be entitled, other than those
specifically required to be given to each of such Guarantors
pursuant to the terms of this Guaranty;
(b) the right by statute or otherwise to require any
Noteholder to institute suit against the Company, any Guarantor, or any
other guarantor or to exhaust the rights and remedies of any Noteholder
against the Company, any Guarantor or any other guarantor;
(c) the benefit of any stay (except in connection with a
pending appeal), valuation, appraisal, redemption or extension law now
or at any time hereafter in force which, but for this waiver, might be
applicable to any sale of Property of any Guarantor made under any
judgment, order or decree based on this Guaranty, and each Guarantor
covenants that it will not at any time insist upon or plead, or in any
manner claim or take the benefit or advantage of such law;
(d) any defense or objection to the absolute, primary,
continuing nature, or the validity, enforceability or amount, of this
Unconditional Guaranty, including, without limitation, any defense
based on (and the primary, continuing nature, and the validity,
enforceability and amount, of this Unconditional Guaranty shall be
unaffected by), any of the following:
(i) any change in future conditions;
(ii) any change of law;
(iii) any invalidity or irregularity with respect to
the issuance or assumption of any obligations (including,
without limitation, the Note Purchase Agreement, the Notes or
any agreement or instrument related hereto) by the Company or
any other Person;
(iv) the execution and delivery of any agreement at
any time hereafter (including, without limitation, the Note
Purchase Agreement, the Notes or any agreement or instrument
related hereto) of the Company or any other Person,
<PAGE>
(v) the genuineness, validity, regularity or
enforceability of any of the Guarantied Obligations;
(vi) any default, failure or delay, willful or
otherwise, in the performance of any obligations by the
Company or any Guarantor;
(vii) any creditors' rights, bankruptcy, receivership
or other insolvency proceeding of the Company or any
Guarantor, or sequestration or seizure of any Property of the
Company or any Guarantor, or any merger, consolidation,
reorganization, dissolution, liquidation or winding up or
change in corporate constitution or corporate identity or loss
of corporate identity of the Company or any Guarantor;
(viii) any disability or other defense of the Company
or any Guarantor to payment and performance of all Guarantied
Obligations other than the defense that the Guarantied
Obligations shall have been fully and finally performed and
indefeasibly paid;
(ix) the cessation from any cause whatsoever of the
liability of the Company or any Guarantor in respect of the
Guarantied Obligations;
(x) impossibility or illegality of performance on the
part of the Company or any Guarantor under the Note Purchase
Agreement, the Notes or this Guaranty;
(xi) any change in the circumstances of the Company,
any Guarantor or any other Person, whether or not foreseen or
foreseeable, whether or not imputable to the Company or any
Guarantor, including, without limitation, impossibility of
performance through fire, explosion, accident, labor
disturbance, floods, droughts, embargoes, wars (whether or not
declared), civil commotions, acts of God or the public enemy,
delays or failure of suppliers or carriers, inability to
obtain materials, economic or political conditions, or any
other causes affecting performance, or any other force
majeure, whether or not beyond the control of the Company or
any Guarantor and whether or not of the kind hereinbefore
specified;
<PAGE>
(xii) any attachment, claim, demand, charge, Lien,
order, process, encumbrance or any other happening or event or
reason, similar or dissimilar to the foregoing, or any
withholding or diminution at the source, by reason of any
taxes, assessments, expenses, indebtedness, obligations or
liabilities of any character, foreseen or unforeseen, and
whether or not valid, incurred by or against any Person, or
any claims, demands, charges, Liens or encumbrances of any
nature, foreseen or unforeseen, incurred by any Person, or
against any sums payable under the Note Purchase Agreement or
the Notes or any agreement or instrument related hereto so
that such sums would be rendered inadequate or would be
unavailable to make the payment as herein provided;
(xiii) any change in the ownership of the equity
securities of the Company, any Guarantor or any other Person
liable in respect of the Notes; or
(xiv) any other action, happening, event or reason
whatsoever that shall delay, interfere with, hinder or
prevent, or in any way adversely affect, the performance by
the Company or any Guarantor of any of its obligations under
the Note Purchase Agreement, the Notes or this Guaranty.
2.6 Certain Waivers of Subrogation, Reimbursement and Indemnity.
Until the Guarantied Obligations have been finally and indefeasibly
paid, none of the Guarantors shall have any right of subrogation, reimbursement,
or indemnity whatsoever in respect of the Guarantied Obligations, and no right
of recourse to or with respect to any assets or Property of the Company or any
other Guarantor.
2.7 Invalid Payments.
To the extent the Company makes a payment or payments to any
Noteholder, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required,
for any of the foregoing reasons or for any other reason, to be repaid or paid
over to a custodian, trustee, receiver or any other party or officer under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, state or federal law, or any
<PAGE>
common law or equitable cause, then to the extent of such payment or repayment,
the obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made and each
Guarantor shall be primarily liable for such obligation.
2.8 Marshaling.
Neither any Noteholder nor any Person acting for the benefit of any
Noteholder shall be under any obligation to marshal any assets in favor of any
of the Guarantors or against or in payment of any or all of the Guarantied
Obligations.
2.9 Subordination.
In the event that, for any reason whatsoever, the Company or a Person
obligated in respect of the Guarantied Obligations pursuant to another
agreement, is now or hereafter becomes indebted to any Guarantor in any manner
(such indebtedness referred to as an "Affiliate Obligation"), the amount of such
Affiliate Obligation, interest thereon, and all other amounts due with respect
thereto, shall, at all times during the existence of a Default or an Event of
Default, be subordinate as to time of payment and in all other respects to all
the Guarantied Obligations, and such Guarantor shall not be entitled to enforce
or receive payment thereof until all sums then due and owing to the Noteholders
in respect of the Guarantied Obligations shall have been paid in full, except
that such Guarantor may enforce (and shall enforce, at the request of the
Required Holders, and at such Guarantor's expense) any obligations in respect of
any such Affiliate Obligation owing to such Guarantor from the Company or such
indebted Person so long as all proceeds in respect of any recovery from such
enforcement shall be held by such Guarantor in trust for the benefit of the
Noteholders, to be paid to the Noteholders as promptly as reasonably possible.
If any other payment, other than pursuant to the immediately preceding sentence,
shall have been made to any Guarantor by the Company or such indebted Person on
any such Affiliate Obligation during any time that a Default or an Event of
Default exists and there are Guarantied Obligations outstanding, such Guarantor
shall hold in trust all such payments for the benefit of the Noteholders, to be
paid to the Noteholders as promptly as reasonably possible.
<PAGE>
2.10 Setoff, Counterclaim or Other Deductions.
Except as otherwise required by law, each payment by any one or more of
the Guarantors shall be made without setoff, counterclaim or other deduction.
2.11 Election by Guarantors to Perform Obligations.
Any election by any one or more of the Guarantors to pay or otherwise
perform any of the obligations of the Company under the Notes, the Note Purchase
Agreement or any agreement or instrument related hereto shall not release the
Company, any of the Guarantors or any other guarantor from such obligations or
any of such Person's other obligations under the Notes, the Note Purchase
Agreement or any agreement or instrument related hereto.
2.12 No Election of Remedies by Noteholders.
To the extent provided in the Note Purchase Agreement, each Noteholder
shall, individually or collectively, have the right to seek recourse against
each of the Guarantors to the fullest extent provided for herein for such
Guarantor's obligations under this Guaranty in respect of the Guarantied
Obligations. No election to proceed in one form of action or proceeding, or
against any party, or on any obligation, shall constitute a waiver of such
Noteholder's right to proceed in any other form of action or proceeding or
against other parties unless such Noteholder has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing, no
action or proceeding by any Noteholder against the Company or any Guarantor
under any document or instrument evidencing obligations of the Company or any
Guarantor to such Noteholder shall serve to diminish the liability of any
Guarantor under this Guaranty, except to the extent that such Noteholder finally
and unconditionally shall have realized payment by such action or proceeding.
2.13 Separate Action; Other Enforcement Rights.
Each of the rights and remedies granted under this Guaranty to each
Noteholder in respect of the Notes held by such Noteholder may be exercised by
such Noteholder without notice by such Noteholder to, or the consent of or any
other action by, any other Noteholder. Each Noteholder may proceed to protect
and enforce this Unconditional Guaranty by suit or suits or proceedings in
equity, at law or in bankruptcy, and whether for the specific performance of any
covenant or agreement contained herein or in execution or aid of any power
<PAGE>
herein granted or for the recovery of judgment for the obligations hereby
guarantied or for the enforcement of any other proper, legal or equitable remedy
available under applicable law.
2.14 Noteholder Setoff.
Each Noteholder shall have, to the fullest extent permitted by law and
this Guaranty, a right of set-off against any and all credits and any and all
other Property of each or all of the Guarantors, now or at any time whatsoever,
with or in the possession of, such Noteholder, or anyone acting for such
Noteholder, to ensure the full performance of any and all obligations of the
Guarantors hereunder.
2.15 Delay or Omission; No Waiver.
No course of dealing on the part of any Noteholder and no delay or
failure on the part of any such Person to exercise any right hereunder shall
impair such right or operate as a waiver of such right or otherwise prejudice
such Person's rights, powers and remedies hereunder. Every right and remedy
given by this Unconditional Guaranty or by law to any Noteholder may be
exercised from time to time as often as may be deemed expedient by such Person.
2.16 Restoration of Rights and Remedies.
If any Noteholder shall have instituted any proceeding to enforce any
right or remedy under this Unconditional Guaranty or under any Note held by such
Noteholder, and such proceeding shall have been dismissed, discontinued or
abandoned for any reason, or shall have been determined adversely to such
Noteholder, then and in every such case each such Noteholder, the Company and
each of the Guarantors shall, except as may be limited or affected by any
determination (including, without limitation, any determination in connection
with any such dismissal) in such proceeding, be restored severally and
respectively to its respective former positions hereunder and thereunder, and
thereafter, subject as aforesaid, the rights and remedies of such Noteholders
shall continue as though no such proceeding had been instituted.
<PAGE>
2.17 Cumulative Remedies.
No remedy under this Guaranty, the Note Purchase Agreement or the Notes
is intended to be exclusive of any other remedy, but each and every remedy shall
be cumulative and in addition to any and every other remedy given pursuant to
this Guaranty, the Note Purchase Agreement, the Notes or the other Financing
Documents.
2.18 Limitation on Guarantied Obligations.
(a) Notwithstanding anything in Section 2.1 or elsewhere in
this Guaranty or any other Financing Document to the contrary, the
obligations of each Guarantor under this Guaranty shall at each point
in time be limited to an aggregate amount equal to the greatest amount
that would not result in such obligations being subject to avoidance,
or otherwise result in such obligations being unenforceable, at such
time under applicable law (including, without limitation, to the
extent, and only to the extent, applicable to each Guarantor, Section
548 of the Bankruptcy Code of the United States of America and any
comparable provisions of the law of any other jurisdiction, any capital
preservation law of any jurisdiction and any other law of any
jurisdiction that at such time limits the enforceability of the
obligations of such Guarantor under this Guaranty).
(b) For purposes of determining the obligations of the
Guarantors under this Guaranty it shall be assumed that: (i) any and
all stated obligations of any one or more of Guarantors in favor of one
or more commercial banks existing at any time on or after the Closing
Date and prior to July 15, 1997 were fully satisfied with the proceeds
of loans made under the Credit Facility and such loans were made on
July 15, 1997; (ii) the Guarantors received $350,000,000 of the
proceeds of loans made pursuant to the Credit Facility on July 15, 1997
and such loans remained outstanding at all times after the Closing Date
until all obligations under the Credit Facility shall have been fully
satisfied; and (iii) on July 15, 1997 the Guarantors were relieved of
obligations in an aggregate amount equal to the aggregate principal
amounts of the Notes issued on the Closing Date in consideration for
such Guarantors entering into this Guaranty."
<PAGE>
2.19 Maintenance of Offices.
Each Guarantor will maintain an office at its address set forth in
Section 5.3 where notices, presentations and demands in respect of this Guaranty
may be made upon it. Each Guarantor will maintain its office at such address
until such time as such Guarantor shall notify the Noteholders of any change of
location of such office.
2.20 Further Assurances.
Each Guarantor will cooperate with the Noteholders and execute such
further instruments and documents as the Required Holders shall reasonably
request to carry out, to the reasonable satisfaction of the Required Holders,
the transactions contemplated by the Note Purchase Agreements, the Notes, this
Guaranty and the documents and instruments related thereto.
3. INTERPRETATION OF THIS GUARANTY
3.1 Terms Defined.
As used in this Guaranty, capitalized terms have the meaning specified
in the Note Purchase Agreement unless otherwise specified below or set forth in
the section of this Guaranty referred to immediately following such term (such
definitions, unless otherwise expressly provided, to be equally applicable to
both the singular and plural forms of the terms defined):
Affiliate Obligation -- Section 2.9.
Company -- Section 1.1.
Copaz -- has the meaning assigned to such term in the first paragraph
hereof.
Country Hams -- has the meaning assigned to such term in the first
paragraph hereof.
Guaranteeing Subsidiaries -- Section 4.3.
Guarantied Obligations -- Section 2.1.
Guarantor -- has the meaning assigned to such term in the first
paragraph hereof.
Guaranty, this -- has the meaning assigned to such term in the first
paragraph hereof.
<PAGE>
Landover -- has the meaning assigned to such term in the first
paragraph hereof.
Lykes -- has the meaning assigned to such term in the first paragraph
hereof.
Note Purchase Agreement -- Section 1.1.
Noteholder -- means, at any time, each Person that is the holder of any
Note at such time.
Notes -- Section 1.1.
Purchasers -- Section 1.1.
Series A Notes -- Section 1.1.
Series B Notes -- Section 1.1.
Series C Notes -- Section 1.1.
Series D Notes -- Section 1.1.
Series E Notes -- Section 1.1.
Series F Notes -- Section 1.1.
Series G Notes -- Section 1.1.
Series H Notes -- Section 1.1.
Sunnyland -- has the meaning assigned to such term in the first
paragraph hereof.
Unconditional Guaranty -- Section 2.1.
Valleydale -- has the meaning assigned to such term in the first
paragraph hereof.
3.2 Section Headings and Construction.
(a) Section Headings, etc. The titles of the Sections appear
as a matter of convenience only, do not constitute a part hereof and
shall not affect the construction hereof. The words "herein," "hereof,"
"hereunder" and "hereto" refer to this Guaranty as a whole and not to
any particular Section or other subdivision. Unless otherwise
specified, references to Sections are to Sections of this Agreement and
references to Annexes are to Annexes to this Agreement.
<PAGE>
(b) Construction. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being
independent of each other covenant contained herein, and compliance
with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with one or more other
covenants.
4. WARRANTIES AND REPRESENTATIONS
Each Guarantor represents and warrants to each Purchaser, as of the
date hereof, as follows:
4.1 Generally.
(a) Such Guarantor is fully aware of the financial condition
of the Company and is delivering this Guaranty based solely upon its
own independent investigation and in no part upon any representation or
statement of any Noteholder with respect thereto. Such Guarantor is in
a position to obtain, and hereby assumes full responsibility for
obtaining, any additional information concerning the financial
condition of the Company as such Guarantor may deem material to its
obligations hereunder, and such Guarantor is not relying upon, nor
expecting, any Noteholder to furnish it any information concerning the
financial condition of the Company.
(b) As of the date of the execution and delivery of this
Guaranty, the fair salable value of the assets of such Guarantor, taken
as a whole, exceeds its liabilities, taken as a whole; such Guarantor
is able to pay and discharge all of its debts (including, without
limitation, its current liabilities) as they become due and after
giving effect to the transactions contemplated by this Guaranty, such
Guarantor will not become unable to pay and discharge such debts as
they become due; there are no presently pending material court or
administrative proceedings or undischarged judgments against the
Guarantor; and no tax Liens have been filed or threatened against such
Guarantor, nor is such Guarantor in default or claimed default under
any agreement for borrowed money.
<PAGE>
(c) Such Guarantor is a corporation duly organized and validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Such Guarantor has the corporate power to own its
Properties and carry on its business as it is now being conducted. Such
Guarantor has the valid authority and the corporate power to enter into
and perform, and has taken all necessary action to authorize the entry
into, and the performance and delivery of, this Guaranty and the
transactions contemplated hereby.
(d) This Guaranty has been duly authorized by all necessary
action on the part of such Guarantor, has been duly executed and
delivered by duly authorized officers of such Guarantor, and
constitutes a legal, valid and binding obligation of such Guarantor.
(e) The entry into and performance of this Guaranty and the
transactions contemplated hereby do not and will not conflict with any
applicable law or regulation or official or judicial order, conflict
with the articles or certificate of incorporation, or bylaws, of such
Guarantor, conflict with any agreement or document to which such
Guarantor is a party or that is binding upon it or any of its
Properties, or result in the creation or imposition of any Lien on any
of its Properties pursuant to the provisions of any agreement or
document.
4.2 Nature of Business of Company and Subsidiaries.
The Company, the Guarantors, and all of the other Subsidiaries are, and
will be, as to financing and capital raising activities, operated as part of one
consolidated business entity and each Guarantor is directly or indirectly
dependent upon each other Guarantor and each other Subsidiary and the Company
for and in connection with its business activities and its financial resources.
The Company and the Subsidiaries have sought and obtained the sale of the Notes
and the related transactions based on their consolidated financial position and
the Company and the Subsidiaries understand that the Purchasers are relying on
the consolidated financial condition of the Company and the Subsidiaries in
purchasing the Notes.
<PAGE>
4.3 Solvency.
The fair value of the business and assets of each of the Company and
each of the Guarantors will be in excess of the amount that will be required to
pay its liabilities (including, without limitation, contingent, subordinated,
unmatured and unliquidated liabilities on existing debts, as such liabilities
may become absolute and matured), in each case after giving effect to the
transactions contemplated by this Guaranty and the other the Financing
Documents. Neither the Company nor any Guarantor, after giving effect to the
transactions contemplated by the Financing Documents, will be engaged in any
business or transaction, or about to engage in any business or transaction, for
which such Person has unreasonably small assets or capital (within the meaning
of applicable law, including, without limitation, Section 548 of the United
States Bankruptcy Code), and neither the Company nor any Guarantor has any
intent to
(a) hinder, delay or defraud any entity to which it is, or
will become, on or after the Closing Date, indebted, or
(b) incur debts that would be beyond its ability to pay as
they mature.
5. MISCELLANEOUS
5.1 Successors and Assigns.
(a) Whenever any Guarantor or any of the parties to the Note
Purchase Agreement is referred to, such reference shall be deemed to
include the successors and assigns of such party, and all the
covenants, promises and agreements contained in this Guaranty by or on
behalf of any Guarantor shall bind the successors and assigns of such
Guarantor and shall inure to the benefit of each of the Noteholders
from time to time whether so expressed or not and whether or not an
assignment of the rights hereunder shall have been delivered in
connection with any assignment or other transfer of Notes.
(b) Each of the Guarantors agrees to take such action as may
be reasonably requested by any Noteholder in connection with the
transfer of the Notes of such Noteholder in accordance with the
requirements of the Note Purchase Agreement in connection with
providing an executed copy of this Guaranty to the new Noteholder or
Noteholders of such Notes, provided that no additional obligations of
the Guarantors shall thereby be created but rather that the existing
obligations of the Guarantors shall be more particularly stated in
respect of one or more future Noteholders that are the subject of this
Guaranty.
<PAGE>
5.2 Partial Invalidity.
The unenforceability or invalidity of any provision or provisions
hereof shall not render any other provision or provisions contained herein
unenforceable or invalid.
5.3 Communications.
(a) Method; Address. All communications hereunder shall be in
writing, shall be delivered in the manner required by the Note Purchase
Agreement, and shall be addressed, if to the Guarantors, at their
respective addresses as set forth in the Note Purchase Agreement, and
if to any of the Noteholders
(i) if such Noteholder is a Purchaser, at the address
set forth on Schedule A to the Note Purchase Agreement for
such Noteholder, and further including any parties referred to
on such Schedule A which are required to receive notices in
addition to such Noteholder, and
(ii) if such Noteholder is not a Purchaser, at the
address set forth in the register for the registration and
transfer of Notes maintained pursuant to Section 5.1 of the
Note Purchase Agreement for such Noteholder,
or to any such party at such other address as such party may designate
by notice duly given in accordance with this Section 5.3.
(b) When Given. Any communication so addressed and deposited
in the United States mail, postage prepaid, by registered or certified
mail (in each case, with return receipt requested) shall be deemed to
be received on the third (3rd) succeeding Business Day after the day of
such deposit (not including the date of such deposit). Any
communication so addressed and delivered otherwise shall be deemed to
be received when actually received at the address of the addressee.
<PAGE>
5.4 Governing Law.
THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, INTERNAL VIRGINIA LAW, EXCLUDING CHOICE-OF-LAW PROVISIONS OF
SUCH COMMONWEALTH THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A
JURISDICTION OTHER THAN SUCH COMMONWEALTH.
5.5 Effective Date.
This Guaranty shall be effective as of the date hereof.
5.6 Benefits of Guaranty Restricted.
Nothing express or implied in this Guaranty is intended or shall be
construed to give to any Person other than the Guarantors, the Noteholders and
the Security Trustee any legal or equitable right, remedy or claim under or in
respect hereof or any covenant, condition or provision herein contained; and all
such covenants, conditions and provisions are and shall be held to be for the
sole and exclusive benefit of the Guarantors, the Noteholders and the Security
Trustee.
5.7 Survival of Representations and Warranties; Entire Agreement.
All representations and warranties contained herein or made in writing
by the Guarantors in connection herewith shall survive the execution and
delivery hereof.
5.8 Expenses.
(a) The Guarantors shall pay when billed the reasonable costs
and expenses (including reasonable attorneys' fees) incurred by the
Noteholders and the Security Trustee in connection with the
consideration, negotiation, preparation or execution of any amendments,
waivers, consents, standstill agreements and other similar agreements
with respect hereto (whether or not any such amendments, waivers,
consents, standstill agreements or other similar agreements are
executed).
(b) At any time when any one or more of the Company or the
Guarantors and the Noteholders are conducting restructuring or workout
negotiations in respect hereof, or a Default or Event of Default
exists, the Guarantors shall pay when billed the reasonable costs and
expenses (including reasonable attorneys' fees and the reasonable fees
of professional advisors) incurred by the Noteholders in connection
<PAGE>
with the assessment, analysis or enforcement of any rights or remedies
that are or may be available to the Noteholders.
(c) If any of the Guarantors shall fail to pay when due any
principal of, or Make-Whole Amount or interest on, any Note, each of
the Guarantors shall pay to each Noteholder, to the extent permitted by
law, such amounts as shall be sufficient to cover the costs and
expenses, including but not limited to reasonable attorneys' fees,
incurred by such Noteholder in collecting any sums due on the Notes.
5.9 Amendment.
This Guaranty may be amended only in a writing executed by each
Guarantor and the Required Holders.
5.10 Survival.
So long as the Guarantied Obligations and all payment obligations of
the Guarantors hereunder shall not have been fully and finally performed and
indefeasibly paid, the obligations of the Guarantors hereunder shall survive the
transfer and payment of any Note and the payment in full of all the Notes.
5.11 Entire Agreement.
This Guaranty constitutes the final written expression of all of the
terms hereof and is a complete and exclusive statement of those terms.
5.12 Duplicate Originals, Execution in Counterpart.
Two or more duplicate originals hereof may be signed by the parties,
each of which shall be an original but all of which together shall constitute
one and the same instrument. This Guaranty may be executed in one or more
counterparts and shall be effective when at least one counterpart shall have
been executed by each party hereto, and each set of counterparts that,
collectively, show execution by each party hereto shall constitute one duplicate
original.
[Remainder of page intentionally blank. Next page is signature page.]
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed on its behalf by a duly authorized officer of such Guarantor.
LYKES MEAT GROUP, INC.
By________________________________
Name:
Title:
HANCOCK'S OLD FASHIONED COUNTRY
HAMS, INC.
By________________________________
Name:
Title:
VALLEYDALE FOODS, INC.
By________________________________
Name:
Title:
COPAZ PACKING CORPORATION
By________________________________
Name:
Title:
SUNNYLAND, INC.
By________________________________
Name:
Title:
SMITHFIELD PACKING-LANDOVER, INC.
By________________________________
Name:
Title:
Exhibit 10.6
SMITHFIELD FOODS, INC.
1998 INCENTIVE BONUS PLAN
1. PURPOSE. Smithfield Foods, Inc. hereby establishes an
Incentive Bonus Plan (the "Plan") applicable to any person serving as Chief
Operating Officer of the Company ("Executive"). The Company intends to provide
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 June 13, 1997, and is subject to approval
of the Company's stockholders. The Plan is effective as of April 28, 1997.
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
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.
(e) "Bonus Payment" means the amount due Executive under the
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.
<PAGE>
(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 shall be a sub-committee of the
Compensation Committee of the Board consisting of the outside directors serving
on the Compensation Committee unless otherwise determined by the Board.
(i) "Company" means Smithfield Foods, Inc., a Delaware
corporation.
(j) "Disability" means, in general, the inability to perform
the services for which Executive was employed. The Committee shall determine
whether a Disability exists and such determination shall be conclusive.
(k) "Executive" means the person serving at any time as Chief
Operating Officer of the Company, including any successor to the person
currently serving in that office.
(l) "Retirement" means the termination of employment at or
after age 65 or at or after such earlier date as designated by the Committee.
3. INCENTIVE BONUSES.
(a) Subject to the remaining provisions of this section 3 and
to section 5, Executive shall be entitled to receive as a Bonus Payment with
respect to the fiscal year beginning April 28, 1997, 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 fiscal year.
(b) If Executive is elected or appointed to serve as President
and Chief Operating Officer of the Company after the beginning of a fiscal year
for which a Bonus Payment is payable, such Bonus Payment shall be equal to (i)
one percent (1%) of the Bonus Base for the entire fiscal year, if Executive
assumed such office within ninety (90) days after the beginning of the fiscal
year and if no Bonus Payment is to be paid to the person or persons serving in
such office prior to Executive with respect to that portion of the fiscal year
preceding the date Executive is elected or appointed to serve in such office or
(ii) if clause (i) above is not applicable, one percent (1%) of the Bonus Base
for the period commencing on the date Executive is elected or appointed to serve
in such office and ending on the last day of such fiscal year.
(c) The Committee may establish such other threshold and
percentage requirements for receipt of a Bonus Payment as the Committee shall
deem appropriate prior to the ninetieth (90th) day of the fiscal year or other
period with respect to which the Bonus Base and any corresponding Bonus Payment
is to be calculated.
<PAGE>
(d) Notwithstanding the foregoing provisions of this section
3, 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, except as otherwise
provided in subsection 5(a), (ii) after the Committee has certified that the
performance criteria have been met, and (iii) 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 of employment occurs as a result of
death, Disability, Retirement or termination by the Company without Cause,
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 or
voluntarily by Executive (other than due to Disability or Retirement), 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 Committee.
(b) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee.
(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
<PAGE>
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.
8. SUCCESSORS. The Plan shall be binding on 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 or other period for which
a Bonus Payment is payable may increase the Bonus Payment for the period 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 Commonwealth of Virginia without regard to the conflict of law
principles thereof. The headings in this Plan have been inserted for convenience
of reference only and are to be ignored in any construction of the provisions.
Pronouns and other terms expressed in a particular gender shall be deemed to
include the other gender. If a provision of this Plan is not valid, that
invalidity does not affect other provisions.
EXHIBIT 11
SMITHFIELD FOODS, INC.
COMPUTATION OF NET INCOME PER COMMON 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 27, 1997 April 28, 1996 April 30, 1995
- ------ -------------- -------------- --------------
<S> <C>
Income from continuing operations, $44,937,000 $19,786,000 $31,915,000
Dividends on preferred stock 1,238,000 1,152,000 675,000
----------- ----------- -----------
Income from continuing operations available to
common shareholders 43,699,000 18,634,000 31,240,000
Loss from discontinued operations - (3,900,000) (4,075,000)
Net income available to common shareholders $43,699,000 $14,734,000 $27,165,000
=========== =========== ===========
Shares
- ------
Weighted average common shares:
Outstanding 18,113,000 16,962,000 16,397,000
Incremental common share equilavents for stock
options and dilutive preferred shares 572,000 568,000 662,000
----------- ----------- -----------
Weighted average common shares used for
computation 8,685,000 17,530,000 17,059,000
=========== =========== ===========
Income (loss) per common share:
Continuing operations $ 2.34 $ 1.06 $ 1.83
Discontinued operations (.22) (.24)
----------- ----------- -----------
-
Net income $ 2.34 $ .84 $ 1.59
=========== =========== ===========
</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
Lykes Meat Group, Inc. Delaware
Patrick Cudahy Incorporated Delaware
The Smithfield Packing
Company, Incorporated Virginia
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated June 6, 1997, included in this Form 10-K Annual Report, into the
Company's previously filed Registration Statements:
Registration
Form: Number: Relating to:
- -----------------------------------------------------------------------------
S-8 33-53024 Smithfield Foods, Inc. 401(k) Plan for
Salaried Employees
S-8 33-14219 1984 Stock Option Plan
ARTHUR ANDERSEN LLP
Richmond, Virginia
July 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-27-1997
<PERIOD-END> APR-27-1997
<CASH> 25,791
<SECURITIES> 0
<RECEIVABLES> 167,593
<ALLOWANCES> 1,499
<INVENTORY> 253,276
<CURRENT-ASSETS> 488,378
<PP&E> 614,393
<DEPRECIATION> 187,518
<TOTAL-ASSETS> 995,254
<CURRENT-LIABILITIES> 324,066
<BONDS> 288,486
0
0
<COMMON> 9,598
<OTHER-SE> 297,888
<TOTAL-LIABILITY-AND-EQUITY> 995,254
<SALES> 3,870,611
<TOTAL-REVENUES> 3,870,611
<CGS> 3,549,673
<TOTAL-COSTS> 3,549,673
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,211
<INCOME-PRETAX> 67,677
<INCOME-TAX> 22,740
<INCOME-CONTINUING> 44,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,937
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 0
</TABLE>
