SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 7, 1999
SMITHFIELD FOODS, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-2258 52-0845861
(State or other (Commission (IRS Employer
jurisdiction of incorporation File Number) Identification No.)
200 COMMERCE STREET
SMITHFIELD, VIRGINIA 23430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (757) 365-3000
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Smithfield Foods, Inc. ("Smithfield Foods") on May 7, 1999 completed the
acquisition of Carroll's Foods, Inc. and its affiliated companies and
partnership interests ("Carroll's Foods") for 4.2 million shares of Smithfield
Foods, Inc. common stock and the assumption of approximately $231 million in
debt, plus other liabilities. Friday's closing price of Smithfield Foods, Inc.
common stock on the Nasdaq Stock Market was $26.50.
The acquisition includes 100% of the capital stock of Carroll's Foods, Inc.;
Carroll's 50% interest in Smithfield-Carroll's; Carroll's 16% interest in Circle
Four; Carroll's 50% interest in Tar Heel Turkey Hatchery, 100% of Carroll's
turkey grow-out operation, Carroll's 49% interest in Carolina Turkeys, and
certain hog production interests in Brazil and Mexico. Carroll's Foods, Inc. is
the second largest hog production company in the U.S. and is headquartered in
Warsaw, North Carolina. Smithfield-Carroll's is a hog production partnership
with Smithfield Foods, headquartered in Waverly, Virginia. Circle Four is a hog
production partnership with Smithfield Foods headquartered in Milford, Utah.
Carolina Turkeys is a turkey processing partnership with Maxwell Farms, Inc.,
headquartered in Mount Olive, North Carolina, which produces approximately 290
million pounds of fresh turkeys and approximately 110 million pounds of
processed turkey meats annually.
The final acquisition price is substantially less than the $500 million
transaction value contained in the previously disclosed Letter of Intent
executed by the parties on February 25, 1999. The revised purchase price was
mutually agreed to in negotiations between the parties subsequent to the
execution of the Letter of Intent. "The final purchase price more accurately
reflects the value of Carroll's Foods. Based on this purchase price, Carroll's
Foods production costs are as competitive as any in the hog production industry
and, based on what we expect for hog prices going forward, the acquisition will
be accretive to Smithfield Foods earnings in fiscal 2000," Joseph W. Luter, III,
Chairman and CEO of Smithfield Foods, said.
The acquisition of Carroll's Foods makes Smithfield Foods the largest hog
producer in the world, which complements its position as the largest pork
processing company in the world. In addition, the Company has taken a major step
toward achieving its long term strategic goal of becoming more vertically
integrated by increasing its level of vertical integration to approximately 30%
from its prior level of approximaetly 14%. The Company expects to produce
approximately 5.6 million hogs and process approximately 19 million hogs in
fiscal 2000.
"This single transaction accomplished what the Company had otherwise hoped to
achieve in added hog production over the next five to 10 years, assuming such
new production could even be added or developed given the current political and
environmental climate in existence today." Luter said. He went on to say that
the added hog production will further insulate the Company from the effects of
major market swings in hog prices and fresh pork margins.
"This acquisition has put Smithfield Foods at what we consider to be an optimum
and prudent level of vertical integration. As a consequence, we have no plans to
increase our level of hog production in the United States in any significant way
in the foreseeable future," Luter stated.
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Going forward, the Carroll's Foods businesses will be conducted as a separate
operating unit of Smithfield Foods that will be managed by its present
management team which will remain substantially intact. "This is consistent with
the Company's operating philosophy that permits its separate operating units a
great deal of autonomy under their own management teams," Luter stated. He also
said that the Company has worked very closely with Carroll's over the last
decade and that he was very comfortable with Carroll's Foods management team.
Separately, the Company's Board of Directors approved the purchase by the
Company of up to 2 million shares of its common stock from time to time in the
open market or in private transactions.
Smithfield Foods, a major marketer of fresh pork and processed meats, includes
among its brands Smithfield Lean Generation Pork, Smithfield Premium, Gwaltney,
John Morrell, Patrick Cudahy, Lykes, Esskay, Kretschmar, Valleydale, Jamestown,
Dinner Bell, Realean, Patrick's Pride, Great, Tobin's First Prize, Peyton's,
Curly's, Ember Farms and others.
This news release may contain "forward-looking" information within the meaning
of the federal securities laws. The forward-looking information may include
statements concerning the Company's outlook for the future, as well as other
statements of beliefs, future plans and strategies or anticipated events, and
similar expressions concerning matters that are not historical facts.
Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in, or implied
by, the statements. The risks include availability and prices of raw materials,
product pricing, the competitive environment and related market conditions,
operating efficiencies, access to capital and actions of domestic and foreign
governments.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Company to provide the financial statements required by
this Item 7(a). In accordance with Item 7(a)(4) of Form 8-K, the registrant
expects to file such financial statements by amendment to this Form 8-K no later
than July 21, 1999.
(b) Pro Forma Financial Information.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Company to provide the pro forma financial information
required by this Item 7(b). In accordance with Item 7(b) of Form 8-K, the
registrant expects to file such pro forma financial information by amendment to
this Form 8-K no later than July 21, 1999.
(c) Exhibits.
Exhibit 2.1 Acquisition Agreement among Smithfield Foods, Carroll's
Foods and certain affiliates, Carroll M. Baggett, James
O. Mathews and Jeffrey S. Matthews, dated as of May 3,
1999 (exhibits as executed are filed below as exhibits
2.2, 2.3 and 2.4) (schedules are omitted, but the
registrant hereby agrees upon request of the Commission
to furnish schedules supplementally).
Exhibit 2.2 Escrow Agreement among Smithfield Foods, Carroll M.
Baggett, James O. Matthews, Jeffrey S. Matthews and
McGuire, Woods, Battle & Boothe LLP, dated as of May 7,
1999.
Exhibit 2.3 Agreement with Shareholders by and between Smithfield
Foods and each of Jeffrey S. Matthews, Carroll M. Baggett
and James O. Matthews, dated as of May 7, 1999.
Exhibit 2.4 Registration Rights Agreement by and between Smithfield
Foods and each of Jeffrey S. Matthews, Carroll M. Baggett
and James O. Matthews, dated as of May 7, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
By: /s/ Aaron D. Trub
-------------------------
(Signature)
Aaron D. Trub
Dated: May 11, 1999
CONFORMED COPY
================================================================================
ACQUISITION AGREEMENT
AMONG
SMITHFIELD FOODS, INC.,
CARROLL'S FOODS, INC.,
CARROLL'S FOODS OF VIRGINIA, INC.,
CARROLL'S FOODS OF UTAH, INC.,
CARROLL'S FOODS OF MEXICO, INC.,
CARROLL'S CAPITAL, INC.,
CARROLL'S FARMS OF VIRGINIA, INC.,
CARROLL'S REALTY, INC.,
CARROLL'S PROCESSING, INC.,
CARROLL M. BAGGETT,
JAMES O. MATTHEWS
AND
JEFFREY S. MATTHEWS
Dated as of May 3, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
Article I
DEFINITIONS
1.1 Definitions......................................................1
Article II
ACQUISITION
2.1 The Mergers......................................................9
2.2 Carroll's Brazil Acquisition....................................10
2.3 Carolina Turkeys Acquisition....................................10
2.4 Statement of Estimated Consideration; Exchange of Shares........10
2.5 Closing.........................................................11
2.6 Adjustment of Estimated Consideration...........................11
Article III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
3.1 Organization; Qualification.....................................14
3.2 Capitalization; Validity of Shares; Voting Trusts...............14
3.3 Authority Relative to Agreements................................15
3.4 Consents and Approvals..........................................15
3.5 Non-Contravention...............................................16
3.6 Real Property...................................................16
3.7 Personal Property...............................................16
3.8 Tax Matters.....................................................17
3.9 Securities Act and Other Securities Ownership Matters...........19
Article IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization; Qualification.....................................20
4.2 SEC Filings; Financial Statements...............................20
4.3 Absence of Certain Changes or Events............................21
4.4 Securities Act Matters..........................................21
4.5 Authority Relative to Agreements................................21
4.6 Consents and Approvals..........................................22
4.7 Non-Contravention...............................................22
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Article V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business.............................................22
5.2 Forbearances....................................................23
5.3 Negotiations with Others; Notification..........................26
5.4 Investigation of Business and Properties........................26
5.5 Confidentiality.................................................27
5.6 No Disclosure; Public Announcements.............................27
5.7 Transfer Taxes; Expenses........................................27
5.8 Efforts to Consummate...........................................28
5.9 Related Party Accounts..........................................28
5.10 Further Assurances............................................28
5.11 Rights to Examine Books and Records...........................28
5.12 Certain Tax Matters...........................................29
5.13 Additional Assets.............................................31
5.14 Carroll's Processing, Inc.....................................31
5.15 Allocation of Consideration...................................31
Article VI
CONDITIONS TO OBLIGATIONS OF BUYER
6.1 Representations and Warranties..................................32
6.2 Performance of this Agreement...................................32
6.3 Consents and Approvals..........................................32
6.4 Injunction, Litigation, etc.....................................32
6.5 Legislation.....................................................32
6.6 Proceedings.....................................................32
6.7 Opinion of Counsel..............................................33
6.8 Closing Deliveries..............................................33
6.9 Material Change.................................................34
6.10 Companies Debt................................................34
6.11 Resignations..................................................34
6.12 Tax Matters...................................................34
6.13 Escrow Agreement..............................................35
6.14 Opinion of Financial Advisor; Approval of Buyer's
Board of Directors..........................................35
Article VII
CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS
7.1 Representations and Warranties..................................35
7.2 Performance of this Agreement...................................35
7.3 Consents and Approvals..........................................36
7.4 Injunction, Litigation, etc.....................................36
ii
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7.5 Legislation.....................................................36
7.6 Proceedings.....................................................36
7.7 Opinion of Counsel..............................................36
7.8 Closing Deliveries..............................................36
7.9 Escrow Agreement................................................37
7.10 Escrow Deposit and Estimated Consideration....................37
7.11 Registration Rights Agreement.................................37
7.12 Material Adverse Change.......................................37
7.13 Tax-Free Reorganizations......................................37
Article VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.1 Survival of Representations.....................................38
8.2 Indemnification by the Shareholders.............................38
8.3 Indemnification by Buyer........................................39
8.4 Notice and Defense of Claims....................................39
8.5 Calculation of Covered Liabilities..............................41
8.6 Exclusive Remedy................................................42
8.7 No Circular Recovery............................................42
Article IX
TERMINATION
9.1 Termination.....................................................42
9.2 Procedure: Effect of Termination................................43
Article X
GENERAL PROVISIONS
10.1 Notices.......................................................43
10.2 Interpretation................................................44
10.3 Entire Agreement..............................................45
10.4 No Third Party Beneficiaries..................................45
10.5 The Shareholders' Representative..............................45
10.6 Successors and Assigns........................................46
10.7 Severability..................................................46
10.8 Amendment.....................................................46
10.9 Extension; Waiver.............................................46
10.10 Disclosure Schedules..........................................47
10.11 Counterparts..................................................47
10.12 Governing Law.................................................47
10.13 Jurisdiction..................................................47
iii
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EXHIBITS
A Form of Escrow Agreement
B Form of Opinion of Counsel for the Shareholders
C Form of Opinion of Counsel for Buyer
D Form of Agreement with Shareholder
E Form of Registration Rights Agreement
SCHEDULES
1.1(a) Excluded Assets
1.1(b) Cash to Accrual tax Liability Methodology
1.1(c) Working Capital
1.1(d) Working Capital Methodology
2.1 Mergers
2.3 CPI Assets
3.1 Organization and Qualification
3.2 Capitalization
3.3 Authority
3.4 Consents and Approvals
3.5 Non-Contravention
3.8 Tax Matters
4.6 Consents and Approvals
4.7 Non-Contravention
5.1 Conduct of Business
5.2 Forbearances
5.9 Related Party Agreements
5.13 Additional Assets
5.15 Allocation of Consideration
10.2 Buyer's Executive Officers
iv
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "Agreement") dated as of May 3, 1999, is
made among SMITHFIELD FOODS, INC., a Virginia corporation ("Buyer"), CARROLL'S
FOODS, INC., a North Carolina corporation ("CFI"), CARROLL'S FOODS OF VIRGINIA,
INC., a North Carolina corporation, CARROLL'S FOODS OF UTAH, INC., a North
Carolina corporation, CARROLL'S FOODS OF MEXICO, INC., a North Carolina
corporation, CARROLL'S CAPITAL, INC., a North Carolina corporation, CARROLL'S
FARMS OF VIRGINIA, INC., a North Carolina corporation, CARROLL'S REALTY, INC., a
North Carolina corporation (the foregoing corporations being referred to
collectively as the "Carroll's Companies"), CARROLL'S PROCESSING, INC., a North
Carolina corporation ("CPI") and CARROLL M. BAGGETT, JAMES O. MATTHEWS, JEFFREY
S. MATTHEWS (collectively, the "Shareholders").
RECITALS
The Shareholders own (i) all of the outstanding shares of capital stock of
the Carroll's Companies and CPI and (ii) all of the equity interests in
Carroll's Foods of Brazil, LLC, a North Carolina limited liability company
("Carroll's Brazil"). Buyer and the Shareholders desire that Buyer acquire
substantially all of the assets and operations of the Carroll's Companies and
CPI and the equity interests held by the Shareholders in Carroll's Brazil by (i)
causing Subsidiaries of Buyer (each a "Buyer Sub" and collectively, "Buyer
Subs") to merge into the Carroll's Companies with the Carroll's Companies being
the surviving corporations, (ii) the Shareholders' transferring and conveying to
a Subsidiary of Buyer all of the equity interests in Carroll's Brazil and (iii)
causing CPI to sell to a Subsidiary of Buyer substantially all of its assets,
including the 49% general partnership interests held by it in Carolina Turkeys,
a North Carolina general partnership and the assumption of certain intercompany
debt of CPI, all for the consideration hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
Article I
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings:
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"Action" means any complaint, claim, prosecution, indictment,
action, suit, arbitration, investigation, governmental audit, inquiry or
proceeding by or before any Governmental Authority.
"Affiliate" of a Person means a Person who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person.
"Ancillary Agreements" means the Escrow Agreement, the Agreements
with Shareholders and the Registration Rights Agreement.
"Assets" means all of the Companies' right, title and interest in
and to all properties, assets and rights of any kind, whether tangible or
intangible, real or personal, owned by the Companies or in which the Companies
have any interest (to the extent of such interest), other than the items
specifically identified as Excluded Assets on Schedule 1.1(a).
"Audited Financial Statements" means the audited combined financial
statements of the Companies for the three years ended December 26, 1998.
"Books and Records" means all books, records, lists, ledgers, files,
reports, plans, drawings and operating records of every kind (in any form or
medium) relating to the Companies, the Assets, Business operations, customers,
suppliers and personnel, including (i) all corporate books and records of the
Companies, (ii) all disk or tape files, printouts, runs or other computer-based
information and the Companies' interest in all computer programs required to
access, and the equipment containing, all such computer-based information, (iii)
all product, business and marketing plans, (iv) all environmental control
records, (v) all sales, maintenance and production records, (vi) equipment
warranty information, (vii) litigation files, (viii) customer and supplier lists
and information and (ix) personnel records.
"Breaching Party" has the meaning set forth in Section 9.2.
"Business" means the hog farming business and the turkey farming and
processing business conducted by the Companies.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in Raleigh, North Carolina or New York, New York are
authorized by Law to close.
"Buyer's Auditors" means Arthur Andersen LLP.
"Buyer Claims" has the meaning set forth in Section 8.2(b).
"Buyer Common Shares" means the Common Stock, par value $.50 per
share, of Buyer.
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"Buyer Indemnified Parties" has the meaning set forth in Section
8.2(a).
"Buyer SEC Filings" has the meaning set forth in Section 4.2.
"Buyer Sub" and "Buyer Subs" have the meaning set forth in the
Recitals.
"Capital Lease" means any lease of which any of the Companies is the
lessee which is required to be capitalized on the balance sheet in accordance
with GAAP.
"Carolina Turkeys" means Carolina Turkeys, a North Carolina general
partnership.
"Carroll's Brazil" means Carroll's Foods of Brazil, LLC, a limited
liability company organized under the laws of North Carolina.
"Cash to Accrual Tax Liability" means the net present value (based
on a 7% discount rate and a combined federal and state corporate income tax rate
of 39.485%) of the tax liability that will be incurred by Buyer under Sections
447 and 481 of the Internal Revenue Code when it converts from the cash method
to the accrual method of accounting with respect to the Carroll's Companies for
federal income tax purposes as of the Effective Date, as determined in
accordance with the methodology set forth in Schedule 1.1(b).
"Cash to Accrual Tax Liability Adjustment" means the number of Buyer
Common Shares equal to (i) the amount (which may be positive or negative) by
which the Cash to Accrual Tax Liability is more or less than $45,000,000.00,
divided by (ii) $31.11. Subject to the impact on the calculation of
Consideration of the Companies Debt Adjustment and the Working Capital
Adjustment, if the Cash to Accrual Tax Liability is more than $45,000,000, there
will be a decrease in the number of Buyer Common Shares and if the Cash to
Accrual Tax Liability is less than $45,000,000, there will be an increase in the
number of Buyer Common Shares.
"Claim" has the meaning set forth in Section 8.4.
"Claim Notice" has the meaning set forth in Section 8.4.
"Closing" has the meaning set forth in Section 2.5.
"Closing Date" has the meaning set forth in Section 2.5.
"Companies" means collectively the Carroll's Companies, Carroll's
Brazil and CPI, and "Company" means whichever of the Companies the context
suggests; provided that for purposes of Article III hereof "Companies" includes
Carroll's Foods of the Midwest, Inc., a North Carolina corporation, and Matthews
Family Properties, L.L.C., a North Carolina limited liability company.
3
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"Companies Debt" means the interest bearing indebtedness (plus any
accrued interest on such indebtedness) of the Companies, their respective
Subsidiaries and certain other entities in which one or more of the Companies or
their Subsidiaries own an interest, for borrowed money from third parties other
than the Shareholders, the Companies or their respective Subsidiaries or
Affiliates, computed pursuant to Schedule 1.1(c) and the percentages reflected
therein. For example, in computing Companies Debt, 50% of the applicable
indebtedness of Smithfield-Carroll's Farms, Carroll's Foods of Virginia, Inc.,
Carroll's Farms of Virginia, Inc., Granjas Carroll de Mexico, S.A. de C.V. and
Tar Heel Turkey hatchery, Inc., 49% of the applicable indebtedness of Carolina
Turkeys and the percentage ownership of Carroll's Foods of Utah, Inc. in Circle
Four Farms, Circle Four Realty and Circle Four Sales as of the Effective Date,
of the applicable indebtedness of Circle Four Farms, Circle Four Realty and
Circle Four Sales, shall be included.
"Companies Debt Adjustment" means the number of Buyer Common Shares
equal to (i) the amount (which may be positive or negative) by which the
Companies Debt on the Effective Date is more or less than $215,000,000 divided
by (ii) $31.11. Subject to the impact on the calculation of Consideration of the
Cash to Accrual Tax Liability Adjustment and the Working Capital Adjustment, if
the Companies Debt as of the Effective Date is more than $215,000,000, there
will be a decrease in the number of Buyer Common Shares and if the Companies
Debt as of the Effective Date is less than $215,000,000, there will be an
increase in the number of Buyer Common Shares.
"Companies' Expenses" has the meaning set forth in Section 5.7(b).
"Consideration" means 4,500,000 Buyer Common Shares adjusted for
the Working Capital Adjustment adjusted for the Cash to Accrual Tax Liability
Adjustment adjusted for the Companies Debt Adjustment.
"Covered Liabilities" means any and all debts, losses, liabilities,
claims, fines, royalties, deficiencies, damages, Actions, obligations, payments
(including those arising out of any demand, assessment, settlement, judgment or
compromise relating to any Action), costs (including costs of mitigation) and
expenses (including interest and penalties due and payable with respect thereto
and reasonable attorneys' and accountants' fees and expenses and any other
out-of-pocket expenses incurred in investigating, preparing, defending, avoiding
or settling any Action or in investigating, preserving or enforcing another
party's obligations hereunder), matured or unmatured, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, including any of the foregoing
arising under, out of or in connection with any Action, order or consent decree
of any Governmental Authority or award of any arbitrator of any kind, or any
law, rule, regulation, contract, commitment or undertaking.
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"Effective Date" means (i) May 3, 1999 if the Closing occurs (A) on
or before May 7, 1999 or (B) after May 7, 1999, and the failure to close on or
before May 7, 1999 was the fault of Buyer, and (ii) the Closing Date if the
Closing occurs after May 7, 1999 and the failure to close on or before May 7,
1999 was not the fault of Buyer.
"Encumbrance" means any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, conditional sales agreement, encumbrance or other right of third
parties, whether voluntarily incurred or arising by operation of law, and
includes any agreement to give any of the foregoing in the future, and any
contingent sale or other title retention agreement or lease in the nature
thereof.
"Escrow Agent" means the Person appointed as the escrow agent under
the Escrow Agreement.
"Escrow Agreement" means the agreement entered into by or on behalf
of the Shareholders, on the one hand, and Buyer, on the other hand,
substantially in the form of Exhibit A hereto.
"Escrow Fund" means, at any time, the Buyer Common Shares held under
the Escrow Agreement at such time.
"Escrow Deposit" means 300,000 of the Buyer Common Shares.
"Estimated Consideration" means 4,500,000 Buyer Common Shares
adjusted for the estimated Working Capital Adjustment adjusted for the estimated
Cash to Accrual Tax Liability Adjustment adjusted for the estimated Companies
Debt Adjustment.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Excluded Assets" means the items of real or personal property
listed in Schedule 1.1(a).
"Final Closing Date Adjustment Schedules" has the meaning set forth
in Section 2.6(c).
"Final Determination" has the meaning set forth in Section 8.4.
"Financial Statements" means the Audited Financial Statements and
the Interim Financial Statements.
"GAAP" means generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied.
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"Governmental Authority" means any federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority or commission or arbitral
panel.
"indemnified party" has the meaning set forth in Section 8.4.
"indemnifying party" has the meaning set forth in Section 8.4.
"Interim Financial Statements" means the unaudited financial
statements of the Companies for the three-month period ended in March 1999.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Material Adverse Effect" or "Material Adverse Change" means as to
any Person (i) any material adverse effect on or material adverse change with
respect to (A) the business, operations, assets, liabilities, condition
(financial or otherwise), results of operations or prospects of such Person and
its Subsidiaries, taken as a whole, or (B) the right or ability of such Person
or any of its Subsidiaries to consummate the transactions contemplated hereby or
(ii) any event or condition which, with the passage of time, the giving or
receipt of notice or the occurrence or nonoccurrence of any other circumstance,
action or event, would reasonably be expected to constitute a "Material Adverse
Effect" or "Material Adverse Change" with respect to such Person.
"Mergers" has the meaning set forth in Section 2.1.
"NCBCA" means the North Carolina Business Corporation Act.
"Neutral Auditors" means Pricewaterhouse Coopers LLP.
"Permitted Encumbrances" means (i) statutory liens for current state
and local property taxes or assessments not yet due or delinquent; and (ii)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of the Companies.
"Person" means an individual, a corporation, a partnership, a
limited liability company, a limited liability partnership, an association, a
trust or any other entity or organization, including a governmental or political
subdivision or an agency or instrumentality thereof.
"Personnel" of a corporation means all directors, officers and
employees of such corporation, and "Personnel" of any Person other than an
individual or a corporation means all persons responsible for or performing
duties and functions similar to those of directors, officers and employees for
such Person.
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"Post-Closing Covenants" has the meaning set forth in Section 8.6.
"Preliminary Closing Date Adjustment Schedules" has the meaning set
forth in Section 2.6(a).
"Real Property" has the meaning set forth in Section 3.6.
"Required Working Capital" means $0.0.
"Resolution Period" has the meaning set forth in Section 2.6(b).
"Section 1374 Tax" has the meaning set forth in Section 5.12(b)(i).
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Shareholder Claims" has the meaning set forth in Section 8.3(b).
"Shareholder Indemnified Parties" has the meaning set forth in
Section 8.3(a).
"Shareholders' Auditors" means KPMG LLP.
"Shareholders' Representative" has the meaning set forth in Section
10.5.
"Subsidiary" means any corporation or other business entity, whether
or not incorporated, of which at least 50% of the securities or interests
having, by their terms, ordinary voting power to elect members of the Board of
Directors, or other persons performing similar functions with respect to such
entity, is held directly or indirectly by such party.
"Survival Date" has the meaning set forth in Section 8.1.
"Tax Audit" has the meaning set forth in Section 5.12(f).
"Tax Benefit" means the tax effect of any item of loss, deduction or
credit or any other item (including any increase in tax basis of Assets of the
Companies) which decreases Taxes paid or payable.
"Tax Returns" means any and all returns, reports, declarations and
information statements with respect to Taxes required to be filed by or on
behalf of any of the Companies with any Governmental Authority, including
consolidated, combined or unitary returns and all amendments thereto.
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"Tax Law" means the Internal Revenue Code, foreign, federal, state
or local laws relating to Taxes and any regulations or official administrative
pronouncements released thereunder.
"Tax Loss" means the tax effect of any item (including any decrease
in tax basis of Assets of the Companies) which increases Taxes paid or payable.
"Taxes" means (i) all federal, state and local, whether domestic or
foreign, taxes or assessments, including those relating to income, gross
receipts, gross income, capital stock, franchise, profits, employees and
payroll, withholding, foreign withholding, social security, unemployment,
disability, license, real property, personal property, intangibles, stamp,
excise, sales, use, transfer, occupation, value added, ad valorem, customs
duties, premium, windfall profits, environmental (including taxes under Section
59A of the Internal Revenue Code), alternative minimum or estimated taxes or
other similar tax, duty or governmental charge, together with any interest,
penalties or additions to tax or additional amounts with respect to the
foregoing, whether disputed or not and (ii) any obligations under any agreements
or arrangements with respect to any Taxes described in clause (i) hereof.
"Taxing Authority" means any Governmental Authority including social
security administration, domestic or foreign, having jurisdiction over the
assessment, determination, collection, or other imposition of Tax.
"Third-Party Claim" has the meaning set forth in Section 8.4.
"Working Capital" means the number determined by adjusting the
amounts in the "Remaining" column in the "Carroll's Group Interest in Assets and
Share of Liabilities for Purposes of Sale of Stock" dated March 27, 1999 which
is attached hereto as Schedule 1.1(c) to the applicable amounts for each such
line item as of the Effective Date, and as further adjusted pursuant to Schedule
1.1(d) (the "Working Capital Methodology"). For purposes of illustration, the
Working Capital as of March 27, 1999 as shown in Schedule 1.1(c) is $11,185,969.
"Working Capital Adjustment" means the number of Buyer Common Shares
equal to (i) an amount (which may be positive or negative) by which the Working
Capital of the Companies on the Effective Date is more or less than the Required
Working Capital, divided by (ii) $31.11. Subject to the impact on the
calculation of Consideration of the Cash to Accrual Tax Liability Adjustment and
the Companies Debt Adjustment, if the Working Capital as of the Effective Date
is less than the Required Working Capital, there will be a decrease in the
number of Buyer Common Shares and if the Companies Debt as of the Effective Date
is more than the Required Working Capital, there will be an increase in the
number of Buyer Common Shares.
"Working Capital Methodology" has the meaning set forth in the
definition of Working Capital.
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Article II
ACQUISITION
2.1 The Mergers.
(a) The Mergers. Upon the terms and subject to the satisfaction or waiver,
if permissible, of the conditions hereof, and in accordance with the NCBCA, on
the Closing the Buyer Subs shall be merged with and into the Carroll's Companies
as set forth in Schedule 2.1 (the "Mergers"). Following the Mergers, the
separate corporate existences of the Buyer Subs shall cease and the Carroll's
Companies shall continue as the surviving corporations (the "Surviving
Corporations") and shall be governed by the NCBCA.
(b) Effective Time. On the Closing Date, the parties shall cause the
Mergers to be consummated by causing articles of merger with respect to the
Mergers to be executed and filed and the Mergers shall become effective in
accordance with the relevant provisions of the NCBCA. ("Effective Time")
(c) Effects of the Mergers. The Mergers shall have the effects set forth
in Section 11-06 of the NCBCA.
(d) Articles of Incorporation and By-Laws. The Articles of Incorporation
of the applicable Carroll's Company, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the applicable
Surviving Corporation. The By-Laws of the applicable Buyer Sub, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the applicable
Surviving Corporation.
(e) Directors. The directors of the applicable Buyer Sub immediately prior
to the Effective Time shall be the initial directors of the applicable Surviving
Corporation and shall hold office until their respective successors are duly
elected and qualified, or their earlier death, resignation or removal.
(f) Officers. The officers of the applicable Buyer Sub immediately prior
to the Effective Time shall be the initial officers of the applicable Surviving
Corporation and shall hold office until their respective successors are duly
elected and qualified, or their earlier death, resignation or removal.
(g) Conversion of Carroll's Companies Stock. Each share of common stock of
each Carroll's Company outstanding immediately prior to the Effective Time
(other than shares of common stock, if any, owned by Buyer, or any Subsidiary of
Buyer) shall, by virtue of the Mergers and without any action on the part of the
holder thereof, automatically be converted into the right to receive the Merger
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Consideration allocated to such Carroll's Company as set forth in Schedule 2.1
divided by the aggregate number of shares of common stock of such Carroll's
Company outstanding at the Effective Time (other than shares of common stock, if
any, owned by Buyer or any Subsidiary of the Buyer). Each share of common stock
of the Carroll's Companies owned by Buyer or any Subsidiary of Buyer immediately
prior to the Effective Time shall, by virtue of the Mergers and without any
action on the part of the holder thereof, automatically be canceled and cease to
exist at and after the Effective Time and no consideration shall be paid with
respect thereto.
(h) Conversion of Buyer Sub Common Stock. Each share of common stock of
each Buyer Sub issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Mergers and without any action on the part of the holder
thereof, automatically be converted into and thereafter represent one validly
issued, fully paid and nonassessable share of common stock of the applicable
Surviving Corporation, so that thereafter Buyer will be the sole and exclusive
owner of the outstanding capital stock of each of the Surviving Corporations.
2.2 Carroll's Brazil Acquisition. Upon the terms and subject to the
satisfaction or waiver, if permissible, of the conditions hereof, at the
Closing, Buyer shall cause its Subsidiary, Smithfield International Investments,
Inc., a Delaware corporation ("SIII"), to acquire from the Shareholders, and
each Shareholder agrees to transfer and convey to SIII all of the equity
interests in Carroll's Brazil, free and clear of all Encumbrances, for an
aggregate consideration of 100 Buyer Common Shares.
2.3 Carolina Turkeys Acquisition. Upon the terms and subject to the
satisfaction or waiver, if permissible, of the conditions hereof, at the
Closing, Buyer shall cause its Subsidiary, Carroll's Turkeys, Inc., a North
Carolina corporation ("CTI"), to acquire from CPI all of the assets of CPI,
including the assets set forth in Schedule 2.3 (the "CPI Assets"), and CPI
agrees to transfer and convey to CTI the CPI Assets, free and clear of all
Encumbrances except as expressly provided in Schedule 2.3, for an aggregate
consideration of 1,000 Buyer Common Shares and the assumption of intercompany
indebtedness of CPI set forth in Schedule 2.3 (the "Assumed CPI Debt").
2.4 Statement of Estimated Consideration; Exchange of Shares.
(a) Prior to the Closing Date, the Shareholders' Representative shall
deliver to Buyer a statement signed by the president of CFI setting forth in
reasonable detail the calculation of the Estimated Consideration, allocated
among each of the Carroll's Companies, Carroll's Brazil and the CPI Assets,
which calculation shall be acceptable to Buyer, acting reasonably.
(b) At the Closing, Buyer will (i) deposit with the Escrow Agent the
Escrow Deposit to be held and disbursed in accordance with the terms of the
Escrow Agreement, and (ii) deliver to the Shareholders' Representative such
number of Buyer Common Shares as shall equal the Estimated Consideration minus
the Escrow Deposit.
(c) If, after the Closing Date, certificates representing shares of common
stock of the Carroll's Companies are presented to the Surviving Corporations,
they shall be canceled and exchanged for Buyer Common Shares as provided in this
Section 2.4.
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2.5 Closing. The closing (the "Closing") shall take place at the offices
of McGuire, Woods, Battle & Boothe LLP, One James Center, Richmond, Virginia, at
2:00 p.m. local time on May 6, 1999, or such other date as may be agreed upon by
the parties (the "Closing Date"). If the Closing takes place, the Closing and
all of the transactions contemplated by this Agreement shall be deemed for all
purposes including (i) tax purposes and (ii) the transfer of the benefits and
burdens of ownership, including income and loss, to have occurred as of the
Effective Date.
2.6 Adjustment of Estimated Consideration.
(a) As promptly as practicable, but in no event later than 30 days after
the Closing Date, Buyer shall cause the appropriate auditors to deliver to
Shareholders' Auditors (i) a proposed pro forma K-1 for each of Circle Four
Realty and Circle Four Sales and (ii) financial statements (as of the day before
the Effective Date) and the 1997 income tax working papers for Circle Four Farms
and Circle Four Farms, LLC. As promptly as practicable, but in no event later
than the later of (i) 90 days after the Closing Date and (ii) 30 days after the
receipt by Buyer and Buyers' Auditors of the final federal income Tax Returns
for the periods ending as of the day before the Effective Date for each of the
Companies which shall have been prepared as contemplated by Section 5.12(b)
hereof, Buyer shall prepare and deliver to the Shareholders' Representative (i)
schedules showing (A) the line items comprising the Working Capital as of the
Effective Date in accordance with the Working Capital Methodology, (B) the
Companies Debt as of the Effective Date and (C) the net present value of the
cash to accrual basis tax liability in accordance with the Cash to Accrual Tax
Methodology and (ii) a schedule setting forth the calculation of the
Consideration, in each case, setting forth in reasonable detail the data and
calculations set forth therein, together with a certification, signed by the
Vice President, Finance of Buyer, stating that the foregoing schedules have been
prepared in conformity with GAAP applied on a basis consistent with the basis on
which the Audited Financial Statements and the Interim Financial Statements were
prepared, except as otherwise contemplated by the definitions of Working Capital
and Companies Debt, and in conformity with the provisions of this Agreement
(collectively, the "Preliminary Closing Date Adjustment Schedules").
(b) The Shareholders, Shareholders' Auditors and other representatives of
the Shareholders shall have full access during normal business hours to all
relevant books and records and employees of the Companies to the extent required
to review the Preliminary Closing Date Adjustment Schedules and the resolution
of any dispute with respect thereto, and shall be permitted to review the
working papers, if any, of Buyer or Buyer's Auditors relating thereto. Buyer and
Buyer's Auditors shall cooperate with the Shareholders and Shareholders'
Auditors in
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facilitating such review. Unless the Shareholders' Representative gives written
notice to Buyer on or before the 45th day after the Shareholders'
Representative's receipt of the Preliminary Closing Date Adjustment Schedules
specifying in reasonable detail all disputed items and the basis therefor, the
Shareholders shall be deemed to have accepted and agreed to the Preliminary
Closing Date Adjustment Schedules. If the Shareholders' Representative so
notifies Buyer of the Shareholders' objection to one or more items set forth in
the Preliminary Closing Date Adjustment Schedules, Buyer and the Shareholders'
Representative shall, within 30 days following such notice (the "Resolution
Period"), attempt to resolve their differences with respect to any disputed
amounts and any resolution by them as to any disputed amounts shall be final,
binding and conclusive. The Shareholders shall be deemed to have accepted and
agreed to the items set forth in the Preliminary Closing Date Adjustment
Schedules that are not disputed in the manner set forth above. During the period
of any dispute within the contemplation of this Section 2.6, Buyer, the Buyer's
Auditors and other representatives of Buyer shall be permitted to review the
working papers, if any, of the Shareholders' Auditors relating to the
Preliminary Closing Date Adjustment Schedules. The Shareholders and the
Shareholders' Auditors shall cooperate with Buyer and the Buyer's Auditors in
facilitating such review.
(c) If at the conclusion of the Resolution Period amounts remain in
dispute, then all amounts remaining in dispute shall be submitted, as soon as
practicable, to the Neutral Auditors. The parties agree to execute a reasonable
engagement letter if requested by the Neutral Auditors. The Neutral Auditors
shall act as an arbitrator to determine only those issues still in dispute. The
Neutral Auditors' determination shall be made within 30 days after the
expiration of the Resolution Period, shall be set forth in a written statement
delivered to Buyer and the Shareholders' Representative and shall be final,
binding and conclusive. The term "Final Closing Date Adjustment Schedules," as
used herein, means the definitive Closing Date Adjustment Schedules agreed, or
deemed to have been agreed, to by Buyer and the Shareholders' Representative in
accordance with Section 2.6(b) or the definitive Closing Date Adjustment
Schedules resulting from the determination by the Neutral Auditors in accordance
with this Section 2.6(c) (in addition to those items theretofore agreed by Buyer
and the Shareholders' Representative).
(d) After the resolution of all disputes with respect to the Final Closing
Date Adjustment Schedules the parties shall determine the difference between the
Estimated Consideration and the Consideration (the "Consideration Adjustment").
In the event that the Consideration as set forth in the Final Closing Date
Adjustment Schedules is greater than the Estimated Consideration, (i) the Escrow
Agreement shall terminate and the entire Escrow Fund shall be distributed to the
Shareholders' Representative for distribution to the Shareholders as their
interests shall appear and (ii) Buyer shall issue to the Shareholders such
additional whole number of Buyer Common Shares as equals the amount of the
Consideration Adjustment (ignoring for this purpose any fractional share
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calculated). In the event that the Consideration as set forth in the Final
Closing Date Adjustment Schedules is less than the Estimated Consideration, and
the Consideration Adjustment is not more than the number of Buyer Common Shares
held in the Escrow Fund (i) there shall be delivered to Buyer from the Escrow
Fund such whole number of Buyer Common Shares as equals the amount of the
Consideration Adjustment (ignoring for this purpose any fractional share
calculated), and the balance, if any, of the Escrow Fund shall be delivered to
the Shareholders' Representative for distribution to the Shareholders as their
interests shall appear. In the event that the Consideration as set forth in the
Final Closing Date Adjustment Schedules is less than the Estimated
Consideration, and the Consideration Adjustment is more than the number of Buyer
Common Shares held in the Escrow Fund (i) there shall be delivered to Buyer the
entire Escrow Fund and (ii) the Shareholders shall redeliver to Buyer such whole
number of Buyer Common Shares received by the Shareholders at the Closing as
equals the difference between the amount of the Consideration Adjustment minus
the number of Buyer Common Shares distributed to Buyer from the Escrow Fund
(ignoring for this purpose any fractional share calculated). All deliveries
contemplated by this Section 2.6(d) shall be made within ten (10) Business Days
after delivery of the Final Closing Date Adjustment Schedules.
(e) The fees of Buyer's Auditors incurred in connection with the
preparation of the Preliminary and Final Closing Date Adjustment Schedules shall
be borne by Buyer, and the fees of the Shareholders' Auditors incurred in
connection with their review of the Preliminary and Final Closing Date
Adjustment Schedules shall be borne by the Shareholders. The fees of any Neutral
Auditors shall be borne by the Shareholders and Buyer in such amount(s) as shall
be determined by the Neutral Auditors based on the proportion that the aggregate
amount of disputed items submitted to the Neutral Auditors that is
unsuccessfully disputed by the Shareholders, on the one hand, or Buyer, on the
other hand, as determined by the Neutral Auditors, bears to the total amount of
such disputed items so submitted.
Article III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
As an inducement to Buyer to enter into this Agreement, the Shareholders
hereby make, as of the date hereof and as of the Closing Date, the following
representations and warranties to Buyer, except as otherwise set forth in
written disclosure schedules (the "Schedules") delivered to Buyer prior to the
execution hereof, a copy of which is attached hereto. The Schedules are numbered
to correspond to the various sections of this Article III setting forth certain
exceptions to the representations and warranties contained in this Article III
and certain other information called for by this Agreement. Unless otherwise
specified, no disclosure made in any particular Schedule shall be deemed made in
any other Schedule unless expressly made therein (by cross-reference or
otherwise).
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The Shareholders, jointly and severally, represent and warrant to Buyer
the following:
3.1 Organization; Qualification.
(a) Each of the Companies is a corporation or limited liability company
duly organized, validly existing and in good standing under the laws of the
jurisdictions disclosed on Schedule 3.1. Carolina Turkeys is a validly existing
general partnership under the laws of North Carolina. Each of the Companies and
Carolina Turkeys has all power and authority to own or lease all of its
respective properties and assets and to carry on its business as it is presently
being conducted. To the knowledge of the Shareholders, each of the Companies and
Carolina Turkeys is duly qualified and in good standing to transact business in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be in good standing or to be duly qualified would
not, individually or in the aggregate, have a Material Adverse Effect on the
Carroll's Companies. Each jurisdiction in which any of the Companies or Carolina
Turkeys is qualified to do business is set forth in Schedule 3.1.
(b) A complete list of the directors and officers (or persons having
similar responsibilities or performing similar duties) of each of the Carroll's
Companies and Carroll's Brazil is set forth in Schedule 3.1.
(c) None of the Carroll's Companies has ever had any Subsidiary except as
disclosed in Schedule 3.1.
3.2 Capitalization; Validity of Shares; Voting Trusts.
(a) The authorized capitalization of each of the Companies and the shares
of capital stock or the equity interests, as the case may be, thereof which are
outstanding is set forth in Schedule 3.2. All of the outstanding shares of
capital stock or equity interests (i) have been duly authorized, are validly
issued, fully paid and nonassessable, and were not issued in violation of any
preemptive rights, and (ii), except as set forth in Schedule 3.2, are owned
beneficially and of record as set forth in Schedule 3.2, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws) and Encumbrances. All of the outstanding shares of
capital stock or other equity interests of the Subsidiaries, as set forth in
Schedule 3.2, are validly issued, fully paid and nonassessable and, except as
set forth in Schedule 3.2, are owned by the Carroll's Companies, Carroll's
Brazil or other Subsidiaries in the amounts set forth in Schedule 3.2. Except
for Encumbrances set forth in Schedule 3.2 which will be released prior to the
Closing, the shares of capital stock or other equity interests of Subsidiaries
are owned free and clear of Encumbrances.
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(b) Except as set forth in Schedule 3.2, (i) none of the Companies has any
commitment to issue or sell any shares of capital stock or equity interests, or
any securities or obligations convertible into or exchangeable for, or giving
any Person any right to acquire from any of the Companies any shares of capital
stock or equity interests, and no such securities or obligations are outstanding
and (ii) there are no obligations or commitments of any kind for the repurchase,
redemption or other acquisition of any shares of capital stock or equity
interests of any of the Companies.
(c) Except as set forth in Schedule 3.2, none of the Carroll's Companies
or Carroll's Brazil, directly or indirectly, owns any capital stock of or other
equity interest in any corporation, partnership or other Person.
(d) Except as set forth in Schedule 3.2, there are no shareholders
agreements, voting trusts, proxies or other agreements or understandings with
respect to or concerning the purchase, sale or voting of the ownership interests
of any of the Companies.
3.3 Authority Relative to Agreements. Each of the Carroll's Companies, CPI
and the Shareholders has all necessary power and authority to execute and
deliver this Agreement and the Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby and to perform their respective
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Ancillary Agreements, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by the board of
directors and shareholders of each of the Carroll's Companies and CPI, and no
other proceedings on the part of the Companies are necessary with respect
thereto. This Agreement has been, and when executed the Ancillary Agreements
will have been, duly executed and delivered by each of the Carroll's Companies,
CPI and the Shareholders and, assuming that Buyer has duly authorized, executed
and delivered this Agreement and the Ancillary Agreements, this Agreement
constitutes, and the Ancillary Agreements, when executed and delivered will
constitute, valid and binding obligations of each of the Carroll's Companies,
CPI and the Shareholders, enforceable against each of them and the Shareholders'
heirs, assigns and personal representatives in accordance with their terms.
3.4 Consents and Approvals. To the knowledge of the Shareholders, no
consent, waiver, agreement, approval or authorization of, or declaration,
filing, notice or registration to or with, any Governmental Authority is
required to be made or obtained by any Shareholder or any of the Companies in
connection with the execution, delivery and performance of this Agreement and
the Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby other than those set forth in Schedule 3.4. To the knowledge
of the Shareholders, except as set forth in Schedule 3.4, there is no
requirement that any party to any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which any Shareholder or
any of the Companies is a party or by which any of them is bound, consent to the
execution and delivery of this Agreement or the Ancillary Agreements by any
Shareholder, the Companies or the consummation of the transactions contemplated
hereby and thereby.
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3.5 Non-Contravention. The execution, delivery and performance by the
Carroll's Companies, CPI and the Shareholders of this Agreement and the
Ancillary Agreements does not, and the consummation by the Carroll's Companies,
CPI and the Shareholders of the transactions contemplated hereby and thereby
will not (i) violate or result in a breach of any provision of the Articles of
Incorporation, Bylaws or similar organizational documents of any of the
Companies, (ii) to the knowledge of the Shareholders, except as described in
Schedule 3.5, conflict with, result in a breach of or result in a default (or
give rise to any right of termination, cancellation or acceleration) under the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which any of the Companies
and the Shareholders is a party or by which any of the Companies and the
Shareholders is bound, or (iii) to the knowledge of the Shareholders, violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
any of the Companies and the Shareholders or any of their Assets.
3.6 Real Property. To the knowledge of the Shareholders, there are no
defects in title to any of the real property owned by the Carroll's Companies or
to be transferred or conveyed to one or more of the Carroll's Companies before
the Closing as contemplated by Section 5.13 hereof (collectively, the "Real
Property") that would make title to any such Real Property unmarketable. There
are no mortgages or deeds of trust encumbering any of the Real Property, except
mortgages and deeds of trust reflected in the Financial Statements. To the
knowledge of the Shareholders, there are no special zoning ordinances or use
permits required for the continued operation of the business of the Carroll's
Companies as it currently is being conducted. There are no outstanding options
or rights of first refusal or first offer to purchase the Real Property, or any
portion thereof or interest therein. To the knowledge of the Shareholders, there
are no eminent domain (which term, as used herein, shall include other
compulsory acquisitions or takings by Governmental Authority) proceedings
pending or, to the knowledge of the Shareholders, threatened against any real
property or any material portion thereof which proceedings (if resulting in a
taking of any real property by a Governmental Authority) could have a material
adverse effect on the use of such real property as now used by the Carroll's
Companies.
3.7 Personal Property. To the knowledge of the Shareholders, the Carroll's
Companies own all tangible personal property owned by them, free and clear of
any and all liens or security interests securing indebtedness, except liens and
security interests reflected in the Financial Statements. With respect to each
such item of tangible personal property (i) with the exception of contract
growers of the Carroll's Companies, there are no outstanding options or rights
of first refusal in favor of any other party to purchase any such item of
tangible personal property or any portion thereof or interest therein and (iii)
there are no parties (other than the Companies and their Personnel, and contract
growers, in each case in their capacity as such) who are in possession of or who
are using any such item of personal property;
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3.8 Tax Matters.
(a) Filing of Tax Returns. The Companies have timely filed with the
appropriate taxing authorities all Tax Returns (including information returns
and other material information) in respect of Taxes required to be filed through
the date hereof and will timely file any such Tax Return required to be filed.
All such Tax Returns are complete and accurate in all material respects. The
Companies do not currently have outstanding any request for any extension of
time within which to file Tax Returns in respect of any Taxes except for
properly filed extensions of time necessary to complete the Companies' 1998
federal and state income Tax returns.. The Shareholders have delivered to Buyer
complete and accurate copies of the federal, state and local income Tax Returns
(and examination reports and statements of deficiency) for the years 1996 and
1997.
(b) S-Corporation. Except as set forth in Schedule 3.8, each of the
Companies is and has at all times been an "S corporation" (within the meaning of
Section 1361(a) of the Internal Revenue Code) for each taxable year (or portion
thereof) and no action has or will be taken to terminate and no condition exists
which could result in the termination of such election. Except as set forth in
Schedule 3.8, none of the Companies is or has been liable for the Tax imposed
under Section 1375(a) of the Internal Revenue Code; and none of the Companies is
or has been liable for the Tax imposed under Section 1374(a) of the Internal
Revenue Code.
(c) Payment of Taxes. All Taxes for which any of the Companies is or may
be liable in respect of periods (or portions thereof) ending before the
Effective Date, have been timely paid, or a reserve for Tax liability (other
than any reserve for deferred Taxes established to reflect timing differences
between book and tax income) adequate in accordance with GAAP has been
established therefor, as set forth in the Financial Statements.
(d) Audits, Investigations or Claims. No substantial deficiencies for
Taxes have been claimed, proposed or assessed in writing by any Taxing Authority
against any of the Companies which have not been paid or reserved in the
Financial Statements. Since January 1, 1993, no claim has been made by any
Taxing Authority in a jurisdiction in which a Company does not file Tax Returns
that such Company is or may be subject to taxation by such jurisdiction. There
are no pending or, to the knowledge of the Shareholders, threatened audits,
investigations or claims for or relating to any liability in respect of Taxes
that in the reasonable judgment of the Shareholders are likely to result in an
additional amount of Taxes, and there are no matters under discussion with any
Taxing Authority with respect to Taxes that in the reasonable judgment of the
Shareholders is likely to result in an additional liability for Taxes to the
Companies. Audits of federal, state, and local returns for Taxes, if any, by the
relevant taxing or other governmental authorities have been completed for the
periods set forth in Schedule 3.8. Except as set forth in Schedule 3.8, no Tax
Return is currently the subject of audit and the Companies have not been
notified in writing that any Taxing Authority intends to audit a Tax Return for
Taxes for any other period. No extension of a statute of limitations relating to
Taxes is in effect with respect to the Companies. Except as set forth in
Schedule 3.8, no power of attorney has been executed by the Companies with
respect to any matters relating to Taxes which is currently in force.
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(e) Encumbrances. There are no Encumbrances for Taxes (other than current
taxes not yet due and payable) on the Assets of the Companies.
(f) Safe Harbor Lease Property. None of the Assets of the Companies is
property that (i) is required to be treated as being owned by any other person
pursuant to the so-called safe harbor lease provisions of former Section
168(f)(8) of the Internal Revenue Code, (ii) directly or indirectly secures any
debt the interest on which is tax-exempt under Section 103(a) of the Internal
Revenue Code or (iii) is "tax-exempt use property" within the meaning of Section
168(h) of the Internal Revenue Code.
(g) Tax Election. All material elections with respect to Taxes affecting
the Companies as of the date hereof are set forth in Schedule 3.8. None of
Companies has agreed to make, or is required to make, any adjustment under
Section 481(a) of the Internal Revenue Code (or similar provisions under state
or local law) by reason of a change in accounting method or otherwise, except as
a result of the consummation of the transactions contemplated hereby.
(h) Withholding. The Companies have paid over all Taxes required to have
been withheld and paid to any Governmental Authority in connection with amounts
paid to any employee, independent contractor, creditor, shareholder, equity
investor or other third party.
(i) Combined Returns. Since January 1, 1990, no Company has been included
in any consolidated, combined or unitary Tax Return provided for under the laws
of the United States, any state or locality with respect to Taxes for any
taxable period for which the statute of limitations has not expired. None of the
Companies has any liability for the Taxes of any Person under Treasury
Regulation Section 1.1502 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(j) Tax Sharing Agreements. There are no tax sharing agreements or similar
arrangements (whether written or unwritten) with respect to or involving any of
the Companies pursuant to which any of the Companies may be liable for Taxes of
another Person.
(k) Section 280G. None of the Companies has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will not be deductible under Section 280G
of the Internal Revenue Code.
(l) Section 6662. Each of the Companies has disclosed on its federal
income Tax Return all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Section
6662 of the Internal Revenue Code which could be a liability of Buyer or the
Companies after the Effective Date.
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3.9 Securities Act and Other Securities Ownership Matters.
(a) Each of the Shareholders is an "accredited investor" as defined under
both subsections (5) and (6) of Rule 501(a) of Regulation D under the Securities
Act, and each is an individual resident in the State of North Carolina. Each
Shareholder is acquiring Buyer Common Shares hereunder solely for investment
purposes for his or her own account as principal and not with a view to resale
or distribution except pursuant to an effective registration statement filed
under the Securities Act or an applicable exemption from such registration. Each
Shareholder acknowledges that Buyer's offering and sale of Buyer Common Shares
hereunder will not be registered under the Securities Act or any other
securities laws, and that accordingly restrictions will apply to the
Shareholders' ability to transfer or sell such securities, and that an
appropriate legend to such effect will be placed on each stock certificate
representing any such shares. Each Shareholder acknowledges that none of the
securities may be resold unless their offer and sale are registered under the
Securities Act and applicable state securities laws, or unless appropriate
exemptions from registration are available. Each Shareholder agrees that he or
she will not directly or indirectly offer, transfer, sell, pledge, hypothecate
or otherwise dispose of any Buyer Common Shares (or solicit any offer to buy,
purchase or otherwise acquire, or to take a pledge of, any such shares) except
in compliance with the Securities Act and applicable state securities laws and
regulations. Each Shareholder acknowledges that he or she and his or her
representatives have had an opportunity to examine the financial and business
affairs of Buyer and an opportunity to ask questions of and receive answers from
Buyer's management, and that he or she and his or her representatives have such
knowledge and experience in financial and business matters that he or she is
capable of evaluating the merits and risks of an investment in Buyer in making
an informed investment decision with respect thereto.
(b) Each of the Shareholders is an individual who does not share the same
principal residence as any of the other Shareholders. No Shareholder either
directly or through entities controlled by such Shareholder will hold 15% or
more of the outstanding common shares of Buyer following the consummation of the
transactions contemplated hereby.
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Article IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to the Carroll's Companies, CPI and the Shareholders to
enter into this Agreement, Buyer hereby makes, as of the date hereof and as of
the Closing Date, the following representations and warranties to the Carroll's
Companies, CPI and the Shareholders, except as otherwise set forth in written
disclosure schedules (the "Schedules") delivered to the Carroll's Companies, CPI
and the Shareholders prior to the execution hereof, a copy of which is attached
hereto. The Schedules are numbered to correspond to the various sections of this
Article IV setting forth certain exceptions to the representations and
warranties contained in this Article IV and certain other information called for
by this Agreement. Unless otherwise specified, no disclosure made in any
particular Schedule shall be deemed made in any other Schedule unless expressly
made therein (by cross-reference or otherwise).
Buyer represents and warrants to the Carroll's Companies, CPI and the
Shareholders the following:
4.1 Organization; Qualification. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia and has all power and authority to own all of its properties and assets
and to carry on its business as it is presently being conducted.
4.2 SEC Filings; Financial Statements.
(a) Buyer has timely filed all registration statements, prospectuses,
forms, reports and documents required to be filed by it under the Securities Act
or the Exchange Act, as the case may be, since April 29, 1996 (collectively, the
"Buyer SEC Filings"). The Buyer SEC Filings (i) were prepared in accordance with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Buyer SEC Filings was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto) and each presented
fairly the consolidated financial position of Buyer and the consolidated Buyer
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments which were
not and are not expected, individually or in the aggregate, to have a Material
Adverse Effect on Buyer).
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(c) Except as and to the extent set forth on the consolidated balance
sheet of Buyer and the consolidated Buyer Subsidiaries as of May 3, 1998
included in Buyer's Annual Report on Form 10-K for the year ended May 3, 1998,
including the notes thereto, neither Buyer nor any Buyer Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be reflected on a balance sheet or in
notes thereto prepared in accordance with GAAP, except for liabilities or
obligations incurred in the ordinary course of business since May 3, 1998 that
would neither, individually or in the aggregate, (i) have a Material Adverse
Effect on Buyer nor (ii) prevent or materially delay the performance of this
Agreement by Buyer.
4.3 Absence of Certain Changes or Events. Since May 3, 1998, except as
contemplated by or as disclosed in this Agreement or as disclosed in any Buyer
SEC Filing filed prior to the date hereof, there has not been (i) any Material
Adverse Effect on the Buyer or an event or development (including in connection
with the transactions contemplated hereby) that would, individually or in the
aggregate, have a Material Adverse Effect on the Buyer, or (ii) any event that
would reasonably be expected to prevent or materially delay Buyer's performance
of its obligations under this Agreement.
4.4 Securities Act Matters.
(a) Each of the Buyer Common Shares to be issued as contemplated by this
Agreement has been duly authorized and, when issued in accordance with this
Agreement, will be validly issued, fully paid and nonassessable and free of
preemptive rights.
(b) Neither Buyer nor any Person acting on its behalf has, directly or
indirectly, offered any Buyer Common Shares to be issued hereunder for sale to,
or solicited any offers to buy any thereof from, or otherwise approached or
negotiated with respect thereto with, anyone other than the Shareholders, and
neither Buyer nor any Person acting on its behalf has taken or will take any
action that would cause Buyer's offer, issuance or sale of any such shares
hereby to violate the provisions of Section 5 of the Securities Act or any
applicable state securities laws and regulations.
4.5 Authority Relative to Agreements. Buyer has all necessary power and
authority to execute and deliver this Agreement and the Ancillary Agreements and
to consummate the transactions contemplated hereby and thereby and to perform
its obligations hereunder and thereunder. This Agreement has been, and when
executed and delivered the Ancillary Agreements will have been, duly executed
and delivered by Buyer and, subject to the approval of the Board of Directors of
Buyer and assuming that the Carroll's Companies, CPI and the Shareholders have
duly authorized, executed and delivered this Agreement, this Agreement
constitutes, and the Ancillary Agreements will constitute, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their terms.
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4.6 Consents and Approvals. No consent, waiver, agreement, approval or
authorization of, or declaration, filing, notice or registration to or with, any
Governmental Authority is required to be made or obtained by Buyer in connection
with the execution, delivery and performance of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby or
thereby. Except as set forth in Schedule 4.6, there is no requirement that any
party to any agreement, contract, lease, note, loan, evidence of indebtedness,
purchase order, letter of credit, franchise agreement, undertaking, covenant not
to compete, employment agreement, license, instrument, obligation, commitment or
purchase and sales order to which Buyer is a party or by which it is bound,
consent to the execution and delivery of this Agreement or the Ancillary
Agreements by Buyer or the consummation of the transactions contemplated hereby
or thereby, other than those set forth in Schedule 4.6 and except for such
consents the failure of which to obtain, individually or in the aggregate, would
not have a Material Adverse Effect on Buyer or the Shareholders.
4.7 Non-Contravention. The execution, delivery and performance by Buyer of
this Agreement and the Ancillary Agreements do not, and the consummation by
Buyer of the transactions contemplated hereby or thereby will not (i) except as
set forth in Schedule 4.7, violate or result in a breach of any provision of the
Articles of Incorporation, as amended to date, or Bylaws of Buyer, (ii) conflict
with, result in a breach of or result in a default (or give rise to any right of
termination, cancellation or acceleration) under the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which Buyer is a party or by which Buyer is
bound or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or its material assets or capital stock,
excluding from the foregoing clauses (ii) and (iii) such requirements, defaults,
breaches, rights or violations that would not have a Material Adverse Effect on
Buyer or the Shareholders or that become applicable as a result of (1) the
business or activities in which the Companies or any of their Affiliates is
engaged, or (2) any acts or omissions by, or facts pertaining to, the Companies
or any of their Affiliates.
Article V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business. Except as set forth in Schedule 5.1, from the
date hereof and until the Closing, the Shareholders will cause the Carroll's
Companies, CPI and Carroll's Brazil and their respective Subsidiaries to conduct
the Business only in the ordinary and usual course and in a manner consistent
with past practices.
5.2 Forbearances. Except as set forth in Schedule 5.2, the Shareholders
shall cause the Companies, from the date hereof until the earlier of (i) the
Closing or (ii) termination under Article IX, without the written consent of
Buyer, not to:
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(i) sell, assign, lease or transfer any of the Assets that exceed
$10,000 individually or $25,000 in the aggregate in book value or fair market
value, other than inventory sold or disposed of in the ordinary course of
business, consistent with past practice, to Buyer or persons who are not
Affiliates (other than the Carroll's Companies and their Subsidiaries) of the
Carroll's Companies for fair consideration;
(ii) cancel or terminate, or amend, modify or waive any material term
of, any material contract;
(iii) (A) increase the compensation payable or to become payable to
any of its directors or officers, (B) increase the base compensation payable or
to become payable to any of its Personnel who are not directors or officers,
except for normal periodic increases in such base compensation (not exceeding,
in each case, 5%) in the ordinary course of business, consistent with past
practice, (C) increase the sales commission rate payable or to become payable to
any of its Personnel who are not directors or officers, (D) grant, make or
accrue any loan, bonus, severance, termination or continuation fee, incentive
compensation (excluding sales commissions), service award or other like benefit,
contingently or otherwise, to or for the benefit of any of its Personnel, except
pursuant to the employee plans in effect as of the date hereof, (E) adopt, amend
or cause any addition to or modification of any employee plan, other than (1)
contributions made in the ordinary course of business, consistent with past
practice or (2) the extension of coverage to any of its Personnel who became
eligible after the date of this Agreement, (F) grant any additional stock
options or performance unit grants or other interest under any employee plan,
(G) enter into any new employment or consulting agreement or cause any written
or oral termination, cancellation or amendment of any such employment or
consulting agreement to which it is a party (except with respect to any employee
at will without a written agreement), (H) enter into any collective bargaining
agreement or cause any termination or amendment of any collective bargaining
agreement to which it is a party or (I) with respect to any Shareholder, or any
Affiliate of any Shareholder, grant, make or accrue any payment or distribution
or other like benefit, contingently or otherwise, or otherwise transfer Assets,
including any payment of principal of or interest on any debt owed to any such
Shareholder or Affiliate, other than (1) any payments to such person in the
ordinary course of business in his capacity as an employee of the Carroll's
Companies and (2) any transactions between the Carroll's Companies, in the
ordinary course of business and on an arms' length basis;
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(iv) make any capital expenditure or commitment to make any capital
expenditure in excess of $50,000;
(v) execute (A) any lease for real property or (B) any lease for
personal property involving annual payments in excess of $50,000;
(vi) make any payments or given any other consideration to customers
or suppliers, other than payments under, and in accordance with the terms of,
contracts in effect at the time of such payment;
(vii) change its accounting methods, principles or practices,
including any change in the application or interpretation of GAAP;
(viii) (A) issue or sell, or enter into any agreement obligating it to
issue or sell (B) directly or indirectly redeem, purchase or otherwise acquire,
or split, combine, reclassify or otherwise adjust, any class or series of
capital stock, or any securities convertible into or exchangeable for capital
stock or (C) declare or pay any dividend or other distribution in respect of any
class or series of capital stock;
(ix) (A) incur any indebtedness for borrowed money or enter into any
commitment to borrow money other than borrowings in the ordinary course of
business under the Companies' working capital lines or (B) incur any obligations
for any performance bonds, payment bonds, bid bonds, surety bonds, letters of
credit, guarantees or similar instruments;
(x) take any action in anticipation of the execution of this Agreement
or for any other reason to delay or defer expenses (including delay or
postponement of capital expenditures or the payment of accounts payable),
liabilities or obligations of any kind whatsoever or to accelerate any income,
revenue, payment or similar item, other than in the ordinary course of business
consistent with past practice;
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(xi) pay, discharge or satisfy any liability, other than any such
payment, discharge or satisfaction in the ordinary course of business,
consistent with past practice of (A) liabilities reflected or reserved against
on the balance sheets in the Financial Statements or incur subsequent thereto in
the ordinary course of business, consistent with past practice, or (B)
liabilities under, and in accordance with the terms of, any material contracts,
licenses and permits and other commitments set forth in the Schedules;
(xii) change or amend any of their articles of incorporation or bylaws
or similar organizational documents;
(xiii) (A) acquire (by merger, consolidation, acquisition of stock,
other securities or assets or otherwise), (B) make a capital investment (whether
through the acquisition of an equity interest, the making of a loan or advance
or otherwise) in or (C) guarantee indebtedness for borrowed money of, (1) any
Person or (2) any portion of the assets of any Person that constitutes a
division or operating unit of such Person;
(xiv) mortgage or pledge, or otherwise make or suffer any Encumbrance
(other than any Permitted Encumbrance) on, any of their material Assets or group
of their Assets that is material in the aggregate;
(xv) revalue any of their Assets, including any write-off of notes or
accounts receivable or any increase in any reserve (other than in the ordinary
course of business consistent with past practice), involving in excess of
$10,000 individually or $50,000 in the aggregate (such amounts to be calculated
without netting any decrease);
(xvi) amend, cancel or terminate any license or permit that is
material to any of the Companies;
(xvii) cancel, waive or release any right or claim (or series of
related rights or claims) involving in excess of $10,000 individually or $50,000
in the aggregate; or
(xviii) make any material change in the policies or practices relating
to selling practices, returns, discounts or other terms of sale or accounting
therefor or in policies of employment; or entered into any contract to do any of
the foregoing.
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5.3 Negotiations with Others; Notification.
(a) No Solicitation. From the date hereof until the earlier of (i) the
Closing or (ii) termination of this Agreement under Article IX, the Shareholders
shall not, and shall cause the Companies, and shall instruct each of their
respective representatives (including investment bankers, attorneys and
accountants) not to, directly or indirectly, enter into, solicit, initiate,
conduct or continue any discussions or negotiations with, or encourage or
respond to any inquiries or proposals by, or provide any information to, or
otherwise cooperate in any other way with, any Person or group, other than Buyer
and its representatives, concerning any sale of all or any substantial portion
of the Assets or the Business of, or of any shares of capital stock or equity
interest or other securities of, the Companies, or any merger, consolidation,
recapitalization, liquidation, dissolution or similar transaction involving the
Companies (each such transaction being referred to herein as a "Proposed
Acquisition Transaction"). The Shareholders hereby represent that neither they
nor the Companies are presently engaged in discussions or negotiations with any
party other than Buyer with respect to any Proposed Acquisition Transaction. The
Shareholders and the Companies agree not to release any third party from, or
waive any provision of, any confidentiality or standstill agreement to which any
of them is a party.
(b) Notification. The Shareholders shall (i) immediately notify Buyer
(orally and in writing) if any offer is made, any discussions or negotiations
are sought to be initiated, any inquiry, proposal or contact is made or any
information is requested with respect to any Proposed Acquisition Transaction,
(ii) promptly notify Buyer of the terms of any proposal which they may receive
in respect of any such Proposed Acquisition Transaction, including the identity
of the prospective purchaser or soliciting party, (iii) promptly provide Buyer
with a copy of any such offer, if written, or a written summary (in reasonable
detail) of such offer, if not in writing, and (iv) keep Buyer informed of the
status of such offer and the offeror's efforts and activities with respect
thereto.
5.4 Investigation of Business and Properties. From the date hereof until
the earlier of (i) the Closing and (ii) termination under Article IX, the
Shareholders shall cause the Companies to afford Buyer, any financial
institution providing financing to Buyer, and their respective counsel,
accountants, financial advisors and other representatives, reasonable access
during regular business hours upon reasonable notice, to make such reasonable
inspection of the Assets, business and operations of the Companies and to
inspect and make copies of contracts, Books and Records and all other documents
and information reasonably requested by Buyer and related to the operations and
business of the Companies, including historical financial information concerning
the business of the Companies and to meet with designated Personnel of the
Companies and/or their representatives; provided that any such access shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the Business; provided further, that no disclosure to Buyer, its counsel,
accountants or other representatives after the date hereof, except by amendment
to the Schedules approved by Buyer, shall be deemed to be a reduction of, or
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otherwise affect, the representations and warranties of the Shareholders set
forth in this Agreement. The Shareholders shall furnish to Buyer promptly upon
request (i) all additional documents and information with respect to the affairs
of the Companies and (ii) access during regular business hours to the Companies'
Personnel and to the Companies' accountants and counsel as Buyer, or its counsel
or accountants, may from time to time reasonably request and the Shareholders
shall instruct the Companies' Personnel, accountants and counsel to cooperate
with Buyer, and to provide such documents and information as Buyer and its
representatives may reasonably request.
5.5 Confidentiality. Unless and until the Closing has been consummated,
Buyer shall hold, and shall cause its counsel, accountants and other
representatives to hold, in confidence all confidential data and information
relating to the Companies made available to Buyer, together with all analyses,
compilations, studies and other documents and records prepared by Buyer or any
of its representatives which contain or otherwise reflect or are generated from
such information. If the transactions contemplated by this Agreement are not
consummated, Buyer agrees to keep confidential all data and information relating
to the Companies or the Business, and upon written request of the Shareholders'
Representative, to return or cause to be returned to the Companies all written
materials and all copies that contain any such confidential data or to certify
to the Companies that such materials have been destroyed. Notwithstanding the
foregoing, Buyer may disclose this Agreement and the information and data in
Buyer's possession in connection therewith (i) to its lenders (and their
counsel), (ii) to the investment bankers (and their counsel) in connection with
any offering of securities by Buyer and (iii) to the extent such disclosure is
required by law.
5.6 No Disclosure; Public Announcements. Prior to Closing, without the
prior written consent of the other party, and except for filings required by
Law, neither party will issue any press release or otherwise make any public
statements with respect to this Agreement and the transactions contemplated
hereby.
5.7 Transfer Taxes; Expenses.
(a) All transfer taxes relating to the transfer of the real property to
the Carroll's Companies as contemplated by Section 5.13 and all transfers of
real property to the Shareholders or entities controlled by them as contemplated
in Schedule 5.2 shall be paid by the Shareholders.
(b) Except as otherwise provided in this Agreement, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby will be paid by the party incurring such costs and expenses; it being
understood that the fees and expenses of BT Alex. Brown, KPMG LLP and Ward and
Smith, P.A. with respect to this Agreement and the transactions contemplated
hereby, Arthur Andersen LLP with respect to all matters for which such firm
shall have been engaged by or on behalf of the Shareholders or the Companies
(the "Companies' Expenses") shall be paid by the Companies, and that to the
extent any such expenses shall not have been paid before the Effective Date they
shall be accrued as a liability for purpose of calculating Working Capital as of
the Effective Date pursuant to Section 2.6, and any such expenses not so accrued
shall be the sole responsibility of, and paid by, the Shareholders.
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5.8 Efforts to Consummate. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate, as promptly as practicable,
the transactions contemplated hereby, including the obtaining of all necessary
consents, waivers, authorizations, orders and approvals of third parties,
whether private or governmental, required of it to enable it to comply with the
conditions precedent to consummating the transactions contemplated by this
Agreement. Each party agrees to cooperate fully with the other party in
assisting it to comply with this Section 5.8. Furthermore, without limiting the
generality of the foregoing, each party will cooperate with the others in
structuring the transactions and the documentation thereof to be the most tax
efficient for all parties.
5.9 Related Party Accounts. As of the Closing, no loans or receivables or
payables to any of the Shareholders or their Affiliates (other than the
Carroll's Companies and Carroll's Brazil) from the Carroll's Companies and
Carroll's Brazil, or to any of the Carroll's Companies or Carroll's Brazil from
any of the Shareholders shall be outstanding. Any liability for Taxes arising
from the satisfaction or termination of such amounts shall be the responsibility
of the Shareholders.
5.10 Further Assurances. At the Closing or from time to time thereafter,
the parties hereto shall execute and deliver such other instruments of
assignment, transfer and delivery and shall take such other actions as the other
reasonably may request in order to consummate, complete and carry out the
transactions contemplated by this Agreement.
5.11 Rights to Examine Books and Records. From and after the Closing, upon
reasonable prior notice from the Shareholders, Buyer will afford Shareholders'
authorized representatives, including its accountants and counsel, reasonable
access during regular business hours and for reasonable purposes related to the
Shareholders' prior interest in the Companies, in order to examine and review,
or, at the Shareholders' expense, to make copies of, the Books and Records to
the extent they relate to periods prior to the Closing Date; provided that any
such access shall be conducted in such a manner as not to interfere unreasonably
with the operation of the Business.
5.12 Certain Tax Matters.
(a) The Shareholders shall be responsible for any and all tax imposed on
any of the Carroll's Companies pursuant to Sections 1374 and 1375 of the
Internal Revenue Code or any similar provisions of state and local Tax Laws).
(b) The Shareholders shall prepare and file or shall cause each of the
Companies, any Subsidiaries of the Companies and their Affiliates to prepare and
file the following Tax Returns with respect to each of the Companies:
(i) all United States federal income Tax Returns and any other income
Tax Returns required to be filed in any jurisdiction in which the relevant
Company has income tax nexus for any taxable period ending
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on or before the Effective Date; provided that in the case of federal, state and
local income Tax Returns including the transactions contemplated by this
Agreement, that the Shareholder shall provide Buyer copies of the relevant
portions of such proposed Returns at least 30 days prior to the due date of any
such Returns, including valid extensions thereof; and
(ii) all other Tax Returns with respect to Taxes required to be filed
(taking into account extensions) prior to the Effective Date.
(c) Buyer and the Carroll's Companies and Carroll's Brazil shall file all
other Tax Returns with respect to the Carroll's Companies and Carroll's Brazil
for all periods which begin on or after the Effective Date. With respect to any
state, local or foreign income Tax Return for taxable periods beginning before
the Effective Date and ending after the Effective Date, Buyer shall cause each
of the Companies to consult with the Shareholders' Representative concerning
such Return. Buyer shall provide the Shareholders' Representative a copy of its
proposed Return at least 15 days prior to the filing of such Return, and the
Shareholders' Representative may provide comments to Buyer, which comments shall
be delivered to Buyer within 7 days of receiving such copies from Buyer.
(d) As soon as practicable, but in any event within 30 days after the
Shareholders' Representative's request, from and after the Effective Date, Buyer
shall provide the Shareholders' Representative with such cooperation and shall
deliver to the Shareholders' Representative such information and data concerning
the pre-Closing operations of the Carroll's Companies and Carroll's Brazil as
the Shareholders' Representative may request, including providing the
information and data required by the Carroll's Companies' customary tax and
accounting questionnaires, in order to enable the Shareholders to complete and
file all Tax Returns which they may be required to file with respect to the
operations and business of the Carroll's Companies and Carroll's Brazil through
the Effective Date or to respond to audits by any Taxing Authorities with
respect to such operations. Such cooperation and information shall include
provision of powers of attorney for the purpose of signing Tax Returns and
defending audits and forwarding copies of appropriate notices and forms or other
communications received from or sent to any Taxing Authority which relate to the
Carroll's Companies and Carroll's Brazil, and providing copies of relevant Tax
Returns, together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by any Taxing Authority and records
concerning the ownership and tax basis of property, which Buyer or the Carroll's
Companies may possess.
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(e) Buyer and the Shareholders and their respective Affiliates shall
cooperate in the preparation of all Tax Returns relating in whole or in part to
taxable periods ending before the Effective Date that are required to be filed
after such date. Such cooperation shall include furnishing prior years' Tax
Returns or return preparation packages illustrating previous reporting practices
or containing historical information relevant to the preparation of such Tax
Returns, and furnishing such other information within such party's possession
requested by the party filing such Tax Returns as is relevant to their
preparation. In the case of any state, local or foreign joint, consolidated,
combined, unitary or group relief system Tax Returns, such cooperation shall
also relate to any other taxable periods in which one party could reasonably
require the assistance of the other party in obtaining any necessary
information.
(f) The Shareholders shall have the right, at their own expense, to
control any audit or examination by any Taxing Authority ("Tax Audit"), initiate
any claim for refund, contest, resolve and defend against any assessment, notice
of deficiency, or other adjustment or proposed adjustment which in any such case
relates to Taxes for which the Shareholders are liable pursuant to Section
8.2(a); provided that no claim, contest or settlement shall be initiated,
defended, or resolved by the Shareholders to the extent that such claim,
contest, or settlement could reasonably be expected to have a material adverse
effect on the Carroll's Companies or Carroll's Brazil after the Closing. Buyer
shall have the right, at its own expense, to control any other Tax Audit,
initiate any other claim for refund, and contest, resolve and defend against any
other assessment, notice of deficiency, or other adjustment or proposed
adjustment. The Shareholders shall furnish Buyer and the Carroll's Companies
with their cooperation in a manner comparable to that described in paragraph (e)
of this Section 5.12.
(g) In order to prevent any inappropriate shifting of items of income,
gain, loss, deduction or credit ("Tax Items"), and to the extent allowable under
the Internal Revenue Code, Buyer and the Shareholders agree to determine their
respective shares of Tax Items for the 1999 Tax year from the partnerships and
limited liability companies in which any of the Carroll's Companies owns an
interest (the "Lower Tier Partnerships") as though each Lower Tier Partnership
had an interim closing of the books occurring simultaneously with the interim
closing of the books of the respective Carroll's Companies which own an interest
therein.
5.13 Additional Assets. Prior to the Closing the Shareholders shall
transfer and convey, or shall cause entities controlled by them to transfer and
convey, to one or more of the Carroll's Companies or Carroll's Realty
Partnership the real estate set forth in Schedule 5.13, all pursuant to special
warranty deeds in form and substance reasonably satisfactory to Buyer. Buyer
agrees that it will cause Carroll's Realty Partnership to maintain ownership of
the real estate transferred to it pursuant to this Section 5.13 until after the
second anniversary of the Closing Date.
5.14 Carroll's Processing, Inc. The Shareholders agree that they will
maintain in good standing the corporate existence of CPI, and will not liquidate
CPI or distribute to the Shareholders any of the assets of CPI until after the
second anniversary of the Closing Date.
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5.15 Allocation of Consideration. The Consideration has been agreed upon
by the parties and allocated among the Carroll's Companies, Carroll's Brazil and
the CPI Assets as set forth in Schedule 5.15. With respect to the CPI Assets,
CPI and Buyer agree to allocate the applicable consideration for federal and
other income Tax purposes in accordance with Section 1060 of the Internal
Revenue Code and any regulations promulgated thereunder, as set forth in
Internal Revenue Service Form 8594 attached hereto as part of Schedule 5.15. The
parties agree that the values reflected in Schedule 5.16 were separately
established as a result of good faith bargaining and that in reporting the
transactions contemplated hereby to the Internal Revenue Service as required by
the Internal Revenue Code, they will use such amounts (subject to adjustment
pursuant to Section 2.6) and cooperate with each other in meeting the
requirements of the Internal Revenue Code and the regulations promulgated
thereunder.
Article VI
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to consummate the transactions contemplated by
this Agreement shall be subject, in the sole discretion of Buyer, to the
satisfaction, at or prior to the Closing, of each of the following conditions,
any of which may be waived by Buyer in accordance with Section 10.9:
6.1 Representations and Warranties. The representations and warranties of
the Shareholders contained in Article III hereof shall be true and correct
except to the extent that the failure to be true and correct would not have a
Material Adverse Effect on the Carroll's Companies taken as a whole.
6.2 Performance of this Agreement. The Shareholders and CPI shall have, in
all material respects, performed all covenants and agreements and complied with
all conditions required by this Agreement to be performed or complied with by
them prior to or at the Closing.
6.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications, waivers and Licenses and
Permits listed in Schedule 3.4 or otherwise necessary to effect the transactions
contemplated hereby shall have been filed, made or obtained and all waiting
periods specified by law with respect thereto shall have expired or been
terminated.
6.4 Injunction, Litigation, etc. No Actions by any Governmental Authority
or any other Person shall have been instituted for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated hereby and which could reasonably be expected to damage the
Companies materially or impair Buyer's ability to own and control the Companies
if the transactions contemplated hereby are consummated.
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6.5 Legislation. No statute, rule or regulation shall have been enacted
which prohibits or might prohibit, restrict or materially delay the consummation
of the transactions contemplated by this Agreement.
6.6 Proceedings. All corporate or similar proceedings of the Carroll's
Companies and CPI that are required in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to Buyer and its counsel.
6.7 Opinion of Counsel. The Shareholders shall have delivered to Buyer an
opinion of Ward and Smith, P.A., counsel for the Shareholders, dated as of the
date of Closing, substantially with respect to the matters set forth in Exhibit
C hereto, and stating that such opinion is made for the benefit of Buyer and
Buyer's institutional lenders and that Buyer's institutional lenders shall be
entitled to rely thereon as if such opinion were addressed to them.
6.8 Closing Deliveries. Buyer shall have received, at or prior to the
Closing, the following:
(i) Special warranty deeds for the real property to be conveyed by as
contemplated by Section 5.13 in form and substance reasonably satisfactory to
Buyer;
(ii) assignment of the limited liability company interests of the
Shareholders in Carroll's Brazil in form and substance reasonably satisfactory
to Buyer;
(iii) assignment of the partnership interest held by CPI in Carolina
Turkeys and the Carolina Turkeys receivable and assumption of the Assumed CPI
Debt in form and substance reasonably satisfactory to Buyer;
(iv) certificates executed by the secretary of each of the Carroll's
Companies and Carroll's Brazil certifying as of the date of Closing (A) a true
and correct copy of the certificate or articles of incorporation (or similar
organizational document) of each of the Companies, (B) a true and correct copy
of the bylaws (or similar organizational document) of each of the Carroll's
Companies, (C) a true and correct copy of the Carolina Turkey partnership
agreement and the Carroll's Brazil operating agreement and (D) incumbency
matters;
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(v) a certificate executed by the Shareholders' Representative
certifying that, as of the date of Closing, (A) he or she has made inquiry of
the appropriate Personnel of the Companies and (B) the conditions set forth in
Sections 6.1, 6.2 and 6.9 have been satisfied;
(vi) a copy of the certificate or articles of incorporation (or
similar organizational document) of each of the Carroll's Companies and
Carroll's Brazil and all amendments thereto, each certified as of a recent date
by the Secretary of State of the applicable jurisdiction of organization or
other appropriate governmental official;
(vii) a certificate of the appropriate Secretary of State or other
appropriate governmental official certifying the existence of the Carroll's
Companies in their respective jurisdictions of organization;
(viii) physical possession of all original minute books, corporate
seals and stock or equity ownership records of the Carroll's Companies and
Carroll's Brazil;
(ix) physical possession of all Books and Records (other than those
covered by clause (vii) above), licenses and permits, policies, contracts, plans
or other instruments of the Carroll's Companies that are in the possession of
the Carroll's Companies, all such materials to be deemed delivered to Buyer if
they are present at any of the farms, plants, offices, processing or
manufacturing facilities, stores, warehouses or administration buildings owned
or leased by the Companies; and
(x) all other documents and certificates required to be delivered by
or on behalf of the Shareholders pursuant to the terms of this Agreement.
6.9 Material Change. Other than losses in the ordinary course of business,
there shall not have been any Material Adverse Change in the Assets,
liabilities, condition (financial or otherwise), results of operations or
business of the Companies since December 26, 1998, nor any occurrence or
circumstance that with the passage of time might reasonably be expected to
result in such change, and there shall not be any material liability not shown
in the Interim Financial Statements or otherwise disclosed herein.
6.10 Companies Debt. The Companies Debt shall not exceed $250,000,000.
6.11 Resignations. Each director (or person who bears a similar
responsibility with respect to a limited liability company) of any of the
Carroll's Companies and Carroll's Brazil shall have submitted resignations
effective prior to or as of the Closing.
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6.12 Tax Matters. The Shareholders shall have provided Buyer with a
statement sworn to under penalty of perjury, setting forth the name, address and
federal tax identification number of each Shareholder, CPI and Matthews Family
Properties, L.L.C. and certifying that no such Person is a "foreign person"
within the meaning of Section 1445 of the Internal Revenue Code and Treasury
Regulations thereunder. Other than the execution, delivery and consummation of
the transactions contemplated by this Agreement, no action shall have been taken
and no condition shall exist which could result in the termination of the S
corporation election of each of the Carroll's Companies.
6.13 Escrow Agreement. The Shareholders shall have executed and delivered
to Buyer and the Escrow Agent the Escrow Agreement in substantially in the form
of Exhibit A hereto.
6.14 Opinion of Financial Advisor; Approval of Buyer's Board of Directors.
Scott & Stringfellow, Inc. shall have delivered to the Buyer's Board of
Directors its written opinion dated not later than the Closing Date that as of
such date, the transactions contemplated by this Agreement are fair to Buyer
from a financial point of view. Buyer's Board of Directors shall have approved
the execution and delivery of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereby; provided that the
condition set forth in this Section 6.14 shall be deemed to have been satisfied
unless Buyer gives notice to the Shareholders before 5:00 p.m. on May 6, 1999
that the condition set forth in this Section 6.14 has not been satisfied.
Article VII
CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS
The obligation of the Carroll's Companies, CPI and the Shareholders to
consummate the transactions contemplated by this Agreement shall be subject, in
the sole discretion of the Shareholders, to the satisfaction, at or prior to the
Closing, of each of the following conditions, any of which may be waived by the
Shareholders' Representative in accordance with Section 10.9.
7.1 Representations and Warranties. The representations and warranties of
Buyer contained in Article IV hereof shall be true and correct except to the
extent that the failure to be true and correct would not have a Material Adverse
Effect on Buyer and its Subsidiaries taken as a whole.
7.2 Performance of this Agreement. Buyer shall have, in all material
respects, performed all covenants and agreements and complied with all
conditions required by this Agreement to be performed or complied with by it
prior to or on the date of Closing.
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7.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications or waivers listed in
Schedule 4.6 or otherwise necessary to effect the transactions contemplated
hereby shall have been filed, made or obtained and all waiting periods specified
by law with respect thereto shall have expired or been terminated.
7.4 Injunction, Litigation, etc. No Actions by any Governmental Authority
or any other Person shall have been instituted for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated hereby and which could reasonably be expected to damage the
Shareholders or the Companies materially if the transactions contemplated hereby
are consummated.
7.5 Legislation. No statute, rule or regulation shall have been enacted
which prohibits or might prohibit, restrict or materially delay the consummation
of the transactions contemplated this Agreement.
7.6 Proceedings. All corporate or similar proceedings of Buyer that are
required in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in form and substance to the Shareholders and
their counsel.
7.7 Opinion of Counsel. Buyer shall have delivered to the Shareholders an
opinion of McGuire, Woods, Battle & Boothe LLP, counsel for Buyer, dated as of
the Closing Date, substantially with respect to the matters set forth in Exhibit
D attached hereto.
7.8 Closing Deliveries. The Shareholders shall have received, at or prior
to the Closing, the following:
(i) a certificate executed by the Secretary of Buyer certifying as of
the Closing Date (i) a true and correct copy of the articles of incorporation as
amended of Buyer, (ii) a true and correct copy of the bylaws of Buyer, (iii) a
true and correct copy of the resolutions of the board of directors of Buyer
authorizing the execution, delivery and performance of this Agreement by Buyer
and the consummation of the transactions contemplated hereby and (iv) incumbency
matters;
(ii) a certificate executed by a Vice President of Buyer certifying
that, as of the date of Closing, the conditions set forth in Sections 7.1, 7.2,
and 7.3 with respect to Buyer have been satisfied;
(iii) a copy of the articles of incorporation of Buyer and all
amendments thereto, each certified as of a recent date by the Clerk of the State
Corporation Commission of the Commonwealth of Virginia; and
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(iv) all other documents and certificates required to be delivered by
Buyer pursuant to the terms of this Agreement.
7.9 Escrow Agreement. Buyer shall have executed and delivered to the
Shareholders and the Escrow Agent the Escrow Agreement substantially in the form
of Exhibit A hereto.
7.10 Escrow Deposit and Estimated Consideration. The Escrow Deposit shall
have been deposited with the Escrow Agent, and the balance of the Estimated
Consideration shall be ready for delivery to the Shareholders.
7.11 Registration Rights Agreement. Buyer shall have executed and
delivered to the Shareholders the Registration Rights Agreement substantially in
the form of Exhibit E hereto.
7.12 Material Adverse Change. There shall not have been any Material
Adverse Change in the Assets, liabilities, condition (financial or otherwise),
results of operations or business of Buyer after the date hereof, nor any
occurrence or circumstance that with the passage of time might reasonably be
expected to result in such change; provided that a decline in the market price
for Buyer Common Shares shall not in and of itself be a Material Adverse Change.
7.13 Tax-Free Reorganizations. The Mergers shall qualify as tax-free
reorganizations under Section 368(a) of the Internal Revenue Code.
Article VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.1 Survival of Representations The representations and warranties of the
Shareholders contained in this Agreement (including the Schedules hereto) or any
certificate or instrument delivered pursuant hereto will survive until the
earlier of (i) the 60th day after receipt by Buyer of the audited financial
statements for Buyer for the fiscal year ending April 29, 2001 and (ii) October
31, 2001; provided that (i) the representations and warranties contained in
Sections 3.1, 3.2 and 3.3 shall survive the Closing indefinitely and (ii) the
representations and warranties in Section 3.8 shall survive until 90 days after
the expiration of the last of the limitation periods contained in the Internal
Revenue Code or other applicable Tax law during which an assessment or
reassessment can be made (the respective dates on which the representations and
warranties hereunder lapse are hereinafter referred to as the "Survival Date").
Notwithstanding the provisions of the preceding sentence, any representation or
warranty in respect of which indemnification may be sought under Section 8.2
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shall survive the Survival Date if written notice, given in good faith, of the
specific breach thereof is given to the indemnifying party prior to the Survival
Date, whether or not liability has actually been incurred. All representations
and warranties of Buyer contained in this Agreement (including the Schedules
hereto) or any certificate or instrument delivered pursuant hereto will survive
until October 31, 2001; provided that the representations and warranties
contained in Sections 4.1, 4.4(a) and 4.5 shall survive the Closing
indefinitely.
8.2 Indemnification by the Shareholders.
(a) Subject to the limitations contained in this Article VIII, the
Shareholders will jointly and severally indemnify and hold harmless Buyer, its
Subsidiaries, Affiliates, each of their respective partners, directors,
officers, employees and agents, and each of the heirs, executors, successors and
assigns of any of the foregoing (collectively, the "Buyer Indemnified Parties")
from and against, and pay or reimburse the Buyer Indemnified Parties for, any
and all Covered Liabilities actually incurred or paid by the Buyer Indemnified
Parties as a result of: any inaccuracy contained in, omission from or breach of,
a representation and warranty made by the Shareholders in this Agreement or in
any document delivered pursuant hereto; provided that in determining whether an
inaccuracy, omission or breach has occurred and the amount of any Covered
Liabilities, any materiality, material adverse effect or substantial compliance
qualification contained in or otherwise applicable to such representation or
warranty shall be disregarded.
(b) The claims for indemnity by Buyer Indemnified Parties pursuant to this
Section 8.2 are referred to as "Buyer Claims." The indemnity provided for in
this Section 8.2 is not limited to matters asserted by third parties against any
Buyer Indemnified Party, but includes Covered Liabilities actually incurred or
sustained by any Buyer Indemnified Party in the absence of third party claims.
8.3 Indemnification by Buyer.
(a) Subject to the limitations contained in this Article VIII, Buyer will
indemnify and hold harmless the Shareholders, their Affiliates, each of their
respective partners, directors, officers, employees and agents, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "Shareholder Indemnified Parties") from and against, and pay or reimburse
the Shareholder Indemnified Parties for, any and all Covered Liabilities
actually incurred or paid by the Shareholder Indemnified Parties as a result of
any inaccuracy contained in, omission from or breach of, a representation and
warranty made by Buyer in this Agreement or in any document delivered pursuant
hereto; provided that in determining whether an inaccuracy, omission or breach
has occurred and the amount of any Covered Liabilities, any materiality,
material adverse effect, substantial compliance or similar exception or
qualification contained in or otherwise applicable to such representation or
warranty shall be disregarded.
(b) The claims for indemnity by Shareholder Indemnified Parties pursuant
to this Section 8.3 are referred to as "Shareholder Claims." The indemnity
provided for
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in this Section 8.3 is not limited to matters asserted by third parties against
any Shareholder Indemnified Party, but includes Covered Liabilities actually
incurred or sustained by any Shareholder Indemnified Party in the absence of
third party claims.
8.4 Notice and Defense of Claims.
(a) Whenever a claim shall arise for indemnification hereunder (a
"Claim"), the party seeking indemnification (an "indemnified party") shall give
reasonably prompt notice to the party from whom indemnification is sought (an
"indemnifying party") of the Claim and the facts, in reasonable detail,
constituting the basis for such claim (a "Claim Notice"); provided that failure
of an indemnified party to give prompt written notice of any Claim shall not
release, waive or otherwise affect an indemnifying party's obligations with
respect thereto except to the extent that the indemnifying party is adversely
affected in its ability to defend against such Claim or is otherwise prejudiced
thereby.
(b) In the case of a Claim involving the assertion of a claim by a third
party (whether pursuant to an Action or otherwise, a "Third-Party Claim"), if
the indemnifying party shall acknowledge in writing to the indemnified party
that the indemnifying party shall be obligated to indemnify the indemnified
party under the terms of its indemnity hereunder in connection with such
Third-Party Claim, then (i) the indemnifying party shall be entitled and, if it
so elects, shall be obligated at its own cost and expense, (A) to take control
of the defense and investigation of such Third-Party Claim and (B) to pursue the
defense thereof in good faith by appropriate actions or proceedings promptly
taken or instituted and diligently pursued, including to employ and engage
attorneys of its own choice reasonably acceptable to the indemnified party to
handle and defend the same, and (ii) the indemnifying party shall be entitled
(but not obligated), if it so elects, to compromise or settle such claim, which
compromise or settlement shall be made only with the written consent of the
indemnified party, such consent not to be unreasonably withheld. In the event
the indemnifying party elects to assume control of the defense and investigation
of such lawsuit or other legal action in accordance with this Section 8.4(b),
the indemnified party may, at its own cost and expense, participate in the
investigation, trial and defense of such Third-Party Claim; provided that, if
the named Persons to an Action include both the indemnifying party and the
indemnified party and the indemnified party has been advised in writing by
counsel that there may be one or more legal defenses available to such
indemnified party that are different from or additional to those available to
the indemnifying party, the indemnified party shall be entitled, at the
indemnifying party's cost and expense, to separate counsel of its own choosing.
If the indemnifying party fails to assume the defense of such Third-Party Claim
or fails to acknowledge to the indemnified party that it is obligated to
indemnify the indemnified party in accordance with this Section 8.4(b) within 15
calendar days after receipt of the notice of such Third Party Claim, the
indemnified party against which such Third-Party Claim has been asserted shall
(upon delivering notice to such effect to the indemnifying party) have the right
to undertake, at the indemnifying party's cost and expense, the defense,
compromise and settlement of such Third-Party Claim on behalf of and for the
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account of the indemnifying party if the indemnifying party is held liable
therefor; provided that such Third-Party Claim shall not be compromised or
settled without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld. In the event the indemnifying party assumes
the defense of the Third Party Claim, the indemnifying party shall keep the
indemnified party reasonably informed of the progress of any such defense,
compromise or settlement, and in the event the indemnified party assumes the
defense of the Third Party Claim, the indemnified party shall keep the
indemnifying party reasonably informed of the progress of any such defense,
compromise or settlement. If the indemnifying party is held liable for the
Third-Party Claim, the indemnifying party shall be liable for any settlement of
any Third-Party Claim effected pursuant to and in accordance with this Section
8.4(b) and for any final judgment (subject to any right of appeal), and the
indemnifying party agrees to indemnify and hold harmless each indemnified party
from and against any and all Covered Liabilities by reason of such settlement or
judgment.
(c) Any Covered Liabilities for which an indemnifying party is responsible
shall be paid directly by the indemnifying party. Upon Final Determination (as
defined below) of the amount of a claim for indemnification, the indemnifying
party shall pay the amount of such claim within 30 days after the date of such
Final Determination together with interest at the prime rate of The Chase
Manhattan Bank from time to time, from (and including) the later of (i) the date
of delivery of the Claim Notice or (ii) the date such Covered Liability was
paid, to (and including) the date immediately preceding the date of payment;
provided that no such interest shall be paid if such claim is paid by the
Shareholders to a Third Party.
(d) If the claim for indemnification involves a matter other than a Third
Party Claim, the indemnifying party shall have thirty (30) days to object to
such Claim by delivery of a written notice of such objection to such indemnified
party specifying in reasonable detail the basis for such objection. Failure to
timely so object shall constitute a final and binding acceptance of the Claim by
the indemnifying party, and the Claim shall be paid in accordance with the
further provisions hereof. If an objection is timely interposed by the
indemnifying party, then the indemnified party and the indemnifying party shall
negotiate in good faith for a period of thirty (30) business days from the date
the indemnified party receives such objection prior to commencing any
arbitration, formal legal action, suit or proceeding with respect to such claim
for indemnification. Upon Final Determination (as defined below) of the amount
of a claim for indemnification, the indemnifying party shall pay the amount of
such claim within thirty (30) days of the date of such Final Determination.
(e) A "Final Determination" of a claim shall be (i) a judgment of any
court determining the validity of a disputed claim, if no appeal is pending from
such judgment or if the time to appeal therefrom has elapsed (it being
understood that the indemnified party shall have no obligation to appeal); or
(ii) an award of any arbitrator or arbitration panel determining the validity of
such disputed Claim, if the arbitration is binding and there is not pending any
motion to set
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aside such award or if the time within which to move to set such award aside has
elapsed; or (iii) a written termination of the dispute with respect to such
Claim signed by all of the parties thereto or their attorneys; or (iv) a written
acknowledgment of the indemnifying party that it no longer disputes the validity
of such Claim; (v) settlement of the Claim reached and reduced to writing
pursuant to negotiation of the parties or (vi) such other evidence of final
determination of a disputed Claim as shall be reasonably acceptable to the
parties.
8.5 Calculation of Covered Liabilities.
(a) Insurance Proceeds. To the extent that any Buyer Claim or Shareholder
Claim is covered by insurance held by such Buyer Indemnified Party or
Shareholder Indemnified Party, such indemnified party shall be entitled to
indemnification pursuant to Section 8.2 or 8.3, as applicable, only with respect
to the amount of the Covered Liabilities that are in excess of the cash proceeds
received by such indemnified party pursuant to such insurance. If such
indemnified party receives such cash insurance proceeds prior to the time such
Claim is paid, then the amount payable by the indemnifying party pursuant to
such Claim shall be reduced by the amount of such proceeds. If such indemnified
party receives such cash insurance proceeds after such Claim has been paid, then
upon the receipt by the indemnified party of any cash proceeds pursuant to such
insurance up to the amount of Covered Liabilities incurred by such indemnified
party with respect to such Claim, such indemnified party shall promptly repay
any portion of such amount which was previously paid by the indemnifying party
to such indemnified party in satisfaction of such Claim.
(b) Effect of Taxes. The amount of any indemnity payments for Covered
Liabilities under Section 8.2 or 8.3 above shall be (i) decreased to reflect the
actual Tax Benefit, if any, to the indemnified party resulting from the Covered
Liabilities giving rise to such indemnity payments and (ii) increased to reflect
the actual Tax Loss, if any, payable by such indemnified party as a result of
the receipt of such Covered Liabilities. In either case, the amount shall be
determined by the indemnified party taking into account only the taxable period
in which such indemnity payment accrues (and prior periods) and not any
subsequent periods. If an indemnity payment is made prior to the filing of
relevant Tax Returns, the amount shall be determined on an estimated basis.
Proper adjustments shall be made if the actual Tax Benefit or actual Tax Loss
differ from the estimated amount. Any indemnity payment made pursuant to Section
8.2 or 8.3 shall be treated by Buyer and the Shareholders as an adjustment to
the Consideration.
8.6 Exclusive Remedy. Except for covenants to be performed after the
Closing ("Post-Closing Covenants") and actions grounded in fraud, the parties
hereto acknowledge and agree that in the event the Closing occurs, the
indemnification provisions in this Article VIII shall be the exclusive remedy of
Buyer and the Shareholders with respect to the transactions contemplated by this
Agreement. With respect to post-closing covenants and actions grounded in fraud,
(i) the right of a party to be indemnified and held harmless pursuant to the
indemnification provisions in this Agreement shall be in addition to and
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cumulative of any other remedy of such party at law or in equity and (ii) no
such party shall, by exercising any remedy available to it under this Article
VIII, be deemed to have elected such remedy exclusively or to have waived any
other remedy, whether at law or in equity, available to it.
8.7 No Circular Recovery. No Shareholder shall be entitled to make any
claim for indemnification against Buyer or any of its Affiliates by reason of
the fact that he was a controlling person, director, officer, manager, employee,
agent or other representative of the Companies (whether such claim is pursuant
to any statute, charter, bylaw, contractual obligation or otherwise) with
respect to any matter relating to or arising out of a matter which is subject to
the provisions of Section 8.2.
Article IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(i) by the mutual written consent of the Shareholders' Representative
and Buyer;
(ii) by Buyer, if any event occurs which renders impossible compliance
with one or more of the conditions set forth in Article VI hereof, which
condition or conditions are not waived by Buyer;
(iii) by the Shareholders' Representative, if any event occurs which
renders impossible compliance with one or more of the conditions set forth in
Article VII hereof, which condition or conditions are not waived by the
Shareholders' Representative; or
(iv) by the Shareholders' Representative or Buyer if the Closing has
not occurred by 11:59 p.m. on August 30, 1999.
9.2 Procedure: Effect of Termination. If this Agreement is terminated as
provided in Section 9.1, written notice thereof shall forthwith be given by the
terminating party to the other party, and this Agreement shall thereupon
terminate and become void and of no further force and effect and there shall be
no further liability or obligation on the part of either party hereto except for
the obligations under Sections 5.5, 5.7 and 9.1; provided that termination of
this Agreement by Buyer or Shareholders pursuant to clause (ii) or (iii) of
Section 9.1, respectively, shall not relieve the defaulting or breaching party
(the "Breaching Party"), whether or not it is the terminating party, of
liability for damages actually incurred by the other party as a result of breach
of this Agreement by the Breaching Party.
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Article X
GENERAL PROVISIONS
10.1 Notices. All notices required to be given hereunder shall be in
writing and shall be deemed to have been given if (i) delivered personally or by
documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in the
manner hereinabove described, to the others entitled to notice:
(a) If to any of the Carroll's Companies, CPI or the Shareholders, to:
F. J. Faison, Jr.
Carroll's Foods. Inc.
2822 Highway #24 West
Warsaw, North Carolina 28398
Facsimile No.: 910-293-6957
with a copy to:
Ward and Smith, P.A.
1001 College Court
New Bern, North Carolina 28563-0867
Attention: J. Troy Smith, Jr.
Facsimile No.: 252-636-2121
(b) If to Buyer, to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Richard J. M. Poulson
Facsimile No.: 757-365-3017
and to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Michael H. Cole
Facsimile No.: 757-365-3025
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with a copy to:
McGuire, Woods, Battle & Boothe LLP
One James Center
Richmond, Virginia 23219
Attention: Leslie A. Grandis
Facsimile No.: 804-775-1061
If given personally or by documented courier or delivery service, or transmitted
by facsimile, a notice shall be deemed to have been given when it is received.
If given by mail, it shall be deemed to have been given on the third business
day following the day on which it was posted.
10.2 Interpretation. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. For purposes of this Agreement, the words
"includes" and "including" shall mean "including without limitation." As used
herein, "knowledge of the Shareholders" shall mean the actual knowledge of any
Shareholder together with the actual knowledge of the Shareholders'
Representative after inquiry of other Personnel of the Companies who would
reasonably be expected to have the relevant information, and "knowledge of
Buyer" shall mean the actual knowledge of the executive officers of Buyer
identified in Schedule 10.2 hereto after inquiry of other Personnel of Buyer who
would reasonably be expected to have the relevant information. All accounting
terms not defined in this Agreement (either in Article I or in the context in
which it is used) shall have the meaning determined by GAAP. All capitalized
terms defined herein are equally applicable to both the singular and plural
forms. The language in all parts of this Agreement shall be construed, in all
cases, according to its fair meaning. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement and that any rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
10.3 Entire Agreement. This Agreement, together with the Schedules and
Exhibits hereto, contain the entire agreement among the parties with respect to
the subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties other than those set forth or
referred to herein; provided that the forms of agreements and opinions attached
hereto as Exhibits or Schedules shall be superseded by the copies of such
agreements and opinions executed and delivered by the respective parties
thereto, the execution and delivery of such agreements and opinions by the
parties thereto to be conclusive evidence of such parties' approval of any
change or modification therein.
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10.4 No Third Party Beneficiaries. Except as set forth in Article VIII,
nothing in this Agreement (whether expressed or implied) is intended to confer
upon any person other than the parties hereto and their respective permitted
successors and assigns, any rights or remedies under or by reason of this
Agreement nor is anything in this Agreement intended to relieve or discharge the
liability of any party hereto, nor shall any provision hereof give any person
any right of subrogation against, or action over against any party. Without
limiting the generality of the foregoing, nothing contained herein shall confer
any third-party beneficiary right (actual or implied) upon any employee of the
Companies or obligate the Companies to continue any such employee in its employ
for any specified period of time or at any specified salary, wages or benefits
after the Closing Date.
10.5 The Shareholders' Representative. F. J. Faison, Jr. shall be the
designated representative of the Shareholders (the "Shareholders'
Representative") with authority to make all decisions and determinations and to
take all actions (including giving consents and waivers or agreeing to any
amendments to this Agreement or to the termination hereof) required or permitted
hereunder on behalf of such Shareholder, and any such action, decision or
determination so made or taken shall be deemed the action, decision or
determination of such Shareholder, and any notice, document, certificate or
information required to be given to any Shareholder shall be deemed so given if
given to the Shareholders' Representative.
10.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, as applicable; provided that
Shareholders shall not assign their rights or delegate their obligations under
this Agreement without the express prior written consent of Buyer; provided
further, that in the event of assignment by Buyer, Buyer shall not be released
from its obligations under this Agreement.
10.7 Severability. In the event that this Agreement or any other
instrument referred to herein, or any of their respective provisions, or the
performance of any such provision, is found to be invalid, illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be invalid, illegal or unenforceable under the applicable laws or regulations
without, to the maximum extent permitted by law, affecting the validity of the
remaining provisions of the Agreement. Should any method of termination of this
Agreement or a portion thereof be found to be invalid, illegal or unenforceable,
such method shall be reformed to comply with the requirements of applicable law
so as, to the greatest extent possible, to allow termination by that method.
Nothing herein shall be construed as a waiver of any party's right to challenge
the validity of such law.
10.8 Amendment. This Agreement may be amended, modified or supplemented at
any time by the parties hereto only by an instrument in writing signed by each
of the parties hereto.
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10.9 Extension; Waiver. At any time prior to the Closing either the
Shareholders, on the one hand, or the Buyer, on the other, may (i) extend the
time for the performance of any of the obligations of the Buyer, on the one
hand, or Shareholders, on the other, (ii) waive a breach of a representation or
warranty of such other party or parties hereto or (iii) waive compliance by such
other party or parties hereto with any of the agreements or conditions contained
herein. Any such extension or waiver shall be valid if set forth in a written
instrument signed by such party or parties giving the extension or waiver. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
10.10 Disclosure Schedules. Certain of the representations and warranties
set forth in this Agreement contemplate that there will be attached schedules
setting forth information that might be "material" or have a "Material Adverse
Effect on the Companies." The Shareholders may, at their option, include in such
schedules items that are not material or are not likely to have a Material
Adverse Effect on the Companies in order to avoid any misunderstanding, and any
such inclusion shall not be deemed to be an acknowledgment or representation
that such items are material or would have a Material Adverse Effect on the
Companies, to establish any standard of materiality or Material Adverse Effect
on the Companies or to define further the meaning of such terms for purposes of
this Agreement.
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.12 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of North Carolina without regard to any laws or
regulations relating to choice of laws (whether of the State of North Carolina
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of North Carolina.
10.13 Jurisdiction. The parties hereto irrevocably submit to the exclusive
jurisdiction of the United States District Court for the Eastern District of
Virginia (or, if subject matter jurisdiction in that court is not available, in
the courts of the Commonwealth of Virginia, County of Isle of Wight) over any
dispute arising out of or relating to this Agreement or any agreement or
instrument contemplated hereby or entered into in connection herewith or any of
the transactions contemplated hereby or thereby. Each party hereby irrevocably
agrees that all claims in respect of such dispute or proceeding shall be heard
and determined in such courts. The parties hereby irrevocably waive, to the
fullest extent permitted by applicable Law, any objection which they may now or
hereafter have to the laying of venue of any such dispute brought in such court
or any defense of inconvenient forum in connection therewith. THE PARTIES HERETO
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WAIVE THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING SEEKING ENFORCEMENT OF SUCH PARTY'S RIGHTS UNDER THIS AGREEMENT. Each
Shareholder hereby designates Ward and Smith, P.A. as its agent for service of
process, which agent may be substituted at any time upon ten days' notice to
Buyer, but which substitute agent shall in no event be located outside the
Commonwealth of Virginia or State of North Carolina, and each Shareholder
irrevocably consents to the service of any and all process in any action or
proceeding arising out of or relating to this Agreement by the delivery of such
process to such agent.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed.
SMITHFIELD FOODS, INC.
By: /s/ Richard J. M. Poulson
-------------------------
Title: Vice President
CARROLL'S FOODS, INC.
By: /s/ F. J. Faison, Jr.
---------------------
Title: President
CARROLL'S FOODS OF VIRGINIA, INC.
By: /s/ F. J. Faison, Jr.
---------------------
Title: President
CARROLL'S FOODS OF UTAH, INC.
By: /s/ F. J. Faison, Jr.
---------------------
Title: President
CARROLL'S FOODS OF MEXICO, INC.
By: /s/ F. J. Faison, Jr.
---------------------
Title: President
CARROLL'S CAPITAL, INC.
By: /s/ F. J. Faison, Jr.
---------------------
Title: President
CARROLL'S FARMS OF VIRGINIA, INC.
By: /s/ F. J. Faison, Jr.
---------------------
Title: President
CARROLL'S REALTY, INC.
By: /s/ F. J. Faison
----------------
Title: President
CARROLL'S PROCESSING, INC.
By: /s/ F. J. Faison, Jr.
--------------------
Title: President
/s/ Carroll M. Bagget
---------------------
Carroll M. Baggett
/s/ James O. Matthews
---------------------
James O. Matthews
/s/ Jeffrey S. Matthews
-----------------------
Jeffrey S. Matthews
CONFORMED COPY
ESCROW AGREEMENT
This ESCROW AGREEMENT ("Escrow Agreement"), dated as of May 7, 1999, is
made among SMITHFIELD FOODS, INC., a Virginia corporation ("Buyer"), CARROLL M.
BAGGETT, JAMES O. MATTHEWS, JEFFREY S. MATTHEWS (collectively, the
"Shareholders"), and McGUIRE, WOODS, BATTLE & BOOTHE LLP, a Virginia limited
liability partnership (the "Escrow Agent").
RECITALS
A. Buyer and the Shareholders are parties to an Acquisition Agreement, dated as
of May 3, 1999 (the "Acquisition Agreement"), pursuant to which Buyer
effectively will acquire substantially all of the assets and operations of the
Carroll's Companies, Carroll's Brazil and CPI. Capitalized terms used in this
Escrow Agreement and not otherwise defined herein have the meanings given to
them in the Acquisition Agreement.
B. The Acquisition Agreement requires that Buyer deposit the Escrow Deposit with
the Escrow Agent to be held and disbursed in accordance with the terms of this
Escrow Agreement.
C. The Escrow Agent has agreed to serve as Escrow Agent, subject to the terms
and conditions of this Escrow Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment of the Escrow Agent. Buyer and the Shareholders hereby appoint
and engage the Escrow Agent, and by its execution hereof the Escrow Agent hereby
agrees, to hold and administer the Escrow Fund in accordance with the terms of
this Escrow Agreement.
<PAGE>
2. Deposit of Escrow Deposit. Simultaneously with the execution of this Escrow
Agreement, Buyer has delivered the Escrow Deposit to the Escrow Agent. The
receipt of the Escrow Deposit is hereby acknowledged by the Escrow Agent.
3. Holding of Escrow Fund. The Escrow Agent will hold the Escrow Fund in escrow
upon the terms and conditions set forth in this Escrow Agreement.
4. Claim Submission Procedure. After the resolution of all disputes with respect
to the Final Closing Date Adjustment Schedules pursuant to and in accordance
with the Acquisition Agreement, Buyer and the Shareholders' Representative shall
deliver to the Escrow Agent a statement (the "Consideration Adjustment
Statement") signed by both Buyer and the Shareholders' Representative setting
forth (i) the Estimated Consideration, (ii) the Consideration as set forth in
the Final Closing Date Adjustment Schedules, (iii) the Consideration Adjustment
and (iv) the date the Final Closing Date Adjustment Schedules were delivered.
5. Release of Escrow Funds and Termination. The Escrow Agent shall not release
or distribute all or any part of the Escrow Fund except upon the conditions set
forth below in this Section 5. Upon delivery to the Escrow Agent of the
Consideration Adjustment Statement signed by both Buyer and the Shareholders'
Representative contemplated by Section 4 hereof:
(a) If the Consideration as set forth in the Consideration Adjustment Statement
is greater than the Estimated Consideration, the entire Escrow Fund shall be
distributed to the Shareholders' Representative for distribution to the
Shareholders as their interests shall appear;
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<PAGE>
(b) If the Consideration as set forth in the Consideration Adjustment Statement
is less than the Estimated Consideration, and the Consideration Adjustment is
not more than the number of Buyer Common Shares held in the Escrow Fund (i)
there shall be delivered to Buyer from the Escrow Fund such whole number of
Buyer Common Shares as equals the amount of the Consideration Adjustment
(ignoring for this purpose any fractional share calculated), and the balance, if
any, of the Escrow Fund shall be delivered to the Shareholders' Representative
for distribution to the Shareholders as their interests shall appear.
(c) If the Consideration as set forth in the Consideration Adjustment Statement
is less than the Estimated Consideration, and the Consideration Adjustment is
more than the number of Buyer Common Shares held in the Escrow Fund there shall
be delivered to Buyer the entire Escrow Fund
All deliveries and payments contemplated by this Section 5 shall be made
within ten (10) Business Days after delivery of the Consideration Adjustment
Statement. This Escrow Agreement shall terminate at such time as all of the
Escrow Fund has been distributed by the Escrow Agent in accordance with this
Section 5.
6. Concerning the Escrow Agent.
(a) The Escrow Agent may resign at any time by giving notice to Buyer and the
Shareholders' Representative, specifying a date on which its resignation is to
take effect. Upon receipt of such notice Buyer and the Shareholders'
Representative shall appoint a successor Escrow Agent, such successor Escrow
Agent to become the Escrow Agent when the resignation of the former Escrow Agent
becomes effective. If Buyer and the Shareholders' Representative are unable to
agree upon a successor Escrow Agent within 30 days after receipt of such notice,
the Escrow Agent shall appoint its own successor. The Escrow Agent shall
continue to serve until its successor accepts its appointment by adoption of
this Escrow Agreement in writing and receives the Escrow Fund. Buyer and the
Shareholders' Representative shall have the right, at any time, by agreement, to
substitute a new Escrow Agent by giving
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<PAGE>
30 days notice thereof to the Escrow Agent then acting. Any successor Escrow
Agent shall be bound by the provisions of this Escrow Agreement as if it were
the original Escrow Agent.
(b) The Escrow Agent shall not be liable for any action it takes or fails to
take which it reasonably believes is within the rights or powers conferred upon
it hereunder, or for action which it takes, or fails to take, in good faith and
in accordance with advice of counsel (which counsel may be of the Escrow Agent's
own choosing but may not be McGuire, Woods, Battle & Boothe LLP itself). The
Escrow Agent shall not be liable for any mistake it may make or for any acts or
omissions of any kind unless caused by its willful misconduct or gross
negligence.
(c) Buyer and the Shareholders each agree to indemnify and hold harmless the
Escrow Agent against any and all liabilities incurred by the Escrow Agent as a
consequence of its, his or her own respective actions and, in the case of the
Shareholders, the actions of the Shareholders' Representative. Buyer and the
Shareholders agree jointly to indemnify and hold harmless the Escrow Agent from
any and all liabilities incurred by the Escrow Agent that are not a consequence
of the action of any party to this Escrow Agreement. However, the Escrow Agent
shall be responsible for any liability incurred by it which is the result of its
own willful misconduct or gross negligence.
(d) The Shareholders acknowledge that the Escrow Agent has served as counsel to
Buyer in connection with the Acquisition Agreement and the transactions
contemplated thereby, and agree that nothing herein shall affect in any way
Escrow Agent's continued representation of Buyer or other persons affiliated
therewith and that in the event of a dispute between the Shareholders and Buyer
with respect to any matter, including the Acquisition
4
<PAGE>
Agreement, the transactions contemplated thereby or this Escrow Agreement, the
Escrow Agent may represent Buyer in such dispute. Such representation shall not,
in and of itself, cause the disqualification of the Escrow Agent.
7. Notices. All notices required to be given hereunder shall be in writing and
shall be deemed to have been given if (i) delivered personally or by documented
courier or delivery service, (ii) transmitted by facsimile during normal
business hours or (iii) mailed by registered or certified mail (return receipt
requested and postage prepaid) to the following listed persons at the addresses
and facsimile numbers specified below, or to such other persons, addresses or
facsimile numbers as a party entitled to notice shall give, in the manner
hereinabove described, to the others entitled to notice:
If to the Shareholders or the Shareholders' Representative, to:
Jeffrey S. Matthews
Carroll M. Bagett
James O. Matthews
Post Office Box 707
Warsaw, North Carolina 28398
and
F. J. Faison, Jr.
Carroll's Foods, Inc.
2822 Highway #24 West
Warsaw, North Carolina 28398
Facsimile No.: (910) 293-6957
with a copy to
:
Ward and Smith, P.A.
1001 College Court
New Bern, North Carolina 28563-0867
Attention: J. Troy Smith, Jr.
Facsimile No.: (252) 636-2121
5
<PAGE>
If to Buyer, to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Richard J. M. Poulson
Facsimile No.: (757) 365-3017
and to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Michael H. Cole
Facsimile No.: (757) 365-3025
with a copy to:
McGuire, Woods, Battle & Boothe LLP
One James Center
Richmond, Virginia 23219
Attention: Leslie A. Grandis
Facsimile No.: 804-775-1061
If to the Escrow Agent to:
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
Attention: Leslie A. Grandis
Facsimile No.: 804-775-1061
If given personally or by documented courier or delivery service, or transmitted
by facsimile, a notice shall be deemed to have been given when it is received.
If given by mail, it shall be deemed to have been given on the third Business
Day following the day on which it was posted.
6
<PAGE>
8. Miscellaneous. This Escrow
Agreement together with the Acquisition Agreement (i) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof;
(ii) is not intended to and shall not confer upon any other person or business
entity, other than the parties hereto, any rights or remedies with respect to
the subject matter hereof; (iii) shall not be assigned by operation of law or
otherwise; and (iv) shall be governed in all respects by the laws of the State
of North Carolina without regard to its choice of law rules.
<PAGE>
WITNESS the following signatures.
SMITHFIELD FOODS, INC.
By: /s/ Richard J. M. Poulson
-------------------------
Title: Vice President
/s/ Carroll M. Baggett
----------------------
Carroll M. Baggett
/s/ James O. Matthews
---------------------
James O. Matthews
/s/ Jeffrey S. Matthews
-----------------------
Jeffrey S. Matthews
McGUIRE, WOODS, BATTLE & BOOTHE LLP
By: /s/ Sam Young Garrett
--------------------
Title: Partner
CONFORMED COPY
AGREEMENT WITH SHAREHOLDERS
This Agreement with Shareholders is made and entered into as of May 7,
1999, by and between SMITHFIELD FOODS, INC., a Virginia corporation (the
"Company"), and each of JEFFREY S. MATTHEWS, CARROLL M. BAGGETT and JAMES O.
MATTHEWS (each an "Investor" and collectively the "Investors").
W I T N E S S E T H :
WHEREAS, the Company, the Investors and certain entities wholly-owned by
the Investors are parties to an Acquisition Agreement dated as of May 3, 1999
(the "Acquisition Agreement"); and
WHEREAS, upon the closing of the transactions contemplated by the
Acquisition Agreement, such Investors will then respectively hold 2,185,333,
2,185,333 and 2,185,334 shares of Common Stock (as defined below); and
WHEREAS, pursuant to the Acquisition Agreement and simultaneously with the
execution of this Agreement, the Company and the Investors are entering into a
Registration Rights Agreement and an Escrow Agreement;
NOW, THEREFORE, for good and valuable consideration, the delivery and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following capitalized terms
shall have the meanings ascribed to them below:
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such person. For purposes of this definition, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting stock, by contract or otherwise.
"Common Stock" means the Common Stock, par value $.50 per share, of
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
"Lockup Shares" means as to each Investor (i) initially, 700,000
shares of Common Stock issued to such Investor upon the closing under the
Acquisition Agreement on the date hereof, and (ii) upon the making of the
post-closing adjustments required by the Acquisition Agreement, such 700,000
shares (a) plus one-half the number of shares of Common Stock additionally
issued by the Company to such Investor or (b) minus one-half the number of
shares of Common Stock returned by such Investor or the escrow agent to the
Company, as the case may be, pursuant to such adjustments.
"Person" means an individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any department
or agency thereof.
"Voting Securities" means any shares of any class of securities
entitled to, or that may be entitled to, vote, including without limitation the
Common Stock.
ARTICLE II
AGREEMENTS
2.1 Standstill Agreement. None of the Investors will, during the one-year period
subsequent to the date hereof, without the written consent of the Company,
singly or as part of a "partnership, limited partnership, syndicate or other
group" (within the meaning of Section 13(d)(3) of the Exchange Act), directly or
indirectly, individually, together with any other Investor, through one or more
Affiliates, associates or intermediaries or otherwise:
(a) make or in any way participate, directly or indirectly, in the making of any
"solicitation" of "proxies" (as such terms are defined or used in Regulation 14A
under the Exchange Act) to vote Voting Securities at any meeting of Company
shareholders or become a "participant" in any "election contest" (as such terms
are defined or used in Rule 14a-11 under the Exchange Act) with respect to the
Company, or initiate, propose or otherwise solicit holders of Voting Securities
for the approval of one or more shareholder proposals with respect to the
Company as described in Rule 14a-8 under the Exchange Act;
(b) oppose, or form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) opposing, any proposal
presented by Company management at any meeting of Company shareholders; or
(c) acquire or substantially affect the control of the Company, or directly or
indirectly participate in the formation of any "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) which seeks to acquire beneficial
ownership of more than 15% of the outstanding shares of any class of Voting
Securities of the Company or to acquire or substantially affect control of the
2
<PAGE>
Company; otherwise act, directly or indirectly, alone or in concert with others,
to seek to control the Board of Directors of the Company; or solicit, seek to
effect, negotiate with or provide any information to any other party with
respect to, or make any statement or proposal, whether written or oral, to the
Board of Directors of the Company or any director or officer of the Company, or
otherwise make any public announcement of any proposal, with respect to any form
of business combination transaction involving the Company, including, without
limitation, a merger, exchange offer or sale of the Company's assets or
instigate any third party to do any of the foregoing.
2.2 Restrictions on Transfer of Common Stock. During the one-year period
subsequent to the date hereof, without the written consent of the Company, which
shall not be unreasonably withheld:
(a) no Investor will, individually or together with any other Investor, sell,
transfer, donate, pledge, hypothecate, encumber, or otherwise agree or arrange
to transfer, to one Person or "group" (within the meaning of Section 13(d)(3) of
the Exchange Act) shares of Common Stock aggregating 5% or more of the
outstanding Common Stock; and
(b) each Investor will hold his or her Lockup Shares without sale, transfer,
donation, pledge, hypothecation, encumbrance or any other agreement or
arrangement of transfer, and without any exercise of any registration rights
with respect thereto;
provided, however, that any Investor may pledge any or all of his or her shares
of Common Stock (including Lockup Shares) to a financial institution or
investment bank in connection with obtaining a loan or effecting a "collar"
transaction or other substantially similar derivative security or other such
transaction; and provided further, it is understood that simply placing such
shares in "street name" or the name of a nominee would not violate this
provision, provided beneficial ownership remains with such Investor or
Investors.
ARTICLE III
MISCELLANEOUS
3.1 Amendments and Waivers. This Agreement may be amended only by the written
consent of all of the parties hereto.
3.2 Successors, Assigns and Transferees. No rights under this Agreement may be
assigned or transferred to any Person, other than with the prior written consent
of all of the parties hereto.
3.3 Integration. This Agreement, the Acquisition Agreement, the Escrow
Agreement, the Registration Rights Agreement and any other documents referred to
herein or delivered pursuant hereto that form a part hereof contain the entire
understanding of the parties hereto with respect to its subject matter. There
are no restrictions, agreements, promises, rights, representations, warranties,
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<PAGE>
covenants or undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement supersedes all prior agreements
and understandings of the parties hereto with respect to its subject matter.
3.4 Notices. All notices and other communications provided for hereunder shall
be in writing and shall be sent by first class mail, telex, telecopier or hand
delivery.
if to the Company, to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Secretary
Telecopier: (757) 365-3017
Telephone Confirmation: (757) 365-3004
with copies to:
McGuire, Woods, Battle & Boothe LLP
One James Center
901 E. Cary Street
Richmond, VA 23219
Attention: Sam Young Garrett
Telecopier: (804) 775-1061
Telephone Confirmation: (804) 775-4384
If to any of the Investors, to their respective addresses, initially
those set forth below:
Jeffrey S. Matthews
Carroll M. Baggett
James O. Matthews
Post Office Box 707
Warsaw, North Carolina 28398
with a copy to:
Ward and Smith, P.A.
1001 College Court
P. O. Box 867
New Bern, North Carolina 28563-0867
Attention: J. Troy Smith, Jr.
Telecopier: (252) 636-2121
Telephone Confirmation: (252) 633-1000
4
<PAGE>
All such notices and communications shall be deemed to have been given or
made (i) when delivered by hand or by Federal Express or any other nationally
recognized courier service, (ii) seven days after being deposited in the mail,
postage prepaid, (iii) when telexed answer-back received or (iv) when
telecopied, receipt acknowledged.
3.5 Termination. This Agreement will terminate upon the first anniversary of the
date hereof.
3.6 Descriptive Headings. The headings in this Agreement are for convenience of
reference only and shall not limit, expand or otherwise affect the meaning of
the terms contained herein.
3.7 Severability. In the event that one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the Company and the Investors shall be
enforceable to the fullest extent permitted by law.
3.8 Governing Law. This Agreement shall be governed by the internal law of the
Commonwealth of Virginia, without regard to principles of conflicts of law.
3.9 Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same instrument. Any party's
execution of this Agreement may be evidenced by physical delivery or by
telecopier, facsimile or other written communication thereof to the other
parties.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SMITHFIELD FOODS, INC.
By: /s/ Aaron D. Trub
-----------------
Name: Aaron D. Trub
Title: Vice President, CFO & Secretary
THE INVESTORS
/s/ Jeffrey S. Matthews
-----------------------
Jeffrey S. Matthews
/s/ Carroll M. Baggett
----------------------
Carroll M. Baggett
/s/ James O. Matthews
---------------------
James O. Matthews
CONFORMED COPY
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as of May 7,
1999, by and between SMITHFIELD FOODS, INC., a Virginia corporation (the
"Company") and each of JEFFREY S. MATTHEWS, CARROLL M. BAGGETT and JAMES O.
MATTHEWS (each individually an "Investor" and collectively "the Investors").
W I T N E S S E T H :
WHEREAS, the Company, the Investors and certain entities wholly-owned by
the Investors are parties to an Acquisition Agreement dated as of May 3, 1999
(the "Acquisition Agreement"); and
WHEREAS, upon the closing of the transactions contemplated thereby, such
Investors will then hold respectively 2,185,333 shares, 2,185,333 shares and
2,185,334 shares of Common Stock (as defined below); and
WHEREAS, the parties thereto and hereto desire, in view of the Acquisition
Agreement and this Registration Rights Agreement, to cause to be cancelled the
registration rights provided for in the Subscription Agreement dated as of
September 3, 1992 between the Company and Carroll's Foods, Inc., a North
Carolina corporation all of the stock of which is owned by the Investors
("Carroll's Foods");
NOW, THEREFORE, for good and valuable consideration, the delivery and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I.
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following capitalized
terms shall have the meanings ascribed to them below:
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly controls, is controlled by or is under common control
with such person. For purposes of this definition, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting stock, by contract or otherwise.
"Agreement with Shareholders" means the Agreement with Shareholders
dated as of the date hereof between the Company and each of the Investors.
<PAGE>
"Common Stock" means the Common Stock, par value $.50 per share, of
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means, as of any time, a signatory hereto who is the
registered holder (or who holds such securities in "street name" or otherwise
through a nominee) and the beneficial owner of Registrable Securities.
"Person" means an individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any department
or agency thereof.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement or any other amendments and supplements
to such prospectus, including without limitation any preliminary prospectus, any
pre-effective or post-effective amendment and all material incorporated by
reference in any prospectus.
"Registrable Securities" means (i) the 2,185,333, the 2,185,333 and
the 2,185,334 shares of Common Stock held on the date hereof by Jeffrey S.
Matthews, Carroll M. Baggett and James O. Matthews, respectively, (including for
purposes of this definition the numbers of such shares initially held in escrow
and eventually delivered to such Investors, and excluding any such escrowed
shares returned to the Company, in each case pursuant to the terms of such
escrow and the Acquisition Agreement), plus any further shares issued to them
pursuant to post-closing adjustments contemplated by the Acquisition Agreement,
in each case so long as such Investor is continuously a Holder thereof
thereafter, and (ii) any securities issued or issuable in respect of or in
exchange for any Registrable Securities referred to in clause (i) by way of a
stock dividend or other distribution, stock split, reverse stock split or other
combination of shares, recapitalization, reclassification, merger, consolidation
or exchange offer and continuously held by such Investor thereafter. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a Registration Statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such Registration
Statement, (ii) such securities shall have been sold or otherwise transferred,
or (iii) such securities shall have ceased to be outstanding.
"Registration Expenses" has the meaning set forth in Section 2.4.
"Registration Statement" means any registration statement of the
Company which covers Registrable Securities pursuant to the provisions of this
Agreement, all amendments and supplements to such Registration Statement,
including post-effective amendments, and all exhibits and all material
incorporated by reference in such Registration Statement.
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"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
ARTICLE II.
REGISTRATION RIGHTS
2.1 Demand Registration.
(a) Requests for Registration. Subject to the provisions of paragraphs (b)
and (c) of this Section 2.1, any Holder or Holders may at any time during the
period beginning on the date hereof (subject to the share transfer restrictions
provided for in the Agreement with Shareholders) and ending on the earlier to
occur of (i) the first date that there are no Holders or fewer than 500,000
Registrable Securities and (ii) the seventh anniversary of the date hereof (the
"Demand Registration Period") make a written request for registration under the
Securities Act of all or any part of such Holder's or Holders' Registrable
Securities (a "Demand Registration"). Such request shall specify the amount of
Registrable Securities to be registered and the intended method or methods of
disposition. If the Holders of a majority of the Registrable Securities to be
registered in connection with a Demand Registration so elect (either in such
written demand, and/or in their responses to the Company notice provided for in
the next sentence), the offering of such Registrable Securities pursuant to such
Demand Registration shall be in the form of an underwritten offering, subject to
the further provisions herein concerning underwritten offerings. Within 10 days
after receipt of such request, the Company shall send written notice of such
request to all Holders and shall, subject to the provisions of paragraphs (b),
(c), (d) and (e) of this Section 2.1, include in such Demand Registration all
Registrable Securities with respect to which the Company receives written
requests (specifying the amount of Registrable Securities to be registered and
the intended method or methods of disposition) for inclusion therein within 20
days after such notice is sent; provided, however, that if all of the holders of
Registrable Securities then outstanding acted together in making the initial
request for a demand registration, the Company shall not be required to send any
such notices and such notice periods shall not apply. The Company shall
thereafter use reasonable best efforts to file with the SEC within the
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applicable period specified in Section 2.3(a)(i) a Registration Statement
registering all Registrable Securities that any Holders have requested the
Company to register, for disposition in accordance with the intended method or
methods set forth in their notices to the Company; provided, however, that
nothing in this Agreement shall require the Company to file or maintain any
registration statement pursuant to "Rule 415" or "shelf" procedures. The Company
shall use reasonable best efforts to cause such Registration Statement to be
declared effective as soon as reasonably practicable after filing and to remain
effective until the date on which all of the Registrable Securities covered
thereby are disposed of in accordance with the method or methods of disposition
stated therein; provided, however, that, the Company shall not be required to
use such efforts to cause the filing to remain effective for a period greater
than 30 days following the date on which it was declared effective.
(b) Number of Registrations. The Holders shall be entitled to request, and
if requested the Company need effect only, an aggregate of six (6) Demand
Registrations during the Demand Registration Period; provided, however, that the
Company will not be obligated to comply with any such request unless (i) not
less than 500,000 shares of Common Stock which are Registrable Securities are
proposed to be registered in such Demand Registration, and (ii) at least 60 days
have elapsed from the effective date of any registration statement for Common
Stock of the Company (other than a registration statement on Form S-8 or any
successor form), whether such registration statement was filed pursuant to any
Demand Registration or otherwise by the Company.
(c) Suspension of Registration. The Company shall have the right to delay
the filing or effectiveness of a Registration Statement for any Demand
Registration or to withdraw or require the Holders not to sell under any such
Registration Statement, during up to two periods of not more than 90 days each
in any consecutive twelve-month period during the Demand Registration Period if
(A) (i) the Company would, in accordance with the advice of its outside counsel,
find it appropriate to disclose in the Prospectus information not otherwise then
required by law to be publicly disclosed and (ii) in the judgment of the
Company's Board of Directors, as such judgment is set forth in a resolution of
the Board of Directors, there is a reasonable likelihood that such disclosure,
or any other action to be taken in connection with the Prospectus, would
materially and adversely affect any existing or prospective material business
situation, transaction or negotiation or otherwise materially and adversely
affect the Company, or (B) the Company determines, in its reasonable business
judgment, that such registration and offering would interfere with any
financing, acquisition, corporate reorganization, or other material transaction
involving the Company or any of its subsidiaries; provided, however, that the
Company promptly gives the Holders requesting registration thereof pursuant to
paragraph (a) of Section 2.1 hereof a written notice of such finding, judgment
or determination containing a general statement of the reasons for such
postponement and an approximation of the anticipated delay. In the event of such
a Company notice, the Holders of a majority of the Registrable Securities to be
offered and sold may by written notice to the Company, given prior to receiving
a Company notice that such suspension has ended, withdraw the request for
registration, and the request for registration shall not be counted for purposes
of paragraph (b) of Section 2.1 hereof , and the Company shall be required (A)
to pay in connection therewith all Registration Expenses and (B) to reimburse
all out-of-pocket expenses incurred by the selling Holders to pay the reasonable
fees and disbursements of their counsel and, to the extent the selling Holders
prior to receiving the Company's notice have already agreed in writing so to
reimburse the underwriters, if any, under such circumstances for their
reasonable out-of-pocket costs and the reasonable fees and disbursements of
their counsel, to reimburse such underwriters accordingly, in each case
notwithstanding anything to the contrary contained herein (including Section
2.4).
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(d) Offering by the Company. The Company may include in any Demand
Registration additional shares of capital stock to be sold for the Company's
account pursuant to such registration; provided, however, that if the managing
underwriter for a Demand Registration that involves an underwritten offering
shall advise the Company that, in its or their opinion, the inclusion of the
amount and kind of shares of capital stock to be sold for the Company's account
would adversely affect the success of the offering for the selling Holders, then
the number and kind of shares of capital stock to be sold for the Company's
account shall be reduced (and may be reduced to zero) in accordance with the
managing underwriter's recommendation.
(e) Reduction of Offering. In the event of a Demand Registration which is
to be underwritten as contemplated by Section 2.1(a), if the managing
underwriter or underwriters of such offering advise the Company in writing, with
a copy to such Holders, that in its or their opinion the amount of Registrable
Securities requested to be included in such Demand Registration is sufficiently
large or otherwise likely to materially adversely affect the success of such
offering (including, but not limited to, the offering price per share), the
Company (i) will include in such registration the aggregate amount of
Registrable Securities which in the opinion of such managing underwriter or
underwriters can be sold without any such material adverse effect (such amount
to be allocated pro rata among the Holders of Registrable Securities on the
basis of the total amount of Registrable Securities which had been requested to
be included in such registration by such Holders) and (ii) will allow any
securities other than Registrable Securities to be included in such registration
only if all Registrable Securities requested to be included shall have been
included.
2.2 [Intentionally Omitted.]
2.3 Registration Procedures.
(a) The Company to Use Reasonable Best Efforts. In connection with the
Company's Demand Registration obligations pursuant to Section 2.1 hereof, the
Company shall use reasonable best efforts to effect such registrations to permit
the sale of such Registrable Securities in accordance with the intended method
or methods of disposition thereof, and pursuant thereto the Company shall use
reasonable best efforts:
(i) to prepare (and to offer the selling Holders, any managing
underwriter and their respective counsels reasonable opportunity to participate
in the preparation of) and to file with the SEC within 45 days after the
delivery of the relevant request under Section 2.1 a Registration Statement or
Registration Statements relating to
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Demand Registrations on any appropriate form under the Securities Act, and to
cause such Registration Statements to become effective as soon as reasonably
practicable and to remain continuously effective for the time period required by
this Agreement to the extent permitted under applicable law; provided, however,
that nothing in this Agreement shall require the Company to file or maintain any
registration statement pursuant to "Rule 415" or "shelf" procedures;
(ii) with respect to Demand Registrations, to prepare and file with
the SEC such amendments and post-effective amendments to each Registration
Statement as may be necessary to keep such Registration Statement effective for
the applicable period set forth in paragraph (a) of Section 2.1 and to cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed in accordance with the Securities Act and any
rules and regulations promulgated thereunder; and otherwise to comply with the
provisions of the Securities Act as may be necessary to facilitate the
disposition of all Registrable Securities covered by such Registration Statement
during the applicable period in accordance with the intended method or methods
of disposition by the selling Holders thereof set forth in such Registration
Statement or such Prospectus or Prospectus Supplement;
(iii) to notify the selling Holders and the managing underwriters, if
any, promptly if at any time (A) any Prospectus, Registration Statement or
amendment or supplement thereto is filed, (B) any Registration Statement, or any
post-effective amendment thereto, becomes effective, (C) the SEC requests any
amendment or supplement to, or any additional information in respect of, any
Registration Statement or Prospectus, (D) the SEC issues any stop order
suspending the effectiveness of a Registration Statement or initiates any
proceedings for that purpose, (E) the Company receives any notice that the
qualification of any Registrable Securities for the sale in any jurisdiction has
been suspended or that any proceeding has been initiated for the purpose of
suspending such qualifications, or (F) any event occurs which requires that any
changes be made in such Registration Statement or any related Prospectus so that
such Registration Statement or Prospectus will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(iv) to make every reasonable best effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement, or the
qualification of any Registrable Securities for sale in any U.S. jurisdiction,
as soon as reasonably practicable;
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(v) to furnish each selling Holder a signed counterpart, addressed to
it, of (i) an opinion of counsel for the Company, dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), and (ii) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified the
Company's financial statements included in such registration statement, covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of securities
and, in the case of the accountants' letter, such other financial matters, as
the selling Holders and the managing underwriter may reasonably request; and to
furnish to each selling Holder and each managing underwriter, if any, one signed
copy of the Registration Statement or Registration Statements or any
post-effective amendment thereto, including all financial statements and
schedules thereto, all documents incorporated therein by reference and all
exhibits thereto (including exhibits incorporated by reference);
(vi) to deliver to each selling Holder and each underwriter, if any,
as many copies of the Prospectus or Prospectuses (including each preliminary
Prospectus) and any amendment or supplement thereto as such Persons may
reasonably request; and to consent to the use of such Prospectus or any
amendment or supplement thereto by each such selling Holder and underwriter, if
any, in connection with the offering and sale of the Registrable Securities
covered by such Prospectus, amendment or supplement;
(vii) prior to any public offering of Registrable Securities, to
register or qualify, or to cooperate with the selling Holders, the underwriters,
if any, and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such U.S. jurisdictions as may be requested by
the Holders of a majority of the Registrable Securities included in such
Registration Statement; with respect to Demand Registrations, to keep each such
registration or qualification effective during the period set forth in paragraph
(a) of Section 2.1 that the applicable Registration Statement is required to be
kept effective and to do any and all other acts or things reasonably necessary
to enable the disposition in such jurisdictions of the Registrable Securities
covered by such
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Registration Statement; provided, however, that the Company will not be required
to qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process or taxation in any jurisdiction where it is not then so subject;
(viii) to cooperate with the selling Holders and the underwriters, if
any, in the preparation and delivery of certificates representing the
Registrable Securities to be sold, such certificates to be in such denominations
and registered in such names as such selling Holders or managing underwriters
may request at least two Business Days prior to any sale of Registrable
Securities represented by such certificates;
(ix) upon the occurrence of any event described in subclause (F) of
clause (iii) of this paragraph (a), promptly to prepare and file a supplement or
post-effective amendment to the applicable Registration Statement or Prospectus
or any document incorporated therein by reference, and any other required
document, so that such Registration Statement and Prospectus will not thereafter
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statement therein not misleading, and to cause such
supplement or post-effective amendment to be filed or be effective as soon as
reasonably practicable;
(x) to take all other actions in connection therewith as are
reasonably necessary or desirable in order to facilitate the disposition of the
Registrable Securities included in such Registration Statement and, in the case
of an underwritten offering to enter into an underwriting agreement in customary
form, including, without limitation, customary indemnities;
(xi) to make available for inspection by representatives of the
Holders of Registrable Securities being sold pursuant to any Demand Registration
and of the underwriters, if any, participating in such sale, copies or extracts
of all pertinent financial and other records, corporate documents and properties
of the Company as shall be reasonably necessary to enable such representatives
to fulfill their due diligence responsibilities, and to cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such representatives in connection with such Demand Registration;
provided, however, that all information regarding such records, documents and
properties shall be kept confidential by such Persons unless disclosure of such
information is required by court or administrative order;
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(xii) to comply with all applicable rules and regulations of the SEC
relating to such Registration Statement and the distribution of the securities
being offered or otherwise necessary in order to perform the Company's
obligations under this paragraph (a);
(xiii) to cooperate and assist in any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD"); and
(xiv) to take all other reasonable steps necessary and appropriate to
effect such registration in the manner contemplated by this Agreement.
(b) Holders' Obligation to Furnish Information. The Company may require
each Holder of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding the distribution
of such securities as the Company may from time to time reasonably request. If
the failure by a Holder of Registrable Securities to furnish such information as
expeditiously as possible would prevent (i) the Registration Statement relating
to such registration from being declared effective by the SEC or (ii) members of
the NASD from participating in the distribution of the Registrable Securities,
the Company may exclude such Holder's Registrable Securities from such
registration.
(c) Suspension of Sales Pending Amendment of Prospectus. Each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in subclause (C), (D), (E) or (F) of clause (iii) of
paragraph (a) of this Section 2.3, such Holder will forthwith forego or delay
the disposition of any Registrable Securities covered by such Registration
Statement or Prospectus until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by clause (ix) of such paragraph
(a), or until it is advised in writing by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in such Prospectus,
and, if so directed by the Company, such Holder will deliver to the Company (at
the Company's expense, except as hereinafter provided in this paragraph (c)) all
copies, other than permanent file copies, then in such Holder's possession of
any Prospectus covering such Registrable Securities. If the Company shall have
given any such notice during a period when a Demand Registration is in effect,
the 30-day period described in paragraph (a) of Section 2.1 shall be extended by
the number of days from and including the date of the giving of such notice to
and including the date when each Holder of Registrable Securities covered by
such Registration Statement shall have received the copies of the supplemented
or amended Prospectus contemplated by clause (ix) of such paragraph (a) or shall
have been advised in writing by the Company that the use of the applicable
Prospectus may be resumed. Each Holder of Registrable Securities agrees that
such Holder will, as expeditiously as possible, notify the Company at any time
when a Prospectus relating to a Registration Statement covering such Holder's
Registrable Securities is required to be delivered under the Securities Act, of
the happening of any event of the kind described in subclause (F) of clause
(iii) of paragraph (a) of this Section 2.3 as a result of any information
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provided by such Holder for inclusion in such Prospectus included in such
Registration Statement and, at the request of the Company, as expeditiously as
possible prepare and furnish to it such information as may be necessary so that,
after incorporation into a supplement or amendment of such Prospectus as
thereafter delivered to the purchasers of such Registrable Securities, the
information provided by such Holder shall not include an untrue statement of a
material fact or a misstatement of a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading and, in such event the expenses of
delivery to the Company of copies of any Prospectus in such Holder's possession
will be at the expense of the Holder giving such notice pursuant to this
sentence.
2.4 Registration Expenses.
All expenses incident to the Company's performance of or compliance with
its obligations under this Agreement with respect to any Demand Registration,
including without limitation all (i) registration and filing fees, (ii) fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications or
registrations (or the obtaining of exemptions therefrom) of the Registrable
Securities)), (iii) printing expenses (including expenses of printing
Prospectuses), (iv) messenger and delivery expenses, (v) internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (vi) reasonable fees and
disbursements of its counsel and its independent certified public accountants
(including the expenses of any "comfort" letters required by or incident to such
performance or compliance), (vii) securities act liability insurance (if the
Company elects to obtain such insurance), (viii) reasonable fees and expenses of
any special experts retained by the Company in connection with any registration
hereunder, and (ix) reasonable fees and expenses of other Persons retained by
the Company (all such expenses being herein referred to as "Registration
Expenses"), shall be borne by the Company. The following costs and expenses
shall be excluded from the term "Registration Expenses": (1) all underwriting
discounts and commissions, (2) all applicable transfer taxes, if any, (3) the
fees and disbursements of counsel retained by the selling Holders, (4) certain
specified registration costs and expenses as provided in the last sentence of
paragraph (c) of Section 2.3 hereof, and (5) except as provided in the first
sentence of this Section 2.4, all other costs, fees and expenses incurred by any
Holder in connection with the exercise of its registration rights hereunder (all
of the amounts set forth in this sentence to be borne by the selling Holders of
any Registrable Securities pro rata on the basis of the total number of
Registrable Securities being registered by such Holders). Notwithstanding
anything to the contrary contained herein, if a request for any Demand
Registration is withdrawn by the selling Holders (other than a withdrawal made
by the selling Holders during a delay of filing or effectiveness or withdrawal
or requirement not to sell pursuant to a Company notice under Section 2.1(c)),
the Holders of the Registrable Securities which were or were to be registered
under such Demand Registration shall be responsible for all Registration
Expenses.
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2.5 Indemnification.
(a) Indemnification by the Company. In the event of any registration of
any Registrable Securities under the Securities Act pursuant to Section 2.1
hereof, the Company will, and hereby does, indemnify and hold harmless, to the
extent permitted by law, the Holder of any Registrable Securities covered by
such Registration Statement, and if applicable its directors, officers and
agents or general and limited partners (and the directors, officer and agents
thereof), each other Person who participates as an underwriter, if any, in the
offering or sale of such securities and each other Person, if any, who controls
such Holder or any such underwriter within the meaning of the Securities Act,
against any and all losses, claims, damages or liabilities, joint or several,
and reasonable out-of-pocket expenses (including any amounts paid in any
settlement effected with the Company's consent) to which such Holder or any such
director, officer, agent, general or limited partner, underwriter or controlling
Person may become subject under the Securities Act, common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such securities were registered under the
Securities Act or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary Prospectus, together with the
documents incorporated by reference therein (as amended or supplemented if the
Company shall have filed with the SEC any amendment thereof or supplement
thereto), if used prior to the effective date of such Registration Statement, or
contained in the Prospectus, together with the documents incorporated by
reference therein (as amended or supplemented if the Company shall have filed
with the SEC any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and the Company will
reimburse such Holder and each such director, officer, agent, general or limited
partner, underwriter and controlling Person for any legal or any other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, liability, action or proceeding; provided, however, that
the Company shall not be liable to any such Holder or any such director,
officer, agent, general or limited partner, underwriter or controlling Person in
any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement or amendments thereof or supplement
thereto or in any such preliminary, final or summary Prospectus in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of
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any such Holder or any such director, officer, agent, general or limited
partner, underwriter or controlling Person, for use in the preparation thereof;
and provided further, that the Company will not be liable to any Person who
participates as an underwriter in any underwritten offering or sale of
Registrable Securities, or to any Person who is a selling Holder in any
non-underwritten offering or sale of Registrable Securities, or any other
Person, if any, who controls such underwriter or Holder within the meaning of
the Securities Act, under the indemnity agreement in this paragraph (a) of
Section 2.5 with respect to any preliminary Prospectus or the final Prospectus
(including any amended or supplemented preliminary or final Prospectus), as the
case may be, to the extent that any such loss, claim, damage or liability of
such underwriter, Holder or controlling Person results from the fact that such
underwriter or Holder sold Registrable Securities to a person to whom there was
not sent or given, at or prior to the written confirmation of such sale, a copy
of the final Prospectus or of the final Prospectus as then amended or
supplemented, whichever is most recent, if the Company had previously furnished
copies thereof to such underwriter or Holder and such final Prospectus, as then
amended or supplemented, had corrected any such misstatement or omission. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Holder or any such director, officer, agent,
general or limited partner, underwriter or controlling Person and shall survive
the transfer of such securities by such underwriter or Holder.
(b) Indemnification by the Selling Holders. In consideration of the
Company's including any Registrable Securities in any Registration Statement
filed in accordance with Section 2.1 hereof, the Holder of such Registrable
Securities and any underwriter shall be deemed to have agreed to indemnify and
hold harmless (in the same manner and to the same extent as set forth in
paragraph (a) of this Section 2.5) the Company and its directors, officers and
agents and each person controlling the Company within the meaning of the
Securities Act and all other prospective selling Holders and if applicable their
directors, officers, agents, general and limited partners and respective
controlling Persons with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, any preliminary,
final or summary Prospectus contained therein, or any amendment or supplement,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company or its representatives by or on behalf of such Holder or underwriter for
use in the preparation of such Registration Statement, preliminary, final or
summary Prospectus or amendment or supplement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company or any of the prospective sellers or any of their respective
directors, officers, agents, general or limited partners or controlling Persons
and shall survive the transfer of such Holder.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 2.5, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein (i) shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of this
Section 2.5, except to the extent that the failure results in the forfeiture by
the indemnifying party of substantial rights (ii) will not, in any event,
relieve the indemnifying party from any obligation to any indemnified party
other than the indemnification obligation provided in paragraph (a) or (b)
above. If any such claim or action shall be brought against an indemnified
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party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel of its choosing; provided, however, that if, in
any indemnified party's reasonable judgment, a conflict of interest between the
indemnified party and the indemnifying party exists in respect of such claim,
then such indemnified party shall have the right to participate in the defense
of such claim and to employ counsel reasonably satisfactory to the indemnifying
party at the indemnifying party's reasonable expense to represent such
indemnified party; provided, however, that if the indemnified party or parties
in such instance is a Holder(s), then one such firm of attorneys shall be
selected by a majority of the indemnified parties based upon their respective
percentage ownership of Registrable Securities covered by such Registration
Statement; and provided further, that if, in the reasonable judgment of any
indemnified party, a conflict of interest between such indemnified party and any
other indemnified parties exists in respect of such claim, each such indemnified
party shall be entitled to one additional counsel reasonably satisfactory to the
indemnifying party and the indemnifying party shall be obligated to pay the
reasonable fees and expenses of such additional counsel or counsels. Once the
indemnifying party has assumed the defense of any claim, no indemnified party
will consent to entry of any judgment or enter into any settlement without the
indemnifying party's consent to such judgment or settlement.
(d) Other Indemnification. Indemnification similar to that specified in
the preceding paragraphs of this Section 2.5 (with appropriate modifications)
shall be given by the Company and each selling Holder of Registrable Securities
with respect to any required registration or other qualification of securities
under any state securities and "blue sky" laws.
(e) Contribution. If the indemnification provided for in this Section 2.5
is unavailable or insufficient to hold harmless an indemnified party under
paragraphs (a) or (b) of Section 2.5 of this Agreement, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of the losses, claims, or damages or liabilities referred to in
paragraphs (a) or (b) of Section 2.5 in such proportion as is appropriate to
reflect the relative benefits received by and the relative fault of the
indemnifying party on the one hand and the indemnified party on the other hand
in connection with statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omission. The Company agrees, and
the Holders (in consideration of the Company's including any Registrable
Securities in any Registration Statement filed in accordance with Section 2.1
hereof) and any underwriter shall be deemed to have agreed, that it would not be
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just and equitable if contributions pursuant to this paragraph (e) of Section
2.5 were to be determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the first sentence of this paragraph (e) of Section 2.5. The amount paid
by an indemnified party as a result of the losses, claims, and damages or
liabilities referred to in the first sentence of this paragraph (e) of Section
2.5 shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
action or claim (which shall be limited as provided in paragraph (c) of Section
2.5 if the indemnifying party has assumed the defense of any such action in
accordance with the provisions thereof) which is the subject of this paragraph
(e) of Section 2.5. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding anything contained in this paragraph (e) of
Section 2.5 to the contrary, with respect to the offering to which the losses,
claims, damages or liabilities of the indemnified parties relate, (i) no Holder
who is an indemnifying party shall be required pursuant to this paragraph (e) of
Section 2.5 to contribute any amount in excess of the proceeds received by such
Holder from the sale of Registrable Securities and (ii) no underwriter who is an
indemnifying party shall be required to contribute any amount in excess of the
discounts and commissions received by such underwriter.
2.6 Rule 144; Nasdaq Listing.
The Company shall file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, and shall take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitations of the exemptions provided by Rule 144 (as it currently exists
or as it may be amended, or any successor rule thereto) under the Securities
Act. Upon the request of any Holder, the Company shall deliver to such Holder a
written statement stating whether it has complied with such information and
requirements. The Company will use reasonable best efforts to maintain the
listing of the Common Stock (including the Registrable Securities) on the Nasdaq
National Market System or, at the option of the Company, a national securities
exchange (including without limitation the New York Stock Exchange).
2.7 Underwritten Registrations.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by any Demand Registration are to be sold in an underwritten offering,
the underwriter or underwriters and managing underwriter or managing
underwriters that will administer the offering shall be selected by the Holders
of a majority of the Registrable Securities included in such offering; provided,
however, that such underwriters and managing underwriters and the terms material
to the Company of any underwriting agreement and other underwriting arrangements
shall be subject to the prior written approval of the Company, which approval
shall not be unreasonably withheld.
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(b) Agreements of Selling Holders. No Holder shall sell any of its
Registrable Securities in any underwritten offering pursuant to a registration
hereunder unless such Holder (i) agrees to sell such Registrable Securities on
the basis provided in any underwriting agreement or other underwriting
arrangements approved by the Persons entitled hereunder to approve such
agreements or arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting agreements or other
underwriting arrangements. In connection with any Registration Statement in
which a Holder of Registrable Securities is participating, each such Holder will
furnish to the Company in writing such information and affidavits with respect
to such Holders as the Company reasonably requests for use in connection with
any such Registration Statement or Prospectus.
(c) Underwriting Agreement. If requested by the underwriters for any
underwritten offering of Registrable Securities on behalf of a Holder of
Registrable Securities pursuant to a registration requested under Section 2.1,
the Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities to the effect and to the extent provided in
Section 2.5. Each Holder of Registrable Securities on whose behalf Registrable
Securities are to be distributed by such underwriters shall be a party to any
such underwriting agreement, and the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holder of
Registrable Securities. Such Holder of Registrable Securities shall not be
required by the Company to make any representations or warranties to or
agreements with the Company or the underwriters other than reasonable
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method or methods of
disposition and any other representation required by law.
2.8 Holdback Agreements.
(a) Restrictions on Public Sales by Holders. To the extent not
inconsistent with applicable law, each Holder of Registrable Securities whose
securities are covered by a Registration Statement filed pursuant to Section 2.1
hereof who is timely notified in writing by the managing underwriter or
underwriters in an underwritten public offering of such proposed offering shall
not effect (other than as part of such underwritten offering) any public sale or
distribution (including a sale pursuant to Rule 144) of any issue being
registered, or any securities of the Company similar to any such issue, or any
securities of the
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Company convertible into or exchangeable or exercisable for any such issue or
any similar issue, during the 10-day period prior to the effective date of the
applicable Registration Statement, or during the period beginning on such
effective date and ending 90 days after such date, except as part of such
registration.
(b) Restrictions on Public Sales by the Company. The Company shall not
effect any public sale or distribution of any issue of the same class or series
as Registrable Securities being registered in an underwritten offering (other
than pursuant to an employee stock option, stock purchase, stock bonus or
similar plan, pursuant to a merger, exchange offer or other transaction
comparable to or of the type specified in Rule 145(a) under the Securities Act),
or any securities of the Company similar to any such issue or any securities of
the Company convertible into or exchangeable or exercisable for any such issue,
during the 10-day period prior to the effective date of the applicable
Registration Statement, or during the period beginning on such effective date
and ending 30 days after such effective date, except as part of such
registration.
2.9 Termination Agreement.
Simultaneously with the execution and delivery of this Agreement, and as a
condition thereto, the Company will execute and deliver, and the Investors will
cause Carroll's Foods to execute and deliver, a Termination Agreement in the
form attached as Exhibit A hereto.
2.10 Controlling Agreements.
Simultaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering the Termination Agreement, as
contemplated by Section 2.9, and also an Escrow Agreement and an Agreement with
Shareholders, each as contemplated by the Acquisition Agreement. The terms of
such other agreements, to the extent of any conflict with the terms herein,
shall control and govern over the terms of this Agreement.
2.11 Adjustments.
References to shares of Common Stock herein are subject to adjustment in
the event of any stock split, combination, subdivision, exchange or stock
dividend with respect to the Common Stock (for instance, upon a 2-for-1 stock
split, the 500,000 share minimum stated in Section 2.1(b) would become a
1,000,000 share minimum), it being understood that the Company will not effect
or permit to occur any such event which would materially adversely affect the
ability of the Holders of Registrable Securities to include such Registrable
Securities in any registration under Section 2.1 or the marketability of such
Registrable Securities under any such registration.
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ARTICLE III.
MISCELLANEOUS
3.1 Amendment and Waivers. This Agreement may be amended, and the Company
or a Holder may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company or the Holder shall
have obtained the written consent to such amendment, action or omission to act,
of the Company and the Holders of at least a majority of the Registrable
Securities then outstanding (and, in the case of any amendment, action or
omission to act that adversely affects any Holder or group of Holders
differently from any of the other Holders, the written consent of such Holder or
a majority of the Registrable Securities held by such group of Holders). Holders
shall be bound from and after the date of receipt of a written notice from the
Company setting forth such amendment or waiver by any consent authorized by this
Section 3.1, whether or not the certificates representing such Registrable
Securities shall have been marked to indicate such consent.
3.2 Successors, Assigns and Transferees. This Agreement may not be
transferred or assigned by the Company or by any Holder, other than by operation
of law; provided, however, that a Holder or Holders may transfer or assign its
rights with respect to any Registrable Securities under this Agreement to an
investment bank which (A) has agreed in writing to be bound by the terms of this
Agreement, (B) by such transfer then acquires from such Holder or Holders at
least 500,000 Registrable Securities and (C) is receiving such shares for the
purpose of effecting between such Holder or Holders and such investment bank a
"collar" transaction or other substantially similar derivative security or other
such transaction. This Agreement shall be binding upon and shall inure to the
benefit of the Holders and the Company and their permitted successors, assigns
and transferees.
3.3 Integration. Subject to Section 2.10, this Agreement and the documents
referred to herein or delivered pursuant hereto that form a part hereof contain
the entire understanding of the parties thereto with respect to its subject
matter; there are no restrictions, agreements, promises, rights,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof other than those expressly set forth herein; and this
Agreement supersedes all prior agreements and understandings of the parties
hereto with respect to its subject matter.
3.4 Notices. All notices and other communications provided for hereunder
shall be in writing and shall be sent by first class mail, telex, telecopier or
hand delivery,
if to the Company, to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Secretary
Telecopier: (757) 365-3017
Telephone Confirmation: (757) 365-3004
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with copies to:
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
Attention: Sam Young Garrett
Telecopier: (804) 775-1061
Telephone Confirmation: (804) 775-4384
If to any Holders, to:
Jeffrey S. Matthews
Carroll M. Baggett
James O. Matthews
Post Office Box 707
Warsaw, North Carolina 28398
with a copy to:
Ward and Smith, P.A.
1001 College Court
P. O. Box 867
New Bern, North Carolina 28563-0867
Attention: J. Troy Smith, Jr.
Telecopier: (252) 636-2121
Telephone Confirmation: (252) 633-1000
All such notices and communications shall be deemed to have been given or
made (i) when delivered by hand or by Federal Express or any other nationally
recognized courier service, (ii) seven days after being deposited in the mail,
postage prepaid, (iii) when telexed answer-back received or (iv) when
telecopied, receipt acknowledged.
3.5 Termination. This Agreement will terminate upon the earlier to occur
of (i) the first date that there are no Holders or fewer than 500,000
Registrable Securities or (ii) the seventh anniversary of the date hereof.
3.6 Descriptive Headings. The headings in this Agreement are for
convenience of reference only and shall not limit, expand or otherwise affect
the meaning of the terms contained herein.
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3.7 Severability. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the remaining provisions, paragraphs,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the Company and the
Holders shall be enforceable to the fullest extent permitted by law.
3.8 Governing Law. This Agreement shall be governed by the internal law of
the Commonwealth of Virginia, without regard to principles of conflicts of law.
3.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
Any party's execution and delivery of this Agreement may be evidenced by
physical delivery or by telecopier, facsimile or other written communication
thereof to the other parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SMITHFIELD FOODS, INC.
By: /S/ Richard J. M. Poulson
-------------------------
Name: Richard J. M. Poulson
Title: Vice President
INVESTORS:
/s/ Jeffrey S. Matthews
-----------------------
Jeffrey S. Matthews
/s/ Carroll M. Baggett
----------------------
Carroll M. Baggett
/s/ James O. Matthews
---------------------
James O. Matthews
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EXHIBIT A
FORM OF TERMINATION AGREEMENT
Reference is made to the Subscription Agreement between the parties hereto
dated as of September 13, 1992 (the "1992 Registration Rights Agreement"), and
to the Registration Rights Agreement, dated as of May 7, 1999, which Smithfield
Foods, Inc., a Virginia corporation, and each of Jeffrey S. Matthews, Carroll M.
Baggett and James O. Matthews (such individuals being all the shareholders of
Carroll's Foods, Inc.) propose to enter into today, replacing and superseding
the 1992 Registration Rights Agreement.
The parties hereto, being also the parties to the 1992 Registration Rights
Agreement, hereby agree to terminate immediately the 1992 Registration Rights
Agreement, which shall be of no further force or effect.
Dated: May 7, 1999
SMITHFIELD FOODS, INC.
By: __________________________
Name:
Title:
CARROLL'S FOODS, INC.
By: __________________________
Name:
Title:
