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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 2, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 0-2258
SMITHFIELD FOODS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Virginia 52-0845861
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Commerce Street
Smithfield, Virginia 23430
(Address of principal executive offices) (Zip Code)
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(757) 365-3000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 par value per share
Rights to Purchase Series A Junior Participating Preferred Stock,
$1.00 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Registrant's Common Stock held
by non-affiliates as of July 9, 1999 was approximately $1,139,970,261. This
figure was calculated by multiplying (i) the $33.50 last sales price of
Registrant's Common Stock as reported on The Nasdaq National Market on July 9,
1999 by (ii) the number of shares of Registrant's Common Stock not held by any
officer or director of the Registrant or any person known to the Registrant to
own more than five percent of the outstanding Common Stock of the Registrant.
Such calculation does not constitute an admission or determination that any
such officer, director or holder of more than five percent of the outstanding
shares of Common Stock of the Registrant is in fact an affiliate of the
Registrant.
At July 9, 1999, 46,109,667 shares of the Registrant's Common Stock were
outstanding (including for this purpose 1,174,219 Exchangeable Shares issued by
the Registrant's subsidiary Smithfield Canada Limited).
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement to be filed with respect to its Annual
Meeting of Shareholders to be held on September 2, 1999.
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TABLE OF CONTENTS
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ITEM
NUMBER PAGE
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PART I
1. Business ......................................................... 1
General ....................................................... 1
Business Strategy ............................................. 2
Historical Expansion and Acquisitions ......................... 2
Meat Processing Group ......................................... 3
Hog Production Group .......................................... 5
Employees ..................................................... 6
Regulation .................................................... 6
2. Properties ....................................................... 7
3. Legal Proceedings ................................................ 8
4. Submission of Matters to a Vote
of Security Holders ............................................. 8
4A. Executive Officers of the Company ............................... 9
PART II
5. Market for Company's Common Equity
and Related Stockholder Matters ................................. 10
6. Selected Financial Data .......................................... 11
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 12
8. Financial Statements and Supplementary Data ...................... 17
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .......................... 17
PART III
10. Directors and Executive Officers of the Company ................. 18
11. Executive Compensation .......................................... 18
12. Security Ownership of Certain Beneficial Owners
and Management ................................................. 18
13. Certain Relationships and Related Transactions .................. 18
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ........................................ 19
SIGNATURES .......................................................... 22
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ...... F-1
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PART I
ITEM 1. BUSINESS
GENERAL
Smithfield Foods, Inc. is the world's largest pork processor and hog
producer. As a holding company, Smithfield Foods conducts its business through
two groups, the Meat Processing Group and the Hog Production Group, each
comprised of a number of subsidiaries. In this discussion, the terms
"Smithfield Foods" and "the Company" include subsidiaries, unless otherwise
indicated.
MEAT PROCESSING GROUP
The Meat Processing Group produces domestically and internationally a wide
variety of fresh pork and processed meat products and markets them nationwide
and to over 25 foreign markets, including Canada, Poland, France, Japan and
Mexico. The Meat Processing Group consists of six domestic and three
international pork processing subsidiaries. All these subsidiaries are
wholly-owned except as indicated below. Collectively, these subsidiaries
currently operate 48 slaughtering and further processing plants.
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MEAT PROCESSING GROUP
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SUBSIDIARY HEADQUARTERS FISCAL 1999 SALES
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John Morrell & Co. ................................... Cincinnati, Ohio $1.4 billion
The Smithfield Packing Company, Incorporated ......... Smithfield, Virginia $1.3 billion
Schneider Corporation (63%-owned) .................... Kitchener, Ontario, Canada $550 million*
Gwaltney of Smithfield, Ltd. ......................... Smithfield, Virginia $489 million
Animex S.A. (80%-owned) .............................. Warsaw, Poland $350 million*
Lykes Meat Group, Inc. ............................... Plant City, Florida $159 million
Patrick Cudahy Incorporated .......................... Cudahy, Wisconsin $144 million
Societe Bretonne de Salaisons ........................ Lampaul Guimiliau, France $100 million*
North Side Foods Corp. ............................... Arnold, Pennsylvania $60 million*
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* Estimated annualized sales
HOG PRODUCTION GROUP
To complement its processing operations, the Company has vertically
integrated into hog production through its Hog Production Group, which currently
provides the Meat Processing Group with approximately 25% of its live hog
requirements. The Hog Production Group operates numerous production facilities
through two subsidiaries headquartered in Warsaw, North Carolina as indicated
below.
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HOG PRODUCTION GROUP
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ANNUALIZED MARKET
SUBSIDIARY PRINCIPAL LOCATIONS NUMBER OF SOWS HOG PRODUCTION
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Carroll's Foods, Inc.
(wholly-owned) ......... North Carolina and Virginia 180,000 2.9 million
Brown's of Carolina, Inc.
(86%-owned) ............ North Carolina, Virginia, Utah,
Colorado and South Carolina 170,000* 2.7 million
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* Numbers include 100% of Brown's sows and market hogs produced, as well as
the sows and market hogs produced by Circle Four Farms, LLC, a wholly-owned
subsidiary of Smithfield Foods. Circle Four is managed by Brown's. The
market hogs produced by Circle Four's sows are sold to an unrelated third
party.
The discussion below of the Company's business will first summarize the
Company's strategic initiatives and its historical expansion through a
combination of internal growth and acquisitions. We will next discuss the Meat
Processing Group's United States processing operations and international
processing operations, followed by the Hog Production Group.
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BUSINESS STRATEGY
The Company's business is based around four strategic initiatives:
o vertical integration into hog production through Company-owned hog
production operations and long-term partnerships and alliances with
other large and efficient hog producers;
o use of genetics which produce hogs that are among the leanest
commercially available to enable the Company to market highly
differentiated pork products;
o continued growth through strategic acquisitions; and
o a heightened emphasis on expansion into international markets.
HISTORICAL EXPANSION AND ACQUISITIONS
Since 1975, when current management assumed control, Smithfield Foods has
expanded both its production capacity and its markets through a combination of
strong internal growth and the acquisition of regional and multi-regional
companies with well-recognized brand identities. Beginning in fiscal 1999, the
Company also expanded its operations internationally through acquisitions in
France, Canada and Poland.
UNITED STATES MEAT PROCESSING ACQUISITIONS
In fiscal 1982, the Company acquired Gwaltney, then Smithfield Packing's
principal Mid-Atlantic competitor. This acquisition doubled the Company's sales
and slaughter capacity and added several popular lines of branded products
along with a highly efficient hot dog and luncheon meats production facility.
The proximity of Gwaltney to Smithfield Packing allowed for synergies and cost
savings in manufacturing, purchasing, engineering and transportation. This
combination set the stage for a series of acquisitions of smaller regional
processors with widely recognized brands, including Patrick Cudahy, Esskay,
Mash's and Valleydale.
In December 1995, the Company acquired John Morrell, a major Midwestern
pork processor with primary markets in the Midwest, Northeast and Western
United States. This acquisition changed the Company's character from a large
multi-regional pork processor to one with national distribution. It also
doubled the Company's sales and slaughter capacity, added several popular lines
of branded processed meat products along with four efficient processing
facilities and more than doubled the Company's international sales. The Company
believes that John Morrell's strength in smoked sausage, hot dogs, luncheon
meats, bacon and smoked hams complements the strong smoked meats, hot dog and
bacon business of the Company's Eastern operations. The acquisition of John
Morrell also presented substantial opportunities for cost savings in the areas
of processing, marketing, purchasing and distribution.
In November 1996, the Company acquired the assets and businesses of Lykes.
Lykes is a pork processor with primary markets in the South and Southeast.
Lykes produces branded processed meats, including bacon, hot dogs, and
breakfast and dinner sausages under the Lykes and Sunnyland brands.
In October 1998, the Company acquired all of the assets and business of
North Side, a major domestic supplier of precooked sausage to McDonald's
Corporation.
INTERNATIONAL MEAT PROCESSING ACQUISITIONS
In September 1998, the Company acquired all of the capital stock of
Societe Bretonne de Salaisons, one of the largest private label manufacturer of
ham, pork shoulder and bacon products in France.
In November 1998, the Company acquired a 63% stake in Schneider
Corporation of Canada. The Schneiders brand is the number one Canadian brand in
hot dogs, luncheon meats and premium hams.
Between September 1998 and June 1999, the Company acquired an 80% stake in
Animex, the largest meat and poultry processing company in Poland. Animex
produces a very broad line of fresh and processed meats and poultry.
HOG PRODUCTION ACQUISITIONS
In January 1999, Brown's acquired a 12,000 sow operation in Colorado to
supply hogs to John Morrell.
In May 1999, the Company acquired Carroll's Foods and related companies
and assets, including approximately 180,000 sows. Carroll's Foods was a
longtime hog production partner of the Company. Through a 49%-owned joint
venture, Carroll's Foods is also among the nation's largest turkey processors.
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MEAT PROCESSING GROUP
This discussion of the Meat Processing Group will first provide an
overview of the Group's proportionate revenues from fresh pork, processed meats
and other items. Next, the discussion will describe the Meat Processing Group's
United States processing operations and then its international processing
operations.
REVENUES BY SOURCE
The following table shows for the fiscal periods indicated the percentages
of Meat Processing Group revenues derived from fresh pork, processed meats, and
other products. The meat industry is generally characterized by narrow margins;
however, profit margins on processed meats are greater than profit margins on
fresh pork and on other products.
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1999 1998 1997 1996 1995
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Fresh Pork ............... 49% 56% 59% 59% 51%
Processed Meats .......... 46% 40% 37% 37% 45%
Other Products ........... 5% 4% 4% 4% 4%
-- -- -- -- --
100% 100% 100% 100% 100%
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The increase in percentage of revenues derived from fresh pork between fiscal
years 1995 and 1996 resulted principally from an increase in the number of hogs
slaughtered at the Bladen County, North Carolina plant; conversely, the
increase for processed meats since fiscal 1997 reflects the impact of lower
fresh pork prices combined with the Company's acquisitions of processing
operations.
UNITED STATES PROCESSING OPERATIONS
FRESH PORK PRODUCTS. The Company is the largest fresh pork processor in
the world, producing in fiscal 1999 approximately 2.6 billion pounds. The Meat
Processing Group's domestic operations slaughter hogs at five plants (three in
the Southeast and two in the Midwest), with a current aggregate slaughter
capacity of 78,300 hogs per day. A substantial portion of the Meat Processing
Group's fresh pork is sold to retail customers as unprocessed, trimmed cuts
such as loins (including roasts and chops), butts, picnics and ribs. The Meat
Processing Group also sells hams, bellies and trimmings to other further
processors. The Meat Processing Group is putting greater emphasis on the sale
of value-added, higher margin fresh pork products, such as boneless loins,
hams, butts and picnics. In addition, the Company's Hog Production Group
provides the Meat Processing Group with raw material of much higher quality and
freshness than that generally available through open market purchases.
The Company is marketing on a national basis an extensive product line of
NPD fresh pork cuts (including boneless loins, shoulder cuts, chops, ribs and
processed and cubed pork) under the Smithfield Lean Generation Pork brand to
selected retail chains and institutional foodservice customers. Smithfield
Packing has also developed a case-ready pork program designed to supply
supermarket chains with pre-packaged, weighed, labeled and pre-priced fresh
pork ready for immediate sale to the consumer. Management believes that these
initiatives, over time, will result in greater brand identification and higher
margins for the Company's fresh pork products. For more on NPD pork, see
"Business -- Hog Production Group" below.
PROCESSED MEAT PRODUCTS. The Company manufactures a wide variety of
processed meats, including smoked and boiled hams, bacon, sausage, hot dogs
(pork, beef and chicken), deli and luncheon meats and specialty products such
as pepperoni and dry salami. In fiscal 1999, the Company produced 1.5 billion
pounds of processed meat products. The Company markets its domestic processed
meat products under labels that include Smithfield Premium, Smithfield Lean
Generation Pork, Gwaltney, Patrick Cudahy and John Morrell, as well as Dinner
Bell, Ember Farms, Esskay, Great, Kretschmar, Lykes, Patrick's Pride, Rath and
Valleydale. The Company also sells a substantial quantity of processed meats as
private label products. The Company believes it is one of the largest producers
of smoked hams and picnics in the United States.
In recent years, as consumers have become more health conscious, the
Company has broadened its product line to include leaner fresh pork products as
well as fat-free, lower fat and lower salt processed meats. Management believes
that leaner pork products combined with the industry's efforts to heighten
public awareness of pork as an attractive protein source have led to increased
consumer demand. The Company also markets a lower-fat line of value-priced
luncheon meats, smoked sausage and hot dogs, as well as fat-free hot dogs,
fat-free deli hams and 40-percent-lower-fat bacon.
RAW MATERIALS. The Meat Processing Group's primary raw material is live
hogs. Historically, hog prices have been subject to substantial fluctuations.
In addition, hog prices tend to rise seasonally as hog supplies decrease during
the hot summer months and tend to decline as supplies increase during the fall.
This is due to lower farrowing performance during
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the winter months and slower animal growth rates during the hot summer months.
Hog supplies, and consequently prices, are also affected by factors such as
corn and soybean meal prices, weather and interest rates.
The Meat Processing Group purchases approximately 25% of its live hog
requirements from the Hog Production Group. In addition, the Company purchases
hogs from several of the nation's largest hog producers, strategically located
in proximity to the Company's hog slaughtering and further processing
operations in North Carolina and Virginia. The Company has established
multi-year agreements with Maxwell Foods, Inc., Murphy Family Farms, Inc. and
Prestage Farms, Inc. which provide the Company with a stable supply of
high-quality hogs at market-indexed prices. These producers supply
approximately 29% of the hogs currently processed by the Company.
The Meat Processing Group also purchases hogs on a daily basis at
Southeastern and Midwestern slaughter plants, at Company-owned buying stations
in three Southeastern and five Midwestern states, from certain Canadian
sources, and through certain exclusive dealer-operated buying stations in the
Midwest. The Company also purchases fresh pork from other meat processors to
supplement its processing requirements. Additional purchases include raw beef,
poultry and other meat products to add to the Company's sausage, hot dogs and
luncheon meats. Such meat products and other materials and supplies, including
seasonings, smoking and curing agents, sausage casings and packaging materials
are readily available from numerous sources at competitive prices.
CUSTOMERS AND MARKETING. The Meat Processing Group has significant market
presence nationwide, and strong market positions in the Mid-Atlantic,
Southeast, South and Midwest. The Company's fundamental marketing strategy is
to sell large quantities of value-priced processed meat products as well as
fresh pork to national and regional supermarket chains, wholesale distributors
and the foodservice industry (fast food, restaurant and hotel chains, hospitals
and other institutional customers) and export markets. Management believes that
this marketing approach reaches the largest number of value-conscious consumers
without requiring large advertising and promotional campaigns. The Company uses
both in-house salespersons as well as independent commission brokers to sell
its products. In fiscal 1999, the Company sold its products to more than 3,500
customers, none of whom accounted for as much as 10% of the Company's revenues.
The Company has no significant or seasonally variable backlog because most
customers prefer to order products shortly before shipment, and therefore, do
not enter into formal long-term contracts. Management believes that its
registered trademarks have been important to the success of its branded
processed meat products. In a number of markets, the Company's brands are among
the leaders in selected product categories.
The Meat Processing Group in recent years has placed major emphasis on
growing and expanding its export sales. In fiscal 1999, export sales comprised
approximately 5% of the Company's total sales. The Company provides Japanese
markets with a line of unique, branded fresh pork products, as well as other
chilled and frozen unbranded fresh pork products. In connection with export
sales to Japan, the Company maintains a distributorship arrangement with
Sumitomo Corporation of America. The Company also had export sales to Mexico
and to more than two dozen other foreign countries in fiscal 1999. The Company
expects continued growth in its export sales for the foreseeable future. Export
sales are subject to factors beyond the Company's control, such as tariffs,
exchange rate fluctuations and changes in governmental policies. The Company
conducts all of its export sales in U.S. dollars and therefore bears no
currency translation risk.
The Company's processed meats business is somewhat seasonal in that,
traditionally, the periods of higher sales for hams are the holiday seasons
such as Thanksgiving, Christmas and Easter, and the periods of higher sales of
smoked sausage, hot dogs and luncheon meats are the summer months. The Company
typically builds substantial inventories of hams in anticipation of its
seasonal holiday business.
The Company uses recognized price risk management and hedging techniques
to enhance sales and to reduce the effect of adverse price changes on the
Company's profitability. The Company's price risk management and hedging
activities currently are utilized in the areas of forward sales, hog production
margin management, procurement of raw materials (ham and bacon) for seasonal
demand peaks, inventory hedging, hog contracting and truck fleet fuel
purchases. For further information, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Risk Management."
TRADEMARKS. The Company owns and uses numerous marks. These marks are
registered trademarks of the Company or are otherwise subject to protection
under applicable intellectual property laws. The Company considers these marks
and the accompanying goodwill and customer recognition valuable and material to
its business.
DISTRIBUTION. The Meat Processing Group uses a private fleet of leased
tractors and trailers and independent common carriers to distribute both fresh
pork and processed meats to its customers, as well as to move raw material
between plants for further processing. The Company coordinates deliveries and
uses backhauling to reduce overall transportation costs. The
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Company distributes its products directly from certain of its plants and from
leased distribution centers in Connecticut, Indiana, Missouri, Kansas, Texas
and California. The Company also operates distribution centers adjacent to its
plants in Bladen County, North Carolina and Sioux Falls, South Dakota.
COMPETITION. The protein industry generally, and the pork processing
industry in particular, are highly competitive. The Company's products compete
with a large number of other protein sources, including beef, chicken, turkey
and seafood, but the Company's principal competition comes from other pork
processors.
Management believes that the principal competitive factors in the pork
processing industry are price, quality, product distribution and brand loyalty.
Some of the Company's competitors are larger, have correspondingly greater
financial and other resources and enjoy wider recognition for their branded
products. Some of these competitors are also more diverse than the Company. To
the extent that their other operations generate profits, such companies may be
able to subsidize their pork processing operations for a time.
INTERNATIONAL PROCESSING OPERATIONS
In fiscal 1999, the Meat Processing Group made its first international
acquisitions by acquiring operations in France, Poland and Canada. Such
acquisitions reflect the Company's heightened emphasis on expansion into
international markets.
SCHNEIDER. In November 1998, Smithfield Foods acquired a 63% stake in
Schneider Corporation of Canada. Schneider, based in Kitchener, Ontario, is one
of Canada's largest producers of premium quality food products, with brands
including Schneider's and Fleetwood. Schneider has annualized production volume
of approximately 475 million pounds and manages its various subsidiaries and
joint ventures through two operating groups, consumer foods and agribusiness.
The consumer foods group, comprised of the processed meat and grocery
operations, produces more than 1,000 products, including hams, sausage,
wieners, bacon, luncheon meats, specialty meats and savory bakery products for
sale through traditional grocery stores, delicatessens and foodservice
establishments. Schneider has consumer foods operations in Kitchener, Ayr, St.
Mary's, Guelph and Port Perry, Ontario; Winnipeg, Manitoba; Surrey, British
Columbia; and St.-Anselme, Quebec. In addition, Schneider participates in the
consumer foods sector through joint ventures with the Prince Group of
Drummondville, Quebec; Cappola Food of Toronto, Ontario; National Meats of
Toronto and Luigino's of Duluth, Minnesota. The agribusiness group, comprised
of the fresh pork and live poultry operations, focuses on identifying and
meeting the needs of retail, foodservice and export customers. Its
plants in Winnipeg produce fresh pork products for sale in Canada, the United
States, Japan and other international markets. Schneider markets its products
in the poultry sector under the Schneiders brand and private labels to retail
and foodservice customers. In March 1999, Schneider acquired a 32% stake in
Mitchell's Gourmet Foods, a Western Canadian pork processor.
ANIMEX. Between September 1998 and June 1999, Smithfield Foods acquired an
80% stake in Animex, the largest meat and poultry processing company in Poland.
Animex produces a very broad line of fresh and processed meats and poultry
products, with approximately 400 million pounds of annualized volume. Animex's
brands include Krakus and Pek. Animex has 10 plants, six for red meat and four
for poultry, located across Poland. The Company plans to expand Animex's
network of distribution centers to include several additional areas in Poland.
Approximately 26% of Animex's annualized sales are export sales.
SOCIETE BRETONNE DE SALAISONS. In September 1998, the Company acquired
Societe Bretonne de Salaisons, one of the largest private label manufacturer of
ham, pork shoulder and bacon products in France. SBS has annualized production
volume of approximately 70 million pounds.
HOG PRODUCTION GROUP
GENERAL
As a complement to the Company's hog processing operations, the Company
has vertically integrated into highly efficient hog production through Brown's
and Carroll's Foods, which operate numerous hog production facilities with
approximately 350,000 sows producing about 5.6 million market hogs annually.
The Company obtains approximately 25% of the live hogs it currently processes
from Brown's and Carroll's Foods. Adjusting for sales by Circle Four to an
unrelated party and for the minority interest in Brown's, the Company believes
it is 28% vertically integrated. The Company's raw material costs decrease when
hog production at Brown's and Carroll's Foods is profitable and conversely
increase when production is unprofitable. The profitability of hog production
is directly related to the market price of live hogs and the cost of corn and
soybean meal. Hog producers such as Brown's and Carroll's Foods generate higher
profits when hog prices are high and corn and soybean meal prices are low, and
lower profits (or losses) when hog prices are low and corn and soybean
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meal prices are high. Management believes that hog production at Brown's and
Carroll's Foods furthers the Company's strategic initiative of vertical
integration and reduces the Company's exposure to fluctuations in profitability
historically experienced by the pork processing industry.
In May 1991, the Company acquired from National Pig Development Company
("NPD"), a British firm, the exclusive United States franchise rights for
genetic lines of specialized breeding stock. The Hog Production Group makes
extensive use of these genetic lines, with approximately 308,000 NPD breeding
sows. In addition, the Company has sub-licensed some of these rights to certain
of the Company's strategic hog production partners. All NPD hogs produced under
these sub-licenses are supplied to the Company. The Company believes the hogs
produced by these genetic lines are the leanest hogs commercially available and
enable the Company to market highly differentiated pork products. Management
believes that the leanness and increased meat yields of these hogs will, over
time, improve the Company's profitability with respect to both fresh pork and
processed meat. In fiscal 1999, the Company processed 3.3 million NPD hogs.
HOG PRODUCTION OPERATIONS
The Hog Production Group is the world's largest hog producer. The Group
uses advanced management techniques to produce premium quality hogs on a large
scale as a low cost producer. The Company develops breeding stock, optimizes
diets for its hogs at each stage of the growth process, processes feed for its
hogs and designs and builds hog confinement facilities. The Company believes
its economies of scale and production methods, together with its use of the
advanced NPD genetics in approximately 88% of its breeding sows, make it a
uniquely integrated low cost producer.
The Hog Production Group uses a three-site production process consisting
of sow, nursery and finishing sites. Production of market hogs begins in a
facility known as a sow site. The Group's average commercial sow site is
designed to house approximately 2,400 sows. The sow's purpose is to conceive,
give birth to and nurse piglets which will be raised to become market hogs.
Approximately 18 days after birth, the piglets are separated from the sows and
transported to a separate nursery site. At each nursery site, the piglets are
fed a closely monitored diet and grow to approximately 45 pounds, a process
which takes approximately seven weeks. Once the hogs reach the desired weight,
the Hog Production Group transports them to a finishing site where they are
maintained and fed until reaching a market weight of approximately 250 pounds,
a process which takes approximately 20 weeks. When the hogs reach market
weight, they are transported to the Meat Processing Group's plants, principally
those in Virginia and North Carolina (or, in the case of market hogs produced
in Utah, sold to an unrelated third party).
The Hog Production Group also utilizes independent farmers and their
facilities to raise hogs produced from the Group's breeding stock. Under
multi-year contracts, the farmer provides the initial facility investment,
labor and front line management in exchange for a service fee. This contract
farming is utilized primarily in the nursery and finishing stages where animal
growth, feed and survival rates are most critical and are easily adapted to an
incentive-based contract payment. Currently, approximately 60% of the Hog
Production Group's market hogs come from contract farms.
As of July 1999, the Hog Production Group operated farm sites in five
states. Seventy percent of these sites are located in North Carolina, and
approximately 12% in both Utah and Virginia. Colorado and South Carolina have
5% and 1% respectively. Except for some start-up activity in Utah and Colorado,
the Hog Production Group's farm sites are mature operations with static
production volume.
NUTRIENT MANAGEMENT AND OTHER ENVIRONMENTAL ISSUES
All of the Hog Production Group's hog production facilities have been
designed to meet or exceed all applicable zoning and other government
regulations. These requirements include the maintenance of certain separation
distances between farms and nearby residences, schools, churches, public use
areas and businesses, the maintenance of certain separation distances from
rivers, streams and wells and adherence to certain required construction
standards.
The Hog Production Group follows a number of other protocols to minimize
impact to the environment, including: ongoing employee training regarding
environmental controls; walk-around inspections at all sites by trained
personnel; a formal emergency response plan that is regularly updated; and a
collaboration with manufacturers regarding testing and developing new
equipment.
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EMPLOYEES
As of June 1, 1999, the Meat Processing Group had approximately 30,800
employees, approximately 15,900 of whom are covered by collective bargaining
agreements expiring between May 19, 2000 and March 16, 2003, and the Hog
Production Group had approximately 2,200 employees, none of whom are covered by
collective bargaining agreements. The Company believes that its relationship
with its employees is good.
REGULATION
REGULATION GENERALLY
Like other participants in the meat processing industry, the Company is
subject to various laws and regulations administered by federal, state and
other government entities, including the Environmental Protection Agency
("EPA") and corresponding state agencies as well as the United States
Department of Agriculture, the United States Food and Drug Administration and
the United States Occupational Safety and Health Administration. Management
believes that Smithfield Foods presently is in compliance with all such laws
and regulations in all material respects, and that continued compliance with
these standards will not have a material adverse effect on the Company's
financial position or results of operations. Furthermore, with respect to the
suits discussed below, the Company believes that their ultimate resolution will
not have a material adverse effect on the Company's financial position or
annual results of operations.
EPA SUIT
In UNITED STATES OF AMERICA V. SMITHFIELD FOODS, INC. ET AL. (Civil Case
No. 2:96:cv1204), a federal judge for the United States District Court for the
Eastern District of Virginia imposed a $12.6 million civil penalty on the
Company and its Smithfield Packing and Gwaltney subsidiaries for Clean Water
Act violations at the Company's Smithfield, Virginia processing plants. The
Company recorded a nonrecurring charge of $12.6 million during the first
quarter of fiscal 1998 with respect to this penalty. The Company has appealed
this trial verdict and is awaiting a decision by the United States Court of
Appeals for the Fourth Circuit in Richmond, Virginia. There can be no assurance
as to the outcome of such appeal or any subsequent proceedings regarding this
matter.
SUIT BY COMMONWEALTH OF VIRGINIA
In 1998, the Commonwealth of Virginia filed a civil suit against the
Company in the Circuit Court of the County of Isle of Wight, Virginia under
Virginia's water pollution control laws. Virginia alleges that 22,517
wastewater discharge permit violations occurred at the Company's Smithfield,
Virginia processing plants between 1986 and 1997. Most of these alleged
violations were also presented in the EPA suit. This action is set for trial on
October 18, 1999. While each violation is subject to a maximum penalty of
$25,000, Virginia follows a civil penalties policy designed to recapture from
the violator any economic benefit which accrued as a result of its
noncompliance, plus a surcharge penalty for having committed such violations.
In addition, the policy may increase the amount of penalties based upon the
extent of environmental damage caused by the violations. On July 30, 1999,
Virginia advised Smithfield Foods that Virginia will seek to prove Smithfield
Foods received an economic benefit of approximately $3.8 million. Among other
defenses, the Company will maintain that no economic benefit accrued to the
Company as a result of, and that no environmental damage was caused by, the
violations. There can be no assurance as to the outcome of this proceeding.
- 7 -
<PAGE>
ITEM 2. PROPERTIES
The following table lists the Company's material plants and other physical
properties. These properties are suitable for the Company's needs.
<TABLE>
<CAPTION>
LOCATION OPERATION
- ------------------------------- --------------------------------------------------------------
<S> <C>
Smithfield Packing Plant* Slaughtering and cutting hogs; manufacture of bacon products,
Smithfield, Virginia smoked meats, and dry salt meats; production of hams and
picnics
Smithfield Packing Plant* Slaughtering and cutting hogs; production of boneless hams
Bladen County, North Carolina and loins
Gwaltney Plant* Slaughtering and cutting hogs; production of boneless loins,
Smithfield, Virginia bacon, sausage, bone-in and boneless cooked and smoked
hams and picnics
John Morrell Plant* Slaughtering and cutting hogs and lambs; production of
Sioux Falls, South Dakota boneless loins, bacon, hot dogs, luncheon meats, smoked and
canned hams, and packaged lard
John Morrell Plant Slaughtering and cutting hogs; production of boneless hams,
Sioux City, Iowa loins, butts and picnics
Lykes Meat Group Plant Production of hot dogs, luncheon meats and sausage products
Plant City, Florida
Patrick Cudahy Plant Manufacture of bacon, dry sausage, boneless cooked hams
Cudahy, Wisconsin and refinery products
Schneider Plant Production of processed and prepared meats, including
Kitchener, Ontario, Canada wieners, luncheon meats, hams and specialty and dry
sausages.
</TABLE>
- ---------
* Pledged as collateral under various loan agreements.
The Hog Production Group owns and leases numerous hog production
facilities, primarily in North Carolina and Virginia, with additional hog
production facilities in Colorado, South Carolina and Utah. A substantial
number of these owned facilities are pledged under related loan agreements.
The Company operates hog buying stations in North Carolina, South Carolina
and Virginia which have facilities for purchasing and loading hogs for shipment
to the Company's plants in Smithfield, Virginia and Bladen County, North
Carolina and hog buying stations in Iowa, Kansas, Minnesota, Nebraska and South
Dakota, which have facilities for purchasing and loading hogs for shipment to
the Company's plants in Sioux City, Iowa and Sioux Falls, South Dakota.
ITEM 3. LEGAL PROCEEDINGS
Smithfield Foods and its subsidiaries and affiliates are parties in
various lawsuits arising in the ordinary course of business, excluding certain
matters discussed under "Business -- Regulation" above. In the opinion of
management, any ultimate liability with respect to these ordinary course
matters will not have a material adverse effect on the Company's financial
position or results of operations. For a discussion of certain other regulatory
and environmental matters, see "Item 1. Business -- Regulation" above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
- 8 -
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name and age, position with the Company
and business experience during the past five years of each of the executive
officers of the Company. The Board of Directors elects executive officers to
hold office until the next annual meeting of the Board or Directors or until
their successors are elected, or until their resignation or removal.
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE
NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS
- ---------------------------- ----------------------------------- ---------------------------------------
<S> <C> <C>
Joseph W. Luter, III (60) Chairman of the Board and Chief Mr. Luter has served as Chairman of
Executive Officer of the Company the Board and Chief Executive
Officer since 1975. Prior to May
1995, he also served as President of
the Company.
Lewis R. Little (55) President and Chief Operating Mr. Little was elected President and
Officer of the Company, Lykes Chief Operating Officer of the
and Smithfield Packing Company and Smithfield Packing in
November 1996 and President and
Chief Operating Officer of Lykes in
June 1998. From May 1993 until
November 1996, he was President
and Chief Operating Officer of
Gwaltney.
Douglas W. Dodds (53) Chairman and Chief Executive Mr. Dodds has served as the Chief
Officer of Schneider Corporation Executive Officer of Schneider since
1987 and was elected Chairman
March 1997; from March 1996 until
March 1997, he was Vice Chairman,
and prior to March 1996 President, of
Schneider.
Roger R. Kapella (57) President and Chief Operating Mr. Kapella has served as President
Officer of Patrick Cudahy and Chief Operating Officer of
Patrick Cudahy since 1986.
Joseph B. Sebring (52) President and Chief Operating Mr. Sebring has served as President
Officer of John Morrell and Chief Operating Officer of John
Morrell since May 1994.
Timothy A. Seely (49) President and Chief Operating Mr. Seely was elected President and
Officer of Gwaltney Chief Operating Officer of Gwaltney
in November 1996. Prior to that time,
he was Vice President, Sales and
Marketing, Fresh Meats, of Gwaltney.
C. Larry Pope (44) Vice President, Finance of the Mr. Pope was elected Vice President,
Company Finance of the Company in July
1998. He served as Vice President
and Controller from August 1995 to
July 1998, and prior to that time as
Controller.
Richard J. M. Poulson (60) Vice President and Senior Advisor Mr. Poulson joined the Company as
to the Chairman Vice President and Senior Advisor to
the Chairman in July 1998. Between
1994 and 1998, he was a senior
managing director of the Appian
Group, a private merchant bank with
offices in Washington, D.C. and
Paris. Prior to 1994, Mr. Poulson was
a senior corporate partner with the
law firm Hogan & Hartson in
Washington, D.C. and London.
Aaron D. Trub (64) Vice President, Chief Financial Mr. Trub has served as Vice President
Officer and Secretary of the and Secretary of the Company since
Company 1978. Prior to July 1998, he also held
the position of Treasurer. In July
1998, he was elected Chief Financial
Officer of the Company.
</TABLE>
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<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock of the Company is traded on The Nasdaq National Market
under the symbol "SFDS."
The following table sets forth, for the fiscal periods indicated, the
highest and lowest sales prices of the Common Stock on The Nasdaq National
Market.
<TABLE>
<CAPTION>
RANGE OF SALES PRICES
-----------------------
HIGH LOW
----------- -----------
<S> <C> <C>
Fiscal year ended May 3, 1998
First quarter .............. $ 31.12 $ 22.00
Second quarter ............. 33.87 22.75
Third quarter .............. 35.62 24.37
Fourth quarter ............. 36.37 28.62
Fiscal year ended May 2, 1999
First quarter .............. 31.00 22.62
Second quarter ............. 27.00 14.69
Third quarter .............. 36.12 19.62
Fourth quarter ............. 30.00 20.00
</TABLE>
HOLDERS
As of July 9, 1999, there were 1,222 record holders of the Common Stock.
In addition, there were on such date 264 record holders of the Exchangeable
Shares issued by Smithfield Foods' subsidiary Smithfield Canada Limited, an
Ontario corporation. The terms of such Exchangeable Shares are an exhibit to
this Annual Report on Form 10-K.
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock and does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future. In addition, the terms of certain of the Company's debt agreements
prohibit the payment of cash dividends on the Common Stock. The payment of cash
dividends, if any, will be made only from assets legally available for that
purpose and will depend on the Company's financial condition, results of
operations, current and anticipated capital requirements, restrictions under
then existing debt instruments and other factors then deemed relevant by the
board of directors.
- 10 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below for the fiscal
years indicated were derived from the Company's audited consolidated financial
statements. The information should be read in conjunction with the Company's
consolidated financial statements (including the notes thereto) and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in, or incorporated by reference into, this
report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------------
MAY 2, MAY 3, APRIL 27, APRIL 28, APRIL 30,
1999 1998 1997 1996 1995
------------- --------------- --------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales ............................................. $3,774,989 $ 3,867,442 $ 3,870,611 $2,383,893 $1,526,518
Cost of sales ..................................... 3,235,414 3,479,629 3,546,816 2,202,112 1,380,243
---------- ----------- ----------- ---------- ----------
Gross profit ...................................... 539,575 387,813 323,795 181,781 146,275
Selling, general and administrative expenses ...... 295,610 219,861 191,225 103,095 61,723
Depreciation expense .............................. 63,524 42,300 35,825 25,979 19,717
Interest expense .................................. 40,521 31,891 26,211 20,942 14,054
Minority interests ................................ (3,518) 199 2,857 1,514 343
Nonrecurring charge ............................... - 12,600 - - -
---------- ----------- ----------- ---------- ----------
Income from continuing operations before income
taxes ............................................ 143,438 80,962 67,677 30,251 50,438
Income taxes ...................................... 48,554 27,562 22,740 10,465 18,523
---------- ----------- ----------- ---------- ----------
Income from continuing operations ................. 94,884 53,400 44,937 19,786 31,915
Income (loss) from discontinued operations ........ - - - (3,900) (4,075)
---------- ----------- ----------- ---------- ----------
Net Income ....................................... $ 94,884 $ 53,400 $ 44,937 $ 15,886 $ 27,840
========== =========== =========== ========== ==========
DILUTED INCOME (LOSS) PER SHARE:
Continuing operations ............................. $ 2.32 $ 1.34 $ 1.17 $ 0.53 $ 0.92
Discontinued operations ........................... - - - (0.11) (0.12)
---------- ----------- ----------- ---------- ----------
Net Income ........................................ $ 2.32 $ 1.34 $ 1.17 $ 0.42 $ 0.80
========== =========== =========== ========== ==========
Average diluted shares outstanding ................ 40,962 39,732 38,558 35,000 33,923
BALANCE SHEET DATA:
Working capital ................................... $ 215,865 $ 259,188 $ 164,312 $ 88,026 $ 60,911
Total assets ...................................... 1,771,614 1,083,645 995,254 857,619 550,225
Long term debt and capital lease obligations ...... 594,241 407,272 288,486 188,618 155,047
Shareholders' equity .............................. 542,246 361,010 307,486 242,516 184,015
OPERATING DATA:
Fresh pork sales (pounds) ......................... 2,687,412 2,539,221 2,320,477 1,635,300 955,290
Processed meats sales (pounds) .................... 1,606,021 1,370,232 1,218,835 839,341 774,615
Total hogs purchased .............................. 19,093 17,952 16,869 12,211 8,678
</TABLE>
- 11 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion of management's views on the financial condition and
results of operations of the Company should be read in conjunction with the
consolidated financial statements and the notes to the consolidated financial
statements appearing elsewhere in this Form 10-K.
INTRODUCTION
The Company's business is comprised of two segments, a Meat Processing
Group ("MPG") and a Hog Production Group ("HPG"). As of May 2, 1999, the MPG
consisted of six wholly owned domestic pork processing subsidiaries, Gwaltney of
Smithfield, Ltd. ("Gwaltney"), John Morrell & Co. ("John Morrell"), Lykes Meat
Group, Inc. ("Lykes"), North Side Foods Corp. ("North Side"), Patrick Cudahy
Incorporated ("Patrick Cudahy") and The Smithfield Packing Company, Incorporated
("Smithfield Packing"), and three international meat processing subsidiaries,
Animex S.A. ("Animex"), a 67%-owned Polish subsidiary, Schneider Corporation
("Schneider"), a 63%-owned Canadian subsidiary, and Societe Bretonne de
Salaisons ("SBS"), a wholly owned French subsidiary. As of May 2, 1999, the HPG
consisted of Brown's of Carolina, Inc. ("Brown's"), an 86%-owned subsidiary of
the Company, a 50% interest in Smithfield-Carroll's ("Smithfield-Carroll's"), a
joint hog production arrangement between the Company and an affiliate of
Carroll's Foods, Inc. ("CFI") and an 84% interest in Circle Four ("Circle
Four"), a joint hog production arrangement between the Company and affiliates of
CFI. Brown's and Smithfield-Carroll's produce hogs in Colorado, North Carolina
and Virginia, which are sold primarily to the MPG. Circle Four produces hogs in
Utah which are sold to an unrelated party. Effective May 3, 1999, the Company
acquired CFI and its affiliated companies and partnership interests (See Note
15). Subsequent to the end of fiscal 1999, the Company increased its ownership
in Animex from 67% to 80% of total equity.
ACQUISITIONS
In the third quarter of fiscal 1999, the Company acquired 100% of the
voting common shares of Schneider and approximately 59% of its Class A
non-voting shares, which in the aggregate represents approximately 63% of the
total equity of Schneider, in exchange for approximately 2,527,000 Exchangeable
Shares of Smithfield Canada Limited, a wholly owned subsidiary of the Company.
Each Exchangeable Share is exchangeable by the holder at any time for one
common share of the Company. Schneider produces and markets fresh pork and a
full line of processed meats and is the second largest meat processing company
in Canada. Schneider had sales in its fiscal year ended October 1998 of $548.1
million.
In April 1999, the Company acquired, in a tender offer, 11,500,000 shares
of the capital stock of Animex, the largest meat and poultry processing company
in Poland. Following the tender offer, the Company's ownership represented 67%
of the total equity and 51% voting control of Animex. Animex had calendar year
1998 sales of approximately $400.0 million.
In September 1998, the Company acquired all of the capital stock of SBS,
the largest private-label manufacturer of ham, pork shoulder and bacon products
in France. SBS had calendar year 1998 sales of approximately $100.0 million.
In October 1998, the Company acquired all of the assets and business of
North Side, a major domestic supplier of precooked sausage to McDonald's
Corporation. North Side had calendar year 1998 sales of approximately $58.0
million.
Each of these acquisitions was accounted for using the purchase method of
accounting and, accordingly, the accompanying financial statements include the
financial position and results of operations from the dates of acquisition.
In addition, during fiscal 1999, the Company increased its ownership in
the Circle Four hog production operations from 37% to 84%. Accordingly, the
accompanying financial statements include the financial position and results of
operations from June 1, 1998, the date the Company's ownership interest
exceeded 50%. Prior to June 1, 1998, Circle Four was accounted for using the
equity method of accounting.
RESULTS OF OPERATIONS
The consolidated results of operations for fiscal 1999 compared to fiscal
1998 were favorably affected by significantly lower live hog and raw material
prices. In fiscal 1999, hog prices fell to their lowest level in five decades.
These prices were the primary reason for the substantially improved profits in
the Company's MPG and the losses incurred in the HPG.
Fiscal 1999 and 1997 included 52 weeks of operations compared to fiscal
1998, which included 53 weeks of operations. Accordingly, sales and all expense
categories in fiscal 1999 and 1997 reflect the impact of one less week of
operations compared to fiscal 1998.
- 12 -
<PAGE>
CONSOLIDATED
FISCAL 1999 COMPARED TO FISCAL 1998
Sales in fiscal 1999 decreased $92.5 million, or 2.4% from fiscal 1998.
The decrease in sales reflected a 12.4% decrease in unit sales prices of meat
products as the result of significantly lower raw material (live hog) prices
passed through to customers in the form of lower unit selling prices. This
decrease was nearly offset by a 10.2% increase in MPG sales tonnage due to the
inclusion of the sales of Schneider, SBS and North Side and increased volumes
at existing operations.
Cost of sales decreased $244.2 million, or 7.0%, in fiscal 1999,
reflecting a 33.9% decrease in live hog costs partially offset by the increased
sales tonnage.
Gross profit increased $151.8 million, or 39.1%, in fiscal 1999 compared
to fiscal 1998. The increase in gross profit was primarily due to substantially
higher margins in the MPG. Fresh pork margins improved substantially,
reflecting the impact of the lower cost of raw materials (live hogs) and
margins on increased sales tonnage of both fresh pork and processed meats. MPG
gross profits were partially offset by substantial losses in the HPG due to
lower live hog prices.
Selling, general and administrative expenses increased $75.7 million, or
34.5%, in fiscal 1999 compared to fiscal 1998. The increase was primarily due
to the inclusion of selling, general and administrative expenses of acquired
businesses, higher selling, marketing and product promotion costs associated
with the intensive efforts to market branded fresh pork and processed meats and
expenses associated with preparing the Company's information systems for the
Year 2000.
Depreciation expense increased $21.2 million, or 50.2%, in fiscal 1999
compared to fiscal 1998. This increase was primarily due to the inclusion of
the depreciation of acquired businesses.
Interest expense increased $8.6 million, or 27.1%, in fiscal 1999 compared
to fiscal 1998. This increase reflected the inclusion of the interest expense
of the acquired businesses, the cost of borrowings to finance the additional
investment in Circle Four and the borrowings to finance the acquisitions of SBS
and North Side.
A nonrecurring charge of $12.6 million in fiscal 1998 reflected the
imposition of civil penalties against the Company by the U.S. District Court
for the Eastern District of Virginia in a civil action brought by the U.S.
Environmental Protection Agency ("EPA"). The Company has appealed the Court's
judgment to the U.S. Court of Appeals for the Fourth Circuit.
The effective income tax rate for fiscal 1999 was 33.9% compared to 29.5%
in fiscal 1998, excluding the nondeductible nonrecurring charge. This increase
reflected higher profits at higher marginal tax rates. The Company had no
valuation allowance related to income tax assets as of May 2, 1999 and May 3,
1998.
Reflecting the factors previously discussed, net income increased to $94.9
million, or $2.32 per diluted share, in fiscal 1999, up from net income of
$66.0 million, or $1.66 per diluted share in fiscal 1998, excluding the
nonrecurring charge. Including the nonrecurring charge, net income was $53.4
million, or $1.34 per diluted share, in fiscal 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
Sales in fiscal 1998 were flat compared to fiscal 1997. Sales reflected a
9.0% decrease in unit sales prices of meat products, as a result of lower raw
material (live hog) prices passed through to customers in the form of lower
unit selling prices, offset by a 9.4% increase in MPG sales tonnage. The
increase in sales tonnage reflected an increase in the number of hogs
slaughtered and the inclusion of a full year of the sales of Lykes.
Cost of sales decreased $67.2 million, or 1.9%, in fiscal 1998, reflecting
a 17.3% decrease in live hog costs offset by the increased sales tonnage.
Gross profit increased $64.0 million, or 19.8%, in fiscal 1998 compared to
fiscal 1997. The increase in gross profit reflected sharply improved margins on
higher sales of both fresh pork and processed meats.
Selling, general and administrative expenses increased $28.6 million, or
15.0%, in fiscal 1998. This increase was primarily due to the inclusion of the
operations of Lykes and to higher selling, marketing and product promotion
costs associated with intensified efforts to market branded fresh pork and
processed meats.
Depreciation expense increased $6.5 million, or 18.1%, in fiscal 1998. The
increase was primarily due to completed capital projects at several of the
Company's processing plants and to the inclusion of the operations of Lykes for
the full fiscal year.
- 13 -
<PAGE>
Interest expense increased $5.7 million, or 21.7%, in fiscal 1998,
reflecting the higher cost of long-term debt placed during the past two fiscal
years and higher average borrowing costs related to higher levels of inventory
and accounts receivable in the first half of fiscal 1998.
A nonrecurring charge of $12.6 million in fiscal 1998 reflected the
imposition of civil penalties against the Company by the U.S. District Court
for the Eastern District of Virginia in a civil action brought by the EPA. The
Company has appealed the Court's judgment to the U.S. Court of Appeals for the
Fourth Circuit.
The effective income tax rate for fiscal 1998 decreased to 29.5%,
excluding the nondeductible nonrecurring charge, from 33.6% in fiscal 1997.
This decrease reflected the impact of a lower tax rate on increased export
sales and employment-related tax credits. The Company had no valuation
allowance related to income tax assets as of May 3, 1998 and April 27, 1997.
Excluding the nonrecurring charge, net income increased to $66.0 million,
or $1.66 per diluted share in fiscal 1998 from $44.9 million, or $1.17 per
diluted share in fiscal 1997. Including the nonrecurring charge, net income was
$53.4 million in fiscal 1998, or $1.34 per diluted share.
MEAT PROCESSING GROUP
FISCAL 1999 COMPARED TO FISCAL 1998
MPG sales in fiscal 1999 decreased $137.8 million, or 3.6%, from fiscal
1998. The decrease reflected a 12.4% decrease in unit sales prices as the
result of sharply lower raw material (live hog) prices passed through to
customers. This decrease was partially offset by a 10.2% increase in sales
tonnage due to the inclusion of the sales of Schneider, SBS and North Side and
increased volumes at existing operations. The increase in sales tonnage
reflected a 5.8% increase in fresh pork tonnage, 17.2% increase in processed
meats tonnage and 12.8% increase in the tonnage of other products. Fresh pork
tonnage increased as the result of the inclusion of the sales of Schneider and
a full fiscal year of second shift operations at John Morrell's Sioux City,
Iowa plant compared to less than a full year of second shift operations in
fiscal 1998. The increase in processed meats tonnage resulted from the
inclusion of the sales of Schneider, SBS and North Side and increased tonnage
at existing operations despite a sharp drop in hot dog exports to Russia.
The MPG reported profit before income taxes of $233.4 million in fiscal
1999 compared to profit before income taxes of $121.2 million in fiscal 1998.
This increase reflected sharply lower raw material (live hog) costs and the
impact of acquired businesses and increased volumes from the base business.
These increases were partially offset by increased marketing and distribution
expenses incurred to market branded fresh and processed meat products and
expenses related to preparing the Company's information systems for the Year
2000.
FISCAL 1998 COMPARED TO FISCAL 1997
MPG sales in fiscal 1998 were flat compared to fiscal 1997. Sales
reflected a 9.4% increase in tonnage offset by a 9.0% decrease in unit sales
prices as a result of lower raw material (live hog) prices passed through to
customers in the form of lower unit selling prices. The increase in sales
tonnage reflected a 9.4% increase in fresh pork tonnage, 12.4% increase in
processed meats tonnage and 4.5% increase in the tonnage of other products. The
fresh pork tonnage increase was primarily related to an increase in the number
of hogs slaughtered at the Company's Sioux City, Iowa and Bladen County, North
Carolina plants. The increase in processed meats tonnage was primarily related
to a full fiscal year of sales at Lykes compared to six months of sales in
fiscal 1997.
The MPG reported a profit before income taxes of $121.2 million in fiscal
1998 compared to profit before income taxes of $66.5 million in fiscal 1997.
This increase reflected sharply improved margins as a result of significantly
lower raw material (live hog) costs, which were partially offset by higher
selling, marketing and product promotion costs associated with intensified
efforts to market branded fresh pork and processed meats.
HOG PRODUCTION GROUP
FISCAL 1999 COMPARED TO FISCAL 1998
HPG sales were relatively flat in fiscal 1999 compared to fiscal 1998, as
a 33.0% decrease in the unit selling price of live hogs, due to an oversupply
of hogs in the market, was offset by a 48.5% increase in the number of hogs
sold, primarily the result of including the sales of Circle Four. Intersegment
sales to the MPG are eliminated in the Consolidated Statements of Income.
- 14 -
<PAGE>
The HPG reported a pretax loss of $63.6 million in fiscal 1999, compared
to a pretax loss of $9.7 million in fiscal 1998. The substantially higher loss
was primarily the result of the lower unit selling prices of hogs, which were
at their lowest levels in five decades. Despite the near-term weakness in live
hog prices, management expects the HPG to return to profitability in fiscal
2000 through the utilization of hedging and price-risk management techniques
and expected increases in hog prices toward the end of fiscal 2000.
FISCAL 1998 COMPARED TO FISCAL 1997
HPG sales in fiscal 1998 increased by $4.8 million, or 3.1%, from fiscal
1997. The increase reflected a 19.9% increase in the number of hogs sold as a
result of increased production at Brown's. The increase was partially offset by
a 14.0% decrease in the unit selling price of live hogs, reflecting an overall
industry expansion in hog production. Substantially all HPG sales in fiscal
1998 and 1997 were to the MPG and, accordingly, are intersegment sales which
were eliminated in the Consolidated Statements of Income.
The HPG reported a loss before income taxes of $9.7 million in fiscal 1998
compared to a profit before income taxes of $19.9 million in fiscal 1997. This
is due to significantly lower selling prices for live hogs which were not
offset by lower feed costs.
LIQUIDITY AND CAPITAL RESOURCES
The pork processing industry is characterized by high sales tonnage and
rapid turnover of inventories and accounts receivable. Because of the rapid
turnover rate, the Company considers its inventories and accounts receivable
highly liquid and readily convertible into cash. Borrowings under the Company's
credit facilities are used to finance increases in the levels of inventories
and accounts receivable resulting from seasonal and other market-related
fluctuations in raw material costs. The demand for seasonal borrowings usually
peaks in early November when inventories are at their highest levels, and
borrowings are repaid in January when accounts receivable are collected.
Net cash provided by operations was $123.4 million in fiscal 1999 compared
to $97.5 million in fiscal 1998. This increase primarily reflected higher
earnings and noncash charges.
Net cash used in investing activities totaled $261.9 million in fiscal
1999 compared to $104.9 million in fiscal 1998. In fiscal 1999, the Company
expended $151.2 million for several business acquisitions (See Note 3) and
$95.4 million for capital expenditures. These capital expenditures included
renovations and expansion projects at several of the Company's processing
plants, additional hog production facilities at Circle Four and replacement
systems associated with the Year 2000. In fiscal 1998, the Company expended
$7.8 million for business acquisitions and $92.9 million for capital
expenditures. As of May 2, 1999, the Company had definitive commitments of
$34.8 million for capital expenditures primarily to increase its processed
meats and value-added fresh pork capacities at several of its processing
plants. The Company has continuing plans to increase its processed meats and
hog production businesses through strategic acquisitions and joint ventures,
both in the United States and internationally. These investing activities will
be funded with cash from operations, borrowings under the Company's revolving
credit facilities and the issuance of additional shares of the Company's common
stock. Effective May 3, 1999, the Company completed the acquisition of CFI and
its affiliated companies and partnership interests for 4.2 million shares of
the Company's common stock and the assumption of approximately $231.0 million
in debt, plus other liabilities (See Note 15).
Net cash provided by financing activities was $108.5 million in fiscal
1999 compared to $42.1 million in fiscal 1998. The Company has aggregate credit
facilities totaling $402.0 million, including a $300.0 million revolving credit
facility with a bank group, which expires July 2002. These credit facilities
include $102.0 million of credit facilities from various U.S. and international
banks assumed in connection with businesses acquired in fiscal 1999. As of May
2, 1999, the Company had unused capacity under these credit facilities of
$214.0 million.
Average borrowings under all facilities were $74.8 million in fiscal 1999,
$149.7 million in fiscal 1998 and $165.1 million in fiscal 1997 at average
interest rates of approximately 6%, 7% and 7%, respectively. Maximum borrowings
were $152.5 million in fiscal 1999, $247.0 million in fiscal 1998 and $215.0
million in fiscal 1997. The outstanding borrowings were $134.9 million as of
May 2, 1999, at an average interest rate of 7%. There were no borrowings under
the facilities as of May 3, 1998.
Management believes that through internally generated funds and access to
global credit markets, funds are available to adequately meet the Company's
current and future operating and capital needs.
- 15 -
<PAGE>
Long-term debt and capital lease obligations increased to $594.2 million
as of May 2, 1999 from $407.3 million as of May 3, 1998, primarily due to the
debt assumed in business acquisitions. The ratio of long-term debt to total
capitalization decreased to 52.3% as of May 2, 1999 from 53.0% as of May 3,
1998. The decrease reflected increases in equity, resulting from earnings,
common stock issued in connection with business acquisitions and stock option
exercises.
RISK MANAGEMENT
Substantially all of the Company's products are produced from
commodity-based raw materials, corn and soybean meal in the HPG and live hogs
in the MPG. The cost of corn and soybean meal (the principal feed ingredients
for hogs) and live hogs are subject to wide fluctuations due to unpredictable
factors such as weather conditions, economic conditions, government regulation
and other unforeseen circumstances. The pricing of the Company's fresh pork and
processed meats is monitored and adjusted upward and downward in reaction to
changes in the cost of the underlying raw materials. The unpredictability of
the raw material costs limits the Company's ability to forward price fresh pork
and processed meat products without the use of commodity contracts through a
program of price-risk management. The Company uses price-risk management to
enhance its ability to engage in forward sales contracts, where prices for
future deliveries are fixed, by purchasing (or selling) commodity contracts for
future periods to reduce or eliminate the effect of fluctuations in future raw
material costs on the profitability of the related sales. While this may tend
to limit the Company's ability to participate in gains from favorable commodity
price fluctuation, it also tends to reduce the risk of loss from adverse
changes in raw material prices. In addition, the Company utilizes commodity
contracts for live hogs and corn to manage hog production margins when
management determines the conditions are correct for such hedges. The
particular hedging methods employed and the time periods for the contracts
depend on a number of factors, including the availability of adequate contracts
for the respective periods for the hedge. The Company attempts to closely match
the commodity contract expiration periods with the dates for product sale and
delivery. As a result, gains and losses from hedging transactions are
recognized when the related sales and purchases are made. As of May 2, 1999 and
May 3, 1998, the Company had deferred $8.9 million and $1.9 million,
respectively, of unrealized hedging gains on outstanding futures contracts. As
of May 2, 1999 and May 3, 1998, the Company had open futures contracts with
contract values of $219.7 million and $97.1 million, respectively. As of May 2,
1999 and May 3, 1998, the Company had deposits with brokers for outstanding
futures contracts of $15.6 million and $10.9 million, respectively, which were
included in prepaid expenses and other current assets.
For open futures contracts, the Company uses a sensitivity analysis
technique to evaluate the effect that changes in the market value of
commodities will have on these commodity derivative instruments. As of May 2,
1999, the potential change in fair value of open future contracts, assuming a
10% change in the underlying commodity price, was $10.4 million.
YEAR 2000
The Year 2000 problem relates to computer systems that have date-sensitive
programs that were designed to read years beginning with "19," but may not
recognize the year 2000. Company information technology ("IT") systems
(including non-IT systems) and third-party information systems that fail due to
the Year 2000 may have a material adverse effect on the Company. The Year 2000
issue has the potential to affect the Company's supply, production,
distribution and financial chains.
The Company began addressing the potential exposure associated with the
Year 2000 during fiscal 1998. Management has approved the plan necessary to
remediate, upgrade and replace the effected systems to be Year 2000 compliant.
A corrective five-point action plan was developed including: 1) analysis and
planning, 2) allocation of resources and commencing correction, 3) remediation,
correction and replacement, 4) testing, and 5) development of contingency
plans.
The Company has identified and defined the critical IT and non-IT
projects. These projects relate to systems which include any necessary
technology used in manufacturing or administration with date-sensitive
information that is critical to the day-to-day operations of the business. Of
the critical IT projects, 87% have been completed, 10% are in correction and
replacement, and the remaining, less critical projects are being analyzed and
planned. All critical IT system implementations and remediations are expected
to be substantially completed by the end of July 1999. The non-IT (plant)
projects have identified system components that have a potential issue with
rolling dates into the Year 2000. Of these components, 98% are fully compliant
and the others are at various stages of progress in the action plan.
Substantially all critical non-IT system implementation and remediation is
complete or in final stages.
The cost of the Year 2000 solution, including hardware and software
replacement, is expected to be approximately $33.9 million, of which $26.5
million has been expended to date. The Company has expensed approximately $8.5
million
- 16 -
<PAGE>
in fiscal 1999. The Company estimates $19.6 million of the $33.9 million will
be capitalized in accordance with generally accepted accounting principles.
These expenditures are anticipated to continue through December 1999.
Third-party risk is being proactively assessed through inquiries and
questionnaires. Significant vendors, electronic commerce customers and
financial institutions have been sent inquiries about the status of their
compliance for the Year 2000. Additionally, the Company will follow up the
inquiries and questionnaires with interviews. This process is expected to be an
ongoing evaluation. At this point management cannot determine the level of risk
associated with third parties.
The Company believes its planning efforts are adequate to address its Year
2000 concerns. The Company is developing a worst-case scenario and contingency
plan that includes an evaluation of the criticality of each manufacturing
process and the determination of possible manual alternatives, including the
purchase of additional inventory and related storage for production supplies.
The Company, while substantially complete on all critical and non-critical
IT and non-IT systems, continues to assess the Year 2000 readiness of Animex
(See Note 3) and CFI (See "Subsequent Events" below and Note 15). The
preliminary review of CFI's Year 2000 readiness is complete. Approximately 53%
of the critical systems are compliant. The remaining systems are targeted to be
compliant by September 30, 1999. Management has not determined the level of
readiness for Animex. The assessment is expected to be completed by the end of
July 1999. The costs of the Year 2000 solution are exclusive of Animex and
CFI's remediation efforts.
While the Company believes that it is taking the appropriate steps to
address its readiness for the Year 2000, the costs of the project and expected
completion dates are dependent upon the continued availability of certain
resources and other factors. There can be no guarantee that these estimates
will be achieved, and actual results could differ materially from those
anticipated. Specific factors that could influence the results may include, but
are not limited to, the availability and cost of personnel trained in this
area, and the ability to locate and correct all relevant computer codes and
similar uncertainties.
SUBSEQUENT EVENTS
Effective May 3, 1999, the Company completed the acquisition of CFI and
its affiliated companies and partnership interests for 4.2 million shares of
the Company's common stock and the assumption of approximately $231.0 million
in debt, plus other liabilities (See Note 15). The acquisition includes 100% of
the capital stock of CFI, CFI's 50% interest in Smithfield-Carroll's, CFI's 16%
interest in Circle Four, CFI's 50% interest in Tar Heel Turkey Hatchery, 100%
of CFI's turkey grow-out operation, CFI's 49% interest in Carolina Turkeys, and
certain hog production interests in Brazil and Mexico. The Company will account
for this acquisition using the purchase method of accounting.
Subsequent to the end of fiscal 1999, the Company increased its ownership
in Animex from 67% to 80% of total equity.
FORWARD-LOOKING INFORMATION
This report 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. These risks and uncertainties include availability and
prices of live hogs, raw materials and supplies, live hog production costs,
product pricing, the competitive environment and related market conditions,
operating efficiencies, access to capital, and actions of domestic and foreign
governments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements listed in Item 14(a) hereof are
incorporated herein by reference and are filed as a part of this report
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 17 -
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Information required by this Item regarding directors and all persons
nominated or chosen to become directors is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Shareholders to be held on September 2, 1999.
(b) Information required by this Item regarding the executive officers of
the Company is included in Part I, Item 4A of this report.
There is no family relationship between any of the persons named in
response to Item 10.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Shareholders to be held on September 2, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Shareholders to be held on September 2, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Shareholders to be held on September 2, 1999.
- 18 -
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. Index to Financial Statements and Financial Statement
Schedule
An "Index to Financial Statements and Financial Statement Schedule" has
been filed as a part of this Form 10-K Annual Report on page F-1 hereof.
3. Exhibits
<TABLE>
<S> <C> <C>
Exhibit 3.1(a) -- Articles of Incorporation of the Company, as amended through October 27, 1998
(incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K filed
with the Commission on September 5, 1997).
Exhibit 3.1(b) -- Articles of Amendment filed October 28, 1999 to Articles of Incorporation, as amended,
authorizing terms for one Series B Special Voting Preferred Share, par value $1.00 per
share.
Exhibit 3.2 -- By-Laws of the Company, as amended to date (incorporated by reference to Exhibit 3 to the
Company's Current Report on Form 8-K filed with the Commission on September 5, 1997).
Exhibit 4.1 -- Articles of Incorporation of the Company, as amended to date (see Exhibit 3.1 above).
Exhibit 4.2 -- Form of Certificate representing the Company's Common Stock, par value $.50 per share
(including Rights legend) (incorporated by reference to Exhibit 6 to the Company's Current
Report on Form 8-K filed with the Commission on September 5, 1997).
Exhibit 4.3 -- Form of Certificate representing Rights (incorporated by reference to Exhibit 5 to the
Company's Current Report on Form 8-K filed with the Commission on September 5, 1997).
Exhibit 4.4 -- Rights Agreement, as amended, dated as of May 1, 1998, by and between the Company and
Harris Trust and Savings Bank, Rights Agent (incorporated by reference to Exhibit 4.4 to
the Company's Annual Report on Form 10-K for its fiscal year ended May 3, 1998 filed
with the Commission on July 30, 1998).
Exhibit 4.5(a) -- Form of Certificate representing the Company's share of Series B Special Voting Preferred,
par value $1.00 per share (incorporated by reference to Exhibit 4.8 to the Company's
Registration Statement on Form S-4, as amended, filed with the Commission on
September 25, 1998 (the "Exchange Offer Registration Statement")).
Exhibit 4.5(b) -- Form of Certificate representing Smithfield Canada Limited Exchangeable Shares
(incorporated by reference to Exhibit 4.9 to the Exchange Offer Registration Statement).
Exhibit 4.5(c) -- Voting, Support and Exchange Trust Agreement among Smithfield Foods, Inc., Smithfield
Canada Limited and CIBC Mellon Trust Company, dated as of November 10, 1998.
Exhibit 4.5(d) -- Exchangeable Share Provisions (excerpted from the Articles of Incorporation, as amended,
of Smithfield Canada Limited).
Exhibit 4.6(a) -- Five-Year Credit Agreement dated as of July 10, 1997, among Smithfield Foods, Inc., the
Subsidiary Guarantors party thereto, the Lenders party thereto, and The Chase Manhattan
Bank, as Administrative Agent, relating to a $300,000,000 secured five-year revolving
credit facility (incorporated by reference to Exhibit 4.5 of the Company's Annual Report on
Form 10-K for its fiscal year ended April 27, 1997 filed with the Commission on July 25,
1997); Amendment Number One to the Five-Year Credit Agreement dated as of
November 19, 1997 (incorporated by reference to Exhibit 4.5 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended February 1, 1998 filed with the
Commission on March 17, 1998); and Amendment Number Two to the Five-Year Credit
Agreement dated as of August 16, 1998 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 1998 filed with the
Commission on September 14, 1998).
</TABLE>
- 19 -
<PAGE>
<TABLE>
<S> <C> <C>
Exhibit 4.6(b) -- 364-Day Credit Agreement dated as of July 10, 1997, among Smithfield Foods, Inc., the
Subsidiary Guarantors party thereto, the Lenders party thereto, and The Chase Manhattan
Bank, as Administrative Agent, relating to a $50,000,000 secured 364-day revolving credit
facility (incorporated by reference to Exhibit 4.5(a) of the Company's Annual Report on
Form 10-K for its fiscal year ended April 27, 1997 filed with the Commission on July 25,
1997); and Amendment Number One to the 364-Day Credit Agreement dated as of
November 19, 1997 (incorporated by reference to Exhibit 4.5(a) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended February 1, 1998 filed with the
Commission on March 17, 1998).
Exhibit 4.6(c) -- Collateral Agency, Pledge and Security Agreement dated as of July 10, 1997, among
Smithfield Foods, Inc., the Subsidiary Guarantors party thereto, The Chase Manhattan
Bank, as Collateral Agent, relating to the Company's five-year revolving credit facility and
its 364-day revolving credit facility (incorporated by reference to Exhibit 4.5(b) of the
Company's Annual Report on Form 10-K for its fiscal year ended April 27, 1997 filed with
the Commission on July 25, 1997).
Exhibit 4.7(a) -- Note Purchase Agreement dated as of July 15, 1996, among Smithfield Foods, Inc. and each
of the Purchasers listed on Annex 1 thereto, relating to $140,000,000 in senior secured notes
(incorporated by reference to Exhibit 4.7 to the Company's Form 10-Q Quarterly Report for
the fiscal quarter ended July 28, 1996); Amendment Number One to the Note Purchase
Agreement dated as of July 15, 1997 (incorporated by reference to Exhibit 4.6 of the
Company's Annual Report on Form 10-K for its fiscal year ended April 27, 1997 filed with
the Commission on July 25, 1997); Amendment Number Two to the Note Purchase
Agreement dated as of December 1, 1997 (incorporated by reference to Exhibit 4.6 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended February 1, 1998
filed with the Commission on March 17, 1998); and Amendment Number Three to the Note
Purchase Agreement dated as of January 30, 1998.
Exhibit 4.7(b) -- Joint and Several Guaranty dated as of July 15, 1996, by Gwaltney of Smithfield, Ltd., John
Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy
Incorporated, and Brown's of Carolina, Inc. (incorporated by reference to Exhibit 4.7(a) to
the Company's Form 10-Q Quarterly Report for the fiscal quarter ended July 28, 1996); and
Amendment Number One to the Note Purchase Agreement dated as of July 15, 1997
(incorporated by reference to Exhibit 4.6(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended April 27, 1997 filed with the Commission on July 25, 1997).
Exhibit 4.7(c) -- Joint and Several Guaranty dated as of July 15, 1997, by Lykes Meat Group, Inc.,
Sunnyland, Inc., Valleydale Foods, Inc., Hancock's Old Fashioned Country Hams, Inc.,
Copaz Packing Corporation, and Smithfield Packing - Landover, Inc. (incorporated by
reference to Exhibit 4.6(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended April 27, 1997 filed with the Commission on July 25, 1997).
Exhibit 4.8(a) -- Master Lease Agreement dated May 14, 1993 between General Electric Capital Corporation
and Brown's of Carolina, Inc. (incorporated by reference to Exhibit 4.12 to the Company's
Form 10-K Annual Report for the fiscal year ended May 2, 1993).
Exhibit 4.8(b) -- Corporate Guaranty by Smithfield Foods, Inc. dated May 14, 1993 (incorporated by
reference to Exhibit 4.12(a) to the Company's Form 10-K Annual Report for the fiscal year
ended May 2, 1993).
Exhibit 4.9 -- Indenture between the Company and SunTrust Bank, Atlanta (incorporated by reference to
Exhibit 4.8 to the Company's Current Report on Form 10-Q for the fiscal quarter ended
February 1, 1998 filed with the Commission on March 17, 1998).
Exhibit 4.10(a) -- Consolidating Loan Agreement between Cape Fear Farm Credit, ACA ("Farm Credit") and
Carroll's Foods, Inc., Carroll's Realty, Inc., and Carroll's Realty Partnership ("Carroll's
Borrower's") dated as of August 28, 1998 (schedules omitted).
Exhibit 4.10(b) -- Loan and Loan Document Modification Agreement between Farm Credit and the Carroll's
Borrowers, dated as of May 7, 1999.
Exhibit 4.10(c) -- Unconditional Guaranty to Farm Credit from Smithfield Foods, Inc. dated as of May 7,
1999.
Exhibit 4.10(d) -- Unconditional Guaranty to Farm Credit from Carroll's Turkeys, Inc. to Farm Credit dated as
of May 7, 1999.
</TABLE>
- 20 -
<PAGE>
<TABLE>
<S> <C> <C>
Exhibit 10.1(a) -- Agreement with Shareholders dated as of May 7, 1999 by and between the Company and
Jeffrey S. Matthews, Carroll M. Baggett and James O. Matthews (incorporated by reference
to Exhibit 2.3 to the Company's Current Report on Form 8-K dated May 7, 1999 and filed
with the Commission on May 12, 1999).
Exhibit 10.1(b) -- Registration Rights Agreement dated as of May 7, 1999 by and between the Company and
Jeffrey S. Matthews, Carroll M. Baggett and James O. Matthews (incorporated by reference
to Exhibit 2.4 to the Company's Current Report on Form 8-K dated May 7, 1999 and filed
with the Commission on May 12, 1999).
Exhibit 10.2 -- Smithfield Foods, Inc. 1984 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-K Annual Report for the fiscal year ended April 28,
1991).
Exhibit 10.3 -- Smithfield Foods, Inc. 1992 Stock Option Plan (incorporated by reference to Exhibit 10.4 to
the Company's Form 10-K Annual Report for the fiscal year ended May 2, 1993).
Exhibit 10.4 -- Smithfield Foods, Inc. 1998 Incentive Bonus Plan applicable to the Company's Chief
Operating Officer (incorporated by reference to Exhibit 10.6 to the Company's Form 10-K
Annual Report for the fiscal year ended April 27, 1997 filed with the Commission on
July 25, 1997).
Exhibit 10.5 -- Smithfield Foods, Inc. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.7
to the Company's Form 10-K Annual Report for the fiscal year ended May 3, 1998 filed
with the Commission on July 30, 1998).
Exhibit 10.6 -- Agreement between Schneider Corporation and Douglas W. Dodds, including first, second
and third amendments.
Exhibit 21 -- Subsidiaries of the Registrant.
Exhibit 23 -- Consent of Independent Public Accountants.
Exhibit 27 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
1. The Company filed a Current Report on Form 8-K for February 25, 1999,
with the Commission on February 26, 1999, to report under Item 5 a
summary of earnings results for the third fiscal quarter and the signing
of a letter of intent concerning the acquisition of Carroll's Foods,
Inc.
- 21 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SMITHFIELD FOODS, INC.
By: /s/ JOSEPH W. LUTER, III
Date: July 30, 1999 -------------------------------------
Joseph W. Luter, III
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on July 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Joseph W. Luter, III Chairman of the Board and Chief Executive
---------------------------------- Officer, and Director
Joseph W. Luter, III
/s/ Lewis R. Little President and Chief Operating Officer,
---------------------------------- and Director
Lewis R. Little
/s/ Aaron D. Trub Vice President, Chief Financial Officer
---------------------------------- and Secretary, and Director
Aaron D. Trub
/s/ C. Larry Pope Vice President, Finance
---------------------------------- (Principal Accounting Officer)
C. Larry Pope
/s/ Robert L. Burrus, Jr. Director
----------------------------------
Robert L. Burrus, Jr.
/s/ Douglas W. Dodds Director
----------------------------------
Douglas W. Dodds
/s/ F. J. Faison, Jr. Director
----------------------------------
F. J. Faison, Jr.
/s/ Joel W. Greenberg Director
----------------------------------
Joel W. Greenberg
/s/ George E. Hamilton, Jr. Director
----------------------------------
George E. Hamilton, Jr.
/s/ Robert G. Hofmann, II Director
----------------------------------
Robert G. Hofmann, II
</TABLE>
- 22 -
<PAGE>
Director
---------------------------------
Richard J. Holland
/s/ Roger R. Kapella Director
----------------------------------
Roger R. Kapella
/s/ William H. Prestage Director
----------------------------------
William H. Prestage
/s/ Joseph B. Sebring Director
----------------------------------
Joseph B. Sebring
/s/ Timothy A. Seely Director
----------------------------------
Timothy A. Seely
- 23 -
<PAGE>
SMITHFIELD FOODS, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE(S)
-------------
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Public Accountants ............................................ F-2
Consolidated Balance Sheets for the Fiscal Years Ended May 2, 1999
and May 3, 1998 .................................................................. F-3
Consolidated Statements of Income for the Fiscal Years 1999, 1998, and 1997 ......... F-4
Consolidated Statements of Cash Flows for the Fiscal Years 1999, 1998, and 1997 ..... F-5
Consolidated Statements of Shareholders' Equity for the Fiscal Years ended April 27,
1997, May 3, 1998, and May 2, 1999 ............................................... F-6
Notes to Consolidated Financial Statements .......................................... F-7 to F-23
FINANCIAL STATEMENTS SCHEDULE
Independent Public Accountants' Report on Financial Statement Schedule I ............ F-24
Schedule I -- Condensed Financial Information of Registrant ......................... F-25 to F-29
</TABLE>
- F-1 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF SMITHFIELD FOODS, INC.:
We have audited the accompanying consolidated balance sheets of Smithfield
Foods, Inc. (a Virginia corporation), and subsidiaries as of May 2, 1999, and
May 3, 1998, and the related consolidated statements of income, cash flows, and
shareholders' equity for each of the three years in the period ended May 2,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smithfield Foods, Inc., and
subsidiaries as of May 2, 1999, and May 3, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
May 2, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia
June 10, 1999
- F-2 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------
MAY 2, MAY 3,
1999 1998
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 30,590 $ 60,522
Accounts receivable less allowances of $2,656 and $1,541....................... 252,332 156,091
Inventories ................................................................... 348,856 249,511
Prepaid expenses and other current assets ..................................... 50,302 44,999
---------- ----------
Total current assets ........................................................ 682,080 511,123
---------- ----------
Property, plant and equipment:
Land .......................................................................... 29,605 15,157
Buildings and improvements .................................................... 404,002 240,032
Machinery and equipment ....................................................... 590,139 418,810
Construction in progress ...................................................... 59,670 31,873
---------- ----------
1,083,416 705,872
Less accumulated depreciation ................................................. (292,640) (233,652)
---------- ----------
Net property, plant and equipment ........................................... 790,776 472,220
---------- ----------
Other assets:
Investments in partnerships ................................................... 80,182 49,940
Goodwill, net of accumulated amortization of $2,871 and $1,964................. 103,017 12,360
Other ......................................................................... 115,559 38,002
---------- ----------
Total other assets .......................................................... 298,758 100,302
---------- ----------
$1,771,614 $1,083,645
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ................................................................. $ 63,900 $ -
Current portion of long-term debt and capital lease obligations ............... 25,828 8,511
Accounts payable .............................................................. 207,703 118,909
Accrued expenses and other current liabilities ................................ 168,784 124,515
---------- ----------
Total current liabilities ................................................... 466,215 251,935
---------- ----------
Long-term debt and capital lease obligations ................................... 594,241 407,272
---------- ----------
Other noncurrent liabilities:
Pension and postretirement benefits ........................................... 62,276 38,486
Deferred income taxes ......................................................... 31,523 11,745
Other ......................................................................... 17,638 8,120
---------- ----------
Total other noncurrent liabilities .......................................... 111,437 58,351
Minority interests ............................................................. 57,475 5,077
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1.00 par value, 1,000,000 authorized shares.................. - -
Common stock, $.50 par value, 100,000,000 shares authorized; 41,847,359 and
37,537,362 issued shares .................................................... 20,924 18,769
Paid-in capital ............................................................... 180,020 96,971
Retained earnings ............................................................. 340,154 245,270
Accumulated other comprehensive income ........................................ 1,148 -
---------- ----------
Total shareholders' equity .................................................. 542,246 361,010
---------- ----------
$1,771,614 $1,083,645
========== ==========
</TABLE>
See notes to consolidated financial statements
- F-3 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------------------------
1999 1998 1997
------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales ................................................ $3,774,989 $ 3,867,442 $ 3,870,611
Cost of sales ........................................ 3,235,414 3,479,629 3,546,816
---------- ----------- -----------
Gross profit ........................................ 539,575 387,813 323,795
Selling, general and administrative expenses ......... 295,610 219,861 191,225
Depreciation expense ................................. 63,524 42,300 35,825
Interest expense ..................................... 40,521 31,891 26,211
---------- ----------- -----------
Minority interests ................................... (3,518) 199 2,857
Nonrecurring charge (See Note 12) .................... - 12,600 -
Income before income taxes............................ 143,438 80,962 67,677
Income taxes ......................................... 48,554 27,562 22,740
---------- ----------- -----------
Net income ........................................... $ 94,884 $ 53,400 $ 44,937
========== =========== ===========
Net income available to common shareholders .......... $ 94,884 $ 53,400 $ 43,699
========== =========== ===========
Net income per basic common share .................... $ 2.39 $ 1.42 $ 1.21
========== =========== ===========
Net income per diluted common share .................. $ 2.32 $ 1.34 $ 1.17
========== =========== ===========
</TABLE>
See notes to consolidated financial statements
- F-4 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income ............................................................ $ 94,884 $ 53,400 $ 44,937
Depreciation and amortization ......................................... 68,566 45,872 39,057
Deferred income taxes ................................................. 20,737 14,752 7,810
(Gain) loss on sale of property and equipment ......................... (138) 216 (3,288)
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable ................................................. 954 15,115 (12,606)
Inventories ......................................................... (17,680) 11,672 (30,008)
Prepaid expenses and other current assets ........................... (2,225) (10,550) (1,605)
Other assets ........................................................ (55,563) (7,746) (10,410)
Accounts payable, accrued expenses and other liabilities ............ 13,849 (25,194) 9,377
---------- ---------- ----------
Net cash provided by operating activities .............................. 123,384 97,537 43,264
---------- ---------- ----------
Investing activities:
Capital expenditures .................................................. (95,447) (92,913) (69,147)
Business acquisitions, net of cash acquired ........................... (151,223) (7,810) (34,835)
Investments in partnerships ........................................... (16,206) (5,357) (7,293)
Proceeds from sale of property and equipment .......................... 991 1,153 4,141
Other investing activities ............................................ - - (113)
---------- ---------- ----------
Net cash used in investing activities .................................. (261,885) (104,927) (107,247)
---------- ---------- ----------
Financing activities:
Net (repayments) borrowings on notes payable .......................... 24,182 (75,000) (33,063)
Proceeds from issuance of long-term debt .............................. 22,948 450,050 171,250
Net borrowings on long-term credit facility ........................... 71,000 - -
Principal payments on long-term debt and capital lease obligations..... (21,754) (333,053) (76,974)
Exercise of common stock options ...................................... 12,155 124 1,270
Dividends on preferred stock .......................................... - - (1,238)
---------- ---------- ----------
Net cash provided by financing activities .............................. 108,531 42,121 61,245
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents ................... (29,970) 34,731 (2,738)
Effect of foreign exchange rate changes on cash ........................ 38 - -
Cash and cash equivalents at beginning of year ......................... 60,522 25,791 28,529
---------- ---------- ----------
Cash and cash equivalents at end of year ............................... $ 30,590 $ 60,522 $ 25,791
========== ========== ==========
Supplemental disclosures of cash flow information:
Interest paid, net of amount capitalized .............................. $ 37,696 $ 31,428 $ 25,751
---------- ---------- ----------
Income taxes paid ..................................................... $ 15,306 $ 10,179 $ 15,043
---------- ---------- ----------
Non-cash investing and financing activities:
Refinancing of long-term debt ....................................... $ - $ - $ 59,707
---------- ---------- ----------
Conversion of preferred stock to common stock ....................... $ - $ - $ 20,000
---------- ---------- ----------
Common stock issued for acquisitions ................................ $ 73,049 $ - $ -
---------- ---------- ----------
Conversion of advances to investments in partnerships ............... $ - $ - $ 7,691
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
- F-5 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
---------------------- PAID-IN RETAINED COMPREHENSIVE TREASURY
SHARES PAR VALUE CAPITAL EARNINGS INCOME STOCK TOTAL
---------- ----------- ----------- ------------ --------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 28, 1996 ................. 18,453 $ 9,227 $ 92,762 $148,171 $ - $ (7,643) $242,517
Comprehensive income:
Net income ........................... - - - 44,937 - - 44,937
------ ------- -------- -------- ------ -------- --------
Total comprehensive income .......... - - - - - - 44,937
------ ------- -------- -------- ------ -------- --------
Conversion of preferred stock .......... 667 333 19,667 - - - 20,000
Exercise of stock options .............. 77 38 1,232 - - - 1,270
Dividends on preferred stock ........... - - - (1,238) - - (1,238)
------ ------- -------- -------- ------ -------- --------
Balance, April 27, 1997 ................. 19,197 9,598 113,661 191,870 - (7,643) 307,486
Comprehensive income:
Net income ........................... - - - 53,400 - - 53,400
------ ------- -------- -------- ------ -------- --------
Total comprehensive income .......... - - - - - - 53,400
------ ------- -------- -------- ------ -------- --------
Two-for-one stock split ................ 19,200 9,600 (9,600) - - - -
Exercise of stock options .............. 14 8 116 - - - 124
Reclassification of treasury stock ..... (874) (437) (7,206) - - 7,643 -
------ ------- -------- -------- ------ -------- --------
Balance, May 3, 1998 .................... 37,537 18,769 96,971 245,270 - - 361,010
Comprehensive income:
Net income ........................... - - - 94,884 - - 94,884
Other comprehensive income ........... - - - - 1,148 - 1,148
------ ------- -------- -------- ------ -------- --------
Total comprehensive income .......... - - - - - - 96,032
------ ------- -------- -------- ------ -------- --------
Common stock issued .................... 2,986 1,493 71,556 - - - 73,049
Exercise of stock options .............. 1,324 662 11,493 - - - 12,155
------ ------- -------- -------- ------ -------- --------
Balance, May 2, 1999 .................... 41,847 $20,924 $180,020 $340,154 $1,148 $ - $542,246
====== ======= ======== ======== ====== ======== ========
</TABLE>
See notes to consolidated financial statements
- F-6 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Smithfield Foods, Inc. and subsidiaries (the "Company") operates as a
producer, manufacturer, marketer, seller and distributor of fresh and processed
meats. The Company's principal slaughtering and further processing operations
are conducted through the Meat Processing Group ("MPG") which consists of six
wholly owned domestic pork processing subsidiaries, Gwaltney of Smithfield,
Ltd. ("Gwaltney"), John Morrell & Co. ("John Morrell"), Lykes Meat Group, Inc.
("Lykes"), North Side Foods Corp. ("North Side"), Patrick Cudahy Incorporated
("Patrick Cudahy") and The Smithfield Packing Company, Incorporated
("Smithfield Packing"), and three international meat processing subsidiaries,
Animex S.A. ("Animex"), a 67%-owned Polish subsidiary, Schneider Corporation
("Schneider"), a 63%-owned Canadian subsidiary, and Societe Bretonne de
Salaisons ("SBS"), a wholly owned French subsidiary. The Company's hog
production operations are conducted through the Hog Production Group ("HPG")
which consists of Brown's of Carolina, Inc. ("Brown's"), an 86%-owned
subsidiary of the Company, a 50% interest in Smithfield-Carroll's
("Smithfield-Carroll's"), a joint hog production arrangement between the
Company and an affiliate of Carroll's Foods, Inc. ("CFI") and an 84% interest
in Circle Four ("Circle Four"), a joint hog production arrangement between the
Company and affiliates of CFI. Effective May 3, 1999, the Company acquired CFI
and its affiliated companies and partnership interests (See Note 15).
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company after elimination of all material intercompany balances and
transactions. Investments in partnerships are recorded using the equity method
of accounting.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts and disclosures. Actual
results could differ from those estimates.
Fiscal 1999 and 1997 included 52 weeks of operations compared to fiscal
1998 which included 53 weeks of operations.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign operations, where the local currency is
the functional currency, are translated using exchange rates in effect at
period end for assets and liabilities, and average exchange rates during the
period for results of operation. Related translation adjustments are reported
as a component of other comprehensive income in shareholders equity. All
amounts presented in the consolidated financial statements are in US dollars.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying value
of cash equivalents approximates market value. As of May 2, 1999 and May 3,
1998, cash and cash equivalents include $3,400 and $30,100, respectively, in
short-term marketable securities.
INVENTORIES
The Company's inventories are valued at the lower of first-in, first-out
cost or market. Cost includes direct materials, labor and applicable
manufacturing and production overhead. Inventories consist of the following:
<TABLE>
<CAPTION>
MAY 2, 1999 MAY 3, 1998
------------- ------------
<S> <C> <C>
Fresh and processed meats .......... $219,647 $171,090
Hogs on farms ...................... 83,352 49,263
Manufacturing supplies ............. 30,201 18,538
Other .............................. 15,656 10,620
-------- --------
$348,856 $249,511
======== ========
</TABLE>
- F-7 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
FINANCIAL INSTRUMENTS
The Company uses commodity hedging instruments, including futures and
options, to reduce the risk of price fluctuations related to future raw
material requirements and product sales. The terms of such instruments
generally do not exceed twelve months and depend on the commodity and other
market factors. The Company attempts to closely match the commodity contract
expiration periods with the dates for product sale and delivery. Gains and
losses from hedging transactions are recognized when the related sales and
purchases are made.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated over the
estimated useful lives of the assets. Buildings and improvements are
depreciated over periods from 20 to 40 years. Machinery and equipment is
depreciated over periods from two to 20 years. Breeding stock is depreciated
over two and one-half years. Repair and maintenance charges are expensed as
incurred. Improvements that materially extend the life of the asset are
capitalized. Gains and losses from dispositions or retirements of property,
plant and equipment are recognized currently.
Interest on capital projects is capitalized during the construction
period. Total interest capitalized was $2,377 in fiscal 1999, $2,530 in fiscal
1998 and $2,640 in fiscal 1997. Repair and maintenance expenses totaled
$120,833, $106,481 and $89,670 in fiscal 1999, 1998 and 1997, respectively.
OTHER ASSETS
Goodwill is amortized over no more than 40 years. Deferred debt issuance
costs are amortized over the terms of the related loan agreements.
REVENUE RECOGNITION
Revenues from product sales are recorded upon shipment to customers.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current or future operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments and cleanups are probable and the cost can be reasonably estimated.
Generally, the timing of these accruals coincides with the Company's commitment
to a formal plan of action (See Note 12).
SELF-INSURANCE PROGRAMS
The Company is self-insured for certain levels of general and vehicle
liability, workers' compensation and health care coverage. The cost of these
self-insurance programs is accrued based upon estimated settlements for known
and anticipated claims. Any resulting adjustments to previously recorded
reserves are reflected in current operating results.
NET INCOME PER SHARE
The Company presents a dual computation of net income per share (See Note
13). The basic computation is based on weighted-average common shares
outstanding during the period. The diluted computation reflects the potentially
dilutive effect of common stock equivalents such as options and convertible
preferred stock during the period.
RECENTLY ISSUED ACCOUNTING STANDARDS
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
established new rules for reporting and display of comprehensive income and its
components. The adoption of SFAS 130 had no impact on the Company's net income.
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
established standards for determining an entity's operating segments and for
disclosure
- F-8 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
of financial information on such segments. The adoption of SFAS 131 had no
impact on the Company's financial position or results of operations (See Note
14).
In fiscal 1999, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits -- an amendment of statements
No. 87, 88 and 106" ("SFAS 132"). SFAS 132 standardized the disclosure
requirement for pensions and other postretirement benefits and, to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis. The adoption of SFAS 132 had no impact on the Company's financial
position or results of operations (See Note 9).
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established
accounting and reporting standards for derivative instruments and hedging
activities and requires, among other things, that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS 133 is not required to be adopted until
fiscal 2001. The Company has not completed the analysis required to estimate
the impact of the standard.
RECLASSIFICATIONS
Certain prior year amounts have been restated to conform to fiscal 1999
presentations.
NOTE 2 -- RISK MANAGEMENT
Substantially all of the Company's products are produced from
commodity-based raw materials, corn and soybean meal in the HPG and live hogs
in the MPG. The cost of corn and soybean meal (the principal feed ingredients
for hogs) and live hogs are subject to wide fluctuations due to unpredictable
factors such as weather conditions, economic conditions, government regulation
and other unforeseen circumstances. The pricing of the Company's fresh pork and
processed meats is monitored and adjusted upward and downward in reaction to
changes in the cost of the underlying raw materials. The unpredictability of
the raw material costs limits the Company's ability to forward price fresh pork
and processed meat products without the use of commodity contracts through a
program of price-risk management. The Company uses price-risk management to
enhance its ability to engage in forward sales contracts, where prices for
future deliveries are fixed, by purchasing (or selling) commodity contracts for
future periods to reduce or eliminate the effect of fluctuations in future raw
material costs on the profitability of the related sales. While this may tend
to limit the Company's ability to participate in gains from favorable commodity
price fluctuation, it also tends to reduce the risk of loss from adverse
changes in raw material prices. In addition, the Company utilizes commodity
contracts for live hogs and grains to manage hog production margins when
management determines the conditions are correct for such hedges. The
particular hedging methods employed and the time periods for the contracts
depend on a number of factors, including the availability of adequate contracts
for the respective periods for the hedge. The Company attempts to closely match
the commodity contract expiration periods with the dates for product sale and
delivery. As of May 2, 1999 and May 3, 1998, the Company had deferred $8,895
and $1,867, respectively, of unrealized hedging gains on outstanding futures
contracts. As of May 2, 1999 and May 3, 1998, the Company had open futures
contracts with contract values of $219,748 and $97,072, respectively. As of May
2, 1999 and May 3, 1998, the Company had deposits with brokers for outstanding
futures contracts of $15,591 and $10,888, respectively, included in prepaid
expenses and other current assets.
For open futures contracts, the Company uses a sensitivity analysis
technique to evaluate the effect that changes in the market value of
commodities will have on these commodity derivative instruments. As of May 2,
1999, the potential change in fair value of open future contracts, assuming a
10% change in the underlying commodity price, was $10,418.
NOTE 3 -- ACQUISITIONS
In the third quarter of fiscal 1999, the Company acquired 100% of the
voting common shares of Schneider and approximately 59% of its Class A
non-voting shares, which in the aggregate represents approximately 63% of the
total equity of Schneider, in exchange for approximately 2,527,000 Exchangeable
Shares of Smithfield Canada Limited, a wholly owned subsidiary of the Company.
Each Exchangeable Share is exchangeable by the holder at any time for one
common share of
- F-9 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- ACQUISITIONS -- Continued
the Company. Schneider produces and markets fresh pork and a full line of
processed meats and is the second largest meat processing company in Canada.
The total purchase price of $69,700 was allocated to assets acquired and
liabilities assumed based on fair values at the date of the acquisition. The
balance of the purchase price in excess of the fair value of assets acquired
and liabilities assumed at the date of acquisition was recorded as an
intangible asset totaling $36,900. Had the acquisition of Schneider occurred at
the beginning of fiscal 1998, sales, net income and net income per diluted
share would have been $4,053,798, $98,146 and $2.33 for fiscal 1999 and
$4,405,239, $59,447 and $1.40 for fiscal 1998.
In April 1999 the Company acquired, in a tender offer, 11,500,000 shares
of the capital stock of Animex, the largest meat and poultry processing company
in Poland. Following the tender offer, the Company's ownership represented 67%
of the total equity and 51% voting control of Animex. A preliminary allocation
of the purchase price was made to assets acquired and liabilities assumed based
on their estimated fair values. The final purchase price allocation will be
determined during fiscal 2000 when appraisals, other studies and additional
information become available. Had the acquisition of Animex occurred at the
beginning of the fiscal 1999, sales would have been approximately $4,175,000,
and it would not have had a material effect on net income or net income per
diluted share.
In September 1998, the Company acquired all of the capital stock of SBS,
the largest private-label manufacturer of ham, pork shoulder and bacon products
in France.
In October 1998, the Company acquired all of the assets and business of
North Side, a major domestic supplier of precooked sausage to McDonald's
Corporation.
Each of these acquisitions was accounted for using the purchase method of
accounting and, accordingly, the accompanying financial statements include the
financial position and results of operations from the dates of acquisition. Had
the acquisitions of North Side and SBS occurred at the beginning of fiscal
1999, it would not have had a material effect on sales, net income or net
income per diluted share for the year ended May 2, 1999.
In addition, during fiscal 1999, the Company increased its ownership in
the Circle Four hog production operation from 37% to 84%, requiring the Company
to consolidate the accounts of Circle Four and to discontinue using the equity
method of accounting. During fiscal 1998 and 1997, Circle Four was accounted
for using the equity method of accounting.
NOTE 4 -- SMITHFIELD-CARROLL'S
The Company has an arrangement with certain affiliates of CFI to produce
hogs for the Company's meat processing plants in North Carolina and Virginia.
The arrangement ("Smithfield-Carroll's") involves: (1) Smithfield-Carroll's
Farms, a partnership owned jointly by the Company and Carroll's Farms of
Virginia, Inc. ("CFAV"), which owns the hog raising facilities, and (2) a
long-term purchase contract between the Company and Carroll's Foods of
Virginia, Inc. ("CFOV"), which leases and operates the facilities, obligating
the Company to purchase all the hogs produced by CFOV at prices equivalent to
market at the time of delivery. In addition, the Company has a long-term
agreement to purchase hogs from CFI at prices which, in the opinion of
management, are equivalent to market. A director of the Company is the
president and a director of CFI, CFAV and CFOV.
As of May 2, 1999 and May 3, 1998, the Company had investments of $30,031
and $29,357, respectively, in the Smithfield-Carroll's partnership. Profits and
losses are shared equally under the arrangement.
Substantially all revenues of the partnership consist of lease payments
from CFOV which cover debt service, depreciation charges and other operating
expenses. For the fiscal years 1999, 1998 and 1997, revenues were $7,680,
$7,386 and $8,227, respectively.
Pursuant to the long-term purchase contract, the Company purchased
$53,282, $79,087 and $93,049 of live hogs from CFOV in fiscal 1999, 1998 and
1997, respectively. The contract resulted in increased raw material costs (as
compared to market costs) of $12,465 in fiscal 1999 and decreased raw material
costs of $359 and $5,245 in fiscal 1998 and 1997, respectively. Pursuant to the
agreement with CFI, the Company purchased $161,965, $246,371 and $269,499 of
hogs in fiscal 1999, 1998 and 1997, respectively.
- F-10 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- SMITHFIELD-CARROLL'S -- Continued
Effective May 3, 1999, the Company purchased CFI in a business combination
(See Note 15).
NOTE 5 -- DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 2, 1999 MAY 3, 1998
------------- ------------
<S> <C> <C>
7.625% senior subordinated notes, due February 2008 ............. $ 200,000 $200,000
8.52% senior notes, due August 2006 ............................. 100,000 100,000
Long-term credit facility, expiring July 2002 ................... 71,000 -
Libor + 1.50% notes, payable through December 2005 .............. 42,534 -
8.34% senior notes, due August 2003 ............................. 40,000 40,000
Euribor 3 mos. + .50% French Franc notes, payable through
April 2004 .................................................... 19,355 -
8.41% senior notes, payable through August 2004 ................. 14,779 14,779
9.70% Canadian dollar notes, payable through September 2010...... 13,114 -
Libor + 1.50% notes, payable through December 2006 .............. 13,000 -
9.85% senior notes, payable through November 2006 ............... 10,333 11,333
8.41% senior notes, payable through August 2006 ................. 9,853 9,853
8.56% Canadian dollar notes, payable through November 2003 ...... 9,749 -
8.03% weighted average notes, payable July 1999 through
October 2017 .................................................. 41,113 -
Other Euribor weighted average 3 mos. + .72% notes, due
December 2000 through November 2003 ........................... 11,865 20,876
Miscellaneous ................................................... 5,841 -
--------- --------
602,536 396,841
Less current portion ............................................ (24,102) (7,020)
--------- --------
$ 578,434 $389,821
========= ========
</TABLE>
Scheduled maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Fiscal year
2000 ................... $ 24,102
2001 ................... 25,487
2002 ................... 24,371
2003 ................... 94,711
2004 ................... 89,804
Thereafter ............. 344,061
--------
$602,536
========
</TABLE>
In fiscal 1998, the Company issued $200,000 in aggregate principal amount
of 10-year 7.625% senior subordinated notes. The net proceeds from the sale of
the notes were used to repay indebtedness under the Company's revolving credit
facility with the balance invested in short-term marketable securities.
In fiscal 1997, the Company privately placed $140,000 of senior secured
notes with a group of institutional lenders. The placement consisted of $40,000
of seven-year 8.34% notes and $100,000 of 10-year 8.52% notes secured by four
of the Company's major processing plants. The proceeds of the financing were
used to repay $65,200 of long-term bank debt and to reduce short-term
borrowings. In conjunction with the placement of the senior secured notes, the
Company refinanced $59,707 of existing institutional long-term debt with the
same institutional lenders. The refinancing resulted in revised maturity dates
and repayment schedules for the refinanced debt; however, no additional
proceeds resulted from this refinancing.
- F-11 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- DEBT -- Continued
In fiscal 1998, the Company entered into a loan agreement with a bank
group for a five-year $300,000 revolving credit facility. In connection with
this refinancing, the Company repaid all borrowings under its previous $300,000
credit facilities, which were terminated. The borrowings are prepayable and
bear interest, at the Company's option, at various rates based on margins over
the federal funds rate or Eurodollar rate. The Company has aggregate credit
facilities totaling $402,000 including a $300,000 revolving credit facility
with a bank group which expires July 2002. As of May 2, 1999, the Company had
unused capacity under these credit facilities of $214,000. Included in the
aggregate credit facilities are $102,000 of short-term credit facilities with
various U.S. and international banks assumed in connection with businesses
acquired during fiscal 1999. These short-term credit facilities are classified
as notes payable in the Consolidated Balance Sheet. These facilities are
generally at prevailing market rates. The Company pays a commitment fee on the
unused portion of the $300,000 revolving credit facility.
Average borrowings under credit facilities were $74,820 in fiscal 1999,
$149,723 in fiscal 1998 and $165,071 in fiscal 1997 at average interest rates
of approximately 6%, 7% and 7%, respectively. Maximum borrowings were $152,510
in fiscal 1999, $247,000 in fiscal 1998 and $215,000 in fiscal 1997. Total
outstanding borrowings were $134,900 as of May 2, 1999, at an average interest
rate of 7%. There were no borrowings under the facility as of May 3, 1998.
The senior subordinated notes are unsecured. Senior notes are secured by
four of the Company's major processing plants and certain other property, plant
and equipment. The $300,000 credit facility is secured by substantially all of
the Company's U.S. inventories and accounts receivable.
The Company determines the fair value of public debt using quoted market
prices and values all other debt using discounted cash flow techniques at
estimated market prices for similar issues. As of May 2, 1999, the fair value
of long-term debt, based on the market value of debt with similar maturities
and covenants, was approximately $599,015.
The Company's various debt agreements contain financial covenants that
require the maintenance of certain levels and ratios for working capital, net
worth, current ratio, fixed charges, capital expenditures and, among other
restrictions, limit additional borrowings, the acquisition, disposition and
leasing of assets, and payments of dividends to shareholders.
NOTE 6 -- INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense:
Federal ..................... $ 20,445 $ 11,315 $ 12,765
State ....................... 5,409 2,043 2,805
Foreign ..................... 1,963 - -
-------- -------- --------
27,817 13,358 15,570
-------- -------- --------
Deferred tax expense (benefit):
Federal ..................... 19,924 15,684 9,424
State ....................... (2,082) (1,480) (2,254)
Foreign ..................... 2,895 - -
-------- -------- --------
20,737 14,204 7,170
-------- -------- --------
$ 48,554 $ 27,562 $ 22,740
======== ======== ========
</TABLE>
- F-12 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- INCOME TAXES -- Continued
A reconciliation of taxes computed at the federal statutory rate to the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes at statutory rate .................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit .......... 2.5 1.0 1.7
Nondeductible settlements ............................... - 4.5 1.6
Foreign sales corporation benefit ....................... (1.4) (2.0) (1.4)
Benefits of certain insurance contracts ................. (1.1) (3.3) (3.6)
Other ................................................... (1.1) (1.2) 0.3
---- ---- ----
33.9% 34.0% 33.6%
==== ==== ====
</TABLE>
The tax effects of temporary differences consist of the following:
<TABLE>
<CAPTION>
MAY 2, 1999 MAY 3, 1998
------------- ------------
<S> <C> <C>
Deferred tax assets:
Employee benefits ........................................... $17,748 $23,264
Alternative minimum tax credit .............................. 5,283 5,781
Tax credits, carryforwards and net operating losses ......... 14,308 12,773
Inventories ................................................. 1,627 1,286
Accrued expenses ............................................ 5,398 12,867
------- -------
$44,364 $55,971
======= =======
Deferred tax liabilities:
Property, plant and equipment ............................... $47,876 $36,488
Investments in subsidiaries ................................. 3,293 719
Other assets ................................................ 4,167 6,875
------- -------
$55,336 $44,082
======= =======
</TABLE>
As of May 2, 1999 and May 3, 1998, the Company had $20,551 and $23,634,
respectively, of net current deferred tax assets included in prepaid expenses
and other current assets. The Company had no valuation allowance related to
income tax assets as of May 2, 1999 or May 3, 1998, and there was no change in
the valuation allowance during fiscal 1999 and 1998.
The tax credits, carryforwards and net operating losses expire from fiscal
2000 to 2013. The alternative minimum tax credits do not expire.
As of May 2, 1999, foreign subsidiary net earnings of $7,195 were
considered permanently reinvested in those businesses. Accordingly, federal
income taxes have not been provided for such earnings. It is not practicable to
determine the amount of unrecognized deferred tax liabilities associated with
such earnings.
NOTE 7 -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
MAY 2, 1999 MAY 3, 1998
------------- ------------
<S> <C> <C>
Payroll and related benefits ................. $ 60,079 $ 46,834
Self-insurance reserves ...................... 33,870 24,794
Pension and postretirement benefits .......... 12,671 23,931
Other ........................................ 62,164 28,956
-------- --------
$168,784 $124,515
======== ========
</TABLE>
- F-13 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- SHAREHOLDERS' EQUITY AND PREFERRED STOCK
REINCORPORATION AND TREASURY STOCK
In fiscal 1998, the Company's shareholders approved the reincorporation of
the Company in Virginia from Delaware. The purpose of the reincorporation was
to reduce annual franchise taxes and does not affect the Company's
capitalization or the manner in which it operates. Since Virginia law does not
recognize treasury stock, the shares previously classified as treasury stock
reverted to unissued shares resulting in a reduction in common stock and
additional paid-in capital for the cost basis of the shares.
STOCK SPLIT
On September 26, 1997, the Company effected a two-for-one split of its
common stock. Stock option agreements provide for the issuance of additional
shares for the stock split. All stock options outstanding and per share amounts
for all periods reflect the effect of this split.
ISSUANCE OF COMMON STOCK
In fiscal 1999, the Company issued 2,527,000 Exchangeable Shares of
Smithfield Canada Limited, a wholly owned subsidiary of the Company, in
exchange for the voting common shares and the Class A non-voting shares of
Schneider Corporation. Each Exchangeable Share is exchangeable by the holder at
any time for one common share of the Company. The Company considers each
Exchangeable Share as equivalent to a share of its common stock and therefore
these shares are included in common stock issued on the consolidated balance
sheets and in the computation of net income per share.
Also in fiscal 1999, the Company issued 459,000 shares of its common stock
as part of the purchase price for North Side.
PREFERRED STOCK
The Company has 1,000,000 shares of $1.00 par value preferred stock
authorized, none of which are issued. The board of directors is authorized to
issue preferred stock in series and to fix, by resolution, the designation,
dividend rate, redemption provisions, liquidation rights, sinking fund
provisions, conversion rights and voting rights of each series of preferred
stock.
In fiscal 1997, all of the Series C 6.75% cumulative convertible
redeemable preferred stock, totaling $20,000, was converted into 1,333,332
split-adjusted shares of the Company's common stock at $15.00 per share.
STOCK OPTIONS
Under the Company's 1984 Stock Option Plan (the "1984 Plan"), officers and
certain key employees were granted incentive and nonstatutory stock options to
purchase shares of the Company's common stock for periods not exceeding 10
years at prices that were not less than the fair market value of the common
stock on the date of grant. Stock appreciation rights which are exercisable
upon a change in control of the Company are attached to the options granted
pursuant to the 1984 Plan. The 1984 Plan expired in fiscal 1999 with the final
exercise of options.
Under the Company's 1992 Stock Incentive Plan (the "1992 Plan"),
management and other key employees may be granted nonstatutory stock options to
purchase shares of the Company's common stock exercisable five years after
grant for periods not exceeding 10 years. The exercise price for options
granted prior to August 31, 1994 was not less than 150% of the fair market
value of the common stock on the date of grant. On August 31, 1994 the Company
amended and restated the 1992 Plan, changing the exercise price of options
granted on or after that date to not less than the fair market value of the
common stock on the date of grant. The Company reserved 2,500,000 shares of
common stock under the 1992 Plan. As of May 2, 1999, there were 294,000 options
available for grant under the 1992 Plan.
Under the Company's 1998 Stock Incentive Plan (the "1998 Plan"),
management and other key employees may be granted nonstatutory stock options to
purchase shares of the Company's common stock exercisable five years after
grant for periods not exceeding 10 years. The Company reserved 1,500,000 shares
under the 1998 Plan. As of May 2, 1999, there were no options granted under
this plan.
- F-14 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- SHAREHOLDERS' EQUITY AND PREFERRED STOCK -- Continued
The following is a summary of transactions for the 1984 Plan and the 1992
Plan during fiscal 1997, 1998 and 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------------- ---------
<S> <C> <C>
Outstanding at April 28, 1996 ......... 3,603,000 $ 8.86
Granted ............................. 160,000 15.67
Exercised ........................... (154,000) 3.11
Cancelled ........................... (540,000) 12.29
--------- -------
Outstanding at April 27, 1997 ......... 3,069,000 8.90
Granted ............................. 314,000 25.39
Exercised ........................... (17,000) 4.06
--------- -------
Outstanding at May 3, 1998 ............ 3,366,000 10.47
Granted ............................. 260,000 27.96
Exercised ........................... (1,323,500) 4.42
Cancelled ........................... (160,000) 15.56
---------- -------
Outstanding at May 2, 1999 ............ 2,142,500 $ 15.95
========== =======
</TABLE>
As of May 2, 1999, May 3, 1998 and April 27, 1997, the number of option
shares exercisable was 1,127,500, 1,260,000 and 1,278,000, respectively, at
weighted average exercise prices of $11.53, $4.06 and $4.06, respectively.
The following table summarizes information about stock options outstanding
as of May 2, 1999:
<TABLE>
<CAPTION>
OPTION SHARES WEIGHTED WEIGHTED
EXERCISE OUTSTANDING AVERAGE REMAINING AVERAGE
PRICE RANGE MAY 2, 1999 CONTRACTUAL LIFE EXERCISE PRICE
- ------------------- --------------- ------------------- ---------------
<S> <C> <C> <C>
$10.72 to 11.75 1,227,500 4.6 $ 11.51
13.63 to 15.31 310,000 6.7 13.74
16.47 to 18.78 110,000 7.8 17.05
26.25 to 29.19 440,000 8.8 27.56
31.63 to 32.75 55,000 8.6 32.38
</TABLE>
Stock options with an exercise price of $11.53 per share are the only
options exercisable as of May 2, 1999.
The Company does not recognize compensation costs for its stock option
plans. Had the Company determined compensation costs based on the fair value at
the grant date for its stock options granted subsequent to fiscal 1995, the
Company's net income and net income per common share would have been reduced to
the pro forma amounts as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income, as reported ................. $ 94,884 $ 53,400 $ 44,937
Pro forma net income .................... 93,705 52,571 44,553
Net income per common share, as reported:
Basic ................................. $ 2.39 $ 1.42 $ 1.21
Diluted ............................... 2.32 1.34 1.17
Pro forma net income per common share:
Basic ................................. $ 2.36 $ 1.40 $ 1.20
Diluted ............................... 2.29 1.32 1.16
</TABLE>
The weighted-average fair values of option shares granted were $13.40,
$11.88 and $7.62 for fiscal 1999, 1998 and 1997, respectively. The fair value
of each stock option share granted is estimated at date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
- F-15 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- SHAREHOLDERS' EQUITY AND PREFERRED STOCK -- Continued
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Expected option life ............... 7.0 years 6.0 years 6.0 years
Expected annual volatility ......... 35.0% 35.0% 35.0%
Risk-free interest rate ............ 5.3% 6.3% 6.2%
Dividend yield ..................... 0.0% 0.0% 0.0%
</TABLE>
PREFERRED SHARE PURCHASE RIGHTS
As part of the reincorporation, the Company adopted a preferred share
purchase rights plan (the "Rights Plan") and declared a dividend of one
preferred share purchase right (a "Right") on each outstanding share of common
stock. Under the terms of the Rights Plan, if the Company is acquired in a
merger or other business combination transaction, each Right will entitle its
holder to purchase, at the Right's then current exercise price, a number of the
acquiring company's common shares having a market value of twice such price. In
addition, if a person or group acquires 20% (or other applicable percentage, as
summarized in the Rights Plan) or more of the outstanding common stock, each
Right will entitle its holder (other than such person or members of such group)
to purchase, at the Right's then current exercise price, a number of shares of
common stock having a market value of twice such price.
Each Right will entitle its holder to buy one one-thousandth of a Series A
junior participating preferred share ("Preferred Share"), par value $1.00 per
share, at an exercise price of $37.50 subject to adjustment. Each Preferred
Share will entitle its holder to 1,000 votes and will have an aggregate
dividend rate of 1,000 times the amount, if any, paid to holders of common
stock. The Rights will expire on May 31, 2001, unless the date is extended or
unless the Rights are earlier redeemed or exchanged at the option of the board
of directors for $.0001 per Right. Generally, each share of common stock issued
after May 31, 1991 will have one Right attached.
NOTE 9 -- PENSION AND OTHER RETIREMENT PLANS
The Company sponsors several defined benefit pension plans covering
substantially all U.S. and Canadian employees. Pension plans covering salaried
employees provide benefits based on years of service and average salary levels.
Pension plans covering hourly employees provide benefits of stated amounts for
each year of service. In general, the Company's funding policy for pension
plans is to contribute annually the minimum amount required under government
regulations. The pension plan assets are invested primarily in equities, debt
securities, insurance contracts and money market funds.
The Company provides health care and life insurance benefits for certain
retired employees. These plans are unfunded and generally pay covered costs
reduced by retiree premium contributions, co-payments and deductibles. The
Company retains the right to modify or eliminate these benefits.
- F-16 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- PENSION AND OTHER RETIREMENT PLANS -- Continued
The changes in the status of the Company's pension and postretirement
plans, the related components of pension and postretirement expense and the
amounts recognized in the Consolidated Balance Sheets are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------------- ----------------------------
MAY 2, 1999 MAY 3, 1998 MAY 2, 1999 MAY 3, 1998
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year ................ $ 242,554 $ 215,919 $ 10,817 $ 9,630
Service cost ......................................... 6,626 4,104 397 58
Interest cost ........................................ 22,007 16,730 1,416 741
Plan amendments ...................................... 15,681 - - -
Acquisitions ......................................... 156,343 - 18,843 -
Benefits paid ........................................ (22,285) (16,590) (1,055) (895)
Foreign currency changes ............................. 10,676 - 1,138 -
Actuarial (gain) loss ................................ 11,150 22,391 (1,262) 1,283
--------- --------- --------- ---------
Benefit obligation at end of year ...................... 442,752 242,554 30,294 10,817
--------- --------- --------- ---------
Change in plan assets
Fair value of plan assets at beginning of year ......... 203,392 170,596 - -
Actual return on plan assets ......................... 12,979 35,052 - -
Acquisitions ......................................... 172,116 - - -
Employer contributions ............................... 19,049 14,334 984 895
Foreign currency changes ............................. 11,474 - - -
Benefits paid ........................................ (22,285) (16,590) (984) (895)
--------- --------- --------- ---------
Fair value of plan assets at end of year ............... 396,725 203,392 - -
--------- --------- --------- ---------
Reconciliation of accrued cost
Funded status .......................................... (46,027) (39,162) (30,294) (10,817)
Unrecognized actuarial (gain) or loss .................. 11,303 (12,995) (490) 1,060
Unrecognized prior service cost ........................ 15,728 797 - -
--------- --------- --------- ---------
Accrued cost at end of year .......................... $ (18,996) $ (51,360) $ (30,784) $ (9,757)
--------- --------- --------- ---------
Amounts recognized in the statement of financial position
consist of .............................................
Prepaid benefit cost ................................... $ 19,546 $ 1,300 $ - $ -
Accrued benefit liability .............................. (44,163) (52,660) (30,784) (9,757)
Intangible asset ....................................... 410 - - -
Accumulated other comprehensive income ................. 5,211 - - -
--------- --------- --------- ---------
Net amount recognized at end of year ................. $ (18,996) $ (51,360) $ (30,784) $ (9,757)
--------- --------- --------- ---------
Components of net periodic cost
Service cost ........................................... $ 6,626 $ 4,104 $ 397 $ 58
Interest cost .......................................... 22,007 16,730 1,416 767
Expected return on plan assets ......................... (25,834) (15,309) - -
Net amortization ....................................... 86 (1,137) 95 69
--------- --------- --------- ---------
Net periodic cost ...................................... $ 2,885 $ 4,388 $ 1,908 $ 894
========= ========= ========= =========
</TABLE>
The projected benefit obligations, accumulated benefit obligations and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $204,648, $193,010 and $139,027,
respectively, as of May 2, 1999, and $193,890, $185,420 and $139,945,
respectively, as of May 3, 1998.
- F-17 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- PENSION AND OTHER RETIREMENT PLANS -- Continued
In determining the projected benefit obligation and the accumulated
postretirement benefit obligation in fiscal 1999 and 1998, the following
assumptions were made:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------------- ----------------------------
MAY 2, 1999 MAY 3, 1998 MAY 2, 1999 MAY 3, 1998
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Weighted average assumptions:
Discounted rate ................... 6.8% 7.0% 6.7% 7.0%
Expected return on assets ......... 9.0% 9.0% - -
Compensation increase ............. 3.9% 4.5% - -
</TABLE>
In determining the accumulated postretirement benefit obligation in fiscal
1999 and 1998, the assumed annual rate of increase in per capita cost of
covered health care benefits was 6.5% for fiscal 1999, 6.0% for fiscal 2000 and
5.5% thereafter for U.S. plans. For non-U.S. plans the assumed annual rate of
increase was 8.5% for fiscal 1999 and decreased by 0.5% each year until
leveling at 5.0%.
The assumed health care cost trend rate has an effect on the amounts
reported. A one percentage point change in the assumed per capita cost of
covered health care benefits would have the following effect:
<TABLE>
<CAPTION>
ONE ONE
PERCENTAGE PERCENTAGE
POINT POINT
INCREASE DECREASE
------------ -----------
<S> <C> <C>
Effect on postretirement benefit obligation as of May 2, 1999 ...... $2,106 $ (2,247)
Effect on annual benefit cost in fiscal 1999 ....................... $ 178 $ (155)
</TABLE>
NOTE 10 -- LEASE OBLIGATIONS AND COMMITMENTS
The Company leases transportation equipment under operating leases ranging
from one to 10 years with options to cancel at earlier dates. In addition, the
Company has a long-term maintenance agreement related to this equipment.
Maintenance fees are based upon fixed monthly charges for each vehicle, as well
as the maintenance facility itself and contingent fees based upon
transportation equipment usage. The amounts shown below as minimum rental
commitments do not include contingent maintenance fees.
The Company has agreements, expiring in fiscal 2004 and 2008, to use two
cold storage warehouses owned by a partnership, 50% of which is owned by the
Company. The Company has agreed to pay prevailing competitive rates for use of
the facilities, subject to aggregate guaranteed minimum annual fees of $3,600.
In fiscal 1999, 1998 and 1997, the Company paid $5,807, $6,228 and $5,372,
respectively, in fees for use of the facilities. As of May 2, 1999 and May 3,
1998, the Company had investments of $1,108 and $1,411, respectively, in the
partnership.
In fiscal 1998, the Company entered into a 15-year agreement, expiring in
2013, to use a cold storage warehouse owned by a partnership, 50% of which is
owned by the Company. The Company began leasing the facility in fiscal 1999 for
an amount covering debt service costs plus a minimum guaranteed annual fee
totaling $2,174. As of May 2, 1999 and May 3, 1998, the Company had investments
of $1,028 and $1,826, respectively, in the partnership.
Minimum rental commitments under all noncancelable operating leases and
maintenance agreements are as follows:
<TABLE>
<S> <C>
Fiscal year
2000 ................... $ 23,053
2001 ................... 17,695
2002 ................... 21,127
2003 ................... 10,152
2004 ................... 8,546
Thereafter ............. 30,487
--------
$111,060
========
</TABLE>
- F-18 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- LEASE OBLIGATIONS AND COMMITMENTS -- Continued
Rental expense was $24,535 in fiscal 1999, $24,839 in fiscal 1998 and
$24,270 in fiscal 1997. Rental expense in fiscal 1999, 1998 and 1997 included
$2,787, $3,231 and $3,593 of contingent maintenance fees, respectively.
The Company has a sale and leaseback arrangement for certain hog
production facilities at Brown's. The arrangement provides for an early
termination at predetermined amounts in fiscal 2004.
Future minimum lease payments for assets under capital leases and the
present value of the net minimum lease payments are as follows:
<TABLE>
<S> <C>
Fiscal year
2000 ............................................. $ 3,126
2001 ............................................. 3,248
2002 ............................................. 3,195
2003 ............................................. 3,190
2004 ............................................. 9,602
--------
22,361
Less amounts representing interest ............... (4,828)
--------
Present value of net minimum obligations ......... 17,533
Less current portion ............................. (1,726)
--------
Long-term capital lease obligations .............. $ 15,807
========
</TABLE>
As of May 2, 1999, the Company had definitive commitments of $34,841 for
capital expenditures primarily to increase its processed meats and value-added
fresh pork capacities at several of its processing plants and to replace and
upgrade portions of its hardware and software in response to the Year 2000.
NOTE 11 -- RELATED PARTY TRANSACTIONS
The chairman and chief executive officer and a director of Murphy Family
Farms, Inc. ("MFF") was a director of the Company until May 1998. The Company
has a long-term agreement to purchase hogs from MFF at prices that, in the
opinion of management, are equivalent to market. Pursuant to this agreement
with MFF, the Company purchased $239,974, $366,397 and $433,861 of hogs in
fiscal 1999, 1998 and 1997, respectively.
A director of the Company is the chairman, president and chief executive
officer and a director of Prestage Farms, Inc. ("PFI"). The Company has a
long-term agreement to purchase hogs from PFI at prices that, in the opinion of
management, are equivalent to market. Pursuant to this agreement with PFI, the
Company purchased $106,365, $168,829 and $182,576 of hogs in fiscal 1999, 1998
and 1997, respectively.
A director and the owner of 50% of the voting stock of Maxwell Foods, Inc.
("MFI") was a director of the Company until May 1998. The Company has a
long-term agreement to purchase hogs from MFI at prices that, in the opinion of
management, are equivalent to market. Pursuant to this agreement with MFI, the
Company purchased $72,838, $118,041 and $109,470 of hogs in fiscal 1999, 1998
and 1997, respectively.
In fiscal 1999, 1998 and 1997, the Company purchased raw materials
totaling $5,997, $18,524 and $12,772, respectively, from a company which was
48%-owned by the chairman and chief executive officer's children in fiscal 1998
and fiscal 1997. In the opinion of management, these purchases were made at
prices that were equivalent to market.
The Company is engaged in a hog production arrangement with CFI (See Note
4).
NOTE 12 -- REGULATION AND LITIGATION
Like other participants in the meat processing industry, the Company is
subjected to various laws and regulations administered by federal, state and
other government entities, including the U.S. Environmental Protection Agency
("EPA"), the U.S. Department of Agriculture, the U.S. Food and Drug
Administration, the U.S. Occupational Safety and Health
- F-19 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- REGULATION AND LITIGATION -- Continued
Administration and corresponding state agencies in states where the Company
operates. Management believes that the Company presently is in compliance with
all such laws and regulations in all material respects and that continued
compliance will not have a material adverse effect on the Company's financial
position or results of operations. The Company believes that the ultimate
resolution of the litigation discussed below will not have a material adverse
effect on its financial position or results of operations.
In 1997, in a civil suit filed by the EPA against the Company, the United
States District Court for the Eastern District of Virginia imposed a $12,600
civil penalty on the Company for Clean Water Act violations at the Company's
Smithfield, Virginia processing plants. The Company recorded a nonrecurring
charge of $12,600 during the first quarter of fiscal 1998 with respect to this
penalty. The Company has appealed this decision and is awaiting a decision by
the United States Court of Appeals for the Fourth Circuit. There can be no
assurance as to the outcome of such appeal or any subsequent proceedings
regarding this matter.
In 1998, the Commonwealth of Virginia filed a civil suit against the
Company in the Circuit Court of the County of Isle of Wight, Virginia under
Virginia's water pollution control laws. Virginia alleges that 22,517
wastewater discharge permit violations occurred at the Company's Smithfield,
Virginia processing plants between 1986 and 1997. Most of these alleged
violations were also presented in the EPA suit. This action is set for trial on
October 18, 1999. While each violation is subject to a maximum penalty of $25,
Virginia follows a civil penalties policy designed to recapture from the
violator any economic benefit which accrued as a result of its noncompliance,
plus a surcharge penalty for having committed such violations. In addition, the
policy may increase the amount of penalties based upon the extent of civil
penalties in this suit. Among other defenses, the Company will maintain that no
economic benefit accrued to the Company as a result of, and that no
environmental damage was caused by, the violations. There can be no assurance
as to the outcome of this proceeding.
NOTE 13 -- NET INCOME PER SHARE
The computation for basic and diluted net income per share follows:
<TABLE>
<CAPTION>
NET INCOME SHARES PER SHARE
------------ -------- ----------
<S> <C> <C> <C>
Fiscal 1999
Net income per basic share ......................................... $94,884 39,628 $ 2.39
Effect of dilutive stock options ................................... - 1,334 -
------- ------ -------
Net income per diluted share ..................................... $94,884 40,962 $ 2.32
======= ====== =======
Fiscal 1998
Net income per basic share ......................................... $53,400 37,532 $ 1.42
Effect of dilutive stock options ................................... - 2,200 -
------- ------ -------
Net income per diluted share ..................................... $53,400 39,732 $ 1.34
======= ====== =======
Fiscal 1997
Net income per basic share ......................................... $44,937 - $ -
Less preferred stock dividends ..................................... (1,238) - -
------- ------ -------
Net income available to common shareholders per basic share ........ 43,699 36,121 1.21
Effect of dilutive stock options ................................... - 1,144 -
Effect of dilutive convertible preferred stock ..................... 1,238 1,293 -
------- ------ -------
Net income per diluted share ..................................... $44,937 38,558 $ 1.17
======= ====== =======
</TABLE>
- F-20 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13 -- NET INCOME PER SHARE -- Continued
The summary below lists stock options outstanding at the end of each
fiscal year which were not included in the computation of net income per
diluted share because the options' exercise prices were greater than the
average market price of the common shares. These options, which have varying
expiration dates, were still outstanding as of May 2, 1999.
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Stock option shares excluded ....... 495,000 65,000 100,000
Average option price per share ..... $ 28.10 $ 32.42 $ 16.88
</TABLE>
NOTE 14 -- SEGMENTS
In fiscal 1999, the Company adopted SFAS 131, which established standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in the interim financial
reports. SFAS 131 also establishes standards for related disclosures about
products or services and geographic areas.
The Company identified two reportable operating segments that met the
quantitative disclosure threshold of SFAS 131. The segments identified include
the MPG and the HPG. The overriding determination of the Company's reportable
segments was based on how the chief operating decision-maker evaluates the
results of operations. The underlying factors used to identify the reportable
segments include the differences in products produced and sold.
The MPG markets its products to food retailers, distributors, wholesalers,
restaurant and hotel chains, other food processors and manufacturers of
pharmaceuticals and animal feeds in both domestic and international markets.
The HPG primarily supplies raw materials (live hogs) to the hog slaughtering
operations of the Company. The following tables present information about the
results of operations and the assets of each of the Company's reportable
segments for the fiscal years ended May 2, 1999, May 3, 1998 and April 27,
1997. The information contains certain allocations of expenses that the Company
deems reasonable and appropriate for the evaluation of results of operations.
Segment assets do not include intersegment account balances as the Company
feels that such an inclusion would be misleading or not meaningful. Management
believes all intersegment sales are at prices which approximate market.
- F-21 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 14 -- SEGMENTS -- Continued
<TABLE>
<CAPTION>
MEAT HOG GENERAL
PROCESSING PRODUCTION CORPORATE TOTAL
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Fiscal 1999
Sales ................................. $3,729,644 $ 155,796 $ - $3,885,440
Intersegment sales .................... - (110,451) - (110,451)
Interest expense ...................... 25,565 12,583 2,373 40,521
Depreciation and amortization ......... 48,814 16,541 3,211 68,566
Profit (loss) before income tax ....... 233,385 (63,625) (26,322) 143,438
Assets ................................ 1,292,633 343,069 135,912 1,771,614
Capital expenditures .................. 62,315 28,755 4,377 95,447
Fiscal 1998
Sales ................................. $3,867,442 $ 156,565 $ - $4,024,007
Intersegment sales .................... - (156,565) - (156,565)
Interest expense ...................... 22,854 7,390 1,647 31,891
Depreciation and amortization ......... 34,936 9,206 1,730 45,872
Profit (loss) before income tax ....... 121,195 (9,682) (30,551) 80,962
Assets ................................ 787,274 178,078 118,293 1,083,645
Capital expenditures .................. 70,329 13,252 9,332 92,913
Fiscal 1997
Sales ................................. $3,870,611 $ 151,807 $ - $4,022,418
Intersegment sales .................... - (151,807) - (151,807)
Interest expense ...................... 23,090 6,128 (3,007) 26,211
Depreciation and amortization ......... 28,842 8,776 1,439 39,057
Profit (loss) before income tax ....... 66,494 19,910 (18,727) 67,677
Assets ................................ 738,524 169,209 87,521 995,254
Capital expenditures .................. 42,840 23,099 3,208 69,147
</TABLE>
The following table presents the Company's sales and long-livedassets
attributed to operations in the U. S. and international geographic areas.
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Sales:
U.S. ........................... $3,470,307 $3,867,442 $3,870,611
Canada ......................... 244,121 - -
France ......................... 60,561 - -
---------- ---------- ----------
Total ......................... $3,774,989 $3,867,442 $3,870,611
========== ========== ==========
Long-lived assets at end of year:
U.S. ........................... $ 449,593 $ 477,375 $ 448,612
Canada ......................... 169,038 - -
Poland ......................... 78,201 - -
France ......................... 43,489 - -
</TABLE>
NOTE 15 -- SUBSEQUENT EVENTS
Effective May 3, 1999, the Company completed the acquisition of Carroll's
Foods, Inc. ("CFI") and its affiliated companies and partnership interests for
4,200,000 shares of the Company's common stock (subject to post closing
adjustments)
- F-22 -
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 15 -- SUBSEQUENT EVENTS -- Continued
and the assumption of approximately $231,000 in debt, plus other liabilities.
The acquisition includes 100% of the capital stock of CFI, CFI's 50% interest
in Smithfield-Carroll's, CFI's 16% interest in Circle Four, CFI's 50% interest
in Tar Heel Turkey Hatchery, 100% of CFI's turkey grow-out operation, CFI's 49%
interest in Carolina Turkeys, and certain hog production interests in Brazil
and Mexico. The Company will account for this acquisition using the purchase
method of accounting.
The following unaudited pro forma information combines the operating
results of the Company and CFI, assuming the acquisition had been made as of
the beginning of each of the periods presented:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Sales ................................. $ 3,892,769 $ 3,994,674
Net income ............................ 66,080 61,075
Net income per basic share ............ $ 1.51 $ 1.46
Net income per diluted share .......... $ 1.46 $ 1.39
</TABLE>
The preceding pro forma amounts are not intended to be projections of
future results or trends and do not purport to be indicative of what actual
consolidated results of operations might have been if the acquisition had been
effective as of the beginning of the periods presented.
Subsequent to the end of fiscal 1999, the Company increased its ownership
in Animex from 67% to 80% of total equity.
NOTE 16 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------------ ------------- --------------- -------------
<S> <C> <C> <C> <C>
1999
Sales ............................ $865,823 $ 874,378 $ 1,035,728 $ 999,060
Gross profit ................... 72,178 115,132 201,204 151,061
Net (loss) income ................ (5,325) 18,481 54,980 26,748
Net (loss) income per common share
Basic .......................... $ (.14) $ .48 $ 1.35 $ .64
Diluted ........................ (.14) .47 1.31 .63
1998
Sales ............................ $914,963 $ 982,699 $ 1,095,999 $ 873,781
Gross profit ................... 76,445 94,654 116,590 100,124
Net (loss) income ................ (6,541) 15,548 23,719 20,674
Net (loss) income per common share
Basic .......................... $ (.17) $ .41 $ .63 $ .55
Diluted ........................ (.17) .39 .60 .52
</TABLE>
- F-23 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE I
TO THE SHAREHOLDERS OF SMITHFIELD FOODS, INC.
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements included in the Form 10-K Annual Report of
Smithfield Foods, Inc. and subsidiaries for the fiscal years ended May 2, 1999,
May 3, 1998, and April 27, 1997, and have issued our report thereon dated June
10, 1999. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule I, filed as a part of the
Company's Form 10-K Annual Report is the responsibility of the Company's
management and is presented for purposes for complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states, in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Richmond, Virginia
June 10, 1999
- F-24 -
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY BALANCE SHEETS
AS OF MAY 2, 1999 AND MAY 3, 1998
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------
MAY 2, MAY 3,
1999 1998
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................................... $ 24 $ 7,800
Accounts receivable ................................................................ 15,137 324
Receivable from related parties .................................................... 4,051 -
Refundable income taxes ............................................................ 1,458 2,300
Deferred income taxes .............................................................. 20,551 23,634
Other current assets ............................................................... 16,005 15,921
---------- --------
Total current assets ............................................................. 57,226 49,979
---------- --------
Investments in and net advances to subsidiaries, at cost plus equity in undistributed
earnings ........................................................................... 885,291 679,266
---------- --------
Other assets:
Investment in partnerships ......................................................... 31,139 46,966
Property, plant and equipment, net ................................................. 21,422 18,327
Other .............................................................................. 42,447 26,353
---------- --------
Total other assets ............................................................... 95,008 91,646
---------- --------
$1,037,525 $820,891
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................................. $ 5,633 $ 6,248
Accounts payable ................................................................... 5,086 2,795
Accrued expenses ................................................................... 61,254 45,232
---------- --------
Total current liabilities ........................................................ 71,973 54,275
---------- --------
Long-term debt ...................................................................... 385,370 387,732
---------- --------
Deferred income taxes and other noncurrent liabilities .............................. 37,936 17,874
---------- --------
Shareholders' equity ................................................................ 542,246 361,010
---------- --------
$1,037,525 $820,891
========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
- F-25 -
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
MAY 2, 1999 MAY 3, 1998 APRIL 27, 1997
---------------- ---------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales ................................................... $ - $ - $ -
Cost of sales ........................................... 5,073 9,589 1,820
--------- --------- ---------
Gross profit ............................................ (5,073) (9,589) (1,820)
General and administrative expenses, net of allocation
to subsidiaries ........................................ 8,366 4,686 10,911
Depreciation expense .................................... 1,252 843 903
Interest expense ........................................ 24,930 24,578 16,434
Nonrecurring charge ..................................... - 12,600 -
--------- --------- ---------
Loss before income tax benefit and equity in earnings
of subsidiaries ........................................ (39,621) (52,296) (30,068)
Income tax benefit ...................................... (16,677) (19,130) (12,562)
--------- --------- ---------
Loss before equity in earnings of subsidiaries .......... (22,944) (33,166) (17,506)
Equity in earnings of subsidiaries ...................... 117,828 86,566 62,443
--------- --------- ---------
Net income .............................................. $ 94,884 $ 53,400 $ 44,937
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
- F-26 -
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC
PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
MAY 2, 1999 MAY 3, 1998 APRIL 27, 1997
---------------- ---------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income ......................................................... $ 94,884 $ 53,400 $ 44,937
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................................... 2,758 1,461 1,040
(Gain) loss on sale of property, plant and equipment ............. 30 - (2,328)
Changes in operating assets and liabilities:
Deferred income taxes and other noncurrent
liabilities .................................................... 23,145 13,966 (37,308)
Accounts receivable ............................................. (14,813) 3,351 (1,329)
Receivables from related parties ................................ (4,051) 1,414 45
Other current assets ............................................ (84) (10,784) (3,367)
Accounts payable and accrued expenses ........................... 18,313 14,243 15,696
Refundable income taxes ......................................... 842 (4,089) 1,560
Other assets .................................................... (17,600) (10,495) (1,541)
---------- ---------- ---------
Net cash provided by operating activities .......................... 103,424 62,467 17,405
---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures ............................................... (4,377) (9,332) (3,226)
Proceeds from sale of property, plant and equipment ................ - - 3,424
Increase in investment in and net advances to subsidiaries ......... (131,827) (235,117) (80,800)
Investments in partnerships ........................................ 15,827 (5,213) (5,660)
---------- ---------- ---------
Net cash used in investing activities ............................ (120,377) (249,662) (86,262)
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from issuance of short-term debt .......................... - - (500)
Proceeds from issuance of long-term debt ........................... - 447,150 140,000
Principal payments on long-term debt ............................... (2,977) (252,317) (71,200)
Proceeds from exercise of stock options ............................ 12,154 124 1,270
Preferred dividends ................................................ - - (1,238)
---------- ---------- ---------
Net cash provided by financing activities ........................ 9,177 194,957 68,332
Net (decrease) increase in cash and cash equivalents ................ (7,776) 7,762 (525)
Cash and cash equivalents at beginning of year ...................... 7,800 38 563
---------- ---------- ---------
Cash and cash equivalents at end of year ............................ $ 24 $ 7,800 $ 38
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
- F-27 -
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
MAY 2, 1999 AND MAY 3, 1998
1. The Notes to Parent Company Financial Statements should be read in
conjunction with the Registrant's Notes to Consolidated Financial Statements
included herein.
2. Restricted assets of Registrant:
Existing loan covenants contain provisions which limit the amount of funds
available for transfer from the subsidiaries to Smithfield Foods, Inc. without
the consent of certain lenders.
3. Accrued expenses as of May 2, 1999 and May 3, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Self-insurance reserves .......... $20,216 $21,834
Other ............................ 41,038 23,398
------- -------
$61,254 $45,232
======= =======
</TABLE>
4. Long-Term Debt:
In fiscal 1998, the Registrant entered into a loan agreement with a bank
group providing for a five-year $300,000 revolving credit facility. In
connection with this refinancing, the Registrant repaid all borrowings under
its previous $300,000 credit facilities, which were terminated.
In fiscal 1998, the Registrant issued $200,000 in aggregate principal
amount of 10-year 7.625% senior subordinated notes. The net proceeds from the
sale of the notes were issued to repay indebtedness under the Registrant's
$300,000 revolving credit facility with the balance invested in short-term
marketable debt securities.
As of May 2, 1999, the Registrant is guaranteeing $17,500 of capital lease
obligations of its subsidiaries and a $300,000 credit facility that has an
outstanding balance of $71,000.
Scheduled maturities of the Registrant's long-term debt consists of the
following:
<TABLE>
<CAPTION>
FISCAL YEAR
- --------------
<S> <C>
2000 $ 5,633
2001 3,133
2002 3,084
2003 10,473
2004 49,886
Thereafter 318,794
--------
$391,003
========
</TABLE>
5. The amount of dividends received from subsidiaries in fiscal 1999 and
1998 was $76,700 and $43,400, respectively.
6. In fiscal 1998, the Registrant's shareholders approved the
reincorporation of the Registrant in Virginia from Delaware. The purpose of the
reincorporation was to reduce annual franchise taxes and does not affect the
Registrant's capitalization or the manner in which it operates.
- F-28 -
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS -- CONTINUED
7. Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
FISCAL YEAR 1998 1998 1997
- ----------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Interest paid, net of amount capitalized ........................ $28,180 $20,901 $11,106
======= ======= =======
Income taxes paid ............................................... $15,306 $10,179 $15,043
======= ======= =======
Noncash investing and financing activities:
Refinancing of long-term debt .................................. $ - $ - $59,707
======= ======= =======
Conversion of preferred stock to common stock .................. $ - $ - $20,000
======= ======= =======
Common stock issued for acquisitions ........................... $73,049 $ - $ -
======= ======= =======
Conversion of advances to investments in partnerships .......... $ - $ - $ 7,691
======= ======= =======
</TABLE>
- F-29 -
EXECUTION COPY
SMITHFIELD FOODS, INC.
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
1. Name. The name of the Corporation is Smithfield Foods, Inc. (the
"Corporation").
2. The Amendment. Pursuant to Sections 13.1-638 and 13.1-639 of the
Virginia Stock Corporation Act, the Board of Directors of the Corporation
effective as of May 27, 1998, duly adopted the following amendment to the
Articles of Incorporation, as amended, of the Corporation, adding thereto new
Section 4.4, which sets forth the designation and number of shares of a series
of Preferred Stock of the Corporation and certain preferences, limitations and
relative rights thereof.
4.4 Series B Special Voting Preferred Share
(a) Designation and Amount. Pursuant to a resolution adopted by the
Board of Directors of the Corporation on May 27, 1998, one (1) preferred
share (of $1.00 par value) is hereby constituted as a series of preferred
shares of the Corporation which shall be designated as the "Series B
Special Voting Preferred Share" (the "Series B Preferred Share"), the
preferences and relative, optional and other special rights of which and
the qualification, limitations or restrictions of which shall be as set
forth herein.
(b) Dividends and Distributions. The holder of the Series B Preferred
Share shall not be entitled to receive any portion of any dividend or
distribution at any time.
(c) Voting Rights. The holder of the Series B Preferred Share shall
have the following voting rights:
(i) The Series B Preferred Share shall entitle the holder
thereof to an aggregate number of votes equal to the
number of Exchangeable Shares ("Exchangeable Shares") of
Smithfield Canada Limited, an Ontario corporation
("Smithfield Canada") outstanding from time to time
which are not owned by the Corporation or any of its
direct or indirect subsidiaries.
(ii) Except as otherwise provided herein or by law, the
holder of the Series B Preferred Share and the holders
of Common Shares and of Series A Preferred Shares shall
<PAGE>
vote together as one class on all matters submitted to a
vote of shareholders of the Corporation.
(iii) Except as set forth herein, the holder of the Series B
Preferred Share shall have no special voting rights, and
its consent shall not be required (except to the extent
it is entitled to vote with holders of Common Shares and
of Series A Preferred Shares as set forth herein) for
taking any corporate action.
(d) Additional Provisions
(i) The Holder of the Series B Preferred Share is entitled
to exercise the voting rights attendant thereto in such
manner as such holder desires.
(ii) At such time as (A) the Series B Preferred Share
entitles its holder to a number of votes equal to zero
because there are no Exchangeable Shares of Smithfield
Canada outstanding which are not owned by the
Corporation or any of its direct or indirect
subsidiaries, and (B) there is no share of stock, debt,
option or other agreement, obligation or commitment of
Smithfield Canada which could by its terms require
Smithfield Canada to issue any Exchangeable Shares to
any person other than the Corporation or any of its
direct or indirect subsidiaries, then the Series B
Preferred Share shall thereupon be retired and cancelled
promptly thereafter. Such Share shall upon its
cancellation, and upon the taking of any action required
by applicable law, become an authorized but unissued
preferred share and may be reissued as part of a new
series of preferred shares to be created by resolution
or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
(e) Reacquired Share. If the Series B Preferred Share should be
purchased or otherwise acquired by the Corporation in any manner
whatsoever, then the Series B Preferred Share shall be retired and
cancelled promptly after the acquisition thereof. Such share shall upon its
cancellation, and upon the taking of any action required by applicable law,
become an authorized but unissued preferred share and may be reissued as
part of a new series of preferred shares to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
<PAGE>
(f) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, the holder of the Series B
Preferred Share shall not be entitled to any portion of any distribution.
(g) No redemption or conversion. The Series B Preferred Share shall
not be redeemable or convertible.
3. This amendment was duly adopted by the Board of Directors of the
Corporation without shareholder action, and shareholder action was not required.
Dated: October 1, 1998 SMITHFIELD FOODS, INC.
/s/ Joseph W. Luter, III
---------------------------
By: Joseph W. Luter, III
Title: Chairman of the Board and Chief
Executive Officer
COMMONWEALTH OF VIRGINIA: County of Isle of Wight
The undersigned Notary Public in and for the jurisdiction aforesaid
hereby certifies that Joseph W. Luter, III, Chairman of the Board and Chief
Executive Officer of Smithfield Foods, Inc., signed the foregoing Articles of
Amendment, dated as of October 1, 1998, and acknowledged the same before me.
Given under my hand this 19th day of October, 1998.
My commission expires August 31, 2002.
/s/ Evelyn J. Bryant
-------------------------
Notary Public
Exhibit 4.5(c)
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
AGREEMENT made as of the 10th day of November, 1998
BETWEEN:
SMITHFIELD FOODS, INC., a corporation existing under the laws of the
Commonwealth of Virginia (the "Parent"),
- and -
SMITHFIELD CANADA LIMITED, a corporation existing under the laws of the
Province of Ontario (the "Corporation"),
- and -
CIBC MELLON TRUST COMPANY, a trust company existing under the laws of
Canada (the "Trustee").
WHEREAS the Corporation has offered, by way of a public take-over bid, to
acquire any and all of the outstanding Common Shares and Class A Shares of
Schneider Corporation in consideration for Exchangeable Shares of the
Corporation;
AND WHEREAS holders of Exchangeable Shares will be entitled to require the
Corporation to redeem such Shares and upon such redemption each Exchangeable
Share shall be exchanged by the Corporation for one share of Parent Common
Stock (as hereinafter defined);
AND WHEREAS the Parent intends to grant to and in favour of Non-Affiliated
Holders (as hereinafter defined) from time to time of Exchangeable Shares the
right, in the circumstances set forth herein, to require the Parent or, at the
option of the Parent, Smithfield Sub (as hereinafter defined) to purchase from
each Non-Affiliated Holder all or any part of the Exchangeable Shares held by
the Non-Affiliated Holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in the Parent shall be exercisable
by Non-Affiliated Holders from time to time of Exchangeable Shares by and
through the Trustee, which will hold legal title to the Voting Share (as
hereinafter defined) to which voting rights attach for the benefit of
Non-Affiliated Holders and whereby the rights to require the Parent or, at the
option of the Parent, Smithfield Sub to purchase Exchangeable Shares from the
Non-Affiliated Holders shall be exercisable by Non-Affiliated Holders from time
to time of Exchangeable Shares by and through the Trustee, which will hold
legal title to such rights for the benefit of Non-Affiliated Holders;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby the Parent will take certain actions and make
certain payments and deliveries necessary to ensure that the Corporation and
Smithfield Sub will be able to make certain payments and to deliver or cause to
be delivered shares of Parent Common Stock in satisfaction of the obligations
of the Corporation and/or Smithfield Sub under the Exchangeable Share
Provisions (as hereinafter defined) and this trust agreement;
AND WHEREAS these recitals and any statements of fact in this trust
agreement are made by the Parent and the Corporation and not by the Trustee;
NOW THEREFORE, in consideration of the respective covenants and agreements
provided in this trust agreement and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties
agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In this trust agreement, unless something in the subject
matter or context is inconsistent therewith:
"AUTOMATIC EXCHANGE RIGHTS" means the automatic exchange of shares of
Parent Common Stock for Exchangeable Shares pursuant to Section 5.3 of the
Exchangeable Share Provisions.
"BOARD OF DIRECTORS" means the board of directors of the Corporation.
"BUSINESS DAY" means a day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of Norfolk, Virginia and
Toronto, Ontario.
<PAGE>
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the official
noon spot exchange rate on such date for such foreign currency as reported by
the Bank of Canada or, in the event such spot exchange rate is not available,
such exchange rate on such date for such foreign currency as may be deemed by
the Board of Directors to be appropriate for such purpose.
"COMPANY REDEMPTION DATE" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
"CURRENT MARKET PRICE" means, in respect of a share of Parent Common Stock
on any date, the Canadian Dollar Equivalent of the average closing sales price
of shares of Parent Common Stock during a period of 20 consecutive trading days
ending not more than five trading days before such date on Nasdaq or, if the
shares of Parent Common Stock are not then listed on Nasdaq, on such other
stock exchange or automated quotation system on which the shares of Parent
Common Stock are listed or quoted, as the case may be, as may be selected by
the Board of Directors for such purpose; provided, however, that if in the
opinion of the Board of Directors the public distribution or trading activity
of Parent Common Stock during such period is inadequate to create a market that
reflects the fair market value of the Parent Common Stock, then the Current
Market Price of a share of the Parent Common Stock shall be determined by the
Board of Directors based upon the advice of such qualified independent
financial advisors as the Board of Directors may deem to be appropriate, and
provided further that any such selection, opinion or determination by the Board
of Directors shall be conclusive and binding.
"DIVIDEND AMOUNT" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
"EFFECTIVE DATE" means the date on which the Corporation first takes up
shares of Schneider Corporation under the Offer.
"EXCHANGE RIGHT" has the meaning set out in section 5.1 hereof.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares.
"EXCHANGEABLE SHARES" means the exchangeable shares to be issued by the
Corporation pursuant to the Offer.
"INSOLVENCY EVENT" means the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or
wound up, or the consent of the Corporation to the institution of bankruptcy,
insolvency, dissolution or winding-up proceedings against it, or the filing by
the Corporation of a petition, answer or consent seeking dissolution or winding
up under any bankruptcy, insolvency or analogous laws, including without
limitation the COMPANIES CREDITORS' ARRANGEMENT ACT (Canada) and the BANKRUPTCY
AND INSOLVENCY ACT (Canada), and the failure by the Corporation to contest in
good faith any such proceedings commenced by a third party in respect of the
Corporation within 15 days of becoming aware thereof, or the consent by the
Corporation to the filing of any such petition or to the appointment of a
receiver, or the making by the Corporation of a general assignment for the
benefit of creditors, or the admission in writing by the Corporation of its
inability to pay its debts generally as they become due, or the Corporation not
being permitted, pursuant to solvency requirements or other provisions of
applicable law, to redeem any Retracted Shares pursuant to Section 6.1(4) of
the Exchangeable Share Provisions.
"LIQUIDATION AMOUNT" has the meaning set out in Section 5.1(1) of the
Exchangeable Share Provisions.
"LIQUIDATION CALL RIGHT" has the meaning set out in Section 5.2(1) of the
Exchangeable Share Provisions.
"LIST" has the meaning set out in section 4.6 hereof.
"NASDAQ" means the Nasdaq National Market segment of The Nasdaq Stock
Market, an electronic securities market operated by The Nasdaq National Market
Stock Market, Inc., a wholly-owned subsidiary of the National Association of
Securities Dealers, Inc.
"NON-AFFILIATED HOLDER VOTES" has the meaning set out in section 4.2
hereof.
"NON-AFFILIATED HOLDERS" means the registered holders of Exchangeable
Shares other than the Parent and its Subsidiaries.
"OFFER" means the offer, by way of a public take-over bid, by the
Corporation to acquire any and all of the outstanding Common Shares, Class A
Shares and options to purchase Class A Shares of Schneider Corporation.
"OFFICER'S CERTIFICATE" means, with respect to the Parent or the
Corporation, as the case may be, a certificate signed by any one of the
Chairman of the Board, the President, any Vice-President or any other executive
officer of the Parent or the Corporation, as the case may be.
2
<PAGE>
"PARENT BOARD OF DIRECTORS" means the board of directors of the Parent.
"PARENT COMMON STOCK" means the shares of Common Stock of the Parent, par
value US$0.50 per share, having voting rights of one vote per share, and any
other securities into which such shares may be changed or for which such shares
may be exchanged (whether or not the Parent shall be the issuer of such other
securities) or any other consideration which may be received by the holders of
such shares, pursuant to a recapitalization, reconstruction, reorganization or
reclassification of, or amalgamation, merger, liquidation or similar
transaction, affecting such shares.
"PARENT CONSENT" has the meaning set out in section 4.2 hereof.
"PARENT MEETING" has the meaning set out in section 4.2 hereof.
"PARENT SUCCESSOR" has the meaning set out in section 11.1 hereof.
"REDEMPTION CALL RIGHT" has the meaning set out in Section 7.2(1) of the
Exchangeable Share Provisions.
"REDEMPTION PRICE" has the meaning set out in Section 7.1(1) of the
Exchangeable Share Provisions.
"RETRACTED SHARES" has the meaning set out in section 5.7 hereof.
"RETRACTION CALL RIGHT" has the meaning set out in Section 6.2(1) of the
Exchangeable Share Provisions.
"RETRACTION PRICE" has the meaning set out in Section 6.1(1) of the
Exchangeable Share Provisions.
"SHAREHOLDER RIGHTS PLAN" means the Rights Agreement, as amended, dated as
of May 1, 1998 between the Parent and Harris Trust and Savings Bank, as the
same may be further amended or replaced from time to time.
"SMITHFIELD SUB" means Smithfield Sub Limited, a wholly-owned Subsidiary
of the Parent existing under the laws of the Province of Ontario.
"SUBSIDIARY" of the Parent means any corporation more than 50% of the
outstanding stock of which is owned, directly or indirectly, by the Parent, by
one or more other Subsidiaries of the Parent or by the Parent and one or more
other Subsidiaries of the Parent.
"TENDER OFFER" has the meaning set out in section 6.8 hereof.
"TRANSFER AGENT" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
"TRUST" means the trust created by this trust agreement.
"TRUST ESTATE" means the Voting Share, any other securities, the Exchange
Right and any money or other rights or assets that may be held by the Trustee
from time to time pursuant to this trust agreement.
"TRUSTEE" means CIBC Mellon Trust Company and, subject to the provisions
of Article 10 hereof, includes any successor trustee or permitted assigns.
"VOTING RIGHTS" means the voting rights attached to the Voting Share.
"VOTING SHARE" means the one share of Series B Special Voting Preferred
Share, par value US$1.00, issued by the Parent to and deposited with the
Trustee, which entitles the holder of record to a number of votes at meetings
of holders of Parent Common Stock equal to the number of Exchangeable Shares
outstanding from time to time that are held by Non-Affiliated Holders.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
trust agreement into articles and sections and the insertion of headings are
for reference purposes only and shall not affect the interpretation of this
trust agreement. Unless otherwise indicated, any reference in this trust
agreement to an article or section refers to the specified article or section
of this trust agreement.
1.3 NUMBER, GENDER AND PERSONS. In this trust agreement, unless the
context otherwise requires, words importing the singular number include the
plural and vice versa, words importing any gender include all genders and words
importing persons include individuals, corporations, partnerships, companies,
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities of any kind.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to be
taken under this trust agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
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1.5 PAYMENTS. All payments to be made hereunder will be made without
interest and less any tax required by Canadian law to be deducted and withheld.
1.6 CURRENCY. In this trust agreement, unless stated otherwise, all dollar
amounts are in Canadian dollars.
ARTICLE 2
TRUST
2.1 ESTABLISHMENT OF TRUST. One of the purposes of this trust agreement is
to create the Trust for the benefit of the Non-Affiliated Holders, as herein
provided. The Trustee will hold the Voting Share in order to enable the Trustee
to exercise the Voting Rights and will hold the Exchange Right in order to
enable the Trustee to exercise such right and will hold the other rights
granted in or resulting from the Trustee being a party to this trust agreement
in order to enable the Trustee to exercise or enforce such rights, in each case
as trustee for and on behalf of the Non-Affiliated Holders as provided in this
trust agreement.
ARTICLE 3
VOTING SHARE
3.1 ISSUE AND OWNERSHIP OF THE VOTING SHARE. Simultaneously with the
execution and delivery of this trust agreement, the Parent will issue to and
deposit with the Trustee the Voting Share to be hereafter held of record by the
Trustee as trustee for and on behalf of, and for the use and benefit of, the
Non-Affiliated Holders, in accordance with the provisions of this trust
agreement. The Parent hereby acknowledges receipt from the Trustee as trustee
for and on behalf of the Non-Affiliated Holders of good and valuable
consideration (and the adequacy thereof) for the issuance of the Voting Share
by the Parent to the Trustee. During the term of the Trust and subject to the
terms and conditions of this trust agreement, the Trustee shall possess and be
vested with full legal ownership of the Voting Share and shall be entitled to
exercise all of the rights and powers of an owner with respect to the Voting
Share, provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely
for the use and benefit of the Non-Affiliated Holders in accordance with
the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to sell, transfer, vote or otherwise deal in or with
the Voting Share and the Voting Share shall not be used or disposed of by
the Trustee for any purpose other than the purposes for which the Trust is
created pursuant to this trust agreement.
3.2 LEGENDED SHARE CERTIFICATES. The Corporation will cause each
certificate representing Exchangeable Shares to bear an appropriate legend
notifying the Non-Affiliated Holders of their right to instruct the Trustee
with respect to the exercise of the Voting Rights with respect to the
Exchangeable Shares held by a Non-Affiliated Holder.
3.3 SAFEKEEPING OF CERTIFICATE. The certificate representing the Voting
Share shall at all times be held in safe keeping by the Trustee or its agent.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 VOTING RIGHTS. The Trustee, as the holder of record of the Voting
Share, shall be entitled to all of the Voting Rights, including the right to
consent to or to vote in person or by proxy the Voting Share, on any matter,
question or proposition whatsoever that may come before the shareholders of the
Parent at a Parent Meeting or in connection with a Parent Consent. The Voting
Rights shall be and remain vested in and exercised by the Trustee. Subject to
section 7.15 hereof, the Trustee shall exercise the Voting Rights only on the
basis of instructions received pursuant to this Article 4 from Non-Affiliated
Holders entitled to instruct the Trustee as to the voting thereof at the time
at which the Parent Consent is sought or the Parent Meeting is held. To the
extent that no instructions are received from a Non-Affiliated Holder with
respect to the Voting Rights to which such Non-Affiliated Holder is entitled,
the Trustee shall not exercise or permit the exercise of the Voting Rights
relating to such Non-Affiliated Holder's Exchangeable Shares.
4.2 NUMBER OF VOTES. With respect to all meetings of shareholders of the
Parent at which holders of shares of Parent Common Stock are entitled to vote
(a "Parent Meeting") and with respect to all written consents sought from the
holders of shares of Parent Common Stock (a "Parent Consent"), each
Non-Affiliated Holder shall be entitled to instruct the Trustee
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to cast and exercise, in the manner instructed, one vote for each Exchangeable
Share owned of record by such Non-Affiliated Holder on the record date
established by the Parent or by applicable law for such Parent Meeting or
Parent Consent, as the case may be (the "Non-Affiliated Holder Votes") in
respect of each matter, question or proposition to be voted on at such Parent
Meeting or to be consented to in connection with such Parent Consent.
4.3 MAILINGS TO SHAREHOLDERS. With respect to each Parent Meeting and
Parent Consent, the Trustee will use its reasonable best efforts to mail or
cause to be mailed (or otherwise communicate in the same manner that the Parent
utilizes in communications to holders of Parent Common Stock, subject to the
Trustee being advised in writing of such method and its ability to provide this
method of communication) to each of the Non-Affiliated Holders named in the
List on the same day as the initial mailing or notice (or other communication)
with respect thereto is given by the Parent to its shareholders:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to shareholders of the
Parent;
(b) a statement that such Non-Affiliated Holder is entitled, subject to
the provisions of section 4.7 hereof, to instruct the Trustee as to the
exercise of the Non-Affiliated Holder Votes with respect to such Parent
Meeting or Parent Consent, as the case may be, or, pursuant and subject to
section 4.7 hereof, to attend such Parent Meeting and to exercise
personally the Non-Affiliated Holder Votes thereat;
(c) a statement as to the manner in which such instructions may be given
to the Trustee, including, in the case of a Parent Meeting, an express
indication that instructions may be given to the Trustee to give:
(i) a proxy to such Non-Affiliated Holder or its duly appointed
designee to exercise personally such holder's Non-Affiliated Holder
Votes; or
(ii) a proxy to a duly appointed designated agent or other
representative of the management of the Parent to exercise such
Non-Affiliated Holder Votes;
(d) a statement that if no such instructions are received from the
Non-Affiliated Holder, the Non-Affiliated Holder Votes to which such
Non-Affiliated Holder is entitled will not be exercised;
(e) a form of direction whereby the Non-Affiliated Holder may so direct
and instruct the Trustee as contemplated herein; and
(f) a statement of (i) the time and date by which such instructions must
be received by the Trustee in order to be binding upon it, which in the
case of a Parent Meeting shall not be earlier than the close of business
on the second Business Day prior to such meeting, and (ii) the method for
revoking or amending such instructions.
The materials referred to above are to be provided by the Parent to the
Trustee, but shall be subject to review and comment by the Trustee. For the
purpose of determining Non-Affiliated Holder Votes to which a Non-Affiliated
Holder is entitled in respect of any such Parent Meeting or Parent Consent, the
number of Exchangeable Shares owned of record by the Non-Affiliated Holder
shall be determined at the close of business on the record date established by
the Parent or by applicable law for purposes of determining shareholders
entitled to vote at such Parent Meeting or to give written consent in
connection with such Parent Consent. The Parent will notify the Trustee in
writing of any decision of the board of directors of the Parent with respect to
the calling of any such Parent Meeting or the seeking of any such Parent
Consent and shall provide all necessary information and materials to the
Trustee in each case promptly and in any event in sufficient time to enable the
Trustee to perform its obligations contemplated by this section 4.3.
4.4 COPIES OF SHAREHOLDER INFORMATION. The Parent will deliver to the
Trustee copies of all proxy materials (including notices of Parent Meetings but
excluding proxies to vote shares of Parent Common Stock), information
statements, reports (including without limitation all interim and annual
financial statements) and other written communications that are to be
distributed from time to time to holders of Parent Common Stock in sufficient
quantities and in sufficient time so as to enable the Trustee to send those
materials to each Non-Affiliated Holder at the same time as such materials are
first sent to holders of Parent Common Stock. The Trustee will mail or
otherwise send to each Non-Affiliated Holder, at the expense of Parent, copies
of all such materials (and all materials specifically directed to the
Non-Affiliated Holders or to the Trustee for the benefit of the Non-Affiliated
Holders by the Parent) received by the Trustee from the Parent at the same time
as such materials are first sent to holders of Parent Common Stock. The Trustee
will make copies of all such materials available for inspection by any
Non-Affiliated Holder at the Trustee's principal office in Toronto.
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4.5 OTHER MATERIALS. Immediately after receipt by the Parent or any
shareholder of the Parent of any material sent or given generally to the
holders of Parent Common Stock by or on behalf of a third party, including
without limitation dissident proxy and information circulars (and related
information and material) and tender and exchange offer circulars (and related
information and material), the Parent shall use reasonable efforts to obtain
and deliver to the Trustee copies thereof in sufficient quantities so as to
enable the Trustee to forward such material (unless the same has been provided
directly to Non-Affiliated Holders by such third party) to each Non-Affiliated
Holder as soon as practicable thereafter. As soon as practicable after receipt
thereof, the Trustee will mail or otherwise send to each Non-Affiliated Holder,
at the expense of the Parent, copies of all such materials received by the
Trustee from the Parent. The Trustee will also make copies of all such
materials available for inspection by any Non-Affiliated Holder at the
Trustee's principal office in Toronto.
4.6 LIST OF PERSONS ENTITLED TO VOTE. The Corporation shall, (a) prior to
each annual, general and special Parent Meeting or the seeking of any Parent
Consent and (b) forthwith upon each request made at any time by the Trustee in
writing, prepare or cause to be prepared a list (a "List") of the names and
addresses of the Non-Affiliated Holders arranged in alphabetical order and
showing the number of Exchangeable Shares held of record by each such
Non-Affiliated Holder, in each case at the close of business on the date
specified by the Trustee in such request or, in the case of a List prepared in
connection with a Parent Meeting or a Parent Consent, at the close of business
on the record date established by the Parent or pursuant to applicable law for
determining the holders of Parent Common Stock entitled to receive notice of
and/or to vote at such Parent Meeting or to give consent in connection with
such Parent Consent. Each such List shall be delivered to the Trustee promptly
after receipt by the Corporation of such request or the record date for such
meeting or seeking of consent, as the case may be, and, in any event, within
sufficient time as to enable the Trustee to perform its obligations under this
trust agreement. The Parent agrees to give the Corporation written notice (with
a copy to the Trustee) of the calling of any Parent Meeting or the seeking of
any Parent Consent, together with the record dates therefor, sufficiently prior
to the date of the calling of such meeting or seeking of such consent so as to
enable the Corporation to perform its obligations under this section 4.6.
4.7 ENTITLEMENT TO DIRECT VOTES. Any Non-Affiliated Holder named in a List
prepared in connection with any Parent Meeting or any Parent Consent will be
entitled (a) to instruct the Trustee in the manner described in section 4.3
hereof with respect to the exercise of the Non-Affiliated Holder Votes to which
such Non-Affiliated Holder is entitled or (b) to attend such meeting and
personally to exercise thereat (or to exercise with respect to any written
consent), as the proxy of the Trustee, the Non-Affiliated Holder Votes to which
such Non-Affiliated Holder is entitled or (c) to appoint a third party as the
proxy of the Trustee to attend such meeting and exercise thereat the
Non-Affiliated Holder's voting rights to which such Non-Affiliated Holder is
entitled except, in each case, to the extent that such Non-Affiliated Holder
has transferred the ownership of any Exchangeable Shares in respect of which
such Non-Affiliated Holder is entitled to Non-Affiliated Holder Votes after the
close of business on the record date for such meeting or seeking of consent and
the transferee establishes ownership of the Exchangeable Shares and demands,
not later than ten days before the Parent Meeting, that the transferee be
entitled to the Non-Affiliated Votes attaching to such Exchangeable Shares at
the Parent Meeting.
4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT
MEETING.
(1) In connection with each Parent Meeting and Parent Consent, the Trustee
shall exercise, either in person or by proxy, in accordance with the
instructions received from a Non-Affiliated Holder pursuant to section 4.3
hereof, the Non-Affiliated Holder Votes as to which such Non-Affiliated Holder
is entitled to direct the vote (or any lesser number thereof as may be set
forth in the instructions); provided, however, that such written instructions
are received by the Trustee from the Non-Affiliated Holder prior to the time
and date fixed by it for receipt of such instructions in the notice given by
the Trustee to the Non-Affiliated Holder pursuant to section 4.3 hereof.
(2) The Trustee shall cause such representatives as are empowered by it to
sign and deliver, on behalf of the Trustee, proxies for Voting Rights enabling
a Non-Affiliated Holder to attend each Parent Meeting. Upon submission by a
Non-Affiliated Holder (or its duly appointed designee) of identification
satisfactory to the Trustee's representatives, and at the Non-Affiliated
Holder's request, such representatives shall sign and deliver to such
Non-Affiliated Holder (or its duly appointed designee) a proxy to exercise
personally the Non-Affiliated Holder Votes as to which such Non-Affiliated
Holder is otherwise entitled hereunder to direct the vote, if such
Non-Affiliated Holder either (i) has not previously given the Trustee
instructions pursuant to section 4.3 hereof in respect of such meeting, or (ii)
submits to the Trustee's representatives written revocation of any such
previous instructions in accordance with the requirements specified by the
Trustee in the materials provided to the Non-Affiliated Holder pursuant to
section 4.3(f)(ii) hereof. At such meeting, the Non-Affiliated Holder
exercising such Non-Affiliated Holder Votes shall have the same rights as the
Trustee to speak at the meeting in respect of any matter, question or
proposition, to vote by way of ballot at the meeting in respect of any matter,
question or proposition and to vote at such meeting by way of a show of hands
in respect of any matter, question or proposition.
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4.9 DISTRIBUTION OF WRITTEN MATERIALS. Any written materials to be
distributed by the Trustee to the Non-Affiliated Holders pursuant to this trust
agreement shall be delivered or sent by mail (or otherwise communicated in the
same manner as the Parent utilizes in communications to holders of Parent
Common Stock, subject to the Trustee being advised in writing of such method of
communication and its ability to provide same) to each Non-Affiliated Holder at
its address as shown on the books of the Corporation. The Corporation shall
provide or cause to be provided to the Trustee for this purpose, on a timely
basis and without charge or other expense:
(a) current lists of the Non-Affiliated Holders; and
(b) upon the request of the Trustee, mailing labels to enable the Trustee
to carry out its duties under this trust agreement.
The materials referred to above are to be provided by the Parent to the
Trustee, but shall be subject to review and comment by the Trustee.
4.10 TERMINATION OF VOTING RIGHTS. All the rights of a Non-Affiliated
Holder with respect to the Non-Affiliated Holder Votes exercisable in respect
of the Exchangeable Shares held by such Non-Affiliated Holder, including the
right to instruct the Trustee as to the voting of or to vote personally such
Non-Affiliated Holder Votes, shall be deemed to be surrendered by the
Non-Affiliated Holder to the Parent and such Non-Affiliated Holder Votes and
the Voting Rights represented thereby shall cease immediately upon the delivery
by such Non-Affiliated Holder to the Trustee of the certificates representing
such Exchangeable Shares in connection with the exercise by the Non-Affiliated
Holder of the Exchange Right or the occurrence of the automatic exchange of
Exchangeable Shares for shares of Parent Common Stock, as specified in Article
5 hereof, or upon the redemption of Exchangeable Shares pursuant to Article 6
or Article 7 of the Exchangeable Share Provisions, or upon the effective date
of the liquidation, dissolution or winding-up of the Corporation or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs pursuant to Article 5 of the Exchangeable
Share Provisions, or upon the purchase of Exchangeable Shares from the holder
thereof by the Parent or Smithfield Sub pursuant to the exercise by the Parent
or Smithfield Sub of the Retraction Call Right, the Redemption Call Right or
the Liquidation Call Right (unless in any case the Corporation, the Parent or
Smithfield Sub shall not have delivered the requisite shares of Parent Common
Stock and cheque, if any, deliverable in exchange therefor to the Transfer
Agent or the Trustee for delivery to the Non-Affiliated Holders).
ARTICLE 5
EXCHANGE RIGHT AND PARENT SUPPORT
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. The Parent hereby grants to
the Trustee as trustee for and on behalf of, and for the use and benefit of,
the Non-Affiliated Holders the right (the "Exchange Right"), upon the
occurrence and during the continuance of an Insolvency Event, to require the
Parent to purchase or to cause Smithfield Sub to purchase from each or any
Non-Affiliated Holder all or any part of the Exchangeable Shares held by the
Non-Affiliated Holder, all in accordance with the provisions of this trust
agreement. The Parent hereby acknowledges receipt from the Trustee, as trustee
for and on behalf of the Non-Affiliated Holders, of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Right by
the Parent to the Trustee. During the term of the Trust and subject to the
terms and conditions of this trust agreement, the Trustee shall possess and be
vested with full legal ownership of the Exchange Right and shall be entitled to
exercise all of the rights and powers of an owner with respect to the Exchange
Right, provided that the Trustee shall:
(a) hold the Exchange Right and the legal title thereto as trustee solely
for the use and benefit of the Non-Affiliated Holders in accordance with
the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to exercise or otherwise deal in or with the Exchange
Right, and the Trustee shall not exercise such right for any purpose other
than the purposes for which this Trust is created pursuant to this trust
agreement.
5.2 LEGENDED SHARE CERTIFICATES. The Corporation will cause each
certificate representing Exchangeable Shares to bear an appropriate legend
notifying the Non-Affiliated Holders of their right to instruct the Trustee
with respect to the exercise of the Exchange Right in respect of the
Exchangeable Shares held by a Non-Affiliated Holder.
5.3 GENERAL EXERCISE OF EXCHANGE RIGHT. The Exchange Right shall be and
remain vested in and exercisable by the Trustee. Subject to section 7.15
hereof, the Trustee shall exercise the Exchange Right only on the basis of
instructions received pursuant to this Article 5 from Non-Affiliated Holders
entitled to instruct the Trustee as to the exercise thereof. To
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the extent that no instructions are received from a Non-Affiliated Holder with
respect to the Exchange Right, the Trustee shall not exercise or permit the
exercise of the Exchange Right.
5.4 PURCHASE PRICE. The purchase price payable by the Parent or Smithfield
Sub for each Exchangeable Share to be purchased by the Parent or Smithfield Sub
under the Exchange Right shall be an amount per share equal to (a) the Current
Market Price of a share of Parent Common Stock on the last Business Day prior
to the day of closing of the purchase and sale of such Exchangeable Share under
the Exchange Right, which shall be satisfied in full by causing to be delivered
to such holder one share of Parent Common Stock, plus (b) the Dividend Amount,
if any. The purchase price for each such Exchangeable Share so purchased may be
satisfied only by the Parent or Smithfield Sub delivering or causing to be
delivered to the Trustee, on behalf of the relevant Non-Affiliated Holder, one
share of Parent Common Stock and a cheque for the balance, if any, of the
purchase price, without interest.
5.5 EXERCISE INSTRUCTIONS. Subject to the terms and conditions herein set
forth, a Non-Affiliated Holder shall be entitled, upon the occurrence and
during the continuance of an Insolvency Event, to instruct the Trustee to
exercise the Exchange Right with respect to all or any part of the Exchangeable
Shares registered in the name of such Non-Affiliated Holder on the books of the
Corporation. To cause the exercise of the Exchange Right by the Trustee, the
Non-Affiliated Holder shall deliver to the Trustee, in person or by certified
or registered mail, at its principal office in Toronto, Ontario or at such
other places in Canada as the Trustee may from time to time designate by
written notice to the Non-Affiliated Holders, the certificates representing the
Exchangeable Shares which such Non-Affiliated Holder desires the Parent to
purchase, duly endorsed in blank, and accompanied by such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares
under the Business Corporations Act (Ontario) and such additional documents and
instruments as the Trustee, the Parent or the Corporation may reasonably
require together with (a) a duly completed form of notice of exercise of the
Exchange Right, contained on the reverse of or attached to the Exchangeable
Share certificates, stating (i) that the Non-Affiliated Holder thereby
instructs the Trustee to exercise the Exchange Right so as to require the
Parent or Smithfield Sub to purchase from the Non-Affiliated Holder the number
of Exchangeable Shares specified therein, (ii) that such Non-Affiliated Holder
has good title to and owns all such Exchangeable Shares to be acquired by the
Parent or Smithfield Sub free and clear of all liens, claims and encumbrances,
(iii) the names in which the certificates representing Parent Common Stock
issuable in connection with the exercise of the Exchange Right are to be issued
and (iv) the names and addresses of the persons to whom such new certificates
should be delivered and (b) payment (or evidence satisfactory to the Trustee,
the Corporation and the Parent of payment) of the taxes (if any) payable as
contemplated by section 5.8 of this trust agreement. If only a portion of the
Exchangeable Shares represented by any certificate delivered to the Trustee are
to be purchased by the Parent or Smithfield Sub under the Exchange Right, a new
certificate for the balance of such Exchangeable Shares shall be issued to the
holder at the expense of the Corporation.
5.6 DELIVERY OF PARENT COMMON STOCK; EFFECT OF EXERCISE. Promptly after
receipt of the certificates representing the Exchangeable Shares that a
Non-Affiliated Holder desires the Parent or Smithfield Sub to purchase under
the Exchange Right (together with such documents and instruments of transfer
and a duly completed form of notice of exercise of the Exchange Right) duly
endorsed for transfer to the Parent or Smithfield Sub, the Trustee shall notify
the Parent and the Corporation of its receipt of the same, which notice to the
Parent and the Corporation shall constitute exercise of the Exchange Right by
the Trustee on behalf of the holder of such Exchangeable Shares, and the Parent
shall immediately thereafter deliver or cause Smithfield Sub to deliver to the
Trustee, for delivery to the Non-Affiliated Holder of such Exchangeable Shares
(or to such other persons, if any, properly designated by such Non-Affiliated
Holder), a certificate for the number of shares of Parent Common Stock
deliverable in connection with such exercise of the Exchange Right (which
shares shall be duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim or encumbrance, security interest or adverse
claim) and a cheque for the balance, if any, of the purchase price therefor,
without interest; provided, however, that no such delivery shall be made unless
and until the Non-Affiliated Holder requesting the same shall have paid (or
provided evidence satisfactory to the Trustee, the Corporation and the Parent
of the payment of) the taxes (if any) payable as contemplated by section 5.8 of
this trust agreement. Immediately upon the giving of notice by the Trustee to
the Parent and the Corporation of the exercise of the Exchange Right, as
provided in this section 5.6, the closing of the transaction of purchase and
sale contemplated by the Exchange Right shall be deemed to have occurred, and
the Non-Affiliated Holder of such Exchangeable Shares shall be deemed to have
transferred to the Parent (or, at the Parent's option, to Smithfield Sub) all
of its right, title and interest in and to such Exchangeable Shares and the
related interest in the Trust Estate and shall not be entitled to exercise any
of the rights of a holder in respect thereof, other than the right to receive
its proportionate part of the total purchase price therefor, unless the
requisite number of shares of Parent Common Stock (together with a cheque for
the balance, if any, of the total purchase price therefor, without interest) is
not delivered by the Parent or Smithfield Sub to the Trustee, for delivery to
such Non-Affiliated Holder (or to such other persons, if any, properly
designated by such Non-Affiliated Holder), within five Business Days of the
date of the giving of such notice by the Trustee, in which case the
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rights of the Non-Affiliated Holder shall remain unaffected until such shares
of Parent Common Stock are so delivered and any such cheque is so delivered and
paid. Concurrently with the closing of the transaction of purchase and sale
contemplated by the Exchange Right, such Non-Affiliated Holder shall be
considered and deemed for all purposes to be the holder of the shares of Parent
Common Stock delivered to it pursuant to the Exchange Right.
5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION. In the event that
a Non-Affiliated Holder has exercised its right under Article 6 of the
Exchangeable Share Provisions to require the Corporation to redeem any or all
of the Exchangeable Shares held by the Non-Affiliated Holder (the "Retracted
Shares") and is notified by the Corporation pursuant to Section 6.1(4) of the
Exchangeable Share Provisions that the Corporation will not be permitted as a
result of solvency requirements of applicable law to redeem all such Retracted
Shares, subject to receipt by the Trustee of written notice to that effect from
the Corporation and provided that neither the Parent nor Smithfield Sub shall
have exercised its Retraction Call Right with respect to the Retracted Shares
and that the Non-Affiliated Holder shall not have revoked the retraction
request delivered by the Non-Affiliated Holder to the Corporation pursuant to
Section 6.1(5) of the Exchangeable Share Provisions, the retraction request
will constitute and will be deemed to constitute notice from the Non-Affiliated
Holder to the Trustee instructing the Trustee to exercise the Exchange Right
with respect to those Retracted Shares that the Corporation is unable to
redeem. In any such event, the Corporation hereby agrees with the Trustee and
in favour of the Non-Affiliated Holder immediately to notify the Trustee of
such prohibition against the Corporation redeeming all of the Retracted Shares
and immediately to forward or cause to be forwarded to the Trustee all relevant
materials delivered by the Non-Affiliated Holder to the Corporation or to the
Transfer Agent (including without limitation a copy of the retraction request
delivered pursuant to Section 6.1(1) of the Exchangeable Share Provisions) in
connection with such proposed redemption of the Retracted Shares and the
Trustee will thereupon exercise the Exchange Right with respect to the
Retracted Shares that the Corporation is not permitted to redeem and will
require the Parent or, at the Parent's option, Smithfield Sub, to purchase such
shares in accordance with the provisions of this Article 5.
5.8 STAMP OR OTHER TRANSFER TAXES. Upon any sale of Exchangeable Shares to
the Parent or Smithfield Sub pursuant to the Exchange Right, the share
certificate or certificates representing the Parent Common Stock to be
delivered in connection with the payment of the total purchase price therefor
shall be issued in the name of the Non-Affiliated Holder of the Exchangeable
Shares so sold or in such names as such Non-Affiliated Holder may otherwise
direct in writing without charge to the holder of the Exchangeable Shares so
sold, provided, however, that such Non-Affiliated Holder (a) shall pay (and
none of the Parent, Smithfield Sub, the Corporation or the Trustee shall be
required to pay) any documentary, stamp, transfer or other similar taxes that
may be payable in respect of any transfer involved in the issuance or delivery
of such shares to a person other than such Non-Affiliated Holder or (b) shall
have established to the satisfaction of the Trustee, the Parent and the
Corporation that such taxes, if any, have been paid.
5.9 NOTICE OF INSOLVENCY EVENT. Immediately upon the occurrence of an
Insolvency Event or any event that with the giving of notice or the passage of
time or both would be an Insolvency Event, the Corporation and the Parent shall
give written notice thereof to the Trustee. As soon as practicable after
receiving notice from the Corporation or the Parent or from any other person of
the occurrence of an Insolvency Event, the Trustee will mail to each
Non-Affiliated Holder, at the expense of the Parent (such expenses to be
prepaid to the Trustee by the Corporation or the Parent), a notice of such
Insolvency Event in the form provided by the Parent, which notice shall contain
a brief statement of the right of the Non-Affiliated Holders with respect to
the Exchange Right.
5.10 PARENT SUPPORT OF SMITHFIELD SUB. Notwithstanding any of the other
provisions of this trust agreement, so long as any Exchangeable Shares are
outstanding at least 50% of the common shares of Smithfield Sub shall be owned,
directly or indirectly, by the Parent and the Parent will take all actions and
do all such things as are necessary or desirable to enable and permit
Smithfield Sub, in accordance with applicable law, to perform its obligations
and exercise its rights with respect to the satisfaction of the Liquidation
Call Right, the Redemption Call Right and the Retraction Call Right, including
without limitation, all such actions and all such things as are necessary or
desirable to enable and permit Smithfield Sub to cause to be delivered Parent
Common Stock to the holders of Exchangeable Shares in accordance with the
Exchangeable Share Provisions. In furtherance of the foregoing obligations,
upon notice of any event which requires Smithfield Sub to cause to be delivered
shares of Parent Common Stock to any holder of Exchangeable Shares, the Parent
shall, in any manner deemed appropriate by it, provide such shares or cause
such shares to be provided to Smithfield Sub, which shall forthwith deliver the
requisite shares of Parent Common Stock to or to the order of the former holder
of the surrendered Exchangeable Shares. All such shares of Parent Common Stock
shall be duly issued as fully paid, non-assessable, free of pre-emptive rights
and shall be free and clear of any lien, claim, encumbrance, security interest
or adverse claim.
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5.11 CALL RIGHTS. The Liquidation Call Right, the Redemption Call Right,
the Retraction Call Right and the Automatic Exchange Right are hereby agreed,
acknowledged and confirmed, and it is agreed and acknowledged that such rights
are granted as part of the consideration for the obligations of the Parent
under this trust agreement.
5.12 GRANT AND OWNERSHIP OF AUTOMATIC EXCHANGE RIGHTS
The Parent hereby grants the Automatic Exchange Rights to the Trustee as
trustee for and on behalf of, and for the use and benefit of, the
Non-Affiliated Holders. The Parent hereby acknowledges receipt from the
Trustee, as trustee for and on behalf of the Non-Affiliated Holders, of good
and valuable consideration (and the adequacy thereof) for the grant of the
Automatic Exchange Rights by the Parent to the Trustee. During the term of the
Trust and subject to the terms and conditions of this trust agreement and the
Exchangeable Share Provisions, the Trustee shall possess and be vested with
full legal ownership of the Automatic Exchange Rights and shall be entitled to
exercise all of the rights and powers of an owner with respect to the Automatic
Exchange Rights, provided that the Trustee shall:
(a) hold the Automatic Exchange Rights and the legal title thereto as
trustee solely for the use and benefit of the Non-Affiliated Holders in
accordance with the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to exercise or otherwise deal in or with the Automatic
Exchange Rights, and the Trustee shall not exercise such rights for any
purpose other than the purposes for which this Trust is created pursuant to
this trust agreement.
ARTICLE 6
COVENANTS, REPRESENTATIONS AND WARRANTIES
6.1 COVENANTS OF PARENT REGARDING EXCHANGEABLE SHARES. So long as any
Exchangeable Shares are outstanding, the Parent will:
(a) not declare or pay any dividend on the Parent Common Stock unless (i)
the Corporation will have sufficient money or other assets or authorized
but unissued securities available to enable the due declaration and the
due and punctual payment in accordance with applicable law, of an
equivalent dividend on the Exchangeable Shares and (ii) the Corporation
shall simultaneously declare or pay, as the case may be, an equivalent
dividend on the Exchangeable Shares; (b) advise the Corporation
sufficiently in advance of the declaration by the Parent of any dividend
on the Parent Common Stock and take all such other actions as are
necessary, in cooperation with the Corporation, to ensure that the
respective declaration date, record date and payment date for a dividend
on the Exchangeable Shares shall be the same as the declaration date,
record date and payment date for the corresponding dividend on the Parent
Common Stock and that such dividend on the Exchangeable Shares shall
correspond with any requirements of the stock exchange on which the
Exchangeable Shares are listed;
(c) ensure that the record date for determining shareholders entitled to
receive any dividend declared on the Parent Common Stock is not less than
10 Business Days after the declaration date for such dividend or such
shorter period within which applicable law may be complied with;
(d) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with respect
to the satisfaction of the Liquidation Amount in respect of each issued
and outstanding Exchangeable Share upon the liquidation, dissolution or
winding up of the Corporation or any other distribution of the assets of
the Corporation among its shareholders for the purpose of winding up its
affairs, including without limitation all such actions and all such things
as are necessary or desirable to enable and permit the Corporation to
cause to be delivered shares of Parent Common Stock to the holders of
Exchangeable Shares in accordance with the provisions of Article 5 of the
Exchangeable Share Provisions;
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with respect
to the satisfaction of the Retraction Price and the Redemption Price,
including without limitation all such actions and all such things as are
necessary or desirable to enable and permit the Corporation to cause to be
delivered shares of Parent Common Stock to the holders of Exchangeable
Shares, upon the redemption of the Exchangeable Shares in accordance with
the provisions of Article 6 or Article 7 of the Exchangeable Share
Provisions, as the case may be;
(f) use its best efforts to enable the Corporation to maintain the
listing of the Exchangeable Shares on The Toronto Stock Exchange or
another stock exchange in Canada prescribed under the Income Tax Act
(Canada); and
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(g) not exercise its vote as a shareholder to initiate the voluntary
liquidation, dissolution or winding up of the Corporation or any other
distribution of the assets of the Corporation among its shareholders for
the purpose of winding up its affairs nor take any action or omit to take
any action that is designed to result in the liquidation, dissolution or
winding up of the Corporation or any other distribution of the assets of
the Corporation among its shareholders for the purpose of winding up its
affairs.
6.2 SEGREGATION OF FUNDS. The Parent will cause the Corporation to deposit
a sufficient amount of funds in a separate account and segregate a sufficient
amount of such other assets as is necessary to enable the Corporation to pay or
otherwise satisfy the applicable dividends, Liquidation Amount, Retraction
Price or Redemption Price, once such amounts become payable under the terms of
this trust agreement or the Exchangeable Share Provisions, in each case for the
benefit of Non-Affiliated Holders from time to time of the Exchangeable Shares,
and to use such funds and other assets so segregated exclusively for the
payment of dividends and the payment or other satisfaction of the Liquidation
Amount, the Retraction Price or the Redemption Price, as applicable.
6.3 CERTAIN REPRESENTATIONS. The Parent hereby represents, warrants and
covenants that:
(a) it has irrevocably reserved for issuance and will at all times keep
available, free from pre-emptive and other rights, out of its authorized
and unissued capital stock such number of shares of Parent Common Stock
(or other shares or securities into which the Parent Common Stock may be
reclassified or changed as contemplated by section 6.7 hereof) (i) as is
equal to the sum of (x) the number of Exchangeable Shares issued and
outstanding from time to time and (y) the number of Exchangeable Shares
issuable upon the exercise of all rights to acquire Exchangeable Shares
outstanding from time to time and (ii) as is now and may hereafter be
required to enable and permit each of the Corporation, the Parent and
Smithfield Sub to meet its obligations hereunder, under the Exchangeable
Share Provisions and under any other security or commitment pursuant to
which the Corporation, the Parent or Smithfield Sub may now or hereafter
be required to issue and/or deliver shares of Parent Common Stock; and
(b) it is not as of the Effective Date, and has not been at any time
within the last year prior to the Effective Date, a "United States real
property holding corporation" within the meaning of Section 897 of the
Internal Revenue Code of 1987, as amended.
6.4 NOTIFICATION OF CERTAIN EVENTS. In order to assist the Parent to
comply with its obligations hereunder, the Corporation will give the Parent
notice of each of the following events at the time set forth below:
(a) in the event of any determination by the Board of Directors to
institute voluntary liquidation, dissolution or winding-up proceedings
with respect to the Corporation or to effect any other distribution of the
assets of the Corporation among its shareholders for the purpose of
winding up its affairs, at least 60 days prior to the proposed effective
date of such liquidation, dissolution, winding up or other distribution;
(b) immediately, upon the earlier of (i) receipt by the Corporation of
notice of, and (ii) the Corporation otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other proceeding with
respect to the involuntary liquidation, dissolution or winding up of the
Corporation or to effect any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up its
affairs;
(c) immediately, upon receipt by the Corporation of a Retraction Request
(as defined in the Exchangeable Share Provisions);
(d) at least 130 days prior to any Company Redemption Date determined by
the Board of Directors in accordance with the Exchangeable Share
Provisions; and
(e) as soon as practicable upon the issuance by the Corporation of any
Exchangeable Shares or rights to acquire Exchangeable Shares.
6.5 DELIVERY OF SHARES OF PARENT COMMON STOCK. Upon notice of any event
that requires the Corporation to cause to be delivered shares of Parent Common
Stock to any holder of Exchangeable Shares, the Parent shall, in any manner
deemed appropriate by it, provide such shares or cause such shares to be
provided to the Corporation, which shall forthwith deliver the requisite shares
of Parent Common Stock to or to the order of the former holder of the
surrendered Exchangeable Shares, as the Corporation shall direct. All such
shares of Parent Common Stock shall be duly issued as fully paid,
non-assessable, free of pre-emptive rights and shall be free and clear of any
lien, claim, encumbrance, security interest or adverse claim.
6.6 QUALIFICATION OF SHARES OF PARENT COMMON STOCK. The Parent covenants
that it will make such filings and seek such regulatory consents and approvals
as are necessary so that the shares of Parent Common Stock to be issued on the
exchange
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of Exchangeable Shares will be issued in compliance with the applicable
securities laws in Canada and the United States and may be freely traded (other
than by holders who are Affiliates of the Parent within the meaning of U.S.
securities laws) on Nasdaq or on such other United States exchange as such
shares may be listed, quoted or posted for trading from time to time. The
Parent will also take such steps as are commercially reasonable to cause the
Exchangeable Shares to be listed and posted for trading on a stock exchange in
Canada prescribed under the Income Tax Act (Canada).
6.7 ECONOMIC EQUIVALENCE.
(1) The Parent will not without the prior approval of the Corporation and
the prior approval of the holders of the Exchangeable Shares given in
accordance with Section 9.2 of the Exchangeable Share Provisions:
(a) issue or distribute shares of Parent Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire shares
of Parent Common Stock (excluding any rights issuable under the
Shareholder Rights Plan)) to the holders of all or substantially all of
the then outstanding Parent Common Stock by way of stock dividend or other
distribution, other than an issue of shares of Parent Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of Parent Common Stock) to holders of shares of Parent
Common Stock who exercise an option to receive dividends in Parent Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire shares of Parent Common Stock) in lieu of receiving cash
dividends;
(b) issue or distribute rights (excluding rights issuable under the
Shareholder Rights Plan), options or warrants to the holders of all or
substantially all of the then outstanding shares of Parent Common Stock
entitling them to subscribe for or to purchase shares of Parent Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire shares of Parent Common Stock); or
(c) issue or distribute to the holders of all or substantially all of the
then outstanding shares of Parent Common Stock (i) shares or securities of
the Parent of any class other than Parent Common Stock (other than shares
convertible into or exchangeable for or carrying rights to acquire shares
of Parent Common Stock), (ii) rights (excluding any rights issuable under
the Shareholder Rights Plan), options or warrants other than those
referred to in section 6.7(1) (b) above, (iii) evidences of indebtedness
of the Parent or (iv) assets of the Parent;
unless (x) the Corporation is permitted under applicable law to issue or
distribute the economic equivalent on a per share basis of such rights,
options, securities, shares, evidences of indebtedness or other assets to
holders of the Exchangeable Shares and (y) the Corporation shall issue or
distribute such rights, options, securities, shares, evidences of indebtedness
or other assets simultaneously to holders of the Exchangeable Shares.
(2) The Parent will not without the prior approval of the Corporation and
the prior approval of the holders of the Exchangeable Shares given in
accordance with Section 9.2 of the Exchangeable Share Provisions:
(a) subdivide, redivide or change the then outstanding shares of Parent
Common Stock into a greater number of shares of Parent Common Stock; or
(b) reduce, combine or consolidate or change the then outstanding shares
of Parent Common Stock into a lesser number of shares of Parent Common
Stock; or
(c) reclassify or otherwise change the shares of Parent Common Stock or
effect an amalgamation, merger, reorganization or other transaction
affecting the shares of Parent Common Stock;
unless (x) the Corporation is permitted under applicable law to simultaneously
make the same or an economically equivalent change to, or in the rights of
holders of, the Exchangeable Shares and (y) the same or an economically
equivalent change is made to, or in the rights of the holders of, the
Exchangeable Shares.
(3) The Parent will ensure that the record date for any event referred to
in section 6.7(1) or 6.7(2) above, or (if no record date is applicable for such
event) the effective date for any such event, is not less than 20 Business Days
after the date on which such event is declared or announced by the Parent (with
simultaneous notice thereof to be given by the Parent to the Corporation).
(4) The Board of Directors shall determine, in good faith and in its sole
discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the board may require), economic
equivalence for the purposes of any event referred to in section 6.7(1) or
6.7(2) and each such determination shall be conclusive and binding on the
Parent. In making each such determination, the following factors shall, without
excluding other factors determined by the board to be relevant, be considered
by the Board of Directors:
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(a) in the case of any stock dividend or other distribution payable in
shares of Parent Common Stock, the number of such shares issued in
proportion to the number of shares of Parent Common Stock previously
outstanding;
(b) in the case of the issuance or distribution of any rights (excluding
any rights issuable under the Shareholder Rights Plan), options or
warrants to subscribe for or purchase shares of Parent Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of Parent Common Stock), the relationship between the
exercise price of each such right, option or warrant and the current
market value (as determined by the Board of Directors in the manner above
contemplated) of a share of Parent Common Stock;
(c) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of the
Parent of any class other than Parent Common Stock, any rights, options or
warrants other than those referred to in section 6.7(4)(b) above, any
evidences of indebtedness of the Parent or any assets of the Parent), the
relationship between the fair market value (as determined by the Board of
Directors in the manner above contemplated) of such property to be issued
or distributed with respect to each outstanding share of Parent Common
Stock and the current market value (as determined by the Board of
Directors in the manner above contemplated) of a share of Parent Common
Stock;
(d) in the case of any subdivision, redivision or change of the then
outstanding shares of Parent Common Stock into a greater number of shares
of Parent Common Stock or the reduction, combination or consolidation or
change of the then outstanding shares of Parent Common Stock into a lesser
number of shares of Parent Common Stock or any amalgamation, merger,
reorganization or other transaction affecting the Parent Common Stock, the
effect thereof upon the then outstanding shares of Parent Common Stock;
and
(e) in all such cases, the general taxation consequences of the relevant
event to holders of Exchangeable Shares to the extent that such
consequences may differ from the taxation consequences to holders of
shares of Parent Common Stock as a result of differences between taxation
laws of Canada and the United States (except for any differing
consequences arising as a result of differing marginal taxation rates and
without regard to the individual circumstances of holders of Exchangeable
Shares).
For purposes of the foregoing determinations, the current market value of
any security listed and traded or quoted on a securities exchange shall be the
weighted average of the daily trading prices of such security during a period
of not less than 20 consecutive trading days ending not more than five trading
days before the date of determination on the principal securities exchange on
which such securities are listed and traded or quoted; provided, however, that
if in the opinion of the Board of Directors the public distribution or trading
activity of such securities during such period does not create a market that
reflects the fair market value of such securities, then the current market
value thereof shall be determined by the Board of Directors, in good faith and
in its sole discretion (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the board may require),
and provided further that any such determination by the Board of Directors
shall be conclusive and binding on the Parent.
6.8 TENDER OFFERS, ETC. In the event that a cash offer, share exchange
offer, issuer bid, take-over bid or similar transaction with respect to Parent
Common Stock (each, a "Tender Offer") is proposed by the Parent or is proposed
to the Parent or its shareholders and is recommended by the board of directors
of the Parent, or is otherwise effected or to be effected with the consent or
approval of the board of directors of the Parent, the Parent will use
reasonable efforts (to the extent, in the case of a Tender Offer by a third
party, within its control) expeditiously and in good faith to take all such
actions and do all such things as are necessary or desirable to enable and
permit holders of Exchangeable Shares to participate in such Tender Offer to
the same extent and on an economically equivalent basis as the holders of
shares of Parent Common Stock, without discrimination. Without limiting the
generality of the foregoing, the Parent will use reasonable efforts
expeditiously and in good faith to ensure that holders of Exchangeable Shares
may participate in all such Tender Offers without being required to retract
Exchangeable Shares as against the Corporation (or, if so required, to ensure
that any such retraction shall be effective only upon, and shall be conditional
upon, the closing of the Tender Offer and only to the extent necessary to
tender or deposit to the Tender Offer).
6.9 PARENT NOT TO VOTE EXCHANGEABLE SHARES. The Parent covenants and
agrees that it will appoint and cause to be appointed proxyholders with respect
to all Exchangeable Shares held by the Parent and its Subsidiaries for the sole
purpose of attending each meeting of holders of Exchangeable Shares in order to
be counted as part of the quorum for each such meeting. The Parent further
covenants and agrees that it will not, and will cause its Subsidiaries not to,
exercise any voting rights that may be exercisable by holders of Exchangeable
Shares from time to time pursuant to the Exchangeable Share Provisions or
pursuant to the provisions of the BUSINESS CORPORATIONS ACT (Ontario) (or any
successor or other corporate
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statute by which the Corporation may in the future be governed) with respect to
any Exchangeable Shares held by it or by its direct or indirect Subsidiaries in
respect of any matter considered at any meeting of holders of Exchangeable
Shares.
6.10 DUE PERFORMANCE. On and after the Effective Date, the Parent shall,
and shall cause Smithfield Sub to, duly and timely perform all of its
obligations provided for herein and that may arise under the Exchangeable Share
Provisions, and Parent shall be responsible for the due performance of all of
such obligations hereunder and under the Exchangeable Share Provisions.
6.11 ISSUE OF ADDITIONAL SHARES. During the term of this trust agreement,
the Parent will not issue any shares of Parent Series B Special Voting
Preferred Shares, par value US$1.00 (the "Special Voting Share") in addition to
the one Special Voting Share to be issued to the Trustee.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 POWERS AND DUTIES OF THE TRUSTEE. The rights, powers and authorities
of the Trustee under this trust agreement, in its capacity as trustee of the
trust, shall include:
(a) receipt and deposit of the Voting Share from the Parent as trustee
for and on behalf of the Non-Affiliated Holders in accordance with the
provisions of this trust agreement;
(b) granting proxies and distributing materials to Non-Affiliated Holders
as provided in this trust agreement;
(c) voting the Non-Affiliated Holder Votes in accordance with the
provisions of this trust agreement;
(d) receiving the grant of the Exchange Right and the Automatic Exchange
Rights from the Parent as trustee for and on behalf of the Non-Affiliated
Holders in accordance with the provisions of this trust agreement;
(e) exercising the Exchange Right in accordance with the provisions of
this trust agreement, and in connection therewith receiving from
Non-Affiliated Holders Exchangeable Shares and other requisite documents
and distributing to such Non-Affiliated Holders the shares of Parent
Common Stock and cheques, if any, to which such Non-Affiliated Holders are
entitled upon the exercise of the Exchange Right;
(f) holding title to the Trust Estate;
(g) investing any money forming, from time to time, a part of the Trust
Estate as provided in this trust agreement;
(h) taking action at the direction of a Non-Affiliated Holder to enforce
the obligations of the Corporation and/or the Parent under this trust
agreement and under the Exchangeable Share Provisions; and
(i) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
In the exercise of such rights, powers and authorities the Trustee shall have
(and is granted) such incidental and additional rights, powers and authority
not in conflict with any of the provisions of this trust agreement as the
Trustee, acting in good faith and in the reasonable exercise of its discretion,
may deem necessary, appropriate or desirable to effect the purpose of the
Trust. Any exercise of such discretionary rights, powers and authorities by the
Trustee shall be final, conclusive and binding upon all persons. For greater
certainty, the Trustee shall have only those duties as are set out specifically
in this trust agreement. The Trustee in exercising its rights, powers, duties
and authorities hereunder shall act honestly and in good faith with a view to
the best interests of the Non-Affiliated Holders and shall exercise the care,
diligence and skill that a reasonably prudent trustee would exercise in
comparable circumstances. The Trustee shall not be bound to give any notice or
do or take any act, action or proceeding by virtue of the powers conferred on
it hereby unless and until it shall be specifically required to do so under the
terms hereof; nor shall the Trustee be required to take any notice of, or to do
or to take any act, action or proceeding as a result of any default or breach
of any provision hereunder, unless and until notified in writing of such
default or breach, which notice shall distinctly specify the default or breach
desired to be brought to the attention of the Trustee and in the absence of
such notice the Trustee may for all purposes of this trust agreement
conclusively assume that no default or breach has been made in the observance
or performance of any of the representations, warranties, covenants, agreements
or conditions contained herein.
7.2 NO CONFLICT OF INTEREST. The Trustee represents to the Corporation and
the Parent that at the date of execution and delivery of this trust agreement
there exists no material conflict of interest in the role of the Trustee as a
fiduciary hereunder and the role of the Trustee in any other capacity. The
Trustee shall, within 90 days after it becomes aware that such a
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material conflict of interest exists, either eliminate such material conflict
of interest or resign in the manner and with the effect specified in Article 10
hereof. If, notwithstanding the foregoing provisions of this section 7.2, the
Trustee has such a material conflict of interest, the validity and
enforceability of this trust agreement shall not be affected in any manner
whatsoever by reason only of the existence of such material conflict of
interest. If the Trustee contravenes the foregoing provisions of this section
7.2, any interested party may apply to the Ontario Court of Justice (General
Division) for an order that the Trustee be replaced as trustee hereunder.
7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. The Corporation and
the Parent irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent registrar or
transfer agent, of the Exchangeable Shares and the Parent Common Stock;
and
(b) requisition, from time to time, from any such registrar or transfer
agent any information readily available from the records maintained by it
which the Trustee may reasonably require for the discharge of its duties
and responsibilities under this trust agreement. The Parent covenants that
it will supply, and will cause Smithfield Sub to supply, the Trustee, or
the Transfer Agent, as the case may be, in a timely manner with duly
executed share certificates for the purpose of completing the exercise
from time to time of all rights to acquire Parent Common Stock hereunder,
under the Exchangeable Share Provisions and under any other security or
commitment given to the Non-Affiliated Holders pursuant thereto, in each
case pursuant to the provisions hereof or of the Exchangeable Share
Provisions or otherwise.
7.4 BOOKS AND RECORDS. The Trustee shall keep available for inspection by
the Parent and the Corporation, at the Trustee's principal office in Toronto,
Ontario, correct and complete books and records of account relating to the
Trustee's actions under this trust agreement, including without limitation all
information relating to mailings and instructions to and from Non-Affiliated
Holders and all transactions pursuant to the Voting Rights and the Exchange
Right for the term of this Agreement. On or before June 30, 1998, and on or
before June 30 in every year thereafter, so long as the Voting Share is on
deposit with the Trustee, the Trustee shall transmit to the Parent and the
Corporation a brief report, dated as of the last Saturday of the preceding
April, with respect to: (a) the property and funds comprising the Trust Estate
as of that date; (b) the number of exercises of the Exchange Right, if any, and
the aggregate number of Exchangeable Shares received by the Trustee on behalf
of Non-Affiliated Holders in consideration of the issue and delivery by the
Parent or Smithfield Sub of shares of Parent Common Stock in connection with
the Exchange Right, during the calendar year ended on such date; and (c) all
other actions taken by the Trustee in the performance of its duties under this
trust agreement which it had not previously reported.
7.5 INCOME TAX RETURNS AND REPORTS. The Trustee shall, to the extent
necessary, prepare and file on behalf of the Trust appropriate Canadian and
United States income tax returns and any other returns or reports as may be
required by applicable law or pursuant to the rules and regulations of any
securities exchange or other trading system through which the Exchangeable
Shares are traded and, in connection therewith, may obtain the advice and
assistance of such experts as the Trustee may consider necessary or advisable.
The Parent shall retain such experts as may be required for the purposes of
providing such advice and assistance.
7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested in it
by this trust agreement at the request, order or direction of any
Non-Affiliated Holder upon such Non-Affiliated Holder furnishing to the Trustee
reasonable funding, security and indemnity against the costs, expenses and
liabilities that may be incurred by the Trustee therein or thereby, provided
that no Non-Affiliated Holder shall be obligated to furnish to the Trustee any
such funding, security or indemnity in connection with the exercise by the
Trustee of any of its rights, duties, powers and authorities with respect to
the Voting Share pursuant to Article 4 hereof and with respect to the Exchange
Right pursuant to Article 5 hereof, subject to the provisions of section 7.15
hereof. None of the provisions contained in this trust agreement shall require
the Trustee to expend or risk its own funds or otherwise incur financial
liability in the exercise of any of its rights, powers, duties or authorities
unless given funds, security and indemnified as aforesaid.
7.7 ACTIONS BY NON-AFFILIATED HOLDERS. No Non-Affiliated Holder shall have
the right to institute any action, suit or proceeding or to exercise any other
remedy authorized by this trust agreement for the purpose of enforcing any of
its rights or for the execution of any trust or power hereunder unless the
Non-Affiliated Holder has requested the Trustee to take or institute such
action, suit or proceeding and furnished the Trustee with the funding, security
and indemnity referred to in section 7.6 hereof and the Trustee shall have
failed to act within a reasonable time thereafter. In such case, but not
otherwise, the Non-Affiliated Holder shall be entitled to take proceedings in
any court of competent jurisdiction such as the Trustee might have taken; it
being understood and intended that no one or more Non-Affiliated Holders shall
have any right in any manner whatsoever to affect, disturb or prejudice the
rights hereby created by any such action, or to enforce any right
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hereunder, including without limitiation, under the Voting Rights or the
Exchange Right, except subject to the conditions and in the manner herein
provided, and that all powers and trusts hereunder shall be exercised and all
proceedings at law shall be instituted, had and maintained by the Trustee,
except only as herein provided, and in any event for the equal benefit of all
Non-Affiliated Holders.
7.8 RELIANCE UPON DECLARATIONS. The Trustee shall not be considered to be
in contravention of any of its rights, powers, duties and authorities hereunder
if, when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other
papers or documents furnished pursuant to the provisions hereof or required by
the Trustee to be furnished to it in the exercise of its rights, powers, duties
and authorities hereunder and such lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
comply with the provisions of section 7.9 hereof, if applicable, and with any
other applicable provisions of this trust agreement.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE. The Corporation and/or the Parent
shall furnish to the Trustee evidence of compliance with the conditions
provided for in this trust agreement relating to any action or step required or
permitted to be taken by the Corporation, the Parent, Smithfield Sub or the
Trustee under this trust agreement or as a result of any obligation imposed
under this trust agreement, including, without limitation, in respect of the
Voting Rights or the Exchange Right and the taking of any other action to be
taken by the Trustee at the request of or on the application of the Corporation
and/or the Parent forthwith if and when:
(a) such evidence is required by any other section of this trust
agreement to be furnished to the Trustee in accordance with the terms of
this section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this trust agreement, gives the Corporation and/or the
Parent written notice requiring it to furnish such evidence in relation to
any particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of the Corporation
and/or the Parent or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such condition has
been complied with in accordance with the terms of this trust agreement.
Whenever such evidence relates to a matter other than the Voting Rights or the
Exchange Right and except as otherwise specifically provided herein, such
evidence may consist of a report or opinion of any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert or any other person
whose qualifications give authority to a statement made by such person,
provided that if such report or opinion is furnished by a director, officer or
employee of the Corporation and/or the Parent it shall be in the form of an
Officer's Certificate or a statutory declaration. Each statutory declaration,
certificate, opinion or report furnished to the Trustee as evidence of
compliance with a condition provided for in this trust agreement shall include
a statement by the person giving the evidence:
(a) declaring that such person has read and understands the provisions of
this trust agreement relating to the condition in question;
(b) describing the nature and scope of the examination or investigation
upon which such person based the statutory declaration, certificate,
statement or opinion; and
(c) declaring that such person has made such examination or investigation
as such person believes is necessary to enable such person to make the
statements or give the opinions contained or expressed therein.
7.10 EXPERTS, ADVISERS AND AGENTS. The Trustee may:
(a) in relation to these presents act and rely on the opinion or advice
of or information obtained from or prepared by any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert, whether retained
by the Trustee or by the Corporation and/or the Parent or otherwise, and
may employ such assistants as may be necessary to the proper determination
and discharge of its powers and duties and determination of its rights
hereunder and may pay proper and reasonable compensation for all such
legal and other advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably require
for the proper determination and discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all services performed
for it (and shall be entitled to receive reasonable remuneration for all
services performed by it) in the discharge of the trusts hereof and
compensation for all disbursements, costs and expenses made or incurred by
it in the determination and discharge of its duties hereunder and in the
management of the Trust.
7.11 INVESTMENT OF MONEY HELD BY TRUSTEE. Unless otherwise provided in
this trust agreement, any money held by or on behalf of the Trustee which under
the terms of this trust agreement may or ought to be invested or which may be
on
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deposit with the Trustee or which may be in the hands of the Trustee may be
invested and reinvested in the name or under the control of the Trustee in
securities in which, under the laws of the Province of Ontario, trustees are
authorized to invest trust money, provided that such securities are stated to
mature within two years after their purchase by the Trustee, and the Trustee
shall so invest such money on the written direction of the Corporation. Pending
the investment of any money as herein before provided, such money may be
deposited in the name of the Trustee in any chartered bank in Canada or, with
the consent of the Corporation, in the deposit department of the Trustee or any
other loan or trust company authorized to accept deposits under the laws of
Canada or any province thereof at the rate of interest then current on similar
deposits.
7.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be
required to give any bond or security in respect of the execution of the
trusts, rights, duties, powers and authorities of this trust agreement or
otherwise in respect of the premises.
7.13 TRUSTEE NOT BOUND TO ACT ON CORPORATION'S REQUEST. Except as in this
trust agreement otherwise specifically provided, the Trustee shall not be bound
to act in accordance with any direction or request of the Corporation and/or
the Parent or of the directors thereof until a duly authenticated copy of the
instrument or resolution containing such direction or request shall have been
delivered to the Trustee, and the Trustee shall be empowered to act and rely
upon any such copy purporting to be authenticated and believed by the Trustee
to be genuine.
7.14 AUTHORITY TO CARRY ON BUSINESS. The Trustee represents to the
Corporation and the Parent that at the date of execution and delivery by it of
this trust agreement it is authorized to carry on the business of a trust
company in the Province of Ontario but if, notwithstanding the provisions of
this section 7.14, it ceases to be so authorized to carry on business, the
validity and enforceability of this trust agreement and the Voting Rights, the
Exchange Right and the other rights granted in or resulting from the Trustee
being a party to this trust agreement shall not be affected in any manner
whatsoever by reason only of such event but the Trustee shall, within 90 days
after ceasing to be authorized to carry on the business of a trust company in
the Province of Ontario, either become so authorized or resign in the manner
and with the effect specified in Article 10 hereof.
7.15 CONFLICTING CLAIMS. If conflicting claims or demands are made or
asserted with respect to any interest of any Non-Affiliated Holder in any
Exchangeable Shares, including any disagreement between the heirs,
representatives, successors or assigns succeeding to all or any part of the
interest of any Non-Affiliated Holder in any Exchangeable Shares resulting in
conflicting claims or demands being made in connection with such interest, then
the Trustee shall be entitled, at its sole discretion, to refuse to recognize
or to comply with any such claim or demand. In so refusing, the Trustee may
elect not to exercise any Voting Rights, the Exchange Right or other rights
subject to such conflicting claims or demands and, in so doing, the Trustee
shall not be or become liable to any person on account of such election or its
failure or refusal to comply with any such conflicting claims or demands. The
Trustee shall be entitled to continue to refrain from acting and to refuse to
act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Right or other rights subject to such conflicting claims
or demands have been adjudicated by a final judgment of a court of
competent jurisdiction and all rights of appeal have expired; or
(b) all differences with respect to the Voting Rights, Exchange Right or
other rights subject to such conflicting claims or demands have been
conclusively settled by a valid written agreement binding on all such
adverse claimants, and the Trustee shall have been furnished with an
executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require such
claimant to furnish such surety bond or other security satisfactory to the
Trustee as it shall deem appropriate fully to indemnify it as between all
conflicting claims or demands.
7.16 ACCEPTANCE OF TRUST. The Trustee hereby accepts the Trust created and
provided for by and in this trust agreement and agrees to perform the same upon
the terms and conditions herein set forth and to hold all rights, privileges
and benefits conferred hereby and by law in trust for the various persons who
shall from time to time be Non-Affiliated Holders, subject to all the terms and
conditions herein set forth.
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ARTICLE 8
COMPENSATION
8.1 FEES AND EXPENSES OF THE TRUSTEE. The Trustee will invoice the Parent
for its fees and expenses under this trust agreement. The Parent and the
Corporation jointly and severally agree to pay to the Trustee reasonable
compensation for all of the services rendered by it under this trust agreement
and will reimburse the Trustee for all reasonable expenses (including but not
limited to taxes, compensation paid to experts, agents and advisors and travel
expenses) and disbursements, including the cost and expense of any suit or
litigation of any character and any proceedings before any governmental agency
reasonably incurred by the Trustee in connection with its rights and duties
under this trust agreement; provided that the Parent and the Corporation shall
have no obligation to reimburse the Trustee for any expenses or disbursements
paid, incurred or suffered by the Trustee in any suit or litigation in which
the Trustee is determined to have acted in bad faith or with negligence or
wilful misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 INDEMNIFICATION OF THE TRUSTEE. The Parent and the Corporation jointly
and severally agree to indemnify and hold harmless the Trustee and each of its
directors, officers, employees and agents appointed and acting in accordance
with this trust agreement (collectively, the "Indemnified Parties") against all
claims, losses, damages, costs, penalties, fines and reasonable expenses
(including reasonable expenses of the Trustee's legal counsel) which, without
fraud, negligence, wilful misconduct or bad faith on the part of such
Indemnified Party, may be paid, incurred or suffered by the Indemnified Party
by reason of or as a result of the Trustee's acceptance or administration of
the Trust, its compliance with its duties set forth in this trust agreement, or
any written or oral instructions (when confirmed in writing) delivered to the
Trustee by the Parent or the Corporation pursuant hereto. In no case shall the
Parent or the Corporation be liable under this indemnity for any claim against
any of the Indemnified Parties if such claim is incurred or suffered by reason
of or as a result of the fraud, negligence, wilful misconduct or bad faith of
an Indemnified Party and unless the Parent and the Corporation shall be
notified by the Trustee of the written assertion of a claim or of any action
commenced against the Indemnified Parties, promptly after any of the
Indemnified Parties shall have received any such written assertion of a claim
or shall have been served with a summons or other first legal process giving
information as to the nature and basis of the claim. Subject to (ii), below,
the Parent and the Corporation shall be entitled to participate at their own
expense in the defence and, if the Parent or the Corporation so elect at any
time after receipt of such notice, any of them may assume the defence of any
suit brought to enforce any such claim. The Trustee shall have the right to
employ separate counsel in any such suit and participate in the defence thereof
but the fees and expenses of such counsel shall be at the expense of the
Trustee unless: (i) the employment of such counsel has been authorized by the
Parent or the Corporation, such authorization not to be unreasonably withheld;
or (ii) the named parties to any such suit include both the Trustee and the
Parent or the Corporation and the Trustee shall have been advised by counsel
acceptable to the Parent or the Corporation that there may be one or more legal
defences available to the Trustee that are different from or in addition to
those available to the Parent or the Corporation and that an actual or
potential conflict of interest exists (in which case the Parent and the
Corporation shall not have the right to assume the defence of such suit on
behalf of the Trustee but shall be liable to pay the reasonable fees and
expenses of counsel for the Trustee). Such indemnification shall survive the
resignation or removal of the Trustee and the termination of this trust
agreement.
9.2 LIMITATION OF LIABILITY. The Trustee shall not be held liable for any
loss which may occur by reason of depreciation of the value of any part of the
Trust Estate or any loss incurred on any investment of funds pursuant to this
trust agreement, except to the extent that such loss is attributable to the
fraud, negligence, wilful misconduct or bad faith on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 RESIGNATION. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to the Parent and
the Corporation specifying the date on which it desires to resign, provided
that such notice shall never be given less than 60 days before such desired
resignation date unless the Parent and the Corporation otherwise agree and
provided further that such resignation shall not take effect until the date of
the appointment of a successor trustee and the acceptance of such appointment
by the successor trustee. Upon receiving such notice of resignation, the Parent
and the Corporation shall promptly appoint a successor trustee by written
instrument in duplicate, one copy of which shall be
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delivered to the resigning trustee and one copy to the successor trustee.
Failing acceptance by a successor trustee, a successor trustee may be appointed
by an order of the Ontario Court of Justice (General Division) upon application
of one or more of the parties hereto. If the retiring Trustee applies to the
Ontario Court (General Division) for the appointment of a successor trustee,
the retiring Trustee's costs of such application shall be at the joint and
several expense of the Parent and the Corporation.
10.2 REMOVAL. The Trustee, or any trustee hereafter appointed, may be
removed with or without cause, at any time on 60 days' prior notice by written
instrument executed by the Parent and the Corporation, in duplicate, one copy
of which shall be delivered to the trustee so removed and one copy to the
successor trustee, provided that such removal shall not take effect until the
date of appointment of a successor trustee and the acceptance of such
appointment by the successor trustee.
10.3 SUCCESSOR TRUSTEE. Any successor trustee appointed as provided under
this trust agreement shall execute, acknowledge and deliver to the Parent and
the Corporation and to its predecessor trustee an instrument accepting such
appointment. Thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor under this trust agreement, with like effect as
if originally named as trustee in this trust agreement. However, on the written
request of the Parent and the Corporation or of the successor trustee, the
trustee ceasing to act shall, upon payment of any amounts then due it pursuant
to the provisions of this trust agreement, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act. Upon the request of any such successor trustee, the Parent
and the Corporation and such predecessor trustee shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming
to such successor trustee all such rights and powers.
10.4 NOTICE OF SUCCESSOR TRUSTEE. Upon acceptance of appointment by a
successor trustee as provided herein, the Parent and the Corporation shall
cause to be mailed notice of the succession of such trustee hereunder to each
Non-Affiliated Holder specified in a List. If the Parent or the Corporation
shall fail to cause such notice to be mailed within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Parent and the Corporation.
ARTICLE 11
PARENT SUCCESSORS
11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. The Parent shall
not enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets would
become the property of any other person or, in the case of a merger, of the
continuing corporation resulting therefrom unless, but may do so if:
(a) such other person or continuing corporation (the "Parent Successor"),
by operation of law, becomes, without more, bound by the terms and
provisions of this trust agreement or, if not so bound, executes, prior to
or contemporaneously with the consummation of such transaction a trust
agreement supplemental hereto and such other instruments (if any) as are,
in the opinion of legal counsel to the Trustee, necessary or advisable to
evidence the assumption by the Parent Successor of liability for all money
payable and property deliverable hereunder and the covenant of such Parent
Successor to pay and deliver or cause to be delivered the same and its
agreement to observe and perform all the covenants and obligations of the
Parent under this trust agreement; and
(b) such transaction shall, in the opinion of legal counsel to the
Trustee, be upon such terms as substantially to preserve and not to impair
in any material respect any of the rights, duties, powers and authorities
of the Trustee or of the Non-Affiliated Holders hereunder.
11.2 VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of section
11.1 hereof have been duly observed and performed, if required by section 11.1
hereof, the Trustee, the Parent Successor and the Corporation shall execute and
deliver the supplemental trust agreement provided for in Article 12 hereof and
thereupon the Parent Successor shall possess and from time to time may exercise
each and every right and power of the Parent under this trust agreement in the
name of the Parent or otherwise and any act or proceeding by any provision of
this trust agreement required to be done or performed by the board of directors
of the Parent or any officers of the Parent may be done and performed with like
force and effect by the directors or officers of such Parent Successor.
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11.3 WHOLLY-OWNED SUBSIDIARIES. Except as provided in section 5.10,
nothing herein shall be construed as preventing the amalgamation or merger of
any wholly-owned Subsidiary of the Parent with or into the Parent or the
winding up, liquidation or dissolution of any wholly-owned Subsidiary of the
Parent provided that all of the assets of such Subsidiary are transferred to
the Parent or another wholly-owned Subsidiary of the Parent, and any such
transactions are expressly permitted by this Article 11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
12.1 AMENDMENTS, MODIFICATIONS, ETC. This trust agreement may not be
amended or modified except by an agreement in writing executed by the
Corporation, the Parent and the Trustee and, unless the amendment or
modification is expressly authorized or permitted by this trust agreement,
approved by the Non-Affiliated Holders in accordance with Section 9.2 of the
Exchangeable Share Provisions.
12.2 AMENDMENTS WITH THE APPROVAL OF NON-AFFILIATED HOLDERS.
Notwithstanding the provisions of section 12.1 hereof, the parties to this
trust agreement may in writing, at any time and from time to time, without the
approval of the Non-Affiliated Holders, amend, modify or supplement this trust
agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the
protection of the Non-Affiliated Holders hereunder;
(b) evidencing the succession of Parent Successors and the covenants of
and obligations assumed by each such Parent Sucessor in accordance with
the provisions of Article 11 and the succession of any successor trustee
in accordance with Article 10;
(c) making such amendments or modifications not inconsistent with this
trust agreement as may be necessary or desirable with respect to matters
or questions which, in the opinion of the Board of Directors and the board
of directors of the Parent, having in mind the best interests of the
Non-Affiliated Holders as a whole, it may be expedient to make, provided
that such boards of directors shall be of the opinion that such amendments
and modifications will not be prejudicial in any material respect to the
interests of the Non-Affiliated Holders as a whole; or
(d) making such changes or corrections which, on the advice of counsel to
the Corporation and the Parent, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error, provided that the Board of
Directors and the board of directors of the Parent shall be of the opinion
that such changes or corrections will not be prejudicial in any material
respect to the interests of the Non-Affiliated Holders as a whole.
12.3 MEETING TO CONSIDER AMENDMENTS. The Corporation, at the request of
the Parent, shall call a meeting or meetings of the Non-Affiliated Holders for
the purpose of considering any proposed amendment or modification requiring
approval pursuant hereto. Any such meeting or meetings shall be called and held
in accordance with the by-laws of the Corporation, the Exchangeable Share
Provisions and all applicable laws.
12.4 CHANGES IN CAPITAL OF PARENT AND THE CORPORATION. At all times after
the occurrence of any event effected pursuant to section 6.7 or section 6.8 of
this trust agreement, as a result of which either the Parent Common Stock or
the Exchangeable Shares or both are in any way changed, this trust agreement
shall forthwith be amended and modified as necessary in order that it shall
apply with full force and effect, mutatis mutandis, to all new securities into
which the Parent Common Stock or the Exchangeable Shares or both are so changed
and the parties hereto shall execute and deliver a supplemental trust agreement
giving effect to and evidencing such necessary amendments and modifications.
12.5 EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS. No amendment to or
modification or waiver of any of the provisions of this trust agreement
otherwise permitted hereunder shall be effective unless made in writing and
signed by all of the parties hereto. From time to time the Corporation, the
Parent and the Trustee may, subject to the provisions of these presents, and
they shall, when so directed by these presents, execute and deliver by their
proper officers, trust agreements or other instruments supplemental hereto,
which thereafter shall form part hereof. In executing or accepting the
supplemental trusts created by any supplemental indenture permitted by this
Article 12, the Trustee will be entitled to receive and (subject to Article 7)
will be fully protected in relying upon an Officers' Certificate and opinions
of counsel stating that the execution of such supplemental indenture is
authorized or permitted in this trust agreement.
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ARTICLE 13
TERMINATION
13.1 TERM. The Trust created by this trust agreement shall continue until
the earliest to occur of the following events:
(a) no outstanding Exchangeable Shares are held by any Non-Affiliated
Holder;
(b) each of the Corporation and the Parent elects in writing to terminate
the Trust and such termination is approved by the Non-Affiliated Holders
of the Exchangeable Shares in accordance with Section 9.2 of the
Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of
His Majesty King George VI of the United Kingdom of Great Britain and
Northern Ireland living on the date of the creation of the Trust.
13.2 SURVIVAL OF AGREEMENT. This trust agreement shall survive any
termination of the Trust and shall continue until there are no Exchangeable
Shares outstanding held by any Non-Affiliated Holder; provided, however, that
the provisions of Articles 8 and 9 hereof and the representation contained in
section 6.3(b) hereof shall survive any such termination of this trust
agreement.
ARTICLE 14
GENERAL
14.1 SEVERABILITY. If any provision of this trust agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this trust agreement shall not in any way be affected or
impaired thereby and this trust agreement shall be carried out as nearly as
possible in accordance with its original terms and conditions.
14.2 ENUREMENT. This trust agreement shall be binding upon and enure to
the benefit of the parties hereto and their respective successors and permitted
assigns and to the benefit of the Non-Affiliated Holders.
14.3 NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in
like notice):
(a) if to the Parent at: Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Corporate Secretary
Telecopy: (757) 365-3017
(b) if to the Corporation at: Smithfield Canada Limited
c/o McCarthy Tetrault
Suite 4700
Toronto Dominion Bank Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1E6
Attention: Rene R. Sorell
Telecopy: (416) 868-0673
(c) if to the Trustee at: CIBC Mellon Trust Company
199 Bay Street
Commerce Court West
Securities Level
Toronto, Ontario M5L 1G9
Attention: Courier Window
Telecopy: (416) 643-3148
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Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
14.4 NOTICE TO NON-AFFILIATED HOLDERS. Any notice, request or other
communication to be given to a Non-Affiliated Holder shall be in writing and
shall be valid and effective if given by mail (postage pre-paid or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the fifth day following the date of mailing and, if given
by delivery, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Exchangeable Shares, or any defect in
such notice, shall not invalidate or otherwise alter or affect any action
proceeding to be taken pursuant thereto.
14.5 RISK OF PAYMENTS BY POST. Whenever payments are to be made or
certificates or documents are to be sent to any Non-Affiliated Holder by the
Trustee or by the Corporation, the Parent or by such Non-Affiliated Holder to
the Trustee or to the Parent or the Corporation, the making of such payment or
sending of such certificate or document sent through the post shall be at the
risk of the Corporation, in the case of payments made or documents sent by the
Trustee or the Corporation or the Parent and the Non-Affiliated Holder, in the
case of payments made or documents sent by the Non-Affiliated Holder.
14.6 COUNTERPARTS. This trust agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
14.7 JURISDICTION. This trust agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
14.8 ATTORNMENT. The Parent agrees that any action or proceeding arising
out of or relating to this trust agreement may be instituted in the courts of
Ontario, waives any objection which it may have now or hereafter to the venue
of any such action or proceeding, irrevocably submits to the jurisdiction of
the said courts in any such action or proceeding, agrees to be bound by any
judgment of the said courts and agrees not to seek, and hereby waives, any
review of the merits of any such judgment by the courts of any other
jurisdiction and hereby appoints the Corporation at its registered office in
the Province of Ontario as its attorney for service of process.
IN WITNESS WHEREOF, the parties hereto have caused this trust 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 Chief Financial Officer
and Secretary
/s/ C. Larry Pope
-----------------------------------------
Name: C. Larry Pope
Title: Vice President, Finance
SMITHFIELD CANADA LIMITED
By: /s/ Aaron D. Trub
---------------------------------------
Name: Aaron D. Trub
Title: Vice President, Finance and Secretary
/s/ Robert J. Richardson
-----------------------------------------
Name: Robert J. Richardson
Title: Director
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CIBC MELLON TRUST COMPANY
By: /s/ M. M. Donald
---------------------------------------
Name: M. M. Donald
Title: Senior Client Manager
/s/
-----------------------------------------
Name:
Title:
EACH PRESENT OR FUTURE HOLDER OR
BENEFICIAL OWNER OF EXCHANGEABLE SHARES,
BY SMITHFIELD CANADA, AS ATTORNEY IN FACT
By: /s/ Aaron D. Trub
---------------------------------------
Name: Aaron D. Trub
Title: Vice President, Finance and Secretary
By: /s/ Robert J. Richardson
------------------------------------
Name: Robert J. Richardson
Title: Director
23
Exhibit 4.5(d)
COMMON SHARES. The rights, privileges, restrictions and conditions
attaching to the Common Shares are as follows:
1.1 DIVIDENDS
Subject to the prior rights of the holders of the Exchangeable Shares and
any other shares ranking senior to the Common Shares with respect to priority
in the payment of dividends, the holders of Common Shares shall be entitled to
receive dividends and the Corporation shall pay dividends thereon, as and when
declared by the board of directors of the Corporation out of the assets of the
Corporation properly applicable to the payment of dividends, in such amount and
in such form as the board of directors may from time to time determine and all
dividends that the directors may declare on the Common Shares shall be declared
and paid in equal amounts per share on all Common Shares at the time
outstanding.
1.2 DISSOLUTION
In the event of the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, subject to the prior rights of the holders of the Exchangeable
Shares and any other shares ranking senior to the Common Shares with respect to
priority in the distribution of assets upon such dissolution, liquidation or
winding up or other distribution, the holders of the Common Shares shall be
entitled to participate rateably in any distribution of the assets of the
Corporation for the purposes of winding up its affairs.
1.3 VOTING RIGHTS
The holders of the Common Shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Corporation and shall
have one vote for each Common Share held at all meetings of the shareholders of
the Corporation, except for meetings at which only holders of another specified
class or series of shares of the Corporation are entitled to vote separately as
a class or series.
EXCHANGEABLE SHARES. The rights, privileges, restrictions and conditions
attaching to the Exchangeable Shares are as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In these Exchangeable Share Provisions, unless something in the subject
matter or context is inconsistent therewith:
"AUTOMATIC EXCHANGE RIGHT" HAS THE MEANING SET OUT IN SECTION 5.3(2).
"BOARD OF DIRECTORS" MEANS THE BOARD OF DIRECTORS OF THE CORPORATION.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of Norfolk, Virginia and
Toronto, Ontario.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Account by (b) the official
noon spot exchange rate on such date for such foreign currency as reported by
the Bank of Canada or, in the event such spot exchange rate is not available,
such exchange rate on such date for such foreign currency as may be deemed by
the Board of Directors to be appropriate for such purpose.
"COMMON SHARES" means the Common Shares of the Corporation.
"COMPANY REDEMPTION DATE" means November 18, 2008.
"CORPORATION" means Smithfield Canada Limited, a corporation existing
under the laws of the Province of Ontario.
"CURRENT MARKET PRICE" means, in respect of a share of Smithfield Common
Stock on any date, the Canadian Dollar Equivalent of the average closing sales
price of a share of Smithfield Common Stock during a period of 20 consecutive
trading days ending not more than five trading days before such date on the
Nasdaq National Market or, if the shares of Smithfield Common Stock are not
then listed on the Nasdaq National Market, on such other stock exchange or
automated quotation system on which the shares of Smithfield Common Stock are
listed or quoted, as the case may be, as may be
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selected by the Board of Directors for such purpose; provided, however, that if
in the opinion of the Board of Directors the public distribution or trading
activity of shares of Smithfield Common Stock during such period is inadequate
to create a market that reflects the fair market value of a share of Smithfield
Common Stock, then the Current Market Price of a share of Smithfield Common
Stock shall be determined by the Board of Directors based upon the advice of
such qualified independent financial advisors as the Board of Directors may
deem to be appropriate, and provided further that any such selection, opinion
or determination by the Board of Directors shall be conclusive and binding.
"DIVIDEND AMOUNT" means an amount equal to the full amount of all
dividends and distributions declared and unpaid on each Exchangeable Share and
all dividends and distributions declared on a share of Smithfield Common Stock
that have not been declared on each Exchangeable Share in accordance with
Section 3.1, in each case with a record date prior to the effective date of the
exchange of such Exchangeable Share for a share of Smithfield Common Stock
hereunder.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges, restrictions
and conditions set out in this paragraph 4 of these articles of amendment.
"EXCHANGEABLE SHARES" mean the Exchangeable Shares of the Corporation to
which are attached the Exchangeable Share Provisions.
"LCR EXERCISING PARTY" has the meaning set out in Section 5.2(1).
"LIQUIDATION AMOUNT" has the meaning set out in Section 5.1(1).
"LIQUIDATION CALL PURCHASE PRICE" has the meaning set out in Section
5.2(1).
"LIQUIDATION CALL RIGHT" has the meaning set out in Section 5.2(1).
"LIQUIDATION DATE" has the meaning set out in Section 5.1(1).
"NASDAQ NATIONAL MARKET" means the Nasdaq National Market segment of The
Nasdaq Stock Market, an electronic securities market operated by The Nasdaq
Stock Market, Inc., a wholly-owned subsidiary of the National Association of
Securities Dealers, Inc.
"OBCA" means the BUSINESS CORPORATIONS ACT (Ontario), as amended.
"OFFICER'S CERTIFICATE" means, with respect to Smithfield or the
Corporation, as the case may be, a certificate signed by any one of the
Chairman of the Board, the President, any Vice-President or any other senior
officer of Smithfield or the Corporation, as the case may be.
"REDEMPTION CALL PURCHASE PRICE" has the meaning set out in Section
7.2(1).
"REDEMPTION CALL RIGHT" has the meaning set out in Section 7.2(1).
"REDEMPTION PRICE" has the meaning set out in Section 7.1(1).
"RETRACTED SHARES" has the meaning set out in Section 6.1(1).
"RETRACTION CALL PURCHASE PRICE" has the meaning set out in Section
6.2(1).
"RETRACTION CALL RIGHT" has the meaning set out in Section 6.2(1).
"RETRACTION DATE" has the meaning set out in Section 6.1(1).
"RETRACTION PRICE" has the meaning set out in Section 6.1(1).
"RETRACTION REQUEST" has the meaning set out in Section 6.1(1).
"RCR EXERCISING PARTY" has the meaning set out in Section 6.2(1).
"SHAREHOLDER RIGHTS PLAN" means the Rights Agreement, as amended, dated as
of May 1, 1998 between Smithfield and Harris Trust and Savings Bank, as the
same may be further amended or replaced from time to time.
"SMITHFIELD" means Smithfield Foods, Inc., a corporation existing under
the laws of the Commonwealth of Virginia, and any successor corporation.
"SMITHFIELD CALL NOTICE" has the meaning set out in Section 6.2(2).
"SMITHFIELD COMMON STOCK" means the shares of Common Stock of Smithfield,
par value US$0.50 per share, having voting rights of one vote per share, and
any other securities into which such shares may be changed or for which such
shares
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may be exchanged (whether or not Smithfield shall be the issuer of such other
securities) or any other consideration which may be received by the holders of
such shares pursuant to a recapitalization, reconstruction, reorganization or
reclassification of, or amalgamation, merger, liquidation or similar
transaction affecting, such shares.
"SMITHFIELD DIVIDEND DECLARATION DATE" means the date on which the board
of directors of Smithfield declares any dividend on the shares of Smithfield
Common Stock.
"SMITHFIELD LIQUIDATION EVENT" has the meaning set out in Section 5.3(1).
"SMITHFIELD LIQUIDATION EVENT EFFECTIVE DATE" has the meaning set out in
Section 5.3(3).
"SMITHFIELD SUB" means Smithfield Sub Limited, a wholly-owned Subsidiary
of Smithfield existing under the laws of the Province of Ontario.
"SUBSIDIARY" means, when used with reference to Smithfield, any
corporation more than 50% of the outstanding stock of which is owned, directly
or indirectly, by Smithfield, by one or more other Subsidiaries of Smithfield,
or by Smithfield and one or more other Subsidiaries of Smithfield.
"TRANSFER AGENT" means CIBC Mellon Trust Company, a corporation existing
under the laws of Canada, or such other person as may from time to time be the
registrar and transfer agent for the Exchangeable Shares.
"TRUSTEE" means CIBC Mellon Trust Company, a corporation existing under
the laws of Canada, and any successor trustee appointed under the Voting,
Support and Exchange Trust Agreement.
"TRUST ESTATE" has the meaning set out in Section 1.1 of the Voting,
Support and Exchange Trust Agreement.
"VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT" means the Voting, Support
and Exchange Trust Agreement dated November 10, 1998 between the Corporation,
Smithfield and the Trustee.
1.2 SECTIONS AND HEADINGS
The division of these Exchangeable Share Provisions into articles and
sections and the insertion of headings are for reference purposes only and
shall not affect the interpretation of these Exchangeable Share Provisions.
Unless otherwise indicated, any reference in these Exchangeable Share
Provisions to an article or section refers to the specified article or section
of these Exchangeable Share Provisions.
1.3 NUMBER GENDER AND PERSONS
In these Exchangeable Share Provisions, unless the context otherwise
requires, words importing the singular number include the plural and vice
versa, words importing any gender include all genders and words importing
persons include individuals, corporations, partnerships, companies,
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities of any kind.
1.4 PAYMENTS
All payments to be made hereunder shall be made without interest and less
any tax required by Canadian law to be deducted and withheld.
1.5 CURRENCY
In these Exchangeable Share Provisions, unless stated otherwise, all
dollar amounts are in Canadian dollars.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 RANKING
The Exchangeable Shares shall be entitled to a preference over the Common
Shares and any other shares ranking junior to the Exchangeable Shares with
respect to the payment of dividends as and to the extent provided in Article 3
and with respect to the distribution of assets in the event of the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs as and to the extent
provided in Article 5.
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ARTICLE 3
DIVIDENDS
3.1 DIVIDENDS
A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each Smithfield
Dividend Declaration Date, declare a dividend on each Exchangeable Share (a) in
the case of a cash dividend or distribution declared on the shares of
Smithfield Common Stock, in an amount in cash for each Exchangeable Share as is
equal to the Canadian Dollar Equivalent on the Smithfield Dividend Declaration
Date of the cash dividend or distribution declared on each share of Smithfield
Common Stock, (b) in the case of a stock dividend or distribution declared on
the shares of Smithfield Common Stock to be paid in shares of Smithfield Common
Stock, in such number of Exchangeable Shares for each Exchangeable Share as is
equal to the number of shares of Smithfield Common Stock to be paid on each
share of Smithfield Common Stock or (c) in the case of a dividend or
distribution declared on the shares of Smithfield Common Stock to be paid in
property other than cash or shares of Smithfield Common Stock or rights
issuable under the Shareholder Rights Plan, in such type and amount of property
for each Exchangeable Share as is the same as or economically equivalent to (to
be determined by the Board of Directors as contemplated by section 6.7 of the
Voting, Support and Exchange Trust Agreement) the type and amount of property
declared as a dividend or distribution on each share of Smithfield Common
Stock. Such dividends shall be paid out of the assets of the Corporation
properly applicable to the payment of dividends, or out of authorized but
unissued shares or other securities of the Corporation.
3.2 PAYMENT OF DIVIDENDS
Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends or
distributions contemplated by Section 3.1(a) hereof and the sending of such a
cheque to each holder of an Exchangeable Share shall satisfy the cash dividend
represented thereby unless the cheque is not paid on presentation. Certificates
registered in the name of the registered holder of Exchangeable Shares shall be
issued or transferred in respect of any stock dividends or other distribution
of Exchangeable Shares contemplated by Section 3.1(b) hereof and the sending of
such a certificate to each holder of an Exchangeable Share shall satisfy the
stock dividend or other distribution of Exchangeable Shares represented
thereby. Such other type and amount of property in respect of any dividends or
distributions contemplated by Section 3.1(c) hereof shall be issued,
distributed or transferred by the Corporation in such manner as it shall
determine and the issuance, distribution or transfer thereof by the Corporation
to each holder of an Exchangeable Share shall satisfy the dividend or
distribution represented thereby. No holder of an Exchangeable Share shall be
entitled to recover by action or other legal process against the Corporation
any dividend that is represented by a cheque that has not been duly presented
to the Corporation's bankers for payment or that otherwise remains unclaimed
for a period of six years from the date on which such dividend or distribution
was payable.
3.3 RECORD AND PAYMENT DATES
The record date for the determination of the holders of Exchangeable
Shares entitled to receive payment of, and the payment date for, any dividend
or distribution declared on the Exchangeable Shares under Section 3.1 hereof
shall be the same as the record date and payment date, respectively, for the
corresponding dividend or distribution declared on the shares of Smithfield
Common Stock.
3.4 PARTIAL PAYMENT
If on any payment date for any dividends or distributions declared on the
Exchangeable Shares under Section 3.1 hereof the dividends or distributions are
not paid in full on all of the Exchangeable Shares then outstanding, any such
dividends or distributions that remain unpaid shall be paid on a subsequent
date or dates determined by the Board of Directors on which the Corporation
shall have sufficient money or other assets properly applicable to the payment
of such dividends or distributions.
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ARTICLE 4
CERTAIN RESTRICTIONS
4.1 CERTAIN RESTRICTIONS
(1) Except as provided in Section 4.1(2), so long as any of the
Exchangeable Shares are outstanding, the Corporation shall not at any time
without, but may at any time with, the approval of the holders of the
Exchangeable Shares given as specified in Section 9.2 hereof:
(a) pay any dividends on the Common Shares or any other shares ranking
junior to the Exchangeable Shares, other than stock dividends payable in
Common Shares or any such other shares ranking junior to the Exchangeable
Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
Common Shares or any other shares ranking junior to the Exchangeable
Shares;
(c) redeem or purchase any other shares of the Corporation ranking
equally with the Exchangeable Shares with respect to the payment of
dividends or on any liquidation distribution; or
(d) issue any shares other than (i) Exchangeable Shares, (ii) Common
Shares, and (iii) any other shares not ranking superior to the Exchangeable
Shares.
(2) The restrictions in Sections 4.1(1)(a), 4.1(1)(b) and 4.1(1)(c) shall
not apply if all dividends and distributions on the outstanding Exchangeable
Shares corresponding to dividends and distributions declared to date on the
Smithfield Common Stock shall have been declared on the Exchangeable Shares and
paid in full.
ARTICLE 5
LIQUIDATION
5.1 PARTICIPATION UPON LIQUIDATION, DISSOLUTION OR WINDING UP OF THE
CORPORATION
(1) Subject to applicable law and the due exercise by Smithfield or
Smithfield Sub of a Liquidation Call Right, in the event of the liquidation,
dissolution or winding up of the Corporation or any other distribution of the
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, a holder of Exchangeable Shares shall be entitled to receive from
the assets of the Corporation in respect of each Exchangeable Share held by
such holder on the effective date of such liquidation, dissolution or winding
up or other distribution (the "Liquidation Date"), before any distribution of
any part of the assets of the Corporation among the holders of the Common
Shares or any other shares ranking junior to the Exchangeable Shares, an amount
per share equal to (a) the Current Market Price of a share of Smithfield Common
Stock on the last Business Day prior to the Liquidation Date, which shall be
satisfied in full by the Corporation causing to be delivered to such holder one
share of Smithfield Common Stock, plus (b) the Dividend Amount, if any
(collectively, the "Liquidation Amount").
(2) In the case of a distribution on Exchangeable Shares under this
Section 5.1, on or promptly after the Liquidation Date, the Corporation shall
cause to be delivered to the holders of the Exchangeable Shares the Liquidation
Amount for each such Exchangeable Share upon presentation and surrender of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and such additional documents and
instruments as the Transfer Agent, the Trustee and the Corporation may
reasonably require, at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the Corporation by notice
to the holders of the Exchangeable Shares. Payment of the aggregate Liquidation
Amount for such Exchangeable Shares shall be made by delivery to each holder,
at the address of the holder recorded in the securities register of the
Corporation for the Exchangeable Shares or by holding for pick-up by the holder
at the registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of
Exchangeable Shares, certificates representing the aggregate number of shares
of Smithfield Common Stock deliverable by the Corporation to such holder (which
shares shall be duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim, encumbrance, security interest or adverse claim)
and a cheque of the Corporation payable at par at any branch of the bankers of
the Corporation in payment of the remaining portion, if any, of the aggregate
Liquidation Amount payable to such holder, without interest. On or before the
Liquidation Date, the Corporation shall deposit or cause to be deposited the
total Liquidation Amount in respect of the Exchangeable Shares in a custodial
account with any chartered bank or trust
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company in Canada named in such notice. Upon such deposit being made, the
rights of the holders of Exchangeable Shares as such shall be limited to
receiving their proportionate part of the total Liquidation Amount for such
Exchangeable Shares so deposited, against presentation and surrender of the
said certificates held by them, respectively, in accordance with the foregoing
provisions and any interest allowed on such deposit shall belong to the
Corporation. Upon such payment or deposit of the total Liquidation Amount, the
holders of the Exchangeable Shares shall thereafter be considered and deemed
for all purposes to be the holders of the shares of Smithfield Common Stock
delivered to them.
(3) After the Corporation has satisfied its obligations to pay the holders
of the Exchangeable Shares the total Liquidation Amount pursuant to this
Section 5.1, such holders shall not be entitled to share in any further
distribution of the assets of the Corporation.
5.2 LIQUIDATION CALL RIGHTS
(1) Subject to the limitations set forth in Section 5.2(2), Smithfield and
Smithfield Sub shall each have the overriding right (a "Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding up of the Corporation pursuant to Section 5.1 hereof, to
purchase from all but not less than all of the holders of Exchangeable Shares
on the Liquidation Date (other than Smithfield and Smithfield Sub) all but not
less than all of the Exchangeable Shares held by each such holder on payment by
whichever of Smithfield or Smithfield Sub is exercising such right (the "LCR
Exercising Party") of an amount per share equal to (a) the Current Market Price
of a share of Smithfield Common Stock on the last Business Day prior to the
Liquidation Date, which shall be satisfied in full by causing to be delivered
to such holder one share of Smithfield Common Stock, plus (b) the Dividend
Amount, if any (collectively, the "Liquidation Call Purchase Price"). In the
event of the exercise of a Liquidation Call Right, each holder of Exchangeable
Shares (other than Smithfield and Smithfield Sub) shall be obligated to sell
all the Exchangeable Shares held by such holder to the LCR Exercising Party on
the Liquidation Date on payment by the LCR Exercising Party to the holder of
the Liquidation Call Purchase Price for each such share.
(2) Smithfield Sub shall only be entitled to exercise its Liquidation Call
Right with respect to those holders of Exchangeable Shares, if any, in respect
of which Smithfield has not exercised its Liquidation Call Right. In order to
exercise its Liquidation Call Right, an LCR Exercising Party must notify in
writing the Transfer Agent, as agent for the holders of Exchangeable Shares,
the Trustee and the Corporation of its intention to exercise such right at
least 55 days before the Liquidation Date in the case of a voluntary
liquidation, dissolution or winding up of the Corporation and at least five
Business Days before the Liquidation Date in the case of an involuntary
liquidation, dissolution or winding up of the Corporation. The Transfer Agent
will notify the holders of Exchangeable Shares as to whether or not a
Liquidation Call Right has been exercised (such notice to specify the LCR
Exercising Party) forthwith after the expiry of the date by which the same may
be exercised, such form of notice to be provided by Smithfield to the Transfer
Agent. If an LCR Exercising Party duly exercises its Liquidation Call Right in
accordance with this Section 5.2, all obligations of the Corporation under
Section 5.1 shall terminate and on the Liquidation Date such LCR Exercising
Party will purchase and the holders of Exchangeable Shares (other than
Smithfield and Smithfield Sub) will sell all of their Exchangeable Shares then
outstanding for a price per share equal to the Liquidation Call Purchase Price.
(3) For the purposes of completing a purchase of the Exchangeable Shares
pursuant to the exercise of a Liquidation Call Right, the LCR Exercising Party
shall deposit with the Transfer Agent, on or before the Liquidation Date,
certificates representing the total number of shares of Smithfield Common Stock
deliverable by the LCR Exercising Party (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) in payment of the total
Liquidation Call Purchase Price and a cheque in the amount of the remaining
portion, if any, of the total Liquidation Call Purchase Price and any interest
allowed on such deposit shall belong to the LCR Exercising Party. Provided that
the total Liquidation Call Purchase Price has been so deposited with the
Transfer Agent, on and after the Liquidation Date the rights of each holder of
Exchangeable Shares (other than Smithfield and Smithfield Sub) will be limited
to receiving such holder's proportionate part of the total Liquidation Call
Purchase Price payable by the LCR Exercising Party, upon presentation and
surrender by the holder of Exchangeable Shares of certificates representing the
Exchangeable Shares held by such holder in accordance with the following
provisions and such holder shall on and after the Liquidation Date be
considered and deemed for all purposes to be the holder of the shares of
Smithfield Common Stock delivered to such holder. Upon surrender to the
Transfer Agent of a certificate representing Exchangeable Shares, together with
such other documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and such additional documents and
instruments as the Transfer Agent and the Corporation may reasonably require,
the holder of such surrendered certificate shall be entitled to receive in
exchange therefor, and the Transfer Agent on behalf of the LCR Exercising Party
shall deliver to such holder, a certificate representing the shares of
Smithfield Common Stock to which
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such holder is entitled and a cheque in payment of the remaining portion, if
any, of the holder's proportionate part of the total Liquidation Call Purchase
Price. If neither Smithfield nor Smithfield Sub exercises its Liquidation Call
Right in the manner described above, on the Liquidation Date the holders of
Exchangeable Shares shall be entitled to receive in exchange therefor the
Liquidation Amount otherwise payable by the Corporation in connection with the
liquidation, dissolution or winding up of the Corporation pursuant to Section
5.1 hereof.
5.3 AUTOMATIC EXCHANGE ON LIQUIDATION OF SMITHFIELD
(1) Smithfield shall give the Transfer Agent written notice of each of the
following events (each a "Smithfield Liquidation Event") at the time set forth
below:
(a) in the event of any determination by the board of directors of
Smithfield to institute voluntary liquidation, dissolution or winding up
proceedings with respect to Smithfield or to effect any other distribution
of assets of Smithfield among its shareholders for the purpose of winding
up its affairs, at least 60 days prior to the proposed effective date of
such liquidation, dissolution, winding up or other distribution; and
(b) immediately, upon the earlier of (i) receipt by Smithfield of notice
of and (ii) Smithfield otherwise becoming aware of any threatened or
instituted claim, suit, petition or other proceeding with respect to the
involuntary liquidation, dissolution or winding up of Smithfield or to
effect any other distribution of assets of Smithfield among its
shareholders for the purpose of winding up its affairs.
(2) Immediately following receipt by the Transfer Agent from Smithfield of
notice of any Smithfield Liquidation Event contemplated by Section 5.3(1)(a) or
5.3(1)(b), the Transfer Agent will give notice thereof to the holders of
Exchangeable Shares. Such notice shall be provided by Smithfield to the
Transfer Agent and shall include a brief description of the automatic exchange
of Exchangeable Shares for shares of Smithfield Common Stock provided for in
Section 5.3(4) below (the "Automatic Exchange Right").
(3) In order that the holders of Exchangeable Shares (other than
Smithfield and Smithfield Sub) will be able to participate on a pro rata basis
with the holders of Smithfield Common Stock in the distribution of assets of
Smithfield in connection with a Smithfield Liquidation Event, on the fifth
Business Day prior to the effective date (the "Smithfield Liquidation Event
Effective Date") of a Smithfield Liquidation Event all of the then outstanding
Exchangeable Shares (other than Exchangeable Shares held by Smithfield or
Smithfield Sub) shall be automatically exchanged for shares of Smithfield
Common Stock. To effect such automatic exchange, Smithfield shall purchase each
Exchangeable Share outstanding on the fifth Business Day prior to the
Smithfield Liquidation Event Effective Date and held by a holder of
Exchangeable Shares (other than Smithfield or Smithfield Sub), and each such
holder shall sell the Exchangeable Shares held by it at such time, for a
purchase price per share equal to (a) the Current Market Price of a share of
Smithfield Common Stock on the fifth Business Day prior to the Smithfield
Liquidation Event Effective Date, which shall be satisfied in full by
Smithfield delivering to such holder one share of Smithfield Common Stock, plus
(b) the Dividend Amount, if any.
(4) On the fifth Business Day prior to the Smithfield Liquidation Event
Effective Date, the closing of the transaction of purchase and sale
contemplated by the automatic exchange of Exchangeable Shares for Smithfield
Common Stock shall be deemed to have occurred, and each holder of Exchangeable
Shares (other than Smithfield and Smithfield Sub) shall be deemed to have
transferred to Smithfield all of such holder's right, title and interest in and
to such Exchangeable Shares and shall cease to be a holder of such Exchangeable
Shares and Smithfield shall deliver or cause to be delivered to the Transfer
Agent, for delivery to such holders, the certificates for the number of shares
of Smithfield Common Stock deliverable upon the automatic exchange of
Exchangeable Shares for Smithfield Common Stock (which shares shall be duly
issued as fully paid and non-assessable and shall be free and clear of any
lien, claim or encumbrance, security interest or adverse claim) and a cheque
for the balance, if any, of the total purchase price for such Exchangeable
Shares and any interest on such deposit shall belong to Smithfield.
Concurrently with each such holder ceasing to be a holder of Exchangeable
Shares, such holder shall be considered and deemed for all purposes to be the
holder of the shares of Smithfield Common Stock delivered to it, or to the
Transfer Agent on its behalf, pursuant to the automatic exchange of
Exchangeable Shares for shares of Smithfield Common Stock and the certificates
held by such holder previously representing the Exchangeable Shares exchanged
by such holder with Smithfield pursuant to such automatic exchange shall
thereafter be deemed to represent the shares of Smithfield Common Stock
delivered to such holder by Smithfield pursuant to such automatic exchange.
Upon the request of any such former holder of Exchangeable Shares and the
surrender by such holder of Exchangeable Share certificates deemed to represent
shares of Smithfield Common Stock, duly endorsed in blank and accompanied by
such instruments of transfer as Smithfield may reasonably require, the Transfer
Agent shall deliver or cause to be delivered to such
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holder certificates representing the shares of Smithfield Common Stock of which
such holder is the holder and a cheque in payment of the remaining portion, if
any, of the purchase price.
ARTICLE 6
RETRACTION AT OPTION OF HOLDER
6.1 RETRACTION AT OPTION OF HOLDER
(1) Subject to applicable law and the due exercise by either Smithfield or
Smithfield Sub of a Retraction Call Right, a holder of Exchangeable Shares
shall be entitled at any time to require the Corporation to redeem, on the
fifth Business Day after the date on which the Retraction Request is received
by the Corporation (the "Retraction Date"), any or all of the Exchangeable
Shares registered in the name of such holder for an amount per share equal to
(a) the Current Market Price of a share of Smithfield Common Stock on the last
Business Day prior to the Retraction Date, which shall be satisfied in full by
the Corporation causing to be delivered to such holder one share of Smithfield
Common Stock, plus (b) the Dividend Amount, if any (collectively, the
"Retraction Price"). The holder must give notice of a requirement to redeem by
presenting and surrendering at the registered office of the Corporation or at
any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Exchangeable Shares the certificate representing the
Exchangeable Shares that the holder desires to have the Corporation redeem,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the OBCA and such additional documents
and instruments as the Transfer Agent and the Corporation may reasonably
require, together with a duly executed statement (the "Retraction Request") in
the form of Schedule A hereto or in such other form as may be acceptable to the
Corporation specifying that the holder desires to have all or any number
specified therein of the Exchangeable Shares represented by such certificate
(the "Retracted Shares") redeemed by the Corporation.
(2) In the case of a redemption of Exchangeable Shares under this Section
6.1, upon receipt by the Corporation or the Transfer Agent in the manner
specified in Section 6.1(1) hereof of a certificate representing the number of
Exchangeable Shares which the holder desires to have the Corporation redeem,
together with a Retraction Request, and provided that the Retraction Request is
not revoked by the holder in the manner specified in Section 6.1(5), the
Corporation shall redeem the Retracted Shares effective at the close of
business on the Retraction Date. On the Retraction Date, the Corporation shall
deliver or cause the Transfer Agent to deliver to the relevant holder, at the
address of the holder recorded in the securities register of the Corporation
for the Exchangeable Shares or at the address specified in the holder's
Retraction Request or by holding for pick-up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of Exchangeable Shares, a
certificate representing the number of shares of Smithfield Common Stock to
which such holder is entitled (which shares shall be duly issued as fully paid
and non-assessable and shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim) registered in the name of the holder or in
such other name as the holder may request in payment of the Retraction Price
and a cheque of the Corporation payable at par at any branch of the bankers of
the Corporation in payment of the remaining portion, if any, of the aggregate
Retraction Price to which such holder is entitled and such delivery of such
certificate and cheque by or on behalf of the Corporation by the Transfer Agent
shall be deemed to be payment of and shall satisfy and discharge all liability
for the Retraction Price to the extent that the same is represented by such
share certificates and cheque, unless such cheque is not paid on due
presentation. If only a part of the Exchangeable Shares represented by any
certificate is redeemed, a new certificate for the balance of such Exchangeable
Shares shall be issued to the holder at the expense of the Corporation.
(3) On and after the close of business on the Retraction Date, the holder
of the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive its proportionate part of the total
Retraction Price, unless upon presentation and surrender of certificates in
accordance with the foregoing provisions, payment of the aggregate Retraction
Price payable to such holder shall not be made, in which case the rights of
such holder shall remain unaffected until such aggregate Retraction Price has
been paid in the manner hereinbefore provided. On and after the close of
business on the Retraction Date, provided that presentation and surrender of
certificates and payment of such aggregate Retraction Price has been made in
accordance with the foregoing provisions, the holder of the Retracted Shares so
redeemed by the Corporation shall thereafter be considered and deemed for all
purposes to be a holder of the shares of Smithfield Common Stock delivered to
such holder.
(4) Notwithstanding any other provision of this Section 6.1, the
Corporation shall not be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent that such redemption of Retracted
Shares would be contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date
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it would not be permitted by any of such provisions to redeem the Retracted
Shares tendered for redemption on such date, and neither Smithfield nor
Smithfield Sub shall have exercised its Retraction Call Right with respect to
the Retracted Shares, the Corporation shall only be obligated to redeem
Retracted Shares specified by a holder in a Retraction Request to the extent of
the maximum number that may be so redeemed (rounded down to a whole number of
shares) as would not be contrary to such provisions and shall notify the holder
at least two Business Days prior to the Retraction Date as to the number of
Retracted Shares which will not be redeemed by the Corporation. In any case in
which the redemption by the Corporation of Retracted Shares would be contrary
to solvency requirements or other provisions of applicable law and more than
one holder has delivered a Retraction Request, the Corporation shall redeem
Retracted Shares in accordance with Section 6.1(2) on a pro rata basis and
shall issue to each such holder of Retracted Shares a new certificate, at the
expense of the Corporation, representing the Retracted Shares not redeemed by
the Corporation pursuant to Section 6.1(2) hereof. If the Retraction Request is
not revoked by the holder in the manner specified in Section 6.1(5) and neither
Smithfield nor Smithfield Sub shall have exercised its Retraction Call Right in
respect of any such Retracted Shares, an Insolvency Event (as defined in the
Voting, Support and Exchange Trust Agreement) shall, to the extent it has not
theretofore occurred, be deemed thereupon to have occurred and the holder of
any such Retracted Shares not redeemed by the Corporation pursuant to Section
6.1(2) as a result of solvency requirements or other provisions of applicable
law shall be deemed by giving the Retraction Request to have exercised its
Exchange Right (as defined in the Voting, Support and Exchange Trust Agreement)
so as to require Smithfield or, at the Option of Smithfield, Smithfield Sub to
purchase the unredeemed Retracted Shares from such holder on the Retraction
Date or as soon as practicable thereafter on payment by Smithfield or, at the
Option of Smithfield, Smithfield Sub to such holder of the Retraction Price,
all as more specifically provided in the Voting, Support and Exchange Trust
Agreement.
(5) A holder of Retracted Shares may, by notice in writing given by the
holder to the Corporation before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request in
which event such Retraction Request shall be null and void.
6.2 RETRACTION CALL RIGHTS
(1) In the event that a holder of Exchangeable Shares delivers a
Retraction Request pursuant to Section 6.1 and subject to the limitations set
forth in Section 6.2(2), Smithfield and Smithfield Sub shall each have the
overriding right (a "Retraction Call Right"), notwithstanding the proposed
redemption of the Exchangeable Shares by the Corporation pursuant to Section
6.1 hereof, to purchase from such holder on the Retraction Date all but not
less than all of the Retracted Shares held by such holder on payment by
whichever of Smithfield or Smithfield Sub is exercising such right (the "RCR
Exercising Party") of an amount per share equal to (a) the Current Market Price
of a share of Smithfield Common Stock on the last Business Day prior to the
Retraction Date, which shall be satisfied in full by the RCR Exercising Party
causing to be delivered to such holder one share of Smithfield Common Stock,
plus (b) the Dividend Amount, if any (the "Retraction Call Purchase Price"). In
the event of the exercise of a Retraction Call Right, a holder of Exchangeable
Shares who has delivered a Retraction Request shall be obligated to sell all
the Retracted Shares to the RCR Exercising Party on the Retraction Date on
payment by the RCR Exercising Party of an amount per share equal to the
Retraction Call Purchase Price for each such share.
(2) Upon receipt by the Corporation of a Retraction Request, the
Corporation shall immediately notify Smithfield and Smithfield Sub thereof. In
order to exercise its Retraction Call Right, the RCR Exercising Party must
notify the Corporation in writing of its determination to do so (a "Smithfield
Call Notice") within two Business Days of notification to such RCR Exercising
Party by the Corporation of the receipt by the Corporation of the Retraction
Request. If either Smithfield or Smithfield Sub so notifies the Corporation
within such two Business Day period, the Corporation shall notify the holder as
soon as possible thereafter as to the exercise of a Retraction Call Right (such
notice to specify the RCR Exercising Party). If either Smithfield or Smithfield
Sub delivers a Smithfield Call Notice within such two Business Day period and
duly exercises its Retraction Call Right in accordance with this Section 6.2,
the obligation of the Corporation to redeem the Retracted Shares shall
terminate and, provided that the Retraction Request is not revoked by the
holder in the manner specified in Section 6.1(5), the RCR Exercising Party
shall purchase from such holder and such holder shall sell to the RCR
Exercising Party on the Retraction Date the Retracted Shares for the Retraction
Call Purchase Price. Provided that the aggregate Retraction Call Purchase Price
has been so deposited with the Transfer Agent as provided in Section 6.2(3),
the closing of the purchase and sale of the Retracted Shares pursuant to the
Retraction Call Right shall be deemed to have occurred as at the close of
business on the Retraction Date and, for greater certainty, no redemption by
the Corporation of such Retracted Shares shall take place on the Retraction
Date. In the event that neither Smithfield nor Smithfield Sub delivers a
Smithfield Call Notice within such two Business Day period, and provided that
the Retraction Request is not revoked by the holder in the
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manner specified in Section 6.1(5), the Corporation shall redeem the Retracted
Shares on the Retraction Date and in the manner otherwise contemplated in
Section 6.1.
(3) For the purpose of completing a purchase of Exchangeable Shares
pursuant to the exercise of a Retraction Call Right, the RCR Exercising Party
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the securities register of the
Corporation for the Exchangeable Shares or at the address specified in the
holder's Retraction Request or by holding for pick-up by the holder at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation by notice to the holders of Exchangeable
Shares, a certificate representing the number of shares of Smithfield Common
Stock to which such holder is entitled (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) registered in the name of the
holder or in such other name as the holder may request in payment of the
Retraction Call Purchase Price and a cheque of the RCR Exercising Party payable
at par and in Canadian dollars at any branch of the bankers of Smithfield,
Smithfield Sub or of the Corporation in Canada in payment of the remaining
portion, if any, of such aggregate Retraction Call Purchase Price and such
delivery of such certificate and cheque on behalf of the RCR Exercising Party
by the Transfer Agent shall be deemed to be payment of and shall satisfy and
discharge all liability for the Retraction Call Purchase Price to the extent
that the same is represented by such share certificates and cheque, unless such
cheque is not paid on due presentation.
(4) On and after the close of business on the Retraction Date, the holder
of the Retracted Shares shall not be entitled to exercise any of the rights of
a holder in respect thereof, other than the right to receive its proportionate
part of the total Retraction Call Purchase Price unless upon presentation and
surrender of certificates in accordance with the foregoing provisions, payment
of the aggregate Retraction Call Purchase Price payable to such holder shall
not be made, in which case the rights of such holder shall remain unaffected
until such aggregate Retraction Call Purchase Price has been paid in the manner
hereinbefore provided. On and after the close of business on the Retraction
Date, provided that presentation and surrender of certificates and payment of
such aggregate Retraction Call Purchase Price has been made in accordance with
the foregoing provisions, the holder of the Retracted Shares so purchased by
the RCR Exercising Party shall thereafter be considered and deemed for all
purposes to be a holder of the shares of Smithfield Common Stock delivered to
such holder.
ARTICLE 7
REDEMPTION BY THE CORPORATION
7.1 REDEMPTION BY THE CORPORATION
(1) Subject to applicable law and the due exercise by either Smithfield or
Smithfield Sub of a Redemption Call Right, the Corporation shall on the Company
Redemption Date redeem all of the then outstanding Exchangeable Shares for an
amount per share equal to (a) the Current Market Price of a share of Smithfield
Common Stock on the last Business Day prior to such Company Redemption Date,
which shall be satisfied in full by the Corporation causing to be delivered one
share of Smithfield Common Stock, plus (b) the Dividend Amount, if any
(collectively, the "Redemption Price"). If either Smithfield or Smithfield Sub
exercises a Redemption Call Right and all of the then outstanding Exchangeable
Shares (other than the Exchangeable Shares held by Smithfield or Smithfield
Sub) are purchased pursuant to Section 7.2, the remaining outstanding
Exchangeable Shares continue to be redeemable by the Corporation on the
subsequent Company Redemption Date pursuant to the provisions of this Section
7.1.
(2) In case of a redemption of Exchangeable Shares under this Section 7.1
that is to occur prior to o, 2008, the Corporation shall, at least 90 days
before the Company Redemption Date, send or cause to be sent to each holder of
Exchangeable Shares a notice in writing of the redemption by the Corporation or
the purchase by Smithfield or Smithfield Sub under its Redemption Call Right,
as the case may be, of the Exchangeable Shares held by such holder (other than
Smithfield and Smithfield Sub in the case of a purchase by Smithfield or
Smithfield Sub). Such notice shall set out the formula for determining the
Redemption Price or the Redemption Call Purchase Price, as the case may be,
such Company Redemption Date and, if applicable, particulars of the Redemption
Call Right.
(3) On or after the Company Redemption Date and subject to the exercise by
Smithfield or Smithfield Sub of a Redemption Call Right, the Corporation shall
cause to be delivered to the holders of the Exchangeable Shares to be redeemed
the Redemption Price for each such Exchangeable Share upon presentation and
surrender at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation in such notice of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and such additional documents and
instruments as the Transfer Agent and
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the Corporation may reasonably require. Payment of the aggregate Redemption
Price for Exchangeable Shares held by a holder shall be made by delivery to
such holder, at the address of such holder recorded in the securities register
of the Corporation or by holding for pick-up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation in such notice, of a certificate representing the
aggregate number of shares of Smithfield Common Stock deliverable by the
Corporation to such holder (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim) and a cheque of the Corporation payable at
par at any branch of the bankers of the Corporation in respect of the remaining
portion, if any, of such aggregate Redemption Price. On and after the Company
Redemption Date, the holders of the Exchangeable Shares called for redemption
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive their proportionate part of the total
Redemption Price, unless payment of the aggregate Redemption Price deliverable
to a holder for Exchangeable Shares shall not be made upon presentation and
surrender of share certificates in accordance with the foregoing provisions, in
which case the rights of the holder shall remain unaffected until the aggregate
Redemption Price deliverable to such holder has been paid in the manner
hereinbefore provided.
(4) The Corporation shall have the right at any time after the sending of
notice of its intention to redeem the Exchangeable Shares as aforesaid to
deposit or cause to be deposited the total Redemption Price of the Exchangeable
Shares so called for redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such deposit been
surrendered by the holders thereof in connection with such redemption, in a
custodial account with any chartered bank or trust company in Canada named in
such notice and any interest allowed on such deposit shall belong to the
Corporation. Provided that such total Redemption Price has been so deposited
prior to the Company Redemption Date, on and after the Company Redemption Date,
the Exchangeable Shares shall be redeemed and the rights of the holders thereof
after the Company Redemption date shall be limited to receiving their
proportionate part of the total Redemption Price for such Exchangeable Shares
so deposited, against presentation and surrender of the said certificates held
by them, respectively, in accordance with the foregoing provisions. Upon such
payment or deposit of the total Redemption Price, the holders of the
Exchangeable Shares shall thereafter be considered and deemed for all purposes
to be holders of the shares of Smithfield Common Stock delivered to them.
7.2 REDEMPTION CALL RIGHTS
(1) Subject to the limitations set forth in Section 7.2(2), Smithfield and
Smithfield Sub shall each have the overriding right (a "Redemption Call
Right"), notwithstanding the proposed redemption of the Exchangeable Shares by
the Corporation pursuant to Section 7.1 hereof, to purchase from all but not
less than all of the holders of Exchangeable Shares (other than Smithfield and
Smithfield Sub) on the last Business Day prior to the Company Redemption Date
in respect of which the Redemption Call Right is exercised all but not less
than all of the Exchangeable Shares held by each such holder on payment by
whichever of Smithfield or Smithfield Sub is exercising such right (the "RCR
Exercising Party") of an amount per share equal to (a) the Current Market Price
of a share of Smithfield Common Stock on the last Business Day prior to such
Company Redemption date, which shall be satisfied in full by causing to be
delivered to such holder one share of Smithfield Common Stock plus (b) the
Dividend Amount, if any, without interest (collectively, the "Redemption Call
Purchase Price"). In the event of the exercise of a Redemption Call Right, each
holder of Exchangeable Shares (other than Smithfield and Smithfield Sub) shall
be obligated to sell all the Exchangeable Shares held by such holder to the RCR
Exercising Party on the last Business Day prior to such Company Redemption Date
on payment by the RCR Exercising Party to such holder of the Redemption Call
Purchase Price for each such share.
(2) Smithfield Sub shall only be entitled to exercise its Redemption Call
Right with respect to those holders of Exchangeable Shares, if any, in respect
of which Smithfield has not exercised its Redemption Call Right. In order to
exercise its Redemption Call Right, an RCR Exercising Party must notify in
writing the Transfer Agent, as agent for the holders of Exchangeable Shares and
the Corporation of its intention to exercise such right at least 115 days
before the Company Redemption Date. The Transfer Agent will notify the holders
of Exchangeable Shares as to whether or not a Redemption Call Right has been
exercised (such notice to specify the RCR Exercising Party) forthwith after the
expiry of the date by which the same may be exercised, such form of notice to
be provided by Smithfield to the Transfer Agent. If an RCR Exercising Party
duly exercises its Redemption Call Right in accordance with this Section 7.2,
the right of the Corporation to redeem any Exchangeable Shares pursuant to
Section 7.1 on the Company Redemption Date shall terminate at such time and on
the last Business Day prior to such Company Redemption date such RCR Exercising
Party will purchase and the holders of Exchangeable Shares (other than
Smithfield and Smithfield Sub) will sell all of their Exchangeable Shares then
outstanding for a price per share equal to the Redemption Call Purchase Price.
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(3) For the purposes of completing a purchase of the Exchangeable Shares
pursuant to the exercise of a Redemption Call Right, the RCR Exercising Party
shall deposit with the Transfer Agent, on or before the last Business Day prior
to the Company Redemption Date, certificates representing the total number of
shares of Smithfield Common Stock deliverable by the RCR Exercising Party
(which shares shall be duly issued as fully paid and non-assessable and shall
be free and clear of any lien, claim, encumbrance, security interest or adverse
claim) in payment of the total Redemption Call Purchase Price and a cheque in
the amount of the remaining portion, if any, of the total Redemption Call
Purchase Price and any interest allowed on such deposit shall belong to the RCR
Exercising Party. Provided that the total Redemption Call Purchase Price has
been so deposited with the Transfer Agent, on and after the last Business Day
prior to the Company Redemption Date the rights of each holder of Exchangeable
Shares (other than Smithfield and Smithfield Sub) will be limited to receiving
such holder's proportionate part of the total Redemption Call Purchase Price
payable by the RCR Exercising Party upon presentation and surrender by such
holder of certificates representing the Exchangeable Shares held by such holder
in accordance with the following provisions and such holder shall on and after
the last Business Day prior to such Company Redemption date be considered and
deemed for all purposes to be the holder of the shares of Smithfield Common
Stock delivered to such holder. Upon surrender to the Transfer Agent of a
certificate representing Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and such additional documents and
instruments as the Transfer Agent and the Corporation may reasonably require,
the holder of such surrendered certificate shall be entitled to receive in
exchange therefor, and the Transfer Agent on behalf of the RCR Exercising Party
shall deliver to such holder, a certificate representing the shares of
Smithfield Common Stock to which such holder is entitled and a cheque in
payment of the remaining portion, if any, of the holder's proportionate part of
the total Redemption Call Purchase Price. If neither Smithfield nor Smithfield
Sub exercises the Redemption Call Right in the manner described above, on the
Company Redemption date a holder of Exchangeable Shares shall be entitled to
receive in exchange therefor the redemption price otherwise payable by the
Corporation in connection with the redemption of the Exchangeable Shares
pursuant to Section 7.1 hereof.
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law and the provisions of Sections
9.1, 10.1 and 11.2, the holders of the Exchangeable Shares shall not be
entitled as such to receive notice of or to attend any meeting of the
shareholders of the Corporation or to vote at any such meeting. The holders of
the Exchangeable Shares shall, however, be entitled to notice of meetings of
the shareholders called for the purpose of authorizing the dissolution of the
Corporation or the sale, lease or exchange of all or substantially all the
property of the Corporation other than in the ordinary course of business of
the Corporation.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed only with the approval
of the holders of the Exchangeable Shares given as hereinafter specified.
9.2 Any approval given by the holders of the Exchangeable Shares to add
to, change or remove any right, privilege, restriction or condition attaching
to the Exchangeable Shares or any other matter requiring the approval or
consent of the holders of the Exchangeable Shares shall be deemed to have been
sufficiently given if it shall have been given in accordance with applicable
law subject to a minimum requirement that such approval be evidenced by
resolution passed by not less than two-thirds of the votes cast on such
resolution at a meeting of holders of Exchangeable Shares duly called and held
at which the holders of at least 50% of the outstanding Exchangeable Shares at
that time are present or represented by proxy; provided that such approval must
be given also by the affirmative vote of holders of more than two-thirds of the
Exchangeable Shares represented in person or by proxy at the meeting excluding
Exchangeable Shares beneficially owned by Smithfield or any of its
Subsidiaries. If at any such meeting the holders of at least 50% of the
outstanding Exchangeable Shares at that time are not present or represented by
proxy within one-half hour after the time appointed for such meeting then the
meeting shall be adjourned to such date not less than 10 days thereafter and to
such time and place as may be designated by the chairman of such meeting. At
such adjourned meeting the holders of Exchangeable Shares present or
represented by proxy thereat may transact the business for which the meeting
was originally called and a resolution passed thereat by the affirmative vote
of not less than two-thirds of the votes cast on such resolution at such
meeting shall constitute the approval or consent of the holders of the
Exchangeable Shares.
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ARTICLE 10
RECIPROCAL CHANGES, ETC.
IN RESPECT OF SMITHFIELD COMMON STOCK
10.1(1) Each holder of an Exchangeable Share acknowledges that the Voting,
Support and Exchange Trust Agreement provides, in part, that Smithfield will
not, except as provided in the Voting, Support and Exchange Trust Agreement,
without the prior approval of the Corporation and the prior approval of the
holders of the Exchangeable Shares given in accordance with Section 9.2 hereof:
(a) issue or distribute shares of Smithfield Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire
Smithfield Common Stock (excluding any rights issuable under the
Shareholder Rights Plan)) to the holders of all or substantially all of the
then outstanding shares of Smithfield Common Stock by way of stock dividend
or other distribution, other than an issue of shares of Smithfield Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire Smithfield Common Stock) to holders of shares of
Smithfield Common Stock who exercise an option to receive dividends in
shares of Smithfield Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of Smithfield Common
Stock) in lieu of receiving cash dividends;
(b) issue or distribute rights (excluding any rights issuable under the
Shareholder Rights Plan), options or warrants to the holders of all or
substantially all of the then outstanding shares of Smithfield Common Stock
entitling them to subscribe for or to purchase shares of Smithfield Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire Smithfield Common Stock); or
(c) issue or distribute to the holders of all or substantially all of the
then outstanding shares of Smithfield Common Stock (i) shares or securities
of Smithfield of any class other than Smithfield Common Stock (other than
shares convertible into or exchangeable for or carrying rights to acquire
shares of Smithfield Common Stock), (ii) rights (excluding any rights
issuable under the Shareholder Rights Plan), options or warrants other than
those referred to in Section 10.1(1)(b) above, (iii) evidences of
indebtedness of Smithfield or (iv) assets of Smithfield;
unless the economic equivalent on a per share basis of such rights, options,
securities, shares, evidences of indebtedness or other assets is issued or
distributed simultaneously to holders of the Exchangeable Shares.
(2) Each holder of an Exchangeable Share acknowledges that the Voting,
Support and Exchange Trust Agreement further provides, in part, that Smithfield
will not, except as provided in the Voting, Support and Exchange Trust
Agreement, without the prior approval of the Corporation and the prior approval
of the holders of the Exchangeable Shares given in accordance with Section 9.2
of these share provisions:
(a) subdivide, redivide or change the then outstanding shares of
Smithfield Common Stock into a greater number of shares of Smithfield
Common Stock; or
(b) reduce, combine or consolidate or change the then outstanding shares
of Smithfield Common Stock into a lesser number of shares of Smithfield
Common Stock; or
(c) reclassify or otherwise change the shares of Smithfield Common Stock
or effect an amalgamation, merger, reorganization or other transaction
affecting the Smithfield Common Stock; unless the same or an economically
equivalent change shall simultaneously be made to, or in the rights of the
holders of, the Exchangeable Shares.
The Voting, Support and Exchange Trust Agreement further provides, in
part, that the aforesaid provisions of the Voting, Support and Exchange Trust
Agreement shall not be changed without the approval of the holders of the
Exchangeable Shares given in accordance with Section 9.2 hereof.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER THE VOTING,
SUPPORT AND EXCHANGE TRUST AGREEMENT
11.1 The Corporation shall take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to facilitate
performance and compliance by Smithfield with all provisions of the Voting,
Support and Exchange Trust Agreement applicable to the Corporation and
Smithfield, respectively, in accordance with the terms thereof
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including, without limitation, taking all such actions and doing all such
things as shall be necessary or advisable to enforce to the fullest extent
possible for the direct benefit of the Corporation all rights and benefits in
favour of the Corporation under or pursuant to such agreement.
11.2 The Corporation shall not agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Voting, Support and Exchange Trust Agreement without the approval of the
holders of the Exchangeable Shares given in accordance with Section 9.2 hereof
other than such amendments, waivers and/or forgiveness as may be necessary or
advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Exchangeable Shares;
(b) making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters or
questions arising thereunder which, in the opinion of the Board of
Directors, it may be expedient to make, provided that the Board of
Directors shall be of the opinion, after consultation with counsel, that
such provisions and modifications will not be prejudicial to the interests
of the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error contained therein, provided
that the Board of Directors shall be of the opinion, after consultation
with counsel, that such changes or corrections will not be prejudicial to
the interests of the holders of the Exchangeable Shares.
ARTICLE 12
LEGEND
12.1 The certificates evidencing the Exchangeable Shares shall contain or
have affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the provisions of the Voting, Support and Exchange
Trust Agreement (including the provisions with respect to the call rights,
voting rights and exchange rights thereunder).
ARTICLE 13
NOTICES
13.1 Subject to applicable law, any notice, request or other communication
to be given to the Corporation by a holder of Exchangeable Shares shall be in
writing and shall be valid and effective if given by mail (postage prepaid) or
by telecopy or by delivery to the registered office of the Corporation and
addressed to the attention of the President. Any such notice, request or other
communication, if given by mail, telecopy or delivery, shall only be deemed to
have been given and received upon actual receipt thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Exchangeable Shares to
the Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding up of the
Corporation or the retraction or redemption of Exchangeable Shares shall be
made by registered mail (postage prepaid) or by delivery to the registered
office of the Corporation or to such office of the Transfer Agent as may be
specified by the Corporation, in each case addressed to the attention of the
President of the Corporation. Any such presentation and surrender of
certificates shall only be deemed to have been made and to be effective upon
actual receipt thereof by the Corporation or the Transfer Agent, as the case
may be. Any such presentation and surrender of certificates made by registered
mail shall be at the sole risk of the holder mailing the same.
13.3 Subject to applicable law, any notice, request or other communication
to be given to a holder of Exchangeable Shares by or on behalf of the
Corporation shall be in writing and shall be valid and effective if given by
mail (postage prepaid) or by delivery to the address of the holder recorded in
the securities register of the Corporation or, in the event of the address of
any such holder not being so recorded, then at the last known address of such
holder. Any such notice, request or other communication, if given by mail,
shall be deemed to have been given and received on the fifth Business Day
following the date of mailing and, if given by delivery, shall be deemed to
have been given and received on the date of delivery. Accidental failure or
omission to give any notice, request or other communication to one or more
holders of Exchangeable Shares, or any defect in such notice, shall not
invalidate or otherwise alter or affect any action or proceeding to be taken by
the Corporation pursuant thereto.
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SCHEDULE A
NOTICE OF RETRACTION
To Smithfield Canada Limited, Smithfield Foods, Inc. and Smithfield Sub
Limited, c/o CIBC Mellon Trust Company
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the share(s) represented by this certificate and all
capitalized words and expressions used in this notice that are defined in the
Share Provisions have the meanings ascribed to such words and expressions in
such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned desires to have the
Corporation redeem on the Retraction Date (being the fifth Business Day after
the date upon which this notice is received by the Corporation) in accordance
with Article 6 of the Share Provisions:
all share(s) represented by this certificate; or
share(s) only.
The undersigned acknowledges the Retraction Call Right of Smithfield and
Smithfield Sub to purchase all but not less than all the Retracted Shares from
the undersigned and that this notice shall be deemed to be a revocable offer by
the undersigned to sell the Retracted Shares to Smithfield or Smithfield Sub,
as the case may be, in accordance with the Retraction Call Right on the
Retraction Date for the Retraction Call Purchase Price and on the other terms
and conditions set out in Section 6.2 of the Share Provisions. If neither
Smithfield nor Smithfield Sub determines to exercise its Retraction Call Right,
the Corporation will notify the undersigned of such fact as soon as possible.
This notice of retraction, and offer to sell the Retracted Shares to Smithfield
or Smithfield Sub, may be revoked and withdrawn by the undersigned by notice in
writing given to the Corporation at any time before the close of business on
the Business Day immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency requirements
or other provisions of applicable law, the Corporation is unable to redeem all
Retracted Shares because an Insolvency Event (as defined in the Voting, Support
and Exchange Trust Agreement) shall, to the extent it shall not theretofore
have occurred, be deemed thereupon to have occurred, and the undersigned will
be deemed to have exercised the Exchange Right (as defined in the Voting,
Support and Exchange Trust Agreement) so as to require Smithfield or, at the
option of Smithfield, Smithfield Sub to purchase the unredeemed Retracted
Shares.
The undersigned hereby represents and warrants to the Corporation,
Smithfield and Smithfield Sub that the undersigned has good title to, and owns,
the share(s) represented by this certificate to be acquired by the Corporation,
Smithfield or Smithfield Sub, as the case may be, free and clear of all liens,
claims, encumbrances, security interests and adverse claims.
- ------------------- ------------------------------- ------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for pick-up by
the shareholder at the principal transfer office of the Transfer Agent in
Toronto, failing which the securities and any cheque will be mailed to the last
address of the shareholder as it appears on the register.
15
<PAGE>
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Transfer Agent and the Corporation may
require, must be deposited with the Transfer Agent at its principal
transfer office in Toronto. The securities and any cheque resulting from
the retraction or purchase of the Retracted Shares will be issued and
registered in, and made payable to, respectively, the name of the
shareholder as it appears on the register of the Corporation and the
securities and cheque resulting from such retraction or purchase will be
delivered to such shareholder as indicated above, unless the form
appearing immediately below is duly completed, all exigible transfer taxes
are paid and the signature of the registered holder is guaranteed by a
Canadian chartered bank or trust company, member of a recognized stock
exchange in Canada or a member of the Securities Transfer Association
Medallion (STAMP) Program.
Date______________________
- -----------------------------------------
Name of Person in Whose Name Securities and
Cheque Are To Be Registered, Issued or
Delivered (please print)
- ------------------------------------ ----------------------------------------
Street Address or P.O. Box Signature of Registered Holder
- ------------------------------------ ----------------------------------------
City - Province Signature Guaranteed by
NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the remaining
shares of the Corporation will be issued and registered in the name of the
shareholder as it appears on the register of the Corporation, unless the
Share Transfer Power on the share certificate is duly completed in respect
of such shares.
16
<PAGE>
U.S. Residents/Citizens must provide also complete the following:
SUBSTITUTE FORM W-9
To be completed by United States Holders only
<TABLE>
<CAPTION>
PAYER'S NAME:___________________________
<S> <C> <C>
SUBSTITUTE FORM PART 1. PLEASE PROVIDE YOUR Security Number or
W-9 TIN IN THE BOX AT THE RIGHT Employer Identification
AND CERTIFY BY SIGNING AND Number
DEPARTMENT OF THE TREASURY DATING BELOW. -------------------
INTERNAL REVENUE SERVICE
-----------------------------------------------------
PART 2. Certification -- Under penalties of perjury, I
certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting for
a number to be issued to me) and
(2) I am not subject to backup withholding because: (a)
I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as
a result of a failure to report all interest or dividends,
or (c) the IRS has notified me that I am no longer
subject to backup withholding.
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER ("TIN") CERTIFICATION INSTRUCTIONS -- You must cross out
item (2) above if you have been notified by the IRS that
you are currently subject to backup withholding because
of under-reporting interest or dividends on your tax
return. However, if after being notified by the IRS that
you were subject to backup withholding you received
another notification from the IRS that you are no longer
subject to backup withholding, do not cross out such
Item (2).
-----------------------------
PART 3.
Signature:__________________ Awaiting TIN [ ]
SIGN HERE
Date:_______________________
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFERS.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3
OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (2) I intend to
mail or deliver an application in the near future. I understand that if I do
not provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld, but that such amounts will be
refunded to me if I then provide a Taxpayer Identification Number within sixty
(60) days.
Signature: ___________________________ Date:_____________________, 1998
17
CAPE FEAR FARM CREDIT, ACA
CONSOLIDATING LOAN AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
BORROWER: Carroll's Foods, Inc. ("Foods"), LENDER: Cape Fear Farm Credit, ACA
and Carroll's Realty, Inc. ("Realty"), ("Lender"), an agricultural
each a North Carolina corporati n, and credit association
Carroll's Realty Partnership
("Partnership"), a North Carolina Post Office Box 558
general partnership, (collectively, Clinton, North Carolina 28329
"Borrowers," and each,
individually, "Borrower")
</TABLE>
THIS CONSOLIDATING LOAN AGREEMENT (the "Consolidating Loan Agreement") is made
and entered into to be effective as of the 28th day of August, 1998, by and
among Lender, Borrowers and Guarantors as defined herein (Lender, Borrowers and
Guarantors, collectively, the "Parties").
FACTUAL BACKGROUND
Lender, Borrowers and one or more of Guarantors entered into a certain
Loan Agreement with an effective date of October 23, 1996 (the "Original Loan
Agreement") pursuant to which Lender agreed to make available to Borrowers up to
$65,000,000.00 under a revolving line of credit (the "RLOC") and up to
$40,000,000.00 under a non-revolving line of credit (the "NRLOC"). Subsequently,
the Original Loan Agreement has been amended by amendment agreements dated as of
April 14, 1997 and as of October 23, 1997.
Lender, Borrowers, and one or more of Guarantors entered into a certain
Revolving Credit Agreement with an effective date as of January 31, 1995 (the
"Stock Loan Agreement") pursuant to which Lender agreed to make available to
Borrowers up to $30,000,000.00 under a revolving line of credit (the "Stock
RLOC"). Subsequently, the Stock Loan Agreement has been amended by amendment
agreements dated as of October 26, 1995, as of April 24, 1996, as of July 31,
1996, as of October 23, 1996, as of April 14, 1997, and as of October 23, 1997.
Borrowers and Guarantors have requested, and Lender has consented (on
terms and conditions more particularly set forth hereinbelow): (i) to renew the
RLOC; (ii) to replace the NRLOC with an Evergreen Revolving Line of Credit in
the amount of up to $80,000,000.00; and (iii) to renew the Stock RLOC and
increase available borrowings thereunder up to $50,000,000.00. In connection
therewith, Borrowers, Guarantors and Lender have agreed to amend, restate, and
consolidate the Original Loan Agreement (as amended) and the Stock Loan
Agreement (as amended).
NOW, THEREFORE, in consideration of the above amendments and Lender's
making and continuing to make loans of $65,000,000.00, $80,000,000.00 and
$50,000,000.00 to Borrowers for the purposes set forth in Section 2.2, as
evidenced by the Notes (as defined below), Lender, Borrowers and Guarantors
enter into this Consolidating Loan Agreement and agree as follows:
1. DEFINITIONS. For the purposes hereof:
1.1. "Additional Pledged Shares" shall have the meaning assigned thereto in
the Pledge Agreement.
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<PAGE>
1.2. "Business Day" means any day on which Lender is open for business.
1.3. "Carroll's Group" means Borrowers, Guarantors, Carroll's Foods of
Virginia, Inc., Carroll's Farms of Virginia, Inc., and Carroll's Foods of Utah,
Inc.
1.4. "Closing Date" means the date of this Consolidating Loan Agreement.
1.5. "Collateral" means all personal property, Real Estate Collateral, and
other interests securing the Loans as set forth in Section 5.1.
1.6. "Deeds of Trust" means those certain deeds of trust from Partnership to
Lender pledging the Real Estate Collateral and all improvements located thereon
to Lender as further described on Schedule 1.6 attached hereto and made a part
hereof, and as more particularly described in Section 5.1 hereof, as well as any
modifications of such Deeds of Trust.
1.7. "Eligible Accounts" means those accounts of Foods arising from the sale
of goods or services, which goods or services have actually been delivered or
rendered by Foods less those accounts (i) which remain unpaid more than sixty
(60) days after the invoice date thereof (unless otherwise agreed by Lender on a
case-by-case basis), (ii) are disputed or otherwise subject to any setoff,
credit allowance or adjustment by the account debtor, or (iii) are otherwise
unacceptable to Lender in its sole discretion.
1.8. "Eligible Inventory" means all goods of Foods, including, without
limitation, farm products (exclusive of crops), and livestock, being grown (by
or for the benefit of Foods) or held for sale or for processing or which are
being processed in Foods' ordinary course of business (including, but not
limited to, all turkeys, swine and all produce and progeny thereof, and all feed
and feed ingredients) and all products and proceeds from any and all thereof.
1.9. "Environmental Certificate" means that certificate to be delivered to
Lender in accordance with the terms of Section 2.3, substantially in the form of
Exhibit 1.9 attached hereto, stating that no change has occurred since the most
recent environmental hazards assessment furnished to Lender.
1.10. "Environmental Laws" means federal, state, or local environmental laws
or regulations, including but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. Sec. 9601 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. '1101 et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901 et seq.; the
Hazardous Materials Transportation Act of 1974, 49 U.S.C. Sec. 1801 et seq.; the
Federal Water Pollution Control Act, 33 U.S.C. Sec. 1251 et seq.; the Clean Air
Act, 42 U.S.C. Sec. 4701 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Sec. 136 et seq.; the Safe Drinking Water Act, 42
U.S.C. Sec. 3001 et seq.; the Toxic Substances Control Act, 15 U.S.C. Sec. 2601
et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Sec. 2701 et seq.; and any
laws regulating the use of biological agents or substances, including medical or
infectious wastes, each as amended or supplemented, and any analogous future or
present federal, state, and local statutes, regulations, and ordinances
promulgated pursuant thereto which may be applicable.
1.11. "Event of Default" has the meaning set forth in Section 6.
1.12. "Evergreen RLOC" means that certain revolving line of credit in an
amount not to exceed Eighty Million and no/100 Dollars ($80,000,000.00).
1.13. "Evergreen RLOC Maturity Date" means August 28, 2000, unless extended
as provided in Section 2.1(e).
1.14. "Evergreen RLOC Note" means the note of Borrowers dated as of August
28, 1998 in favor of Lender in the amount of the Evergreen RLOC (a true copy of
which is attached hereto and marked as Exhibit 1.14), as well as any promissory
note or notes issued by Borrowers in substitution, replacement, restatement,
extension, amendment or renewal of any such promissory note.
1.15. "Flood Hazard Certificate" means the completed standard flood hazard
determination form required by federal flood insurance statutes to evidence
Lender's determination of whether or not the Real
2
<PAGE>
Estate Collateral, or any part thereof, is located in an area having special
flood hazards as designated by the Director of the Federal Emergency Management
Agency ("FEMA").
1.16. "Forbearance Agreements" means those certain Forbearance Agreements
given by the Related Parties to Lender, (true copies of which are attached
hereto and marked as Exhibit 1.16 ) as the same may be amended from time to
time, and such other Forbearance Agreements as may be given, from time to time,
by Related Parties subsequent to the Closing Date.
1.17. "GAAP" means generally accepted accounting principles, as in effect
from time to time, consistently applied.
1.18. "Grower Contracts" means those certain contracts between Foods and
independent growers more particularly described on Exhibit 1.18 attached hereto.
1.19. "Guaranties" mean those certain unconditional guaranty agreements
executed by each Guarantor in favor of Lender.
1.20. "Guarantor" means, individually, Carroll's Processing, Inc., Carroll's
Capital, Inc., Carroll's Foods of the Midwest, Inc., Carroll's Foods of Mexico,
Inc., and Carroll's Foods of Brazil, LLC, collectively, the "Guarantors".
1.21. "Intercreditor Agreement" means that certain Intercreditor Agreement
between Lender, Rabobank, and NationsBank dated October 26, 1993, as such
agreement has been or may be amended and modified from time to time.
1.22. "Intercreditor Loans" means those certain loans from Rabobank and
NationsBank to Borrowers in the original principal amounts of $55,000,000.00
each, as evidenced by that certain loan agreement between Borrowers and Rabobank
dated as of June 15, 1993 as amended, and that certain loan agreement between
Borrowers and NationsBank dated as of March 6, 1998.
1.23. "Leverage Ratio" means a ratio of Borrowers' total liabilities
(including deferred taxes) to Tangible Net Worth.
1.24. "Loan Documents" means this Consolidating Loan Agreement, the Deeds of
Trust, the Pledge Agreement, Forbearance Agreements, and any and all notes,
security agreements, assignments, consents and all other documents, instruments,
certificates and agreements executed and/or delivered by Borrowers, or any third
party in favor of Lender in connection with the Loans or any Collateral.
1.25. "Loans" means the Operating RLOC, the Evergreen RLOC, and the Stock
Loan as described in Section 2.1.
1.26. "Marketing Contracts" means those certain marketing agreements entered
into between Foods and others more particularly described in Schedule 1.26
attached hereto.
1.27. "Market Value of Pledged Shares" means, on the relevant date, an
amount equal to the number of Pledged Shares and Additional Pledged Shares, if
any, multiplied by the closing price per share on the NASDAQ National Stock
Market for one share of common stock of Smithfield on the Business Day preceding
the relevant date.
1.28. "NationsBank" means NationsBank, N.A.
1.29. "Negative Pledge" means a pledge of each Borrower to refrain from
creating any lien, mortgage, or other encumbrance upon any of the Real Estate
Collateral, any other real property together with any and all improvements
situated thereon, or any equipment, machinery, furniture or fixtures of any
Borrower other than Permitted Liens.
1.30. "Notes" means the Operating RLOC Note, the Evergreen RLOC Note, and
the Stock Loan Note.
3
<PAGE>
1.31. "Notice Borrower" means Foods, or whomever else may be appointed by
Borrowers from time to time in its place upon written notice to Lender to serve
as the designated agent for Borrowers specifically to receive and provide any
notices required hereunder.
1.32. "Obligations" means all obligations and liabilities of any nature owed
to Lender, whether now or hereafter existing, arising out of or related to the
Loan Documents or any other financial transactions between Lender and Borrowers,
or any Borrower, including all future obligations and advances.
1.33. "Operating RLOC" means that certain revolving line of credit in an
amount not to exceed Sixty-five Million and no/100 Dollars ($65,000,000.000).
1.34. "Operating RLOC Borrowing Base" means the sum of eighty-five percent
(85%) of Borrowers' Eligible Accounts plus one hundred percent (100%) of
Processing Loans (up to $15,000,000.00) plus seventy percent (70%) of the lower
of the cost or market value of Borrowers' Eligible Inventory.
1.35. "Operating RLOC Borrowing Base Certificate" means that certificate to
be delivered to Lender in accordance with the terms of Section 4.1 (l),
substantially in the form of Exhibit 1.35 attached hereto.
1.36. "Operating RLOC Maturity Date" means August 28, 1999.
1.37. "Operating RLOC Note" means the note of Borrowers dated as of August
28, 1998 in favor of Lender in the amount of the Operating RLOC (a true copy of
which is attached hereto and marked as Exhibit 1.37) as well as any promissory
note or notes issued by Borrowers in substitution, replacement, restatement.
extension, amendment or renewal of any such promissory note.
1.38. "Permitted Liens" means those certain liens in existence as of the
Closing Date and approved by Lender as listed on Schedule 1.38 attached hereto.
1.39. "Pledge Agreement" means that certain Pledge and Security Agreement
given by Swine Investment to Lender.
1.40. "Pledged Shares" shall have the meaning assigned thereto in the Pledge
Agreement.
1.41. "Processing Loans" means those certain loans from Foods to Carroll's
Processing, Inc., as evidenced by one or more promissory notes, in form and
substance satisfactory to Lender, from Carroll's Processing, Inc. to Foods,
which promissory notes have been assigned to Lender as required in Section 5.1.
1.42. "Rabobank" means Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
Rabobank Nederland.
1.43. "Real Estate" has the meaning set forth in Section 3.8.
1.44. "Real Estate Collateral" means that certain real property owned by
Partnership in Duplin, Sampson, and Scotland Counties, North Carolina, pledged
to Lender by the Deeds of Trust.
1.45. "Related Parties" means all persons and entities that, at the relevant
time: (i) control or are controlled by Borrowers or Swine Investment and (ii)
are known to Borrowers or Swine Investment to own any shares of stock of
Smithfield including, but not limited to, those parties listed on Exhibit 1.45
hereto.
1.46. "Smithfield" means Smithfield Foods, Inc., a Delaware corporation.
1.47. "Stock Loan" means that certain revolving line of credit in an amount
not to exceed Fifty Million and No/100 Dollars ($50,000,000.00).
1.48. "Stock Loan Borrowing Base" means one-half (i.e. 50%) of the Market
Value of Pledged Shares.
1.49. "Stock Loan Collateral" means the collateral pledged to Lender
pursuant to the Pledge Agreement including, but not limited to, the Pledged
Shares and the Additional Pledged Shares, if any.
1.50. "Stock Loan Maturity Date" means August 28, 2000, unless extended as
provided in Section
4
<PAGE>
2.1(e).
1.51. "Stock Loan Note" means the note of Borrowers dated as of August 28,
1998 in favor of Lender in the amount of the Stock Loan (a true copy of which is
attached hereto and marked as Exhibit 1.51 ), as well as any promissory note or
notes issued by Borrowers in substitution, replacement, restatement, extension,
amendment or renewal of any such promissory note.
1.52. "Substances" has the meaning set forth in Section 3.8.
1.53. "Swine Investment" means Carroll's Swine Investment Partnership, a
Virginia general partnership.
1.54. "Tangible Net Worth" means (i) the aggregate amount of assets shown on
the balance sheets of the subject entities at any particular date (not including
capitalized interest, debt discount and expense, goodwill, patents, trademarks,
copyrights, franchises, licenses, and such other assets as are properly
classified "intangible assets" under GAAP), less (ii) liabilities of the subject
entities, all computed in accordance with GAAP.
1.55. "Working Capital" means current assets less current liabilities as
calculated in accordance with GAAP.
2. THE LOANS AND ADVANCES.
2.1. Loans. Lender hereby agrees to continue to make the Loans available to
Borrowers as follows:
(a) Operating RLOC - Subject to Borrowers' compliance with the terms
and conditions of this Consolidating Loan Agreement, Lender has made and shall
continue to make available to Borrowers loans, from the Closing Date through the
Operating RLOC Maturity Date, which loans, in accordance with the Operating RLOC
Note, may be advanced, repaid, and readvanced but which may not, when aggregated
at any one time outstanding, exceed the lesser of (i) $65,000,000.00 or (ii) the
Operating RLOC Borrowing Base, less [the sum of the principal amounts
outstanding under the Intercreditor Loans plus the aggregate amount of all
outstanding loans to Foods from its stockholders], as determined by the most
recent Operating RLOC Borrowing Base Certificate delivered to Lender in
accordance with Section 4.1(l). The obligation to repay the Operating RLOC shall
be evidenced by the Operating RLOC Note and shall have the repayment terms and
interest rates as set forth in the Operating RLOC Note. All amounts outstanding
under the Operating RLOC shall be due and payable on the Operating RLOC Maturity
Date.
(b) Evergreen RLOC - Subject to Borrowers' compliance with the terms
and conditions of this Consolidating Loan Agreement, Lender has made and shall
continue to make available to Borrowers loans, from the Closing Date through the
Evergreen RLOC Maturity Date, which loans, in accordance with the Evergreen RLOC
Note, may be advanced, repaid, and readvanced but which may not, when aggregated
at any one time outstanding, exceed $80,000,000.00. The obligation to repay the
Evergreen RLOC shall be evidenced by the Evergreen RLOC Note and shall have the
repayment terms and interest rates as set forth in the Evergreen RLOC Note. All
amounts outstanding under the Evergreen RLOC shall be due and payable on the
Evergreen RLOC Maturity Date, subject to extension by Lender pursuant to Section
2.1(e) . Advances under the Evergreen RLOC shall be in minimum increments of not
less than $3,000,000.00.
(c) Stock Loan. Subject to Borrower's compliance with the terms and
conditions of this Consolidating Loan Agreement, Lender has made and shall
continue to make available to Borrowers loans, from the Closing Date through the
Stock Loan Maturity Date, which loans, in accordance with the Stock Loan Note,
may be advanced, repaid, and readvanced but which may not, when aggregated at
any one time outstanding, exceed the lesser of (i)$50,000,000.00 or (ii) the
Stock Loan Borrowing Base. The obligation to repay the Stock Loan shall be
evidenced by the Stock Loan Note and shall have the repayment terms and interest
rates as set forth in the Stock Loan Note. All amounts outstanding under the
Stock Loan shall be due and payable on the Stock Loan Maturity Date, subject to
extension by Lender pursuant to Section 2.1(e).
(d) Notice and Manner of Borrowing - For advances under the Loans,
Borrowers shall give Lender notice of a request for an advance no later than
11:00 A.M. Clinton, North Carolina time (Eastern Standard Time) on the date for
which the advance is requested, specifying the date and amount thereof, the
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<PAGE>
interest rate election, and if a fixed rate is elected, the Interest Period (as
defined in the Notes). Upon request of Lender, Borrowers shall provide Lender
with a certification as to the principal amount outstanding on the Intercreditor
Loans and any loans outstanding from shareholders as of the date of any advance.
Any such notice (including, without limitation, telephonic notice) which Lender
receives from the Notice Borrower shall be deemed given by Borrowers, unless
Borrowers, collectively notify Lender otherwise in writing. Any advances made by
Lender based on such notice, when wired to an account of Borrowers described in
any written wire transfer instructions delivered by Borrowers in connection
herewith, shall be a Loan for all purposes hereunder.
(e) Extension of Evergreen RLOC and Stock Loan - Lender shall
consider, in its sole discretion, extension of the term of the Evergreen RLOC
and/or the term of the Stock Loan, as the case may be, for successive periods of
twelve (12) months. Lender shall notify the Notice Borrower, in writing, not
later than twelve (12) months prior to the then applicable Evergreen RLOC
Maturity Date and the Stock Loan Maturity Date of its decision whether to renew
either or both loan facilities. In the event that Lender notifies the Notice
Borrower of its decision to renew either or both facilities, then the applicable
facility, and concomitantly, the applicable facility's maturity date, shall be
deemed automatically renewed for an additional twelve (12) month period.
(f) Borrowing Base Deficit - If Lender, at any time, shall determine
(i) that the aggregate amount of all advances under the Operating RLOC is
greater than the Operating RLOC Borrowing Base less [the sum of the principal
amounts outstanding under the Intercreditor Loans plus the aggregate amount of
all outstanding loans to Foods from its stockholders], or (ii) that the
aggregate outstanding amount of all advances under the Stock Loan is greater
than the Stock Loan Borrowing Base, it shall notify the Notice Borrower of such
deficit by telephone and Borrowers immediately shall make a payment to Lender
sufficient to reduce the outstanding amount under the applicable loan to comply
with Section 2.1(a) and/or Section 2.1(c), as the case may be, within
twenty-four (24) hours of receipt of the notice of the deficit or, if the next
day is not a Business Day, by 2:00 p.m. local time of the Lender on the Business
Day immediately following the notification.
2.2. Purposes. The proceeds of the Loans have been used and shall continue
to be used to provide working capital and capital for the construction and
permanent financing of construction projects of Borrowers, or any one or more of
them.
2.3. Conditions Precedent. Lender shall make advances to Borrowers under the
Loans in accordance with the terms hereof and the terms of the Notes. In no
event shall Lender be obligated to advance any sum to Borrowers until all
matters, documents, papers and certificates required hereunder have been
furnished to Lender's satisfaction or so long as any Event of Default has
occurred and is continuing. In addition to other matters set forth herein, the
following documents and matters shall be required to be executed, furnished, or
performed by Borrowers or Guarantors, as appropriate, at or before the Closing
Date:
(a) This Consolidating Loan Agreement, duly executed and delivered;
(b) The Notes, duly executed and delivered;
(c) The Collateral documents required under Section 5.1, duly executed
and delivered;
(d) Borrowing Resolutions, duly certified by the general partners or
corporate secretary or an assistant secretary of the respective
Borrower, as the case may be, in form and substance satisfactory
to Lender, authorizing the execution, delivery and performance of
all Loan Documents on behalf of each Borrower;
(e) Resolutions of each Guarantor, duly certified by the secretary or
an assistant secretary of the respective Guarantor, in form and
substance satisfactory to Lender, authorizing and approving the
execution of and performance of all covenants under the Guaranties
and this Consolidating Loan Agreement;
(f) Resolutions of Swine Investment, duly certified by the general
partners of Swine Investment, in form and substance satisfactory
to Lender, authorizing and approving the
6
<PAGE>
execution of and performance of all covenants pertaining to it
under the Pledge Agreement and under this Consolidating Loan
Agreement;
(g) Current certified Articles of Incorporation, Bylaws or Partnership
Agreements, as such may have been amended, and Certificates of
Existence for each entity comprising the Carroll's Group and for
Swine Investments, as appropriate;
(h) Certificate of Assumed Name for Partnership;
(i) Satisfactory evidence of each Borrower's, Guarantor's and Swine
Investment's qualification to do business in any applicable
foreign jurisdictions;
(j) The Guaranties, in form and substance satisfactory to Lender, duly
executed and delivered;
(k) Negative Pledges from each Borrower, in form and substance
satisfactory to Lender, duly executed and delivered;
(l) An opinion of each Borrower's, each Guarantor's and Swine
Investment's counsel opining, among other things, as to (i) each
such entity's corporate or partnership status, as the case may be,
due incorporation or formation, and due authorization and
execution of its respective Loan Documents; (ii) the
enforceability of the Loan Documents in accordance with the terms
thereof; and (iii) Lender's lien position under the Loan
Documents;
(m) Payment of all fees and closing costs required to be paid
hereunder and under the Loan Documents;
(n) The insurance policies required under Section 4.1(d);
(o) The flood insurance policies required Section 4.1(e);
(p) Evidence, satisfactory to Lender, of each Borrower's compliance
with all Environmental Laws, and permitting and licensing
requirements to which each Borrower, its respective operations or
properties may be subject;
(q) An initial Operating RLOC Borrowing Base Certificate, duly
executed and delivered;
(r) The Environmental Certificate, duly executed and delivered;
(s) Flood Hazard determination of the Real Estate Collateral and
delivery of the completed Flood Hazard Certificate, duly executed
and delivered by duly qualified appraisers;
(t) Copies of all Marketing Contracts and any other material contracts
of Borrowers, except that Grower Contracts shall not be furnished
unless requested by Lender;
(u) Fulfillment of all legal matters incident to the Loans in a manner
satisfactory to Lender's counsel; and
(v) Such other matters as Lender reasonably may require.
2.4. Lender Stock. As of the Closing Date, Borrowers owned stock in Lender
and shall continue to own such stock during the term of this Consolidating Loan
Agreement in an amount equal to $1,000.00. Such stock is at risk and is
retireable only at the discretion of Lender's board of directors and in
accordance with Lender's bylaws.
2.5 Fees, Costs, and Expenses. Borrowers shall pay on or before the Closing
Date any and all costs and expenses incurred by Lender in making the Loans
available to Borrowers including without limitation, any recording costs and
Lender's legal expenses and fees, regardless of whether the Loans close, unless
failure to close is the fault of Lender.
3. Representations and Warranties. To induce Lender to renew, extend and modify
the Loans, each Borrower and each Guarantor (as the context requires) reaffirms
that it is in compliance with the following representations and warranties, as
to that Borrower or Guarantor only, which shall survive the execution and
delivery of the Notes and other Loan Documents:
3.1. Good Standing. Each of Foods, Realty, and each Guarantor is duly
organized, validly existing and in good standing under the laws of the state of
its incorporation or organization, as applicable, and has the power and
authority to own its property and carry on its business in each jurisdiction in
which it does business. Partnership is a general partnership, duly organized,
validly existing, and in good standing under the laws of the State of North
Carolina and has the power and authority to own its property and to carry on its
business in each jurisdiction in which it does business.
3.2. Authority and Compliance. Each Borrower and each Guarantor has full
power and authority to execute and deliver its respective Loan Documents and to
incur and perform the Obligations provided for in its respective Loan Documents,
all of which have been duly authorized by all proper and necessary action of its
appropriate governing body. No consent or approval of any public authority or
other third party is required
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as a condition to the validity of any of the Loan Documents, and each Borrower
and each Guarantor is in compliance with all laws and regulatory requirements to
which it is subject.
3.3. Binding Agreement. This Consolidating Loan Agreement and the other Loan
Documents executed by each Borrower, and each Guarantor, as appropriate,
constitute valid and legally binding obligations of each Borrower and each
Guarantor, enforceable in accordance with their terms.
3.4. Litigation. There is no proceeding involving any Borrower or any
Guarantor pending or, to the knowledge of any Borrower or Guarantor, threatened,
before any court or governmental authority, agency or arbitration authority,
except as disclosed to Lender in writing and acknowledged by Lender prior to the
date of this Loan Agreement.
3.5. No Conflicting Agreements. There is no charter, bylaw, operating
agreement, stock provision, partnership agreement or other document pertaining
to the organization, power, or authority of any Borrower or any Guarantor and no
provision of any existing agreement, mortgage, deed of trust, indenture or
contract binding on any Borrower or any Guarantor or affecting their properties,
which would conflict with or in any way prevent the execution, delivery, or
carrying out of the terms of this Loan Agreement and the other Loan Documents.
3.6. Ownership of Assets. Each Borrower and each Guarantor has good title to
its assets, and such assets are free and clear of all judgments, liens, and
encumbrances except Permitted Liens.
3.7. Taxes. All taxes and assessments due and payable by each Borrower and
each Guarantor have been paid or are being contested in good faith by
appropriate proceedings, and each Borrower and each Guarantor has filed all tax
returns which it is required to file.
3.8. Environmental Matters. Each Borrower and each Guarantor represents and
warrants to Lender, except as may be otherwise disclosed in writing to Lender,
that any real estate owned by it (the "Real Estate") never has been and is not
now being used in violation of Environmental Laws; that no proceedings have been
commenced against any Borrower or any Guarantor concerning any alleged
violations of any Environmental Laws on or related to the Real Estate, and no
Borrower or Guarantor has any reason to know of any; that the Real Estate is
free of any hazardous or toxic substance or waste, including but not limited to,
asbestos, PCBs, petroleum products, fertilizers, animal waste, and pesticides
("Substances") and is not being used for the storage, treatment or disposal of
any Substances, or if there are any Substances on the Real Estate, the
respective Borrower or Guarantor is maintaining them in accordance with all
applicable laws; that if any Borrower or Guarantor is transporting any
Substances, such transportation is being conducted in compliance with all
applicable laws; that each Borrower and Guarantor has all required permits for
the use and discharge of any Substances on the Real Estate, and all uses and
discharges on the Real Estate are being made in compliance with such permits;
that, in the event that any of the foregoing representations and warranties is
untrue or is qualified in any way, each Borrower and each Guarantor has made a
complete disclosure to Lender of all facts which might indicate an environmental
risk or the violation of any Environmental Laws on or related to the Real
Estate.
3.9. Compliance with Laws. To its best knowledge, after due inquiry, each
Borrower and each Guarantor is in compliance with all federal, state, and local
laws, regulations and governmental requirements applicable to it or to any of
its property (including, but not limited to, laws regulating wetlands), business
operations, employees, and transactions.
3.10. Accurate Financial Information. The financial information furnished to
Lender by the Carroll's Group is complete and accurate, and no member of the
Carroll's Group has any undisclosed direct or material contingent liabilities.
The financial information provided by each Borrower, as requested by Lender, in
connection with Borrowers' application to Lender for renewal and extension of
the Loans, remains substantially accurate and no material adverse change has
occurred in the financial condition of any of the reporting entities since such
information was furnished.
3.11. Solvency. (i) Each Borrower and each Guarantor is solvent; (ii) the
pledge of the Collateral to Lender as security for the Loans did not and will
not render any Borrower insolvent; (iii) each Borrower and each Guarantor has
made adequate provision for the payment of all of its creditors other than
Lender; and (iv) no Borrower or Guarantor has entered into this transaction to
provide preferential treatment to Lender or
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any other creditor of any Borrower or any Guarantor in anticipation of seeking
relief under federal or state bankruptcy or insolvency laws.
3.12. ERISA. No employee benefit plan established or maintained, or to which
contributions have been made, by any Borrower, Guarantor, or any parent,
subsidiary or affiliate thereof, which is subject to Part 3 of Subtitle 13 of
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), had an "accumulated funding deficiency" (as such term is defined in
Section 302 of ERISA) as of the last day of the most recent fiscal year of such
plan ended prior to the date hereof, or would have had such an accumulated
funding deficiency on such day if such year were the first year of such plan to
which such Part 3 applied; and no material liability to the Pension Benefit
Guaranty Corporation has been incurred with respect to any such plan by such
party.
To the best knowledge of each Borrower, after due inquiry, each such
employee benefit plan (if any exists) complies and will comply fully with all
applicable requirements of ERISA and of the Internal Revenue Code of 1986 as
amended ("Code") and with all applicable rulings and regulations issued under
the provisions of ERISA and the Code. This Consolidating Loan Agreement and the
consummation of the transactions contemplated herein will not involve any
prohibited transaction within the scope of ERISA or Section 4975 of the Code.
3.13. Ownership of Collateral. Each Borrower, as appropriate, represents and
warrants that it is the absolute owner of the Collateral, as its interests are
represented pursuant to any security agreements, financing statements, the Deeds
of Trust, assignments, and other security documents required under Section 5.1
hereof, and that the Collateral is owned free and clear of all liens,
encumbrances, and security interests of any kind except (i) Permitted Liens, and
(ii) those granted to Lender.
3.14. Related Parties. As of the date of this Loan Agreement, Exhibit 1.45
includes all persons and entities who are or who may be deemed to be Related
Parties.
4. COVENANTS OF BORROWERS AND GUARANTORS.
4.1. Affirmative Covenants. During the term of this Consolidating Loan
Agreement:
(a) Continuation of Preclosing Conditions, Representations and
Warranties. Each Borrower and each Guarantor, as appropriate, agrees that all
conditions precedent to the making, renewing and extending of the Loans shall
remain satisfied at all times during the term of this Consolidating Loan
Agreement, and that representations and warranties made by each Borrower and
each Guarantor in this Consolidating Loan Agreement and the other Loan Documents
shall be deemed to be made at all times during the term of this Consolidating
Loan Agreement.
(b) Maintenance. Each Borrower and each Guarantor shall maintain its
respective property in good condition and repair and make all necessary
replacements thereof and repairs thereto, and preserve and maintain all
licenses, trademarks, privileges, permits, franchises, certificates and the like
necessary for the operation of its respective business.
(c) Financial Statements. Borrowers shall furnish: (i) detailed fiscal
year-end audited financial statements of each entity comprising the Carroll's
Group except Realty and Carroll's Foods of Mexico, Inc. within one hundred fifty
(150) days after the close of each fiscal year, prepared by independent
certified public accountants who are satisfactory to Lender, together with an
opinion of such accountants in form and content acceptable to Lender; (ii)
internally-prepared, detailed combined and consolidated fiscal year-end
financial statements of the Carroll's Group within thirty (30) days after the
close of each fiscal year, certified by the chief financial officer of each
respective entity to be true, correct and complete; (iii) monthly
internally-prepared financial statements of each of the entities comprising the
Carroll's Group within thirty (30) days after the close of each month and
certified by the chief financial officer or general partners (as the case may
be) of the respective entity to be true, correct and complete; and (iv) such
other information respecting the financial condition and operations of each
entity comprising the Carroll's Group as Lender from time to time reasonably may
request. All financial statements shall be prepared in accordance with GAAP,
shall be in form and content satisfactory to Lender, and shall include, without
limitation, an income or cash flow statement, balance sheet, and list of
contingent liabilities and claims. In addition, Borrowers shall provide Lender,
as requested,
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but not less than quarterly as of the last day of each March, June, September
and December during the term of the Loans, (to be provided by the 25th day of
the following month) a certificate executed by an officer of each Borrower,
certifying (i) that there has occurred no Event of Default; (ii) that Borrowers
and Guarantors are in compliance with all provisions of this Consolidating Loan
Agreement and all Loan Documents; (iii) that Swine Investment is in compliance
with all provisions of the Pledge Agreement; (iv) as to the status of each
Borrower's, Guarantor's or Swine Investment's compliance ( with specific
references to each) with each affirmative and negative covenant and continuing
representation and warranty contained in this Consolidating Loan Agreement, the
Pledge Agreement and all other Loan Documents; and (v) such other information
regarding the financial condition and operations of Borrowers, Guarantors, Swine
Investment or matters relating to the Collateral as Lender from time to time
reasonably may request.
(d) Hazard/Casualty Insurance. Each Borrower shall maintain with
financially sound and reputable insurance companies insurance of the kinds,
covering the risks, and in the amounts usually carried by entities and
individuals engaged in businesses similar to that of the respective Borrower.
Such insurance shall include, but not be limited to, comprehensive
hazard/casualty insurance on buildings and contents including, but not limited
to, such coverage on the Collateral in amounts satisfactory to Lender. Each
Borrower will exhibit or deliver such policies of insurance to Lender and
provide appropriate clauses in the insurance policies indicating Lender's status
as co-insured as to the Collateral as its interest may appear. If any Borrower
is in default hereunder, Lender shall have the right to settle and compromise
any and all claims under any policy under which Lender is listed as co-insured,
and each Borrower hereby appoints Lender as its attorney-in-fact, with power to
demand, receive, and receipt for all monies payable thereunder, to execute in
the name of Borrower or Lender or both, any proof of loss, notice, draft, or
other instruments in connection with such policies or any loss thereunder and
generally to do and perform any and all acts as the appropriate Borrower, but
for this appointment, might or could perform. Unless otherwise agreed, Lender
shall be entitled to apply the proceeds of any such policies to satisfy the
indebtedness arising under the Loans. All insurance policies provided hereunder
shall be in an amount sufficient to avoid the application of any co-insurance
provisions and must include provisions for a minimum thirty (30) day advance
written notice of any intended policy cancellation or non-renewal. The insurance
required hereunder shall be in addition to, and not a replacement for, the
insurance required under any other Loan Documents.
(e) Flood Insurance. At any time during the term of the Evergreen
RLOC, should the Real Estate Collateral, or any part of it, become located in an
area designated by the Director of FEMA as a special flood hazard area,
Borrowers shall obtain and maintain federal flood insurance, to the extent such
insurance is required and is or becomes available, for the term(s) of the
Evergreen RLOC and for the full unpaid principal balance of the Evergreen RLOC
or the maximum limit of coverage that is available, whichever is less. Borrowers
will exhibit or deliver such policies to Lender and provide appropriate clauses
in the insurance policies indicating Lender's status as co-insured under the
policy as its interest may appear.
(f) Access to Collateral and Financial Information. Each member of the
Carroll's Group shall permit any representative or agent of Lender to examine
and audit any or all of its books and records, wherever located, upon request by
Lender, and Borrowers shall permit Lender to have access to all Collateral for
purposes of inspection and evaluation at reasonable times and after reasonable
notice to the respective Borrower.
(g) Purpose of Loans. Borrowers will use the proceeds of the Loans
only for the purpose represented to Lender in Section 2.2.
(h) Material Adverse Changes. Each Borrower and each Guarantor shall
provide notice to Lender, as soon as possible, and in any event within five (5)
Business Days after any Borrower or any Guarantor becomes aware of the
occurrence of a material adverse change in its business, properties, operations,
or condition (financial or other), including notice of (i) any default occurring
with respect to any Borrower's or any Guarantor's obligations owed to any other
creditor, (ii) acceleration of any part of or demand for payment in full of any
outstanding obligation earlier than the scheduled date, or (iii) intent by any
person, firm, corporation or other entity to whom or which any Borrower or any
Guarantor is indebted to declare any debt due or determine that any provision of
any agreement between such party and the respective Borrower or Guarantor has
been violated. Such notice shall contain a statement setting forth details of
such material adverse change and the action that is proposed in response
thereto.
(i) Notice of Litigation. Each Borrower and each Guarantor shall
notify Lender promptly in the
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event that any legal action is filed or threatened against that Borrower or
Guarantor; provided however, such notice shall not be required with respect to
any matters which, if determined adversely to the respective Borrower or
Guarantor, would result in judgment liability of less than $100,000.00 when
aggregated with other then-pending litigation.
(j) Notice of Default. Each Borrower and each Guarantor shall notify
Lender immediately, by telephone followed by written notice, upon the occurrence
of any Event of Default or circumstances which, if uncured or with the lapse of
time, would create an Event of Default.
(k) Material Contracts. Upon request of Lender, Borrowers shall
provide Lender with copies of all material contracts entered into from time to
time by any member of the Carroll's Group.
(l) Borrowing Base Certificates. Borrowers shall provide to Lender, no
later than the fifteenth (15th) day of each month during the terms of the
Operating RLOC, or from time to time as requested by Lender, an Operating RLOC
Borrowing Base Certificate, calculated as of the last day of the immediately
preceding month.
(m) Registration Rights Affecting Pledged Shares. Promptly upon
request of Lender, Borrowers shall cause Swine Investment to execute and deliver
to Lender an absolute assignment of all rights of Swine Investment under that
certain Subscription Agreement dated September 3, 1992, between Smithfield and
Carroll's Foods, Inc., as amended effective as of January 31, 1995 ( the
"Subscription Agreement"). Borrowers agree to pay all costs associated with any
registration of the shares not otherwise paid by Smithfield, and to take any
action reasonably within their control to facilitate the registration of the
Pledged Shares and Additional Pledged Shares, if any, and liquidation thereof
upon the occurrence of an Event of Default, or a default in the terms of the
Pledge Agreement, or any other agreement executed in connection with this
Consolidating Loan Agreement.
(n) Subsequent Opinion of Borrowers' Counsel. Promptly, upon Lender's
request, in connection with the occurrence of an Event of Default or a default
under the terms of the Pledge Agreement, Borrowers shall furnish Lender, at
Borrowers' expense, such opinions of counsel as shall be deemed necessary or
appropriate by Lender or by Lender's counsel to facilitate or permit the
transfer of any restricted or other shares of stock included in the Collateral
and pay all costs associated with the transfer and/or registration of such
shares.
(o) Additional Disclosure and Agreements Affecting Stock Loan
Collateral. So long as any amounts are outstanding under the Stock
Loan, Borrowers shall:
(i) At all times make full disclosure to Lender of any
agreements, verbal or written, (and in the case of written
agreements, provide Lender with copies thereof), and all
other matters affecting Swine Investment, Smithfield and/or
the Stock Loan Collateral as such matters pertain to the
Stock Loan Collateral;
(ii) Furnish Lender promptly, not to exceed ten (10) days from
the filing date thereof, copies of all 10K, 10Q, 8K and/or
other filings of Smithfield which are filed with the
Securities and Exchange Commission under the Securities Act
of 1933 or the Securities Exchange Act of 1934;
(iii) Furnish Lender, promptly upon request, information regarding
any Related Parties;
(iv) Disclose promptly to Lender, upon any Borrower's knowledge
thereof, the identity of such persons or entities who are or
become Related Parties, other than those identified in
Exhibit 1.45 attached hereto, and cause such persons or
entities promptly to execute and deliver to Lender
Forbearance Agreements; and
(v) Take other actions in the control of Borrowers or Swine
Investment or execute or cause to be executed such other
documents or certificates as reasonably shall be deemed
necessary or appropriate by Lender to facilitate the
liquidation of the Stock Loan Collateral.
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4.2. Negative Covenants. During the term of this Consolidating Loan
Agreement, unless prior written consent of Lender is obtained:
(a) Reorganization. No Borrower or Guarantor shall enter into any
reorganization or consolidation, or make any substantial change in the basic
type of business now conducted by it.
(b) Name Change. No Borrower or Guarantor shall change its name or any
name in which it does business, or move its principal place of business or chief
executive office, without giving written notice thereof to Lender at least
thirty (30) days prior thereto.
(c) Merger, Sale of Assets. No Borrower or Guarantor shall enter into
any merger or consolidation or sell, lease, transfer or dispose of all or
substantially all of its assets, except in the ordinary course of business, or
take any action that would make it impossible for it to carry out its business
as now conducted.
(d) Judgments, etc. No Borrower or Guarantor shall allow any number of
judgments for the payment of money or the entry of any lien in excess of the
aggregate sum of $100,000.00, excluding amounts with respect to which an
insurance carrier admits full coverage (except for applicable deductibles), to
remain unsatisfied against it for a period of thirty (30) consecutive days,
unless execution thereof is stayed.
(e) Sale of Collateral. No Borrower shall sell, transfer, lease,
pledge, abandon or otherwise dispose of any of the Collateral, or any interest
therein, except in the ordinary course of business.
(f) Extension of Loans; Guaranties. No Borrower shall make any loans,
advances, extensions of credit to, or permit to be outstanding loans or advances
by or on behalf of Borrowers or become a guarantor, endorser, or surety for, any
person, firm, corporation or any other entity, including officers, employees,
shareholders, directors, or other executives of any Borrower, except for (i)
loans from Foods to Carroll's Processing, Inc., the proceeds of which may not be
reloaned to any entity except Carolina Turkeys, such loans being evidenced by
certain promissory notes which shall be in form and substance satisfactory to
Lender, in its sole discretion; (ii) loans from Foods to or for the benefit of
Carolina Turkeys on reasonable commercial terms approved by Lender in advance or
as required by the terms of the Carolina Turkeys partnership agreement dated
March 1, 1985, (iii) loans or advances from Foods to any or all of Jeffrey S.
Matthews, Carroll M. Arthur, James O. Matthews or any of the stockholders of
Foods in an aggregate amount not exceeding at any time $22,500,000.00; (iv)
loans from Foods to any member of the Carroll's Group or any stockholder of
Foods on reasonable commercial terms approved by Lender in advance; (v) loans or
advances from Foods to Carroll's Capital, Inc. in an amount not to exceed an
aggregate of $85,000,000.00; (vi) short-term loans or guaranties to the
employees (excluding stockholders) or contract growers of Foods in an amount not
to exceed an aggregate of $1,000,000.00; and (vii) that certain guaranty of
Foods to NationsBank of twenty percent (20%) of that certain $6,000,000.00 line
of credit facility established by NationsBank for Ag Pro Vision, Inc., provided
that such guaranty shall not exceed $1,200,000.00.
(g) Distributions, Dividends, etc. No Borrower shall declare or pay
any dividends, or distributions, or purchase, redeem, retire or otherwise
acquire for value any Borrower's capital stock now or hereafter outstanding; or
make any distribution of assets to any Borrower's stockholders as such, whether
in cash, assets, or in obligations of such Borrower; or allocate or otherwise
set apart any sum for the payment of any dividend or distribution on, or for the
purchase, redemption, or retirement of any shares of any Borrower's capital
stock; or make any other distribution by reduction of capital, or otherwise, in
respect of any shares of its capital stock; or permit any member of the
Carroll's Group to purchase or otherwise acquire for value any stock of any
Borrower or other member of the Carroll's Group; except so long as each and
every Borrower and each and every Guarantor is in compliance with all covenants
and other terms and conditions of the Loans, distributions may be made by Foods
to Jeffrey S. Matthews, Carroll M. Arthur, and James O. Matthews, in the form of
salary, dividends, and/or bonuses, provided, however, that the annual aggregate
amount of such distributions to such stockholders shall not exceed the greater
of (i) fifty percent (50%) of the net earnings for such year of Foods before the
making of such distributions to such stockholders, or (ii) $2,000,000.00 per
individual stockholder.
(h) Additional Borrowings. No Borrower shall incur direct,
conditional, or contingent liability or indebtedness for borrowed money other
than with Lender, unless such indebtedness has been approved by Lender in
writing in advance and is subject to a written subordination agreement
subordinating such
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indebtedness to the Loans, in a form satisfactory to Lender in its sole
discretion except for (i) Borrowers' respective debts to Rabobank and
NationsBank, as approved by Lender; (ii) purchase money indebtedness (including
capitalized leases) for equipment or real estate, provided that the aggregate
outstanding principal balance of all such loans and capitalized leases at no
time exceeds $750,000.00 in excess of such loans and capitalized leases
outstanding as of the Closing Date and each such loan has an initial maturity of
not greater than three (3) years; (iii) debt not to exceed in the aggregate
$2,000,000.00 incurred pursuant to an overdraft facility to be extended to Foods
by a depository institution with assets in excess of $100,000,000.00; and (iv)
debt owed by Foods to its stockholders, provided that: (A) all loans from
stockholders to Foods have been or will be made on an unsecured basis, (B) all
loans from stockholders to Foods have been or will be reflected as debt on the
financial statements of Foods, and (C) this exception applies only with respect
to stockholders of record as of the Closing Date.
For the purposes of this Section, the sale or assignment of accounts
receivable or notes receivable shall constitute incurring indebtedness for
borrowed money, and the execution of any letter of credit or similar agreement
shall constitute the incurrence of a contingent liability.
(i) Pledge, Transfer, or Encumbrance of Assets. No Borrower shall
pledge, transfer (except in the ordinary course of business), encumber, assign,
grant a security interest in, or convey any of Borrowers' assets, whether now or
hereafter owned; provided, however, that Borrowers may pledge, transfer or
otherwise encumber their assets as security for (i) Borrowers' debt to Lender,
(ii) Borrowers' debts to Rabobank and NationsBank, as approved by Lender; (iii)
purchase money indebtedness (including capitalized leases) for equipment or real
estate, provided that the aggregate outstanding principal balance(s) of all such
loans and capitalized leases at no time exceeds $750,000.00 in excess of such
loans and capitalized leases outstanding as of the Closing Date and each such
loan has an initial maturity of not greater than three (3) years, and (iv) debt
not to exceed in the aggregate $2,000,000.00 incurred pursuant to an overdraft
facility to be extended to Foods by a depository institution with assets in
excess of $100,000,000.00.
(j) Alteration of Intercreditor Loans. No Borrower shall amend,
modify, supplement, effect a release or discharge under or in any way alter any
loan documentation related to the Intercreditor Loans in the absence of ten (10)
days prior written notice thereof to Lender, which notice shall include final
drafts of the proposed amendment, modification, alteration, supplement, release
or discharge.
(k) Alteration of Material Contracts. No Borrower or Guarantor shall
amend, modify, extend, renew, or in any way alter (or allow to be amended,
modified, or in any way altered) any material contract of Borrowers or any other
member of the Carroll's Group.
4.3. Financial Covenants. At all times during the term of this Consolidating
Loan Agreement, unless prior written consent of Lender is obtained:
(a)Borrowers will maintain, on a combined basis:
(i) Working Capital. Working Capital of not less than
$20,000,000.00.
(ii) Tangible Net Worth. A Tangible Net Worth equal to at least
$157,006,140.00 plus fifty percent (50%) of Borrowers' net income (but not net
losses) for each fiscal year of Borrowers, commencing with the fiscal year
ending December 31, 1998.
(iii) Leverage Ratio. A Leverage Ratio of not more than 1.35 to
1.0 except during the months of December and January of each year when the
Leverage Ratio shall not exceed 1.50 to 1.0.
(b) The Carroll's Group, on a combined basis, will maintain a Tangible
Net Worth equal to at least $157,006,140.00 plus fifty percent (50%) of
Borrowers' net income (but not net losses) for each fiscal year of Borrowers,
commencing with the fiscal year ending December 26, 1998.
5. SECURITY FOR LOANS.
5.1. Collateral. The Loans have been and continue to be secured by the
following liens and security interests, and the Borrowers, or any one or more of
them as appropriate, and Swine Investment, shall have
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executed and delivered and will execute and deliver to Lender, as deemed
necessary by Lender in its sole discretion, appropriate security agreements,
financing statements, assignments, the Deeds of Trust, the Pledge Agreement and
other security documents required by Lender in form satisfactory to Lender,
covering the following:
(a) Operating RLOC Collateral. As collateral for the Operating RLOC:
(i) Personal Property. A first priority perfected security
interest, subject to the concurrent rights of Rabobank and NationsBank under the
Intercreditor Agreement, in all of each Borrower's now owned and hereafter
acquired or arising accounts and contract rights, inventory, farm products,
instruments, chattel paper, notes receivable, general intangibles, and other
obligations, wherever located, and all products, proceeds, and substitutions of
the foregoing;
(ii) Assignment of Contracts. An assignment of any and all
Marketing Contracts, in a form satisfactory to Lender;
(iii) Assignment of Promissory Note. An assignment (a) by Foods of
that certain $15,000,000.00 promissory note from Carroll's Processing, Inc.
dated October 26, 1990, as such note may be renewed, replaced, or substituted
from time to time, and (b) by Carroll's Processing, Inc. of all of its interest
in that certain $15,000,000.00 promissory note from Carolina Turkeys, as such
note may be renewed, replaced, or substituted from time to time; and
(iv) Assignment of Security Interest. An assignment by Foods of
its interest in a security agreement from Carolina Turkeys, which security
agreement secures all outstanding payment obligations owing by Carolina Turkeys
to Foods covering turkeys and other inventory.
(b) Evergreen RLOC Collateral. As collateral for the Evergreen RLOC:
(i) Personal Property. A first priority perfected security
interest in all equipment (including, without limitation, farm equipment),
machinery, fixtures, furniture, and leasehold improvements, wherever located,
whether now owned or hereafter acquired, and all accessions, parts or
replacements now or hereafter affixed thereto or used in connection therewith,
including without limitation, the fixtures located or to be located on the Real
Estate Collateral and all products, proceeds, and substitutions of the
foregoing; and
(ii) Real Property. A first priority perfected security interest
in or lien on the Real Estate Collateral (and all tobacco allotments appurtenant
thereto).
(c) Stock Loan Collateral. As collateral for the Stock Loan, a first
priority perfected security interest in the "Collateral" as defined in the
Pledge Agreement including, but not limited to, the Pledged Shares and
Additional Pledged Shares, and all products, proceeds and substitutions of the
foregoing.
5.2. Affirmation of Prior Liens on Real Estate Collateral. Partnership
hereby acknowledges and affirms that all advances under the Evergreen RLOC shall
be deemed future advances under the Deeds of Trust. Lender shall be provided
with title insurance, acceptable to Lender and at Borrowers' expense, in the
amount of the Evergreen RLOC.
5.3. Release of Pledged Shares/Reduction of Stock Loan Availability.
(i) Release of Pledged Shares. During the term of the Stock Loan,
provided that Borrowers, Guarantors, and Swine Investment are in full compliance
with the Stock Loan Borrowing Base requirements of Section 2.1(c) and all other
terms and conditions of this Loan Agreement and the Pledge Agreement,
respectively, and no Event of Default or default under the Pledge Agreement
exists or is continuing, Lender agrees to release, at Borrowers' expense, from
Stock Loan Collateral, such shares of the Pledged Shares (or Additional Pledged
Shares, if applicable) as Borrowers and Swine Investment may request of Lender
in writing ( the "Release Shares"). Upon receipt of Borrowers' and Swine
Investment's written request, Lender shall have three (3) Business Days from
receipt to deliver the Release Shares to Notice Borrower (on behalf of Swine
Investment) or to such securities broker or transfer agent designated in the
written request. Lender
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<PAGE>
will cooperate with Borrowers and with Swine Investment and any such securities
broker or transfer agent to confirm that the Release Shares will be released and
delivered in accordance with the foregoing.
(ii) Reduction of Stock Loan. During the term of the Stock Loan,
Lender shall have the right, in its sole discretion, upon reasonable prior
notice, to reduce the amount of the Stock Loan if the aggregate number of
Release Shares equals twenty percent (20%) or more of the number of shares
pledged to Lender as Stock Loan Collateral on the Closing Date. Any such
reduction in the Stock Loan will be in an amount determined by Lender in its
sole discretion, provided however that such reduction shall not exceed a
percentage amount commensurate with the percentage of reduction in the number of
shares pledged as Stock Loan Collateral.
5.4. Lender Equities. All equities (including allocated surplus) owned by
Borrowers in Lender shall secure the Loans and may be applied (at Lender's
discretion) against the Loans upon the occurrence of an Event of Default.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
event of default ("Event of Default"):
6.1. Payment. Any payment of principal, interest, or other sum owed to
Lender under the Loan Documents or otherwise due from Borrowers, or any
Borrower, to Lender is not made when due or any payment of principal, interest,
or other sum owed to Rabobank or NationsBank under any credit agreement,
promissory note, deed of trust, security agreement or other security or loan
document from Borrowers to either of Rabobank or NationsBank, whether now
existing or hereafter arising, is not made when due.
6.2 Performance. Borrowers or Guarantors fail to perform according to the
terms of this Loan Agreement or permit conditions to arise or exist so that
performance would be rendered hazardous or unduly difficult for Lender.
6.3. Existence. Failure of any Borrower or any Guarantor to maintain its
existence in good standing.
6.4. Dissolution or Bankruptcy. (a) Any Borrower, any Guarantor, or Swine
Investment commences dissolution procedures, terminates its existence, enters
into liquidation, becomes insolvent, experiences business failure, requests
appointment of a receiver of any part of its property, enters into an assignment
for the benefit of creditors, or enters any proceeding under state or federal
bankruptcy laws or other insolvency laws, (b) any Borrower, any Guarantor, or
Swine Investment has an involuntary proceeding commenced against it under state
or federal bankruptcy laws or other insolvency laws which proceeding is not
dismissed within ninety (90) days after its commencement, (c) any Borrower, any
Guarantor, or Swine Investment enters into a merger or consolidation or sale of
its assets, which sale has not been consented to by Lender, other than a sale of
assets in the ordinary course of business, or (d) any Borrower's, any
Guarantor's, or Swine Investment's ownership changes, other than by devise or
descent, without the prior written consent of Lender.
6.5. Judgments. The entry of any monetary judgment or the assessment or
filing of any tax lien against any Borrower or Borrowers in the aggregate in
excess of $100,000.00, or the issuance of any writ of garnishment or attachment
against any property, debts due or rights of any Borrower, specifically
including the commencement of any action or proceeding to seize moneys of any
Borrower on deposit in any bank account owned by any Borrower, which is not
promptly paid or stayed.
6.6. Additional Defaults. Any provision or covenant of the Loan Documents or
any other agreement between Borrowers (or any of them) and Lender or any other
creditor or lender, including without limitation Rabobank and NationsBank, is
breached, or any warranty, representation, or statement made or furnished to
Lender or any other creditor or lender by any Borrower or Guarantor in
connection with the Loans, the Loan Documents, or any other agreement between
Borrowers (or any of them) and Lender or any other creditor or lender, including
without limitation Rabobank and NationsBank, (including any warranty,
representation, or statement in any Borrower's or Guarantor's financial
statements) or to induce Lender to make the Loans, is untrue or misleading in
any material respect.
6.7. Adverse Change. There shall be any material adverse change(s) in the
business, properties, assets, or conditions (financial or otherwise) of any
Borrower.
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6.8. Cross-Default. Any default by any Borrower, any Guarantor, or Swine
Investment occurs under any agreement with Lender, Rabobank, or NationsBank or
another financial institution, whether now existing or hereafter arising, which
default is not corrected within the cure period provided in such agreement, if
any.
7. LENDER'S REMEDIES. In addition to any remedies available to Lender under the
Notes, the Guaranties, and other Loan Documents, the Lender shall have the
following remedies:
7.1. Acceleration. Upon the occurrence of an Event of Default, Lender, at
its option, may declare the entire unpaid principal amount of the Loans, accrued
interest, and all other Obligations immediately due and payable, without
presentment, demand, or notice of any kind to Borrowers or Guarantors.
7.2. Other Remedies. Upon the occurrence of an Event of Default, Lender
shall be entitled to pursue all rights and remedies available under each of the
Loan Documents, as well as all rights and remedies available at law, or in
equity, and such rights and remedies shall be cumulative. Without in any way
limiting the generality of the foregoing, Lender also shall have the following
non-exclusive rights:
(a) Immediate Possession of Collateral. To take immediate possession
of all Collateral, whether now owned or hereafter acquired, without notice,
demand, presentment, or resort to legal process, and, for those purposes, to
enter any premises where any of the Collateral is located and remove the
Collateral therefrom or render it unusable;
(b) Assembly of Collateral. To require Borrowers to assemble and make
the Collateral available to Lender at a place to be designated by Lender which
is also reasonably convenient to Borrowers;
(c) Sale of Personal Property. To retain all non-real estate
Collateral in full or partial satisfaction of any unpaid Obligations as provided
in the North Carolina Uniform Commercial Code or sell the Collateral at public
or private sale after giving at least ten (10) days' notice of the time and
place of the sale, with or without having the Collateral physically present at
the place of the sale (such notice constituting reasonable notice under the
North Carolina Uniform Commercial Code);
(d) Set-off. To exercise any and all rights of set-off which Lender
may have against any account, fund, or property of any kind, tangible or
intangible, belonging to Borrowers (or any of them) which shall be in Lender's
possession or under its control (including equities owned by Borrowers in Lender
as described in Section 5);
(e) Cure. To cure any Event of Default in such manner as deemed
appropriate by Lender;
(f) Foreclosure. To foreclose pursuant to the terms of any Loan
Documents, or at law or in equity.
7.3. Expenses. In the event of occurrence of an Event of Default hereunder,
if suit is instituted by Lender to collect any unpaid balance(s) owed by
Borrowers hereunder, or if Lender deems it necessary or proper to employ an
attorney to acquire possession of any Collateral securing Borrowers' Obligations
and/or to enforce this Consolidating Loan Agreement and all Loan Documents or
otherwise to protect Lender's interests hereunder, including representation in
proceedings in bankruptcy, Borrowers agree to pay all collection and legal
expenses and the reasonable attorneys' fees paid or incurred hereunder by
Lender.
7.4 Proceeds. The proceeds from any disposition of the Collateral shall be
used to satisfy the following items in the order they are listed:
(a) The expenses of taking, removing, storing, holding, maintaining
and selling the Collateral and otherwise enforcing the rights of Lender under
the Loan Documents, including any legal costs and attorney fees;
(b) The expense of liquidating or satisfying any liens, security
interests, or encumbrances on the Collateral which may be prior to the security
interest of Lender that Lender, at its option, elects to satisfy;
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(c) Any unpaid fees, accrued interest and other sums due Lender with
respect to Loan Documents, and the then unpaid principal amount of the Loans;
(d) Any other Obligations.
7.5. Resort to Borrowers or Guarantors. Lender, at its option, may pursue
any and all rights and remedies directly against Borrowers, Guarantors, any
Borrower, any Guarantor, or Swine Investment without resort to any Collateral.
7.6. Deficiency. To the extent that the proceeds realized from the
disposition of the Collateral shall fail to satisfy any of the foregoing items,
Borrowers shall remain liable to pay any deficiency to Lender.
7.7. Advances/Reimbursements. All amounts advanced by Lender under the Loan
Documents, or due Lender as a result of expenditures made by Lender or losses
suffered by Lender, shall bear interest at the rate applicable to past due
principal as specified in the Notes or herein from the date demanded until paid
in full. Unless otherwise specified in the Loan Documents, such advances and
other sums, together with accrued interest, shall be due and payable on demand.
7.8. Default Rate of Interest. If Borrowers shall fail to pay within fifteen
(15) days following the due date therefor, whether by acceleration or otherwise,
any principal or interest owing under the Loans, or any of them, then interest
shall accrue on the entire unpaid principal balance of the Loans or the
respective Loan, from the date thereof until and including the date on which
such amount is paid in full at a rate of interest equal to the LIBOR Variable
Rate (as defined in the Notes), plus an additional two percent (2%) per annum
(200 basis points). The increase of such interest rates shall not affect or
otherwise limit or apply in lieu of any other remedy available to Lender as
provided for herein or under applicable law.
8. MISCELLANEOUS.
8.1. Notice. All notices, demands, or other communications given under the
Loan Documents shall be in writing, and shall be mailed to the address of the
Notice Borrower as set forth in Schedule 8.1 attached hereto (or as set forth in
any other Loan Document), said mailing to be certified United States government
mail to the mailing address, with notice in each case to be effective when sent.
Any party may provide written direction to the others to change the address to
which notices shall be sent.
8.2. Waiver. No failure or delay on the part of Lender in exercising any
power or right hereunder, and no failure of Lender to give Borrowers notice of
an Event of Default, shall operate as a waiver thereof, and no single or partial
exercise of any such right or power shall preclude any other or further exercise
thereof or the exercise of any other right or power hereunder. No modification
or waiver of any provision of any Loan Document or consent to any departure by
Borrowers from any Loan Document shall be effective unless the same shall be in
writing and signed by Lender, Borrowers, and Guarantors, and any such waiver or
consent shall be effective only in the specific instance and for the particular
purpose for which it was given.
8.3. Benefit. The Loan Documents shall be binding upon and shall inure to
the benefit of Borrowers, Guarantors, and Lender and their respective permitted
successors, assigns and participants and subparticipants.
8.4. Governing Law and Jurisdiction. The Loan Documents and this
Consolidating Loan Agreement, unless otherwise specifically provided therein,
and all matters relating thereto, shall be governed by and construed and
interpreted in accordance with the laws of the State of North Carolina, except
as superseded by applicable United States federal law.
8.5. Assignment. Lender may assign the Loan Documents, in whole or in part,
to any other person or entity; provided, however, that Lender shall provide to
Borrowers ninety (90) days' prior notice of its intent to assign. In the event
of such assignment, Lender thereafter shall be relieved of all liability
hereunder (excluding causes of action for Lender's gross negligence or
intentional acts prior to such transfer). Further, Lender may sell one or more
participation interests in the Loans or any one or more of them and/or assign
the Loan Documents, or any interest therein, to AgFirst, Farm Credit Bank, its
successors and assigns and subparticipants, without any notice whatsoever to
Borrowers. Borrowers hereby authorize Lender to disclose
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<PAGE>
all information (including financial) provided to Lender by Borrowers in
connection with the Loans to any actual or prospective participant,
subparticipant, or assignee of all or part of the Loans. Borrowers may not
assign the Loan Documents or any interest therein without Lender's prior written
consent.
8.6. Severability. Invalidity of any one or more of the terms, conditions,
or provisions of this Consolidating Loan Agreement in no way shall affect the
balance hereof, which shall remain in full force and effect.
8.7. Construction. Whenever the context and construction so require, all
words used in the singular number herein shall be deemed to have been used in
the plural, and vice versa, and the masculine gender shall include the feminine
and neuter and the neuter shall include the masculine and feminine. All
references to Sections shall mean Sections of this Consolidating Loan Agreement.
The terms "herein," "hereinbelow," "hereunder," and similar terms are references
to this Consolidating Loan Agreement in its entirety and not merely the
particular Article, Section, Schedule or Exhibit in which any such term appears.
Captions are inserted only as a matter of convenience and for reference and in
no way define, limit or describe the scope of this Consolidating Loan Agreement
or the intent of any provision hereof. All references to any Loan Document shall
include all amendments, extensions, renewals, restatements, or replacements of
the same. The terms "include", "including", and similar terms shall be construed
as if followed by the phrase "without being limited to" and "Real Estate" and
"Collateral" shall be construed as if followed by the phrase "or any part
thereof." No inference in favor of any party shall be drawn from the fact that
such party has drafted any portion of the Loan Document. In the event of any
inconsistency between the terms of this Consolidating Loan Agreement and any
other Loan Document (with the exception of the Notes), the terms of this
Consolidating Loan Agreement shall control, provided that any provision of any
Loan Document, other than this Consolidating Loan Agreement, which imposes
additional Obligations upon Borrower or provides additional rights or remedies
to Lender shall be deemed to be supplemental to, and not inconsistent with, this
Consolidating Loan Agreement.
8.8. Execution in Counterparts. All Loan Documents may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument, and in making proof of the
Loan Document, it shall not be necessary to produce or account for more than one
such counterpart.
8.9. Examinations/Communications. Lender's examinations, inspections, or
receipt of information pertaining to the matters set forth in the Loan Documents
shall not in any way be deemed to reduce the full scope and protection of the
Loan Documents or the Obligations of Borrowers related to the Loan Documents.
Borrowers agree that Lender shall have no duty or obligation of any nature to
(i) make any investigation, inspection or review regarding any Collateral at any
time, with any such investigation that is undertaken being solely for the
benefit of Lender; or (ii) communicate in any manner with Borrowers,
irrespective of the fact that Lender's information, or lack thereof, could be
material to Borrowers' actions with respect to the Obligations.
8.10. No Third Party Beneficiaries. The Loan Documents are entered into for
the sole benefit of Borrowers, Guarantors, and Lender, their respective
successors, assigns and participants, and no third party shall be deemed to have
any privity of contract or any right to rely on any Loan Document to any extent
or for any purpose whatsoever, and no other person shall have any right of
action of any kind hereunder or be deemed to be a third party beneficiary.
8.11. No Participation. Nothing in the Loan Documents, and no action or
inaction whatsoever on the part of Lender through the Closing Date, shall be
deemed to make Lender a partner or joint venturer with Borrowers, and Borrowers
agree to indemnify and hold Lender harmless from and against any and all claims,
losses, causes of action, expenses (including attorneys' fees) and damages
arising from the relationship between Lender and Borrowers being construed as
determined to be anything other than that of lender and borrower. This provision
shall survive the termination of all Loan Documents.
8.12. Notice of Conduct. Borrowers shall give Lender immediate written
notice of any action or inaction by Lender or any agent or attorney of Lender in
connection with the Loan Documents or the Obligations of any party under the
Loan Documents that may be actionable against Lender or any agent or attorney of
Lender or a defense to payment of any Obligations of Borrowers, including
commission of a tort or violation of any contractual duty implied by law, and a
reasonable opportunity to cure or correct such action or inaction. Upon request
of Lender from time to time, Borrowers also shall confirm to Lender in writing
the status of the
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Loans, and the Obligations, and provide other information reasonably requested
by Lender.
8.13. Limitation of Damages. No party shall be liable to the other for
incidental, consequential or speculative damages arising from any breach of
contract, tort or other wrongful conduct in connection with the negotiation,
documentation, administration, or collection of the Loans, but only for the
actual direct loss suffered by said party.
8.14. Costs, Expenses and Attorneys' Fees. Borrowers shall pay to Lender
immediately upon demand the full amount of all reasonable out-of-pocket costs
and expenses, including reasonable attorneys' fees, costs of experts and all
other expenses, incurred by Lender (a) in connection with the negotiation,
preparation, modification, renewal, restatement and replacement of this
Consolidating Loan Agreement and each of the other Loan Documents; (b) upon the
occurrence of an Event of Default, or of circumstances which, if left uncured,
would result in an Event of Default, the costs of additional appraisals,
environmental studies, title insurance, survey updates and legal reviews, such
costs to be incurred for reasonable cause; (c) the perfection, preservation,
protection and continuation of the liens and security interests granted Lender
in the Collateral, and the custody, preservation, protection, repair and
operation of any of the Collateral; (d) the pursuit by Lender of its rights and
remedies under the Loan Documents and applicable law; and (e) defending any
counterclaim, cross-claim or other action, or participating in any bankruptcy
proceeding, mediation, arbitration, litigation, or dispute resolution of any
other nature involving Lender, Borrowers, Guarantors, or any Collateral.
8.15. Further Assurances. At any time after the Closing Date, Borrowers, at
the request of Lender, shall execute and deliver such further documents and
agreements and take such further actions as Lender reasonably deems necessary or
appropriate to permit each transaction contemplated by the Loan Documents to be
consummated in accordance with the provisions thereof and to perfect, preserve,
protect and continue all liens, security interests and rights of Lender under
the Loan Documents, security agreements, financing statements, continuation
statements, new or replacement notes, and/or agreements supplementing, extending
or otherwise modifying the Notes, this Consolidating Loan Agreement, and/or any
security agreement, and certificates as to the amount of the indebtedness
evidenced by the Notes. Borrowers irrevocably constitute and appoint Lender as
their attorney-in-fact, with full power of substitution, such appointment being
coupled with an interest, to enforce Lender's rights with respect to the above
further assurances.
8.16. Incorporation by Reference. This Consolidating Loan Agreement is
incorporated by reference into various Loan Documents, and shall govern each and
every Loan Document. In executing any Loan Document, the signatories thereto
other than Lender expressly agree to be bound by all provisions of this
Consolidating Loan Agreement pertaining to Borrowers and Guarantors, as
applicable.
8.17. Time of the Essence. Time is of the essence to all Loan Documents.
8.18. Ratification: Borrowers and Guarantors hereby ratify and confirm the
terms and conditions of the Original Loan Agreement, as amended, and the Stock
Loan Agreement, as amended, each as defined in the Factual Background statement
hereof, as the same are modified, amended and consolidated in this Consolidating
Loan Agreement.
8.19. No Novation: Borrower and Guarantors agree that the execution of this
Consolidating Loan Agreement shall constitute a modification, amendment and
consolidation of the terms of the Original Loan Agreement, as amended, and the
terms of the Stock Loan Agreement, as amended, each as defined in the Factual
Background statement hereof, and the loans evidenced thereby, and shall not be
construed as a novation. The Parties hereby acknowledge their intent that this
Consolidating Loan Agreement will not disturb
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the existing priority of the Loan Documents. The Parties intend that the
security interests evidenced by the Loan Documents retain the same priority as
when originally executed, delivered, and as applicable, recorded, as if this
Consolidating Loan Agreement were executed, tendered and delivered as of the
respective dates of the Loan Documents.
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BORROWERS:
ATTEST: CARROLL'S FOODS, INC.
/s/ By: /s/ F. J. Faison, Jr.
- ----------------------- ------------------------
Assistant Secretary Its: President
[Corporate Seal]
ATTEST: CARROLL'S REALTY, INC.
/s/ By: /s/ F. J. Faison, Jr.
- ----------------------- ------------------------
Assistant Secretary Its: President
[Corporate Seal]
CARROLL'S REALTY PARTNERSHIP (SEAL)
ATTEST: By: Carroll's Foods, Inc., General Partner
/s/ By: /s/ F. J. Faison, Jr.
- ----------------------- ------------------------
Assistant Secretary Its: President
[Corporate Seal]
ATTEST: By: Carroll's Realty, Inc., General Partner
/s/ By: /s/ F. J. Faison, Jr.
- ----------------------- ------------------------
Assistant Secretary Its: President
[Corporate Seal]
GUARANTORS:
ATTEST: CARROLL'S PROCESSING, INC.
/s/ By: /s/ F. J. Faison, Jr.
- ----------------------- ------------------------
Assistant Secretary Its: President
[Corporate Seal]
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ATTEST: CARROLL'S CAPITAL, INC.
/s/ By: /s/ F. J. Faison, Jr.
- ----------------------- ------------------------
Assistant Secretary Its: President
[CORPORATE SEAL]
ATTEST: CARROLL'S FOODS OF THE MIDWEST, INC.
/s/ By: /s/ F. J. Faison, Jr.
- ----------------------- ------------------------
Assistant Secretary Its: President
[CORPORATE SEAL]
ATTEST: CARROLL'S FOODS OF MEXICO, INC.
/s/ By:/s/ F.J. Faison, Jr.
- ----------------------- ------------------------
Assistant Secretary Its: President
[Corporate Seal]
CARROLL'S FOODS OF BRAZIL, LLC
/s/ By:/s/ F. J. Faison, Jr.
- ----------------------- ------------------------
Its: Manager
LENDER:
CAPE FEAR FARM CREDIT, ACA
(SEAL)
By: /s/ C. R. Edwards
------------------------
Its: Vice President
22
Loan and Loan Document Modification Agreement
Relating, Inter Alia, To That Certain Consolidating Loan Agreement
Dated as of August 28, 1998
By and Among
Cape Fear Farm Credit, ACA ("Lender")
and
Carroll's Foods, Inc. ("Foods"), Carroll's Realty, Inc. ("Realty"),
and Carroll's Realty Partnership ("Partnership")
(Foods, Realty and Partnership, collectively, "Borrowers", and each,
individually, a "Borrower"); and Loan Documents Related Thereto
This Loan and Loan Document Modification Agreement (the "Agreement")
executed to be effective as of May 7, 1999 by and among Lender, Borrowers and
Guarantors (as defined hereinbelow) (collectively, the "Parties").
PRELIMINARY STATEMENT
A. Lender previously has made, pursuant to that certain Consolidating Loan
Agreement dated as of August 28, 1998 by and among Lender, Borrowers and others
(the "Loan Agreement"), loans to Borrowers as follows:
(i) A revolving line of credit in the original principal amount of
up to $65,000,000 (the "Operating RLOC"),
(ii) A revolving line of credit in the original principal amount of
up to $80,000,000 (the "Evergreen RLOC"), and
(iii) A revolving line of credit in the original principal amount of
up to $50,000,000 (the "Stock Loan").
B. Smithfield Foods, Inc. and/or certain of its subsidiaries/affiliates
have entered into certain transactions (the "Transactions") with Borrowers
and/or certain of their affiliates, which Transactions are more specifically
described on Exhibit A attached hereto and incorporated herein by reference.
C. Lender has previously provided its consent to the Transactions and
waiver of certain violations of or defaults under the Loan Agreement which would
have occurred as a result of the Transactions, which consent and waiver was
provided by letter dated May 3, 1999 from Lender to C. Larry Pope, Vice
President-Finance, Smithfield Foods, Inc. (the "Waiver and Consent Letter"), a
copy of which is attached hereto as Exhibit B; PROVIDED HOWEVER, that such
consent and waiver was conditioned, among other things, upon the provision of an
unconditional guaranty by Smithfield Foods, Inc. of Borrower's obligations under
the Operating RLOC and the Evergreen RLOC, and upon certain amendments and
modifications of the Loan Agreement and loan documents pertaining thereto.
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D. Lender, Borrowers, and Guarantors now desire to modify the Loan
Agreement and the Loan Documents (as defined in the Loan Agreement) to effect
the intent of Parties as set forth in the Waiver and Consent Letter. Except as
otherwise modified herein, all terms used herein shall have the meaning as set
forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises set forth in the
foregoing Preliminary Statement, and in consideration of the mutual promises
contained hereinbelow and of other good and valuable consideration, the receipt,
sufficiency and adequacy of which the Parties do hereby acknowledge, the Parties
do hereby agree as follows:
A. AMENDMENT TO LOAN AGREEMENT; CONSENTS REQUIRED THEREUNDER.
1. The Loan Agreement is hereby amended as follows:
(a) Any references to the "Consolidating Loan Agreement" shall
mean the Loan Agreement as amended by this Agreement.
(b) Lender's obligation to make any advances under the Stock Loan
is hereby terminated and any provisions contained in the Loan
Agreement related thereto or to the administration thereof or
the collateral security therefor are hereby deleted. Further,
any impositions upon or obligations of Swine Investment under
the Loan Agreement are hereby terminated, and any reference
thereto is hereby deleted.
(c) Article 1, Definitions is amended as follows:
(i) The following sections are hereby deleted: 1.1, 1.16,
1.23, 1.27, 1.39, 1.40, 1.45, 1.47, 1.48, 1.49, 1.50,
1.51, 1.53, 1.54, and 1.55.
(ii) The following definition is added in the appropriate
alphabetical order:
o "Chase Manhattan Facilities" means those certain
loan facilities extended to Smithfield under a
credit agreement dated July 15, 1997, as amended,
among Smithfield and Chase Manhattan Bank, N.A.,
as administrative agent for certain lenders.
(iii) The following definitions are amended:
o Section 1.13 is amended to read as follows:
"Evergreen RLOC Maturity Date" means November 1,
1999.
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o Section 1.20 is amended to read as follows:
"Guarantor" means, individually, Carroll's
Turkeys, Inc., Carroll's Capital, Inc., Carroll's
Foods of Mexico, Inc., Carroll's Foods of Brazil,
LLC, and Smithfield.
o Section 1.24 is amended to delete the phrase "the
Pledge Agreement, Forbearance Agreements,"
therefrom.
o Section 1.25 is amended to read as follows:
"Loans" means the Operating RLOC and the Evergreen
RLOC as described in Section 2.1.
o Section 1.30 is amended to read as follows:
"Notes" means the Operating RLOC Note and the
Evergreen RLOC Note.
o Section 1.36 is amended to read as follows:
"Operating RLOC Maturity Date" means November 1,
1999.
o Section 1.46 is amended to read as follows:
"Smithfield" means Smithfield Foods, Inc., a
Virginia corporation.
(c) Section 4.1(c) is amended to read as follows:
(c) Financial Statements. Borrowers shall furnish (i)
monthly internally-prepared financial statements of each of
the entities comprising the Carroll's Group within thirty (30)
days after the close of each month and certified by the chief
financial officer or general partners (as the case may be) of
the respective entity to be true, correct and complete; and
(ii) such other information respecting the financial condition
and operations of each entity comprising the Carroll's Group
as Lender from time to time reasonably may request. All
financial statements shall be prepared in accordance with
GAAP, shall be in form and content satisfactory to Lender, and
shall include, without limitation, an income or cash flow
statement, balance sheet, and list of contingent liabilities
and claims.
(d) Section 4.1(h) is amended to insert the phrase "of such entity
and its subsidiaries, taken as a whole," following the phrase
"material adverse change" occurring in the third line thereof.
(e) Section 4.2(f) is amended to read as follows:
(f) Extension of Loans; Guaranties. No Borrower shall
make any loans, advances, extensions of credit to, or permit
to be outstanding loans or advances by or on behalf of
Borrowers, or any one or more of them, or become a guarantor,
endorser, or surety for, any person, firm, corporation or
3
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any other entity, including officers, employees, shareholders,
directors, or other executives of any Borrower, except for (i)
loans from Foods to Carroll's Processing, Inc., the proceeds
of which may not be reloaned to any entity except Carolina
Turkeys, such loans being evidenced by certain promissory
notes which shall be in form and substance satisfactory to
Lender, in its sole discretion; (ii) loans from Foods to or
for the benefit of Carolina Turkeys on reasonable commercial
terms approved by Lender in advance or as required by the
terms of the Carolina Turkeys partnership agreement dated
March 1, 1985; (iii) loans from Foods to any member of the
Carroll's Group on reasonable commercial terms approved by
Lender in advance; (iv) loans or advances from Foods to
Carroll's Capital, Inc. in an amount not to exceed an
aggregate of $85,000,000.00; (v) short-term loans or
guaranties to the employees (excluding stockholders) or
contract growers of Foods in an amount not to exceed an
aggregate of $1,000,000.00; and (vii) that certain guaranty of
Foods to NationsBank of twenty percent (20%) of that certain
$6,000,000.00 line of credit facility established by
NationsBank for Ag Pro Vision, Inc., provided that such
guaranty shall not exceed $1,200,000.00.
(f) Section 4.2(g) is amended to read as follows:
(g) Distributions, Dividends, etc. No Borrower shall
declare or pay any dividends or distributions, or purchase,
redeem, retire or otherwise acquire for value any Borrower's
capital stock now or hereafter outstanding; or make any
distribution of assets to any Borrower's stockholders as such,
whether in the form of cash, assets, or in obligations of such
Borrower; or allocate or otherwise set apart any sum for the
payment of any dividend or distribution on, or for the
purchase, redemption, or retirement of any shares of any
Borrower's capital stock; or make any other distribution by
reduction of capital, or otherwise, in respect of any shares
of its capital stock; or permit any member of the Carroll's
Group to purchase or otherwise acquire for value any stock of
any Borrower or other member of the Carroll's Group.
(g) Section 4.2(h) is amended to read as follows:
(h) Additional Borrowings. No Borrower shall incur
direct, conditional, or contingent liability or indebtedness
for borrowed money other than with Lender, unless such
indebtedness has been approved by Lender in writing in advance
and is subject to a written subordination agreement
subordinating such indebtedness to the Loans, in a form
satisfactory to Lender in its sole discretion except for (i)
Borrowers' debts to Rabobank, as approved by Lender; (ii)
purchase money indebtedness (including capitalized leases) for
equipment or real estate, provided that the aggregate
outstanding principal balance of all such loans and
capitalized leases at no time exceeds $750,000.00 in excess of
such loans and capitalized leases outstanding as of the
Closing Date and each such loan has an initial maturity of not
greater than
4
<PAGE>
three (3) years; (iii) debt not to exceed in the aggregate
$2,000,000.00 incurred pursuant to an overdraft facility to be
extended to Foods by a depository institution with assets in
excess of $100,000,000.00; and debt to Smithfield and/or its
subsidiaries, which debt is unsecured and is subordinated, on
terms satisfactory to Lender, to all obligations of Borrowers
to Lender.
(h) Section 4.2(i), subsection (ii) is amended to delete the
phrase "and NationsBank" therefrom.
(i) Section 4.3 is hereby deleted.
(j) Section 6.1 is amended to delete the phrase "or NationsBank"
occurring in the third line and the fifth line thereof.
(k) Section 6.6 is amended to delete the phrase "and NationsBank"
occurring in the third line and the sixth line thereof.
(l) Section 6.7 is amended to insert the phrase "taken as a whole"
following the word "Borrower".
(m) Section 6.8 is amended to read as follows:
Cross-Default. (i) Any default by any Borrower or any
Guarantor occurs under any agreement with Lender or Rabobank
or another financial institution, whether now existing or
hereafter arising, or (ii) any default by Smithfield under the
Chase Manhattan Facilities; which default is not corrected
within the cure period, if any, provided in any such agreement
or under the Chase Manhattan Facilities.
2. The consent of Lender is hereby given with respect to the
Transactions and, to the extent that any or all of the Transactions
violate or result in the violation of any term or condition of the
Loan Agreement, as amended hereby, which violation would constitute
a default or event of default thereunder, Lender hereby waives any
and all rights with regard thereto.
3. Carroll's Processing, Inc. and Carroll's Foods of the Midwest are
hereby released as Guarantors.
4. Carroll's Turkeys, Inc. hereby agrees to provide its unconditional
guaranty of payment and performance of the Loans, on terms
satisfactory to Lender, simultaneously with the execution of this
Agreement.
B. AMENDMENT OF NOTES.
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<PAGE>
1. The Operating RLOC Note is hereby amended to delete the phrase "the
Operating RLOC Maturity Date" and insert the phrase "November 1,
1999", in the place thereof.
2. The Evergreen RLOC Note is hereby amended to delete the phrase "the
Evergreen RLOC Maturity Date" and insert the phrase "November 1,
1999", in the place thereof.
C. AMENDMENT OF LOAN DOCUMENTS. Each and every Loan Document is
hereby amended to the extent necessary that such Loan Document shall be
interpreted in a manner consistent with the terms and conditions of this
Agreement.
D. MISCELLANEOUS.
1. Each Borrower and each Guarantor hereby confirms the representations
and warranties as set forth in Article 3 of the Loan Agreement,
except as amended hereby, as and when originally made, and further
represents and warrants that the summary of the Transactions set
forth in Exhibit A is true and correct.
2. Each Borrower and each Guarantor hereby agrees to execute and
deliver to Lender, promptly upon request from Lender, such other and
further documents and assurances as reasonably may be necessary or
appropriate to consummate the transactions contemplated herein or to
perfect or continue the perfection of any liens contemplated hereby.
Such documents and assurances shall include, as conditions precedent
to this Agreement, among other things, the following:
(a) An unlimited, unconditional guaranty of Smithfield Foods,
Inc., on a form satisfactory to Lender and its counsel, of all
obligations of Borrowers under the Loan Agreement and the Loan
Documents;
(b) Evidence, to the satisfaction of Lender and counsel, of the
due authorization of each Borrower and Guarantor to enter into
and perform its respective obligations hereunder; and
(c) An opinion of counsel for each Borrower and Guarantor, in form
and content satisfactory to Lender and its counsel, opining,
among other things, as to the due organization and good
standing of each Borrower and Guarantor, the authorization of
each Borrower and Guarantor to enter into the transactions
contemplated hereunder, and the continuing enforceability of
the Loan Documents, as modified hereby, in accordance with
their respective terms.
3. This Agreement may be executed in two (2) or more counterparts, each
of which shall be deemed an original, but all of which shall
constitute one in the same instrument, and in making proof of this
Agreement, it shall not be necessary to produce or account for more
than one such counterpart.
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<PAGE>
4. This Agreement is not a novation and, except as otherwise modified
hereby, the terms and provisions of the Loan Agreement, the Loans,
and any and all Loan Documents shall remain in full force and effect
and shall continue to be secured by the Collateral therefor with the
same force, effect and priority.
5. This Agreement, along with the Loan Agreement and the Loan
Documents, represents the full agreement of the Parties and
supersedes any other existing agreements, written or oral.
In witness whereof, the Parties have executed this Agreement to be
effective as of the date first written above.
BORROWERS:
ATTEST: CARROLL'S FOODS, INC.
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- ------------------------------ ----------------------------------
Assistant Secretary Its: President
[Corporate Seal]
ATTEST: CARROLL'S REALTY, INC.
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- ------------------------------ ----------------------------------
Assistant Secretary Its: President
[Corporate Seal]
CARROLL'S REALTY PARTNERSHIP (SEAL)
ATTEST: By: Carroll's Foods, Inc., General Partner
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- ------------------------------ ----------------------------------
Assistant Secretary Its: President
[Corporate Seal]
ATTEST: By: Carroll's Realty, Inc., General Partner
7
<PAGE>
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- ------------------------------ ----------------------------------
Assistant Secretary Its: President
[Corporate Seal]
GUARANTORS:
ATTEST: CARROLL'S TURKEYS, INC.
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- ------------------------------ ----------------------------------
Assistant Secretary Its: President
[Corporate Seal]
ATTEST: CARROLL'S CAPITAL, INC.
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- ------------------------------ ----------------------------------
Assistant Secretary Its: President
[CORPORATE SEAL]
ATTEST: CARROLL'S FOODS OF MEXICO, INC.
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- ------------------------------ ----------------------------------
Assistant Secretary Its: President
[Corporate Seal]
CARROLL'S FOODS OF BRAZIL, LLC
[SEAL] By: /s/Aaron D. Trub
- ------------------------------ --------------------------------------
Its: Manager
8
<PAGE>
ATTEST: SMITHFIELD FOODS, INC.
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- ------------------------------ ----------------------------------
Assistant Secretary Its: Vice President
[Corporate Seal]
LENDER:
CAPE FEAR FARM CREDIT, ACA
By: /s/ C. Royer Edwards
----------------------------------
Its: Vice President
9
UNCONDITIONAL GUARANTY
DATED: MAY 7, 1999
BORROWERS: CARROLL'S FOODS, INC., CARROLL'S REALTY, INC.,
AND CARROLL'S REALTY PARTNERSHIP
GUARANTOR: SMITHFIELD FOODS, INC.
LENDER: CAPE FEAR FARM CREDIT, ACA, FAYETTEVILLE, CUMBERLAND
COUNTY, NC 28302
PRELIMINARY STATEMENT
A. Lender previously has made, pursuant to that certain Consolidating Loan
Agreement dated as of August 28, 1998 by and among Lender, Borrowers and others
(the "Loan Agreement"), loans to Borrowers as follows:
(i) A revolving line of credit in the original principal amount of
up to $65,000,000 (the "Operating RLOC"),
(ii) A revolving line of credit in the original principal amount of
up to $80,000,000 (the "Evergreen RLOC"), and
(iii) A revolving line of credit in the original principal amount of
up to $50,000,000 (the "Stock Loan").
B. Smithfield Foods, Inc. and/or certain of its subsidiaries/affiliates
(the "SF Acquiring Parties") have entered into certain transactions (the
"Transactions") with Borrowers and/or certain of their affiliates (the "SF
Acquired Parties"), (which transactions are more specifically described on
Exhibit A attached hereto and incorporated herein by reference) whereby the SF
Acquiring Parties will own, as their interests appear, all of the stock of the
SF Acquired Parties.
C. Lender has previously provided its consent to the Transactions and
waiver of certain violations of or defaults under the Loan Agreement which would
have occurred as a result of the Transactions, which consent and waiver was
provided by letter dated May 3, 1999 from Lender to C. Larry Pope, Vice
President-Finance, Smithfield Foods, Inc. (the "Waiver and Consent Letter"), a
copy of which is attached hereto as Exhibit B; PROVIDED HOWEVER, that such
consent and waiver was conditioned, among other things, upon a guaranty by
Smithfield Foods, Inc., of all obligations of Borrowers to Lender arising under
or in connection with the Operating RLOC and the Evergreen RLOC and costs
related thereto or arising therefrom.
D. Contemporaneously herewith, Lender, Borrowers and others have entered
into a modification of the Loan Agreement which provides, among other things,
for the termination of the Stock Loan.
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, and in order to induce Lender, from time to time, in its
sole discretion to extend or continue to extend credit (with or without
security) to and/or to engage in business transactions and enter into various
contractual relationships with Borrowers (without limiting the generality of the
1
<PAGE>
foregoing) this Unconditional Guaranty is being given in order to induce Lender
to enter into certain amendments to the Loan Agreement and loan documents
related thereto (the "Loan Documents"), to loan and continue to loan money;
renew, extend or modify loans and/or otherwise extend credit or forbearance(s)
and otherwise to deal with Borrowers, Guarantor hereby absolutely and
unconditionally guarantees to Lender and its successors and assigns, the due and
punctual payment and performance of all liabilities and obligations of Borrowers
to Lender, primary or secondary (whether by way of endorsement or otherwise),
whether now existing or hereafter arising, whether arising out of contract(s),
tort(s) or otherwise, whether created directly with Lender or acquired by Lender
through assignment, endorsement or otherwise; whether matured or unmatured;
whether absolute or contingent; whether joint or several; as and when the same
become due and payable (whether by acceleration or otherwise), together with all
interest, prepayment penalties or finance charges thereon, costs of court and
the reasonable attorneys' fees of Lender related thereto or arising in
accordance with the terms of any such instruments, accounts receivable and other
security agreements and/or other contracts evidencing any such indebtedness,
obligations or liabilities, including all renewals, extensions and/or
modifications thereof to the extent that any or all of the foregoing arise from
or are related to Borrowers' obligations under the Operating RLOC and the
Evergreen RLOC (all such liabilities and obligations of Borrowers to Lender,
hereinafter collectively being termed "Obligations of Borrowers").
Further, whether or not suit is brought by Lender to acquire possession of
collateral or to enforce collection of any unpaid balance(s) hereunder,
Guarantor expressly hereby agrees to pay all legal expenses and the reasonable
attorneys' fees actually incurred by Lender.
In order to implement the foregoing and as additional inducements to
Lender, Guarantor further covenants and agrees:
1. This Unconditional Guaranty is and shall remain an unconditional and
continuing guaranty of payment and not of collection, shall remain in full force
and effect irrespective of any interruption(s) in the business or other dealings
and relations of Borrowers with Lender and shall apply to and guarantee the due
and punctual payment of all Obligations of Borrowers to Lender. To that end,
Guarantor hereby expressly waives any right to require Lender to bring any
action against Borrowers or any other guarantor, or any one or more of them, or
any other person(s) or to require that resort be had to any security or to any
balance(s) of any deposit or other account(s) or debt(s) or credit(s) on the
books of Lender in favor of Borrowers, or any one or more of them, or any other
person(s). Guarantor acknowledges that its liabilities and obligations hereunder
are primary rather than secondary. To that end and without limiting the
generality of the foregoing, Guarantor herewith expressly waives any rights it
otherwise might have had under provisions of G.S. SECTION 26-7, ET SEQ., AND/OR
OTHER NORTH CAROLINA LAWS to require Lender to attempt to recover against
Borrowers, or any one or more of them and/or realize upon any securities or
collateral security which Lender holds for the Obligations of Borrowers.
2. TIME IS OF THE ESSENCE HEREOF. Any notice(s) to Guarantor shall be
sufficiently given to the Guarantor and deemed to have been received and to be
effective on the day on which delivered to the Guarantor c/o or if sent by
certified mail, return receipt requested, to such address, on the day of
delivery or refusal of delivery as evidenced by the return receipt therefor.
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<PAGE>
3. No waivers or modifications of this Unconditional Guaranty shall be valid
unless they are reduced to writing, duly executed by the party to be charged
thereby, and expressly approved in writing by an officer of Lender actually
involved in the transactions being guaranteed hereby.
4. All moneys available to and/or received by Lender for application toward
payment of (or reduction of) the Obligations of Borrowers may be applied by
Lender to such individual debt(s) in such manner, and apportioned in such
amount(s) and at such time(s) as Lender, in its sole discretion, may deem
suitable or desirable.
5. Guarantor agrees that in the event judgment or any court order for turnover
or recovery is entered against Lender (whether by consent, compromise settlement
or otherwise) pursuant to any section of Chapter 5 of the United States
Bankruptcy Code for the amount of any monetary payment or transfer of any
property (whether real, personal or mixed, tangible or intangible, or the value
thereof) made to Lender by or on behalf of any Borrower and/or Guarantor for
credit to the Obligations of Borrowers, then in such event (and notwithstanding
the prior discharge or satisfaction in whole or in part of any or all the
Obligations of Borrowers due Lender, or the written or stamped notation of
cancellation, release or satisfaction affixed to this Unconditional Guaranty or
any instrument of indebtedness evidencing the Obligations of Borrowers, or any
prior notice of termination of this Unconditional Guaranty as to future
Obligations of Borrowers), the amount or value of any such payments or property
recovered from Lender shall be deemed to be Obligations of Borrowers and this
Unconditional Guaranty and the liabilities of Guarantor hereunder shall continue
and remain in full force and effect as to the same, together with interest
thereon from date of recovery at the rate(s) applicable to the Obligations of
Borrowers to which such payments or transfers in connection therewith were
credited.
6. Guarantor acknowledges that any attempted termination of liability hereunder
shall not release Guarantor from full liability for Obligations of Borrowers
hereby guaranteed and then in existence or from any renewal(s) or extension(s)
thereof in whole or in part whether such renewals or extensions are made before
or after the effective date of such termination, and with or without notice to
Guarantor, except as may be specifically agreed to in writing by Lender
hereafter.
7. Guarantor agrees that its liability hereunder shall not be diminished by any
failure on the part of Lender to perfect (by filing, recording or otherwise) any
security interest(s) it may have in any property securing this Unconditional
Guaranty and/or the Obligations of Borrowers secured hereby and hereunder.
8. Guarantor agrees that the whole or any part of the security now or hereafter
held for the Obligations of Borrowers may be exchanged, compromised, or
surrendered from time to time; that Lender shall have no obligation to protect,
perfect, secure or insure any such security interests, liens or encumbrances now
or hereafter held for the Obligations of Borrowers or the properties subject
thereto; that the time or place of payment of the Obligations of Borrowers may
be changed or extended, in whole or in part, to a time certain or otherwise, and
may be renewed or accelerated, in whole or in part; that Borrowers may be
granted indulgences generally; that any of the provisions of any loan agreement,
note, or any other documents executed in connection with the Obligations of
Borrowers, may be modified, amended or waived; that any party (including any
co-guarantor) liable for the payment thereof may be granted indulgences or
released; all without notice to or further
3
<PAGE>
assent by Guarantor, who shall remain bound thereon, notwithstanding any such
exchange, compromise, surrender, extension, renewal, acceleration, modification,
indulgence, or release.
9. Guarantor further hereby consents and agrees that Lender may at any time, or
from time to time, in its sole discretion: (i) extend or change the time of
payment, and/or the manner, place or terms of payment of any or all of the
Obligations of Borrowers; (ii) exchange, release and/or surrender all or any of
the collateral security, or any part(s) thereof, by whomsoever deposited, which
is or hereafter may be held by it in connection with all or any of the
Obligations of Borrowers and/or any liabilities of Guarantor hereunder; (iii)
sell or otherwise dispose of and/or purchase all or any of such collateral at
public or private sale, or to or through any investment securities broker, and
after deducting all costs and expenses of every kind for collection, preparation
for sale, sale or delivery, the net proceeds of any such sale(s) or other
disposition may be applied by Lender upon all or any of the Obligations of
Borrowers; and (iv) settle or compromise with Borrowers, any insurance carrier
and/or any other person(s) liable thereon, any and all of the Obligations of
Borrowers, and/or subordinate the payment of all or any part of same, to the
payment of any other debts or claims, which may at any time(s) be due or owing
to Lender and/or any other person(s); all in such manner and upon such terms as
Lender may deem proper and/or desirable, and without notice to or further assent
from Guarantor, it being agreed that Guarantor shall be and remain bound upon
this Unconditional Guaranty irrespective of the existence, value or condition of
any collateral, and notwithstanding any such change, exchange, settlement,
compromise, surrender, release, sale or other disposition, application, renewal
or extension. Further, this Unconditional Guaranty shall not be construed to
impose any obligation on Lender to extend or continue to extend credit or
otherwise to deal with Borrowers, or any of them, at any time.
10. This Unconditional Guaranty covers all Obligations of Borrowers purporting
to be created or undertaken on behalf of Borrowers by any of their respective
officers, partners, managers or agents, without regard to the actual authority
of any such officers, partners, managers or agents, whether or not corporate,
partnership or other resolutions authorizing any such actions of the respective
Borrower, proper or otherwise, are given by the Borrowers, or any one or more of
them, to Lender, and/or whether or not such purported organizations are legally
chartered or organized.
11. This Unconditional Guaranty shall be binding upon Guarantor, and the
successors and assigns of Guarantor and it shall inure to the benefit of, and be
enforceable by Lender, and its successors, transferees and assigns. It further
shall be deemed to have been made under and shall be governed by the laws of the
State of North Carolina in all respects, including matters of construction,
validity and performance.
12. All terms or expressions contained herein which are defined in Article 1, 3
or 9 of the North Carolina Uniform Commercial Code shall have the same meaning
herein as in said Articles of said Code.
13. No waiver by Lender of any default(s) by Guarantor or Borrowers shall
operate as a waiver of any other default or of the same default on a future
occasion. Use of the masculine or neuter pronoun herein shall include the
masculine, feminine and neuter, and also the plural. Lender, or any other holder
hereof, may correct patent errors in this Unconditional Guaranty.
4
<PAGE>
14. Guarantor hereby waives: (i) notice of acceptance of this Unconditional
Guaranty; (ii) notice(s) of extensions of credit and/or continuations of credit
extensions to Borrowers by Lender; (iii) notice(s) of entering into and engaging
in business transactions and/or contractual relationships and any other dealings
between Borrowers, any other guarantor or any one or more of them, and Lender;
(iv) presentment and/or demand for payment of any of the Obligations of
Borrowers; (v) protest or notice of dishonor or default to Guarantor or to any
other person with respect to any of the Obligations of Borrowers; and (vi) any
demand for payment under this Unconditional Guaranty.
15. Any indebtedness of Borrowers, or any one or more of them, to the Guarantor
now or hereafter existing, together with any interest thereon, shall be, and
such indebtedness hereby is, deferred, postponed and subordinated to the
Obligations of Borrowers; provided, however, that until notice of a default in
the Obligations of Borrowers has been given to Guarantor, Borrowers, or any one
or more of them, may repay such indebtedness as and when the same becomes due
unless such repayment would result in a default in the Obligations of Borrowers.
Any lien or charge on any collateral, all rights therein and thereto, and on the
revenue and income to be realized therefrom, which Guarantor may have or obtain
as security for any loans shall be, and such lien or charge hereby is,
subordinated to the liens and rights of Lender under the Loan Documents and to
the Obligations of Borrowers.
16. Guarantor hereby waives and renounces any and all rights it has or may have
for subrogation, indemnity, reimbursement or contribution against Borrowers, or
any of them, for amounts paid under this Unconditional Guaranty unless and until
all Obligations of Borrowers have been satisfied and paid in full. This waiver
is expressly intended to prevent Guarantor from constituting a creditor of
Borrowers, or any of them, in respect of such reimbursement within the meaning
of Section 547(b) of the Bankruptcy Code in the event of a subsequent case
involving Borrowers, or any of them.
17. In the event any provision(s) of this instrument should be left blank or
incomplete, Guarantor hereby authorizes and empowers Lender to supply and
complete the necessary information to complete or fill in the blank
provision(s).
18. Guarantor shall be in default under this Unconditional Guaranty upon the
happening of any of the following events, circumstances or conditions; namely:
(a) Default in the payment or performance of any of the obligations
or of any covenant, warranty or liability contained or referred to
herein or discovery of any material misrepresentation made or
furnished to Lender by or on behalf of Borrowers or Guarantor in
connection with this Unconditional Guaranty; or
(b) The occurrence of any Event of Default under the Loan Agreement,
as the same may be amended from time to time, or any of the other
Loan Documents (as defined in the Loan Agreement).
19. Upon the occurrence of any of the foregoing events, circumstances, or
conditions of default, all of the obligations evidenced herein and secured or
guaranteed hereby shall be due and payable immediately without notice. Further,
Lender then shall have all of the rights and remedies of a Secured Party
hereunder and all of the rights and remedies of a Secured Party and/or
Holder-in-Due-
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<PAGE>
Course under the North Carolina Uniform Commercial Code and/or under other laws
of North Carolina.
WITNESS the Hand(s) and Seal(s) of the undersigned, this Unconditional Guaranty
being executed and delivered on the date first above written.
ATTEST: Smithfield Foods, Inc.
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- -------------------------- ----------------------------
Michael H. Cole Aaron D. Trub
Assistant Secretary Vice President
6
UNCONDITIONAL GUARANTY
DATED: MAY 7, 1999
BORROWERS: CARROLL'S FOODS, INC., CARROLL'S REALTY, INC.,
AND CARROLL'S REALTY PARTNERSHIP
GUARANTOR: CARROLL'S TURKEYS, INC.
LENDER: CAPE FEAR FARM CREDIT, ACA, FAYETTEVILLE, CUMBERLAND
COUNTY, NC 28302
PRELIMINARY STATEMENT
A. Lender previously has made, pursuant to that certain Consolidating Loan
Agreement dated as of August 28, 1998 by and among Lender, Borrowers and others
(the "Loan Agreement"), loans to Borrowers as follows:
(i) A revolving line of credit in the original principal amount of
up to $65,000,000 (the "Operating RLOC"),
(ii) A revolving line of credit in the original principal amount of
up to $80,000,000 (the "Evergreen RLOC"), and
(iii) A revolving line of credit in the original principal amount of
up to $50,000,000 (the "Stock Loan").
B. Smithfield Foods, Inc. and/or certain of its subsidiaries/affiliates
(the "SF Acquiring Parties") have entered into certain transactions (the
"Transactions") with Borrowers and/or certain of their affiliates (the "SF
Acquired Parties"), (which transactions are more specifically described on
Exhibit A attached hereto and incorporated herein by reference) whereby the SF
Acquiring Parties will own, as their interests appear, all of the stock of the
SF Acquired Parties.
C. Lender has previously provided its consent to the Transactions and
waiver of certain violations of or defaults under the Loan Agreement which would
have occurred as a result of the Transactions, which consent and waiver was
provided by letter dated May 3, 1999 from Lender to C. Larry Pope, Vice
President-Finance, Smithfield Foods, Inc. (the "Waiver and Consent Letter"), a
copy of which is attached hereto as Exhibit B; PROVIDED HOWEVER, that such
consent and waiver was conditioned, among other things, upon a guaranty by
Smithfield Foods, Inc. of all obligations of Borrowers to Lender arising under
or in connection with the Operating RLOC and the Evergreen RLOC.
D. As an aspect of the Transactions, Guarantor has acquired essentially
all of the assets of Carroll's Processing, Inc., a guarantor of the Operating
RLOC and the Evergreen RLOC, and Lender has required, as a consequence thereof,
that Guarantor provide its guaranty of said loans as a condition of the release
of Carroll's Processing, Inc.
E. Contemporaneously herewith, Lender, Borrowers and others have entered
into a modification of the Loan Agreement which provides, among other things,
for the termination of the Stock Loan.
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<PAGE>
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, and in order to induce Lender, from time to time, in its
sole discretion to extend or continue to extend credit (with or without
security) to and/or to engage in business transactions and enter into various
contractual relationships with Borrowers (without limiting the generality of the
foregoing) this Unconditional Guaranty is being given in order to induce Lender
to enter into certain amendments to the Loan Agreement and loan documents
related thereto (the "Loan Documents"), to loan and continue to loan money;
renew, extend or modify loans and/or otherwise extend credit or forbearance(s)
and otherwise to deal with Borrowers, Guarantor hereby absolutely and
unconditionally guarantees to Lender and its successors and assigns, the due and
punctual payment and performance of all liabilities and obligations of Borrowers
to Lender, primary or secondary (whether by way of endorsement or otherwise),
whether now existing or hereafter arising, whether arising out of contract(s),
tort(s) or otherwise, whether created directly with Lender or acquired by Lender
through assignment, endorsement or otherwise; whether matured or unmatured;
whether absolute or contingent; whether joint or several; as and when the same
become due and payable (whether by acceleration or otherwise), together with all
interest, prepayment penalties or finance charges thereon, costs of court and
the reasonable attorneys' fees of Lender related thereto or arising in
accordance with the terms of any such instruments, accounts receivable and other
security agreements and/or other contracts evidencing any such indebtedness,
obligations or liabilities, including all renewals, extensions and/or
modifications thereof to the extent that any or all of the foregoing arise from
or are related to Borrowers' obligations under the Operating RLOC and the
Evergreen RLOC (all such liabilities and obligations of Borrowers to Lender,
hereinafter collectively being termed "Obligations of Borrowers").
Further, whether or not suit is brought by Lender to acquire possession of
collateral or to enforce collection of any unpaid balance(s) hereunder,
Guarantor expressly hereby agrees to pay all legal expenses and the reasonable
attorneys' fees actually incurred by Lender.
In order to implement the foregoing and as additional inducements to
Lender, Guarantor further covenants and agrees:
1. This Unconditional Guaranty is and shall remain an unconditional and
continuing guaranty of payment and not of collection, shall remain in full force
and effect irrespective of any interruption(s) in the business or other dealings
and relations of Borrowers with Lender and shall apply to and guarantee the due
and punctual payment of all Obligations of Borrowers to Lender. To that end,
Guarantor hereby expressly waives any right to require Lender to bring any
action against Borrowers or any other guarantor, or any one or more of them, or
any other person(s) or to require that resort be had to any security or to any
balance(s) of any deposit or other account(s) or debt(s) or credit(s) on the
books of Lender in favor of Borrowers, or any one or more of them, or any other
person(s). Guarantor acknowledges that its liabilities and obligations hereunder
are primary rather than secondary. To that end and without limiting the
generality of the foregoing, Guarantor herewith expressly waives any rights it
otherwise might have had under provisions of G.S. SECTION 26-7, ET SEQ., AND/OR
OTHER NORTH CAROLINA LAWS to require Lender to attempt to recover against
Borrowers, or any one or more of them and/or realize upon any securities or
collateral security which Lender holds for the Obligations of Borrowers.
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<PAGE>
2. TIME IS OF THE ESSENCE HEREOF. Any notice(s) to Guarantor shall be
sufficiently given to the Guarantor and deemed to have been received and to be
effective on the day on which delivered to the Guarantor c/o___________________
_________________________________________________________________ or if sent by
certified mail, return receipt requested, to such address, on the day of
delivery or refusal of delivery as evidenced by the return receipt therefor.
3. No waivers or modifications of this Unconditional Guaranty shall be valid
unless they are reduced to writing, duly executed by the party to be charged
thereby, and expressly approved in writing by an officer of Lender actually
involved in the transactions being guaranteed hereby.
4. All moneys available to and/or received by Lender for application toward
payment of (or reduction of) the Obligations of Borrowers may be applied by
Lender to such individual debt(s) in such manner, and apportioned in such
amount(s) and at such time(s) as Lender, in its sole discretion, may deem
suitable or desirable.
5. Guarantor agrees that in the event judgment or any court order for turnover
or recovery is entered against Lender (whether by consent, compromise settlement
or otherwise) pursuant to any section of Chapter 5 of the United States
Bankruptcy Code for the amount of any monetary payment or transfer of any
property (whether real, personal or mixed, tangible or intangible, or the value
thereof) made to Lender by or on behalf of any Borrower and/or Guarantor for
credit to the Obligations of Borrowers, then in such event (and notwithstanding
the prior discharge or satisfaction in whole or in part of any or all the
Obligations of Borrowers due Lender, or the written or stamped notation of
cancellation, release or satisfaction affixed to this Unconditional Guaranty or
any instrument of indebtedness evidencing the Obligations of Borrowers, or any
prior notice of termination of this Unconditional Guaranty as to future
Obligations of Borrowers), the amount or value of any such payments or property
recovered from Lender shall be deemed to be Obligations of Borrowers and this
Unconditional Guaranty and the liabilities of Guarantor hereunder shall continue
and remain in full force and effect as to the same, together with interest
thereon from date of recovery at the rate(s) applicable to the Obligations of
Borrowers to which such payments or transfers in connection therewith were
credited.
6. Guarantor acknowledges that any attempted termination of liability hereunder
shall not release Guarantor from full liability for Obligations of Borrowers
hereby guaranteed and then in existence or from any renewal(s) or extension(s)
thereof in whole or in part whether such renewals or extensions are made before
or after the effective date of such termination, and with or without notice to
Guarantor, except as may be specifically agreed to in writing by Lender
hereafter.
7. Guarantor agrees that its liability hereunder shall not be diminished by any
failure on the part of Lender to perfect (by filing, recording or otherwise) any
security interest(s) it may have in any property securing this Unconditional
Guaranty and/or the Obligations of Borrowers secured hereby and hereunder.
8. Guarantor agrees that the whole or any part of the security now or hereafter
held for the Obligations of Borrowers may be exchanged, compromised, or
surrendered from time to time; that Lender shall have no obligation to protect,
perfect, secure or insure any such security interests, liens or encumbrances now
or hereafter held for the Obligations of Borrowers or the properties subject
thereto; that the time or place of payment of the Obligations of Borrowers may
be changed or
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<PAGE>
extended, in whole or in part, to a time certain or otherwise, and may be
renewed or accelerated, in whole or in part; that Borrowers may be granted
indulgences generally; that any of the provisions of any loan agreement, note,
or any other documents executed in connection with the Obligations of Borrowers,
may be modified, amended or waived; that any party (including any co-guarantor)
liable for the payment thereof may be granted indulgences or released; all
without notice to or further assent by Guarantor, who shall remain bound
thereon, notwithstanding any such exchange, compromise, surrender, extension,
renewal, acceleration, modification, indulgence, or release.
9. Guarantor further hereby consents and agrees that Lender may at any time, or
from time to time, in its sole discretion: (i) extend or change the time of
payment, and/or the manner, place or terms of payment of any or all of the
Obligations of Borrowers; (ii) exchange, release and/or surrender all or any of
the collateral security, or any part(s) thereof, by whomsoever deposited, which
is or hereafter may be held by it in connection with all or any of the
Obligations of Borrowers and/or any liabilities of Guarantor hereunder; (iii)
sell or otherwise dispose of and/or purchase all or any of such collateral at
public or private sale, or to or through any investment securities broker, and
after deducting all costs and expenses of every kind for collection, preparation
for sale, sale or delivery, the net proceeds of any such sale(s) or other
disposition may be applied by Lender upon all or any of the Obligations of
Borrowers; and (iv) settle or compromise with Borrowers, any insurance carrier
and/or any other person(s) liable thereon, any and all of the Obligations of
Borrowers, and/or subordinate the payment of all or any part of same, to the
payment of any other debts or claims, which may at any time(s) be due or owing
to Lender and/or any other person(s); all in such manner and upon such terms as
Lender may deem proper and/or desirable, and without notice to or further assent
from Guarantor, it being agreed that Guarantor shall be and remain bound upon
this Unconditional Guaranty irrespective of the existence, value or condition of
any collateral, and notwithstanding any such change, exchange, settlement,
compromise, surrender, release, sale or other disposition, application, renewal
or extension. Further, this Unconditional Guaranty shall not be construed to
impose any obligation on Lender to extend or continue to extend credit or
otherwise to deal with Borrowers, or any of them, at any time.
10. This Unconditional Guaranty covers all Obligations of Borrowers purporting
to be created or undertaken on behalf of Borrowers by any of their respective
officers, partners, managers or agents, without regard to the actual authority
of any such officers, partners, managers or agents, whether or not corporate,
partnership or other resolutions authorizing any such actions of the respective
Borrower, proper or otherwise, are given by the Borrowers, or any one or more of
them, to Lender, and/or whether or not such purported organizations are legally
chartered or organized.
11. This Unconditional Guaranty shall be binding upon Guarantor, and the
successors and assigns of Guarantor and it shall inure to the benefit of, and be
enforceable by Lender, and its successors, transferees and assigns. It further
shall be deemed to have been made under and shall be governed by the laws of the
State of North Carolina in all respects, including matters of construction,
validity and performance.
12. All terms or expressions contained herein which are defined in Article 1, 3
or 9 of the North Carolina Uniform Commercial Code shall have the same meaning
herein as in said Articles of said Code.
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<PAGE>
13. No waiver by Lender of any default(s) by Guarantor or Borrowers shall
operate as a waiver of any other default or of the same default on a future
occasion. Use of the masculine or neuter pronoun herein shall include the
masculine, feminine and neuter, and also the plural. Lender, or any other holder
hereof, may correct patent errors in this Unconditional Guaranty.
14. Guarantor hereby waives: (i) notice of acceptance of this Unconditional
Guaranty; (ii) notice(s) of extensions of credit and/or continuations of credit
extensions to Borrowers by Lender; (iii) notice(s) of entering into and engaging
in business transactions and/or contractual relationships and any other dealings
between Borrowers, any other guarantor or any one or more of them, and Lender;
(iv) presentment and/or demand for payment of any of the Obligations of
Borrowers; (v) protest or notice of dishonor or default to Guarantor or to any
other person with respect to any of the Obligations of Borrowers; and (vi) any
demand for payment under this Unconditional Guaranty.
15. Any indebtedness of Borrowers, or any one or more of them, to the Guarantor
now or hereafter existing, together with any interest thereon, shall be, and
such indebtedness hereby is, deferred, postponed and subordinated to the
Obligations of Borrowers; provided, however, that until notice of a default in
the Obligations of Borrowers has been given to Guarantor, Borrowers, or any one
or more of them, may repay such indebtedness as and when the same becomes due
unless such repayment would result in a default in the Obligations of Borrowers.
Any lien or charge on any collateral, all rights therein and thereto, and on the
revenue and income to be realized therefrom, which Guarantor may have or obtain
as security for any loans shall be, and such lien or charge hereby is,
subordinated to the liens and rights of Lender under the Loan Documents and to
the Obligations of Borrowers.
16. Guarantor hereby waives and renounces any and all rights it has or may have
for subrogation, indemnity, reimbursement or contribution against Borrowers, or
any of them, for amounts paid under this Unconditional Guaranty unless and until
all Obligations of Borrowers have been satisfied and paid in full. This waiver
is expressly intended to prevent Guarantor from constituting a creditor of
Borrowers, or any of them, in respect of such reimbursement within the meaning
of Section 547(b) of the Bankruptcy Code in the event of a subsequent case
involving Borrowers, or any of them.
17. In the event any provision(s) of this instrument should be left blank or
incomplete, Guarantor hereby authorizes and empowers Lender to supply and
complete the necessary information to complete or fill in the blank
provision(s).
18. Guarantor shall be in default under this Unconditional Guaranty upon the
happening of any of the following events, circumstances or conditions; namely:
(a) Default in the payment or performance of any of the obligations
or of any covenant, warranty or liability contained or referred to
herein or discovery of any material misrepresentation made or
furnished to Lender by or on behalf of Borrowers or Guarantor in
connection with this Unconditional Guaranty; or
(b) The occurrence of any Event of Default under the Loan Agreement,
as the same may be amended from time to time, or any of the other
Loan Documents (as defined in the Loan Agreement).
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<PAGE>
19. Upon the occurrence of any of the foregoing events, circumstances, or
conditions of default, all of the obligations evidenced herein and secured or
guaranteed hereby shall be due and payable immediately without notice. Further,
Lender then shall have all of the rights and remedies of a Secured Party
hereunder and all of the rights and remedies of a Secured Party and/or
Holder-in-Due-Course under the North Carolina Uniform Commercial Code and/or
under other laws of North Carolina.
WITNESS the Hand(s) and Seal(s) of the undersigned, this Unconditional Guaranty
being executed and delivered on the date first above written.
ATTEST: Carroll's Turkeys, Inc.
/s/ Michael H. Cole By: /s/ Aaron D. Trub
- -------------------------- --------------------------
Assistant Secretary Aaron D. Trub
[CORPORATE SEAL] President
6
A G R E E M E N T
BETWEEN:
SCHNEIDER CORPORATION
(the "Employer")
- and -
DOUGLAS W. DODDS
(the "Executive")
THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. Employment
1.1 The Executive agrees to continue his employment with the Employer as
President and Chief Executive Officer. The Executive agrees to perform his
duties and responsibilities faithfully and in a good and reasonable manner and
to devote his full time and attention to the business of the Employer and shall
fully disclose all relevant matters to the Employer.
1.2 The Executive acknowledges that he will acquire information about
certain matters which are confidential or secret to the Employer and/or any
entity which is an "associate" of the Employer, as defined in the
<PAGE>
Page 2
Securities Act S.O.c. S.5 ("the Securities Act"), and which information is the
exclusive property of the Employer and/or an associate (the "Confidential
Information"). The Executive undertakes not to disclose the Confidential
Information or any information which, in good faith and good conscience, ought
to be treated as confidential, to any third party either during his employment
or after, except as may be necessary in the proper discharge of the Executive's
duties, as required by law or with the prior written permission of the Employer.
The foregoing obligations shall continue for ten (10) years beyond the
termination of this Agreement.
2. Compensation and Benefits
Base Salary
2.1 The Employer shall pay the Executive, while employed, a base salary
which initially shall be: Dodds $400,000.00 per annum (the "Base Salary"). The
Base Salary is subject to annual review and is subject to the approval of the
Board of Directors of the Employer.
Annual Incentive
2.2 In addition to the Base Salary the Executive shall be entitled to
participate in the Employer's Incentive Bonus Plan or any successor bonus plan
for executive employees.
<PAGE>
Page 3
Benefits and Perquisites
2.3 The Executive shall be entitled to all perquisite programs and benefit
plans which the Employer provides to its senior executives including those
referred to in Schedule "A".
Vacation
2.4 The Executive shall be entitled, during each full year of employment,
to receive five (5) weeks' vacation with pay.
Stock Options
2.5 The Executive shall participate in the Employer's "Key Employees and
Directors Long Term Incentive Stock Option Plan", according to its terms and
subject to the Rules and Regulations of the Toronto Stock Exchange and any
applicable law. The granting of options, if any, to the Executive is within the
discretion of the Board of Directors of the Employer.
2.6 In the event of:
(a) the making of a takeover bid, as defined in the
Securities Act, for the securities of the Employer; or
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Page 4
(b) the giving of notice of the termination of the employment of
the Executive for other than just cause as hereinafter
provided for in paragraph 4.3; or
(c) the giving of notice of the resignation of the Executive
consequent on a Change in Control as hereinafter provided for
in paragraph 4.6;
then subject to necessary corporate and regulatory approvals to be obtained, all
options shall vest and become exercisable immediately. In the case of the event
specified in paragraph 2.6 (a), however, the option shall only be exercised in
the event of a successful takeover bid and, in the event the takeover bid fails,
the rights of the Executive shall be the same as if the takeover bid had not
been made. In the case of the event specified in paragraph 2.6 (a), subject to
the takeover bid being successful, the options must be exercised within three
(3) months after the effective date of the takeover and otherwise options must
be exercised in accordance with the terms of the Key Employees and Directors
Long Term Incentive Stock Option Plan. In the case of the event in paragraph 2.6
(a), subject to the takeover bid being successful, or if one of the events in
paragraph 2.6 (b) or (c) occur, and if for any reason the corporate and
regulatory approvals are not obtained, or for any other reason the options do
not, as set out above, vest and become exercisable immediately or if the
Employer fails to respond forthwith to a written request by the Executive to
exercise such options, the Employer shall forthwith pay the Executive an amount
equal to the difference between the market value of the shares subject to
options that did not vest or were not exercisable and the option price. "Market
<PAGE>
Page 5
value of shares" means for the occurrence of the event in paragraph 2.6 (a) the
highest successful takeover bid and for the occurrence of the events in
paragraphs 2.6 (b) and (c) the weighted average price of Schneider Corporation
Class A Non-Voting shares (Trading Symbol SCD.A) traded on the Toronto Stock
Exchange during the fifty trading days immediately prior to the date of the
occurrence of the event set out above in paragraphs 2.6 (b) or (c).
3. Pension Benefit
3.1 The Executive shall participate in the Employer's registered pension
plan ("RPP") and the supplementary executive retirement plan ("SERP") according
to their terms, provided, however, that regardless of whether the Executive has
attained age fifty-five (55) the rights of the Executive under the SERP shall
vest if his employment with the Employer is terminated for other than just cause
or ends by reason of the resignation of the Executive consequent upon a Change
in Control as herein defined, or is deemed to be ended under paragraph 4.10.
3.2 In the event employment ends as provided in paragraph 3.1 the
actuarial reduction, if any, shall be calculated from age sixty (60) to such
younger age in excess of age fifty-four (54) as the Executive may elect to begin
receiving his pension and not from age sixty-five (65) as otherwise stipulated
in the SERP and in the RPP.
3.3 In calculating the credited service of the Executive under the RPP, a
period of service equal to the Termination Period, or twelve (12)
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Page 6
months in the event employment is ended and payment made under paragraph 4.10,
shall be added to the credited service otherwise determined for the purpose of
determining the Executive's pension benefit under the RPP. In no event shall
credited service exceed the maximum permitted under the RPP.
3.4 In calculating the Executive Service of the Executive under the SERP,
a period of service equal to the Termination Period, or twelve (12) months in
the event employment is ended and payment made under paragraph 4.10, shall be
added to the Executive Service otherwise determined for the purpose of
determining the Executive's pension benefit under the SERP. In no event shall
credited service exceed the maximum permitted under the SERP.
3.5 In calculating the pensionable earnings of the Executive for the
purpose of the RPP and the SERP any payment to the Executive in respect of the
Termination Period shall be recognized as pensionable earnings earned in equal
monthly amounts over the Termination Period and any payment to the Executive
under paragraph 4.10 shall be recognized as pensionable earnings earned in equal
monthly amounts over the twelve (12) month period after employment is deemed to
be ended.
3.6 In the event that the Executive is terminated for other than just
cause under paragraph 4.3, or resigns consequent on a change in control under
paragraph 4.6, or his employment is deemed to be ended under paragraph 4.10 then
the Executive shall not be entitled to commence receiving pension benefits under
either the RPP or SERP until the end of the
<PAGE>
Page 7
Termination Period applicable to the termination or resignation or twelve (12)
months have elapsed from the date employment is deemed to be ended under
paragraph 4.10. In this regard the Executive, therefore, agrees that if contrary
to the foregoing the Executive receives any pension benefits from the Employer
for the Termination Period, or within twelve (12) months of the date employment
is deemed to be ended under paragraph 4.10 then the Executive shall be obliged
to repay the Employer as a partial repayment of the lump sum paid to the
Executive, an amount equal to the amount of pension benefits received from the
Employer during the applicable period.
4. Termination of Employment or Disability
4.1 The parties understand and agree that this Agreement may be terminated
by the Executive, at any time and for any reason, on the giving of six (6)
months' written notice to the Employer. In any event, the Executive shall
provide the Employer with twelve (12) months' written notice in the event that
the Executive intends to retire prior to age sixty-five (65).
4.2 The parties understand and agree that this Agreement may be terminated
at any time by the Employer for just cause without any notice or pay in lieu
thereof.
4.3 The parties understand and agree that this Agreement may be terminated
at any time by the Employer, for other than just cause, and in that event the
Employer shall pay to the Executive in a lump sum an amount equal to the
Executive's "Base Plus Bonus" multiplied by the number of
<PAGE>
Page 8
months in the "Termination Period". The "Base Plus Bonus" is defined as the
total of:
(i) the Executive's Base Salary, per annum, as of the date of
termination; and
(ii) the average of the bonuses the Executive received, if any, during
the three (3) completed fiscal years immediately preceding the year
of the Executive's termination from employment or, if the Executive
has been employed for less than three (3) completed fiscal years,
then, the average of the bonuses received by the Executive, for the
completed fiscal years preceding the year of his termination from
employment;
both divided by twelve.
The "Termination Period" is defined as the lesser of:
(i) Thirty-six (36) months in the event notice of termination is
given to the Executive within two (2) years of the effective
date of a Change in Control, as hereinafter defined, or
thirty (30) months otherwise; and
(ii) the number of months from the date of termination of
employment to the Normal Retirement Date. Partial months
aggregating thirty (30) or more days shall be counted as one
month.
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Page 9
For the purpose of this Agreement, Normal Retirement Date means the first day of
the month coincident with, or next following, the attainment by the Executive of
age sixty-five (65).
4.4 In the event that the Executive's employment ends, other than by
reason of a termination for just cause or resignation other than consequent on a
change in control, on a date that is not coincident with the fiscal year end of
the Employer, the Employer shall pay to the Executive a "stub period bonus"
being an amount equal to the lesser of:
(i) the Executive's target bonus, under the Incentive Bonus Plan
or any successor plan, for the fiscal year during which
active employment ends; and
(ii) the average of the bonuses the Executive has received, if
any, during the three (3) completed fiscal years immediately
preceding the year in which the Executive's employment ends
or, if the Executive has been employed for less than three
(3) completed fiscal years, then, the average of the bonuses
received by the Executive, for the completed fiscal years
preceding the year in which his employment ends.
multiplied by the number of days from the last completed fiscal year end to the
last day of employment divided by three hundred and sixty-five (365). For the
purposes of calculating the "stub period bonus" employment ends after six (6)
consecutive months of disability.
<PAGE>
Page 10
4.5 The Employer shall be deemed to have terminated the Executive for
other than just cause, and paragraph 4.3 above shall be applicable, in the event
that:
(a) The Employer changes the Executive's duties inconsistent with the
Executive's skills, position, duties, responsibilities or status with
the Employer at the date hereof or the Employer effects a downward
change in the Executive's Base Salary, reporting responsibilities or
principal position as in effect at the date hereof or the Executive is
removed from such principal position or such principal position is
eliminated, except in connection with the termination of the
Executive's employment for just cause, permanent disability,
retirement or as a result of his death; or
(b) The Employer fails in a material respect to continue, or to act to
avoid any material adverse change in the terms or achievable results
under, the Incentive Bonus Plan and Stock Option Plan in which the
Executive is now entitled to participate on such terms as the
Executive participates on the date hereof or as the same may be
modified from time to time but substantially in the form currently in
effect or the Employer fails to continue the Executive as a
participant in such plans on substantially the same basis as the
Executive now participates; or
<PAGE>
Page 11
(c) The Employer fails in a material respect to continue in effect any
other compensation or benefit which is presently provided to the
Executive, or plans or policies providing the Executive with
substantially similar benefits as specified in paragraphs 4.5 (a) and
(b) hereof, and on no less favourable terms than those which currently
apply or the taking of any action by the Employer which would
adversely affect participation in or materially reduce the Executive's
benefits under any of such plans or deprive the Executive of any
material fringe benefit, amenity or perquisite enjoyed by the
Executive on the date hereof; or
(d) There arise circumstances which amount in law to a constructive
termination of the Executive's employment.
In determining whether an event as described in paragraphs 4.5 (a), (b), (c) or
(d) has occurred there shall be taken into account any corresponding or
concurrent positive change in compensation and benefits made by the Employer. An
adverse change to compensation, that applies to all executives of the Employer,
and to those executives, if any, of its affiliates having executive
responsibility for the Employer, and is reasonably necessary having regard to
economic conditions which have arisen at the time the event described in
paragraphs 4.5(a), (b), (c) or (d) occurs is not an event amounting to a deemed
termination. There shall not, however, be a deemed termination under this
paragraph unless:
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Page 12
(i) the Executive, within three (3) months of receipt of written
notice from the Employer specifically referring to paragraph
4.5 of this Agreement containing particulars of; and the
effective date of; the event described in paragraphs 4.5(a),
(b), (c) or (d), provides the Employer with an objection in
writing to the event or the Executive otherwise provides the
Employer with an objection in writing to the event; and
(ii) the Employer does not act within one (1) month of such
objection in writing to rescind or otherwise avoid the
occurrence or continuation of any of the events objected to.
Failure to object to an event described in paragraphs 4.5(a),
(b), (c) or (d) shall not, however, preclude the Executive
from reliance on such event if the Executive objects to a
subsequent event or events in accordance with this paragraph.
4.6 The parties understand and agree that in the event of a Change in
Control, the Executive may elect, during the two (2) year period immediately
following the date of the Change in Control, to resign from his employment with
the Employer upon three (3) months written notice, in which event:
(a) the Employer shall pay to the Executive in a lump sum an amount
equal to the amount which the Executive would otherwise have been
entitled to in the event of a for other than
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Page 13
just cause termination under paragraph 4.3 above except that in the
event of a resignation consequent on a Change in Control the
"Termination Period" is defined as the lesser of:
(i) thirty (30) months; and
(ii) the number of months from the effective date of the
Executive's resignation to the Normal Retirement Date.
Partial months aggregating thirty (30) or more days shall be
counted as one month.
4.7 "Change in Control" shall mean the occurrence, after the date hereof;
of:
(i) the acquisition of voting shares (as hereinafter defined) of the
Employer and/or securities ("Convertible Securities") convertible
into, exchangeable for or representing the right to acquire voting
shares of the Employer, as a result of which a person, group of
persons or persons acting jointly orin concert, or persons
associated or affiliated within the meaning of the Securities Act
(Ontario) with any such person, group of persons or any of such
persons acting jointly or in concert (collectively "Acquirors"),
beneficially own voting shares of the Employer and/or Convertible
Securities such that, assuming the conversion, exchange or
exercise of Convertible Securities beneficially owned by the
Acquirors, the Acquirors would beneficially own voting
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Page 14
shares of the Employer that would entitle the holders thereof to
cast more than 50% of the votes attaching to all voting shares in
the capital of the Employer that may be cast to elect directors of
the Employer. For the purposes of this paragraph 4.7, "voting
share" means a share of any class of shares of the Employer
carrying voting rights under all circumstances or by reason of an
event that has occurred and is continuing or by reason of a
condition that has been fulfilled; or
(ii) the acquisition by Acquirors of any direct or indirect influence
that, if exercised, would result in control in fact of the
Employer; or
(iii) the sale, lease or exchange of all or substantially all the
property of the Employer other than in the ordinary course of
business;
Provided, however, that transfers, acquisitions, sales or amalgamations among
corporations, persons or legal entities that are associates of the Employer as
defined in the Securities Act shall not result in a "Change of Control".
4.8 The parties understand and agree that Long Term Disability Benefits
coverage under the Employer's plans shall cease immediately upon the effective
date of the Executive's resignation from or termination of employment. Benefits
as described in Schedule "A", including the
<PAGE>
Page 15
Executive's automobile benefit (including lease costs, insurance, operating
costs and applicable taxes) and its related tax treatment, shall continue during
the period of notice of resignation given by the Executive or during the
applicable Termination Period following the last day of employment in the event
of a termination other than for just cause or a resignation consequent on a
Change in Control as herein provided, as the case may be, but each particular
benefit shall cease on the earliest of:
(a) the day the Executive's resignation becomes effective in the
case of a resignation not consequent on a Change in Control;
(b) the day the Executive becomes re-employed and eligible and
entitled to receive the particular benefit with the equivalent or
better coverage; and
(c) the last day of the applicable Termination Period.
4.9 The Employer is entitled at any time after termination to require that
the lease, insurance and other rights and obligations respecting the automobile
used by the Executive be transferred to the Executive, and the Executive will
consent to such transfer. The transfer of the lease does not, however, relieve
the obligation of the Employer to continue to make lease and other payments as
part of the continuation of the automobile benefit as provided in paragraph 4.8.
4.10 In the event that the Executive is disabled from performing the duties
and responsibilities of his position for six (6) consecutive months
<PAGE>
Page 16
and the Employer, acting reasonably and in good faith, decides that it is
unlikely that the Executive will be able to perform the duties and
responsibilities of his position for a total of twelve (12) consecutive months
or more, then the Employer may permanently fill the position of the Executive.
In that event, however, the Executive will continue to have the status of an
employee. In the event that the Executive is thereafter able to resume his
employment, and the Executive and the Employer are able to agree on an
appropriate position and terms and conditions of employment, then employment
shall continue on such terms and conditions. In the event that the Executive and
the Employer are not able to agree on terms and conditions of continuing
employment then the parties agree that the employment of the Executive, is
deemed to be ended upon notice given by either the Employer or Employee to the
other. In that event, the Employer shall pay to the Executive twelve (12) months
of his Base Salary in lieu of any payment under paragraphs 4.3 or 4.6 of this
Agreement or under the Employment Standards Act as specified in paragraph 4.11
of this Agreement. No amount is payable, however, unless and until the Executive
ceases to receive disability benefits and the calculation is done if and when
the right to payment arises and the Executive shall not commence receiving
pension benefits under the RPP or SERP until the number of months in respect of
which the Executive has received payment has elapsed, notwithstanding any
vesting of the SERP under paragraph 3.1 or anything to the contrary in paragraph
3.6.
4.11 The Executive acknowledges and agrees that the consideration contained
in this Agreement is inclusive of any and all compensation, payments, notice,
pay in lieu of notice or severance payments
<PAGE>
Page 17
to which the Executive may be entitled under the Employment Standards Act, any
other applicable legislation, or otherwise. The Executive and the Employer
further acknowledge and agree that the consideration herein is fair and
reasonable. The Executive agrees that upon any termination of the Executive's
employment by the Employer, or upon the resignation by the Executive following a
Change in Control, he shall have no cause of action, claim or demand against the
Employer or any other person as a consequence of such termination or
resignation, the Executive hereby releasing and discharging the Employer from
any and all liability related to the termination or resignation of his
employment other than for his entitlement as herein set out.
5. Resignation from Boards of Directors
5.1 The Executive agrees that on his resignation from employment, whether
following a Change in Control or otherwise, or on his termination of employment,
irrespective of the time, manner or cause, he shall immediately offer to resign
all offices held, including directorships, in the Employer, or any other entity
related to the Employer and the Executive shall not be entitled to receive any
additional severance payment or compensation for loss of office or otherwise
upon an accepted resignation.
6. Employer's Property
6.1 The Executive acknowledges that all items of any and every nature or
kind created or used by the Executive pursuant to the Executive's employment
under this Agreement, or furnished by the Employer to the
<PAGE>
Page 18
Executive, and all equipment, credit cards, books, records, reports, files,
manuals, literature, Confidential Information or other materials shall remain
and be considered the exclusive property of the Employer at all times and shall
be surrendered to the Employer, in good condition, promptly on the termination
of the Executive's employment irrespective of the time, manner or cause of the
termination, or on the Executive's resignation from employment.
7. Restrictive Covenant
7.1 In the event that:
(a) the Executive is terminated for other than just cause, except pursuant
to paragraph 7.1(b), then until the day that is thirty (30) months
after the date of termination; or
(b) the Executive is terminated for other than just cause within the two
(2) year period immediately following the date of a Change in Control,
then until the day that is three (3) months after the effective date
of termination; or
(c) the Executive resigns consequent on a Change in Control then until the
day that is thirty (30) months after the effective date of
resignation; or
(d) the Executive resigns and is entitled to commence receiving pension
benefits under the Employer's registered pension
<PAGE>
Page 19
plan and/or the SERP, then until the day that is twenty-four (24)
months after the effective date of resignation;
the Executive shall not directly or indirectly, as principal, agent,
shareholder, partner, employee, independent contractor, consultant or otherwise
engage in, assist or be interested in or connected with a Named Competitor.
7.2 The Named Competitors are: Maple Leaf Foods Inc., Bums Foods (1985)
Limited, Gainers Inc., Pillers Sausages & Delicatessens Ltd., Intercontinental
Packers Limited (includes Mitchell's Gourmet Foods), Maple Lodge Farms, Cuddy
Food Products, Quality Meat Packers Ltd., Sara Lee Corp., Phillip Morris
Companies Inc. (including Oscar Mayer), ConAgra, Inc., Geo. A. Hormel & Company,
Tyson Foods Inc. and their associates as defined in the Securities Act and any
successors to the Named Competitors and their associates.
8. Arbitration
8.1 Any dispute between the parties hereto, whether arising during the
period of this Agreement or at any time thereafter which relates to the
validity, construction, meaning, performance or effect of this Agreement or the
rights and liabilities of the parties hereto or any matter arising out of or
connected with this Agreement shall be subject to arbitration pursuant to the
Arbitration Act, 1991 (Ontario) ("the Act") as it may be amended from time to
time and shall not be the subject of any Court action or other claim or
proceeding.
<PAGE>
Page 20
8.2 The party desiring arbitration shall nominate one (1) arbitrator and
shall notify the other party hereto of such nomination. Such notice shall set
forth a brief description of the matter submitted for arbitration and, if
appropriate, the paragraph hereof pursuant to which such matter is so submitted.
Such other party shall within ten (10) days after receiving such notice nominate
an arbitrator and the two (2) arbitrators shall select a Chair of the arbitral
tribunal to act jointly with them. If said arbitrators shall be unable to agree
in the selection of such Chair, the Ontario Court (General Division) shall
appoint such Chair as provided in the Act. Each party shall, at the time of
appointing an arbitrator, deliver on a without prejudice basis to the other
party a written and comprehensive offer to settle.
8.3 The arbitration shall take place in the Municipality of Metropolitan
Toronto or such other place as the Executive and the Employer may agree. The
decision of the arbitrators and Chair or of any two (2) of them in writing shall
be binding upon the parties both in respect of procedure and the conduct of the
parties during the proceedings and the final determination of the issues
therein. Said arbitrators and Chair shall, after hearing any evidence and
representations that the parties may submit, make their decision and reduce the
same to writing and deliver one (1) copy thereof to each of the parties hereto.
8.4 If the party hereto receiving the notice of the nomination of an
arbitrator by the party desiring arbitration fails to nominate an arbitrator,
then the Ontario Court (General Division) shall appoint such Arbitrator as
provided in the Act.
<PAGE>
Page 21
8.5 If a dispute is referred to Arbitration by either party then the
Employer shall pay the costs of the Arbitration and all legal and expert fees
and disbursements of the Executive as such costs are incurred.
8.6 If the Employer achieves substantial success in the Arbitration the
arbitrators and Chair shall require that the Executive reimburse the Employer
for any legal and expert fees and disbursements initially incurred by the
Executive and paid by the Employer under paragraph 8.5 hereof. The arbitrators
and Chair shall determine what constitutes substantial success and the
appropriate amount of costs to be paid or reimbursed by the Executive taking
into account such factors as they deem appropriate including all offers to
settle. Apart from this the arbitrators and Chair have no authority with respect
to costs.
8.7 Notwithstanding the foregoing, any arbitration may be carried out by a
single arbitrator if the parties hereto so agree, in which event the provisions
of this paragraph shall apply, mutatis mutandis.
9. Assignment of Rights
9.1 The rights, which accrue to the Employer under this Agreement shall
pass to and be binding upon its successors or assigns. The rights of the
Executive under this Agreement are not assignable or transferable in any manner,
except as otherwise provided herein.
9.2 The Executive agrees to assign his life insurance policy referred to
in Schedule "A" hereof to the Employer as security for the
<PAGE>
Page 22
indebtedness of the Executive under the Share Purchase Plan of the Employer, and
any other indebtedness to the Employer, in the event that at any time the market
value of the stock pledged by the Executive as security for his loan under the
Share Purchase Plan is less than 125% of the outstanding amount of the loan. For
the purpose of greater certainty the existing and outstanding rights and
obligations of the parties under the Share Purchase Plan continue according to
its terms.
10. Notices
10.1 Any notice required or permitted to be given to the Executive shall be
sufficiently given if delivered to the Executive personally or if mailed by
ordinary and registered mail to the Executive's address last known to the
Employer service shall be effective on the fifth day after mailing.
10.2 Any notice required or permitted to be given to the Employer shall be
sufficiently given if delivered or mailed by ordinary and registered mail to the
Employer's head office and shall be effective on the fifth day after mailing.
11. Severability
11.1 In the event that any paragraph, provision or part of this Agreement
shall be deemed void or invalid the remaining paragraphs, provisions or parts
shall be and remain in full force and effect.
<PAGE>
Page 23
12. Agreement
12.1 This Agreement constitutes the entire Agreement between the parties
with respect to the employment of the Executive and, excepting the Executive's
fiduciary and other common law duties and obligations which shall survive and
shall continue beyond the termination of this Agreement, any and all previous
agreements, written or oral, express or implied, between the parties or on their
behalf; relating to the employment of the Executive by the Employer are
terminated and cancelled and are of no further force or effect.
13. Modification of Agreement
13.1 Any modification to this Agreement must be in writing and signed by
the parties or it shall have no effect and shall be void. Any failure to
enforce, or waiver of; rights under this Agreement by either party shall not
operate as a waiver or otherwise estop or impair the ability of such party to
thereafter rely upon the strict rights in this Agreement, except as otherwise
provided in this Agreement.
14. Headings
14.1 The headings used in this Agreement are for convenience only and are
not to be construed in any way as additions to or limitations of the covenants
and agreements contained herein.
<PAGE>
Page 24
15. Copy of Agreement
15.1 The Executive hereby acknowledges receiving a copy of this Agreement
duly executed on behalf of the Employer and confirms that he has had the
opportunity to review its terms and that he fully understands that he has
received independent legal advice in respect thereof from John R. Sproat, Miller
Thomson, Barristers and Solicitors, Toronto.
16. Governing Law
16.1 This Agreement shall be construed in accordance with the laws of the
Province of Ontario.
IN WITNESS WHEREOF this Agreement has been
executed by the parties to it, this 27th day of March, 1996.
SIGNED, SEALED AND )
DELIVERED in the presence of )
)
)
)
(signed) ) (signed)
Witness ) DOUGLAS W. DODDS
SCHNEIDER CORPORATION
Per:
(signed)
Herbert J. Schneider - Chairman
(signed)
F. P. Schneider -Vice Chairman
<PAGE>
AMENDING AGREEMENT
BETWEEN:
SCHNEIDER CORPORATION
(the "Employer")
- and -
DOUGLAS W. DODDS
(the "Executive)
WHEREAS the parties entered into a retention agreement on March 27, 1996 (the
"Original Agreement");
AND WHEREAS the parties desire to amend certain provisions of the Original
Agreement so that the Executive will not be distracted from the business of the
Employer in the context of a Change in Control (as hereinafter defined)
transaction and will not act otherwise than in the best interests of the
Corporation in connection therewith;
THEREFORE, in consideration of the sum of $1.00 paid by each party to the other,
the receipt and sufficiency whercof is hereby acknowledged,
THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. Paragraph 4.5 of the Original Agreement is amended by deleting the following:
"An adverse change to compensation, that applies to all executives of the
Employer, and to those executives, if any, of its affiliates having
executive responsibility for the Employer, and is reasonably necessary
having regard to economic conditions which have arisen at the time the
event described in paragraphs 4.5 (a), (b), (c) or (d) occurs is not an
event amounting to a deemed termination."
<PAGE>
- 2 -
2. Paragraph 8.1 of the Original Agreement is amended by adding the following
at the end thereof:
"As used herein, the word "Agreement" shall include any written amendments
hereto signed by both parties."
3. The words "change of control", "change in control", "Change of Control" or
similar words, shall be deemed to mean "Change in Control" wherever they
appear in the Original Agreement, including without limitation the
schedules thereto.
4. All other provisions of the Original Agreement remain in full force and
effect.
IN WITNESS WHEREOF the parties have executed this amending
agreement under seal this 14th day of November, 1997.
SIGNED, SEALED AND )
DELIVERED in the presence of )
)
)
)
(signed) ) (signed)
Witness ) DOUGLAS W. DODDS
)
SCHNEIDER CORPORATION
Per: (signed)
E. N. Schneider
Vice President, Secretary and. General
Counsel
(signed)
H.W. Sloan, Chairman
Compensation and Human Resources Commiteee
<PAGE>
AMENDING AGREEMENT NO. 2
BETWEEN
SCHNEIDER CORPORATION
(the "Employer")
- and -
DOUGLAS W. DODDS
(the "Executive")
WHEREAS the parties entered into an agreement on March 27, 1996 (the "Original
Agreement");
AND WHEREAS the parties entered into an amending agreement dated November 14,
1997 (the "First Amending Agreement");
AND WHEREAS the parties desire to clarify and further amend certain provisions
of the Original Agreement as amended by the First Amending Agreement;
THEREFORE, in consideration of the sum of $1.00 paid by each party to the other,
the receipt and sufficiency of which is hereby acknowledged;
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Paragraph 3.1 of the Original Agreement shall be and is hereby deleted
and the following provision shall be and is hereby substituted therefor:
"3.1 The Executive shall participate in, and shall be entitled to receive
all of the benefits to be derived from, the Employer's registered
pension plan (the "RPP") and the Employer's Supplementary Executive
Retirement Plan (the "SERP"), a copy of which SERP is annexed hereto
as Schedule "B" and which is referred to therein as The Supplemental
Retirement Program for Designated Executives of Schneider
Corporation, in accordance with their terms. The Employer shall
promptly provide
<PAGE>
- 2 -
an Instruction or Instructions to the Trustee under the Trust
Agreement dated August 1, 1992 between the Employer and The Canada
Trust Company in order to give full effect to the Executive's rights
and entitlements herein. Provided, however, that irrespective of
whether the Executive has attained the age of fifty-five (55) years,
the rights of the Executive under the SERP shall vest if his
employment with the Employer is, or is deemed to be, terminated for
other than just cause or ends by reason of the resignation of the
Executive consequent upon a Change in Control as defined in
paragraph 4.7 hereof or is deemed to be ended pursuant to paragraph
4.10 hereof. Notwithstanding any provision to the contrary in this
Agreement or any amendment hereto, in the RPP or in the SERP annexed
as Schedule "B", including but not limited to paragraph 12 of the
SERP, any amendment to the SERP of any kind or nature whatsoever
affecting the Executive or any termination thereof affecting the
Executive shall be deemed to be an event described in paragraph 4.5
hereof. For greater certainty, the result of any such event shall
be:
(i) the rights and entitlements of the Executive under the SERP as
it existed immediately prior to such amendment or termination
shall immediately vest irrespective of whether the Executive
has attained the age of fifty-five (55) years;
(ii) the Employer shall be deemed to have terminated the Executive
for other than just cause; and
(iii) paragraphs 3.1, 4.3, 4.4, 4.8, 4.9, 4.12, 5.1, 7.1, 7.2, 8.1,
8.2, 8.3, 8.4, 8.5, 8.6 and 8.7 hereof shall be applicable."
2. After paragraph 3.6 of the Original Agreement the following provision
shall be and is hereby added:
"3.7 All of the Employer's obligations in relation to the SERP, including
but not limited to its obligation to fund the SERP and to give an
Instruction or Instructions to the Trustee pursuant to the
provisions of the SERP and the Trust Agreement between the Employer
and The Canada Trust Company dated August 1, 1992, shall be
<PAGE>
-3-
enforceable by the Executive, if necessary, by any and all legal
means, and the remedies available to the Executive shall not be
limited and shall include a mandatory order or orders from any court
or tribunal of competent jurisdiction or any arbitration panel
contemplated under this Agreement."
3. Paragraph 4.1 of the Original Agreement shall be and is hereby amended
by deleting in the third line thereof the words "six (6)" and substituting
therefor the words "three (3)".
4. Paragraph 4.4 of the Original Agreement shall be and is hereby amended
by deleting in the second and third lines thereof the words "other than
consequent on a change in control" and substituting therefor the words "(except
for resignation of the Executive consequent upon a Change in Control)".
5. Paragraph 4.5 of the Original Agreement as amended shall be and is
hereby amended by:
(i) deleting in the second line thereof the words "paragraph 4.3
above" and substituting therefor the words "paragraphs 3.1,
4.3, 4.4, 4.8, 4.9, 4.12, 5.1, 7.1, 7.2, 8.1, 8.2, 8.3, 8.4,
8.5, 8.6 and 8.7 hereof';
(ii) inserting in the fourth line of paragraph 4.5 (a), after the
words "the Executive's Base Salary", the words "from the
Executive's Base Salary in effect immediately before the
effective date of such downward change"; and
(iii) deleting the last sentence of paragraph 4.5 beginning with the
words "There shall not, however, be a deemed termination under
this paragraph unless:"and ending with the words "in
accordance with this paragraph".
6. Paragraph 4.10 of the Original Agreement shall be and is hereby amended
by deleting in the fourteenth line the words "Executive, is deemed to be ended
upon notice" and substituting therefor the words "Executive shall be deemed to
be ended upon written notice" and by deleting the last sentence and substituting
therefor the following:
"No amount is payable, however, unless and until the Executive
ceases to receive disability benefits and the calculation of the
amount payable hereunder may
<PAGE>
- 4 -
reasonably be done. Furthermore, the Executive shall not commence
receiving pension benefits under the RPP or SERP until the number of
months in respect of which the Executive is receiving payments of
base salary pursuant to this paragraph 4.10 has elapsed,
notwithstanding any vesting of the SERP under paragraph 3.1 or
anything to the contrary in paragraph 3.6."
7. After paragraph 4.11 of the Original Agreement the following provision
shall be and is hereby added:
"4.12 For greater certainty, notwithstanding the termination for any
reason of the Executive's employment or this Agreement, the
Executive's and the Employer's respective rights and obligations
under this Agreement consequent upon a termination of the
Executive's employment or this Agreement shall survive and shall
continue in full force and effect."
IN WITNESS WHEREOF the parties have executed this Amending Agreement No. 2 under
seal this 20th day of July, 1998.
SIGNED, SEALED AND )
DELIVERED in the presence of )
)
)
(signed) ) (signed)
Witness ) DOUGLAS W. DODDS
SCHNEIDER CORPORATION
Per:
(signed)
Eric N. Schneider, Vice President,
Secretary and General Counsel
(signed)
Hugh W. Sloan, Chairman,
Compensation and Human Resources Committee
<PAGE>
-----------------------------------------------------------
Schneider Corporation
-----------------------------------------------------------
November 17, 1998
PRIVATE & CONFIDENTIAL
Mr. Douglas W. Dodds
Chairman and Chief Executive Officer
Schneider Corporation
321 Courtland Avenue East, Box 130
Kitchener, Ontario N2G 3X8
Dear Doug:
Re: Employment Agreement
I am enclosing the following documents:
1. Certified true copy of March 27, 1996 Employment Agreement between you
and Schneider Corporation.
2. Certified true copy of Amending Agreement dated November 14, 1997.
3. Original of September 11, 1998 opinion letter from Lax O'Sullivan Cronk,
solicitors retained to give independent legal advice to the executives,
which has attached to it as a schedule a copy of the July 20, 1998
Amending Agreement No. 2 which has been certified as a true copy.
4. Original of November 17, 1998 opinion letter from Lax O'Sullivan Cronk,
solicitors retained to give independent legal advice to the executives.
5. Office consolidation of your Employment Agreement prepared by McDonald &
Hayden, the Corporation's solicitors with respect to executive
employment matters.
In addition to providing you with a complete set of certified copies of your
Employment Agreement, the purpose of this letter is to dispel any possible
ambiguity in the interpretation of certain provisions of your Employment
Agreement and to make certain other changes to it that we have discussed by
making the following amendments thereto.
1. Section 4.1 of the Employment Agreement as amended by Amending Agreement
No. 2 is amended by deleting the second sentence thereof.
<PAGE>
- 2 -
2. Paragraph A) of Schedule A of the Employment Agreement is amended by
deleting on the first page thereof the words "0 the amount required to satisfy'
the Registered Compensation Arrangement (RCA)". (This amendment is intended to
ensure that the calculation of your life insurance and accidental death
insurance is not referable in any way to the Registered Compensation
Arrangement.)
3. (a) Section 4.5 (a) of the Employment Agreement as amended by Amending
Agreement No. 2 is amended by: deleting in the third line thereof the words "at
the date hereof' and substituting therefor the words "on the date immediately
before the effective date of such change"; and deleting beginning in the fifth
line thereof the words "at the date hereof' and substituting therefor the words
"on the date immediately before the effective date of such downward change".
(b) Section 4.5 (b) of the Employment Agreement is amended by: deleting
in the fourth and tenth lines thereof the word "now"; deleting in the
sixth line thereof the word "hereof' and substituting therefor the words
"immediately prior to such discontinuation or change"; deleting in the
seventh line thereof the word "currently"; inserting after the word
"effect" on the seventh line thereof the words "on the date immediately
prior to such modification"; and inserting after the word "participates"
on the tenth line thereof the words "on the date immediately prior to
such discontinuation".
(c) Section 4.5 (c) of the Employment Agreement is amended by deleting in
the second line thereof the word "presently"; inserting in the third line
thereof after the words "to the Executive" the words "on the date
immediately prior to such discontinuation"; deleting in the sixth line
thereof the word "currently"; inserting in the sixth line thereof after
the word "apply" the words "on the date immediately prior to such
discontinuation or change"; and deleting in the last line thereof the
word "hereof' and substituting therefor the words "immediately prior to
the change effected by such action".
(These amendments are intended to confirm and ensure that the appropriate point
of comparison for a deemed termination event as set out in section 4.5 of your
Employment Agreement is the point immediately prior to the event in question,
not the date of inception ofyour Employment Agreement which happened to be March
27, 1996.)
4. The Corporation will give you notice in writing immediately upon the
occurrence of a "Change in Control" event as described in section 4.7 of your
Employment Agreement.
5. If you decide to resign consequent upon a "Change in Control" as
provided for in section 4.6 of your Employment Agreement, you must provide your
written notice to the Corporation within 21 months of the effective date of the
"Change in Control". The effective date of your
<PAGE>
- 3 -
resignation stated in such notice must be 3 months from the date the notice is
given. In the event that you are retiring and are doing so by electing to resign
consequent upon a "Change in Control", the effective date for the commencement
of your retirement entitlements and benefits, at your option, can be any date
between your 55~ and 65k" birthdays, provided that such date not occur before
the end of your "Termination Period" as determined by section 4.6 of your
Employment Agreement.
6. Section 4.7 of the Employment Agreement is amended by deleting in the
first and second lines thereof the words "the date hereof' and substituting
therefor the words "March 27, 1996".
7. Section 3.3 of the Employment Agreement is amended by adding thereto
after the last sentence thereof the following sentence: "For the purpose of
determining whether the age and years of Continuous Service of the Executive
adds up to eighty-five (85) in the last sentence of section 8.03 of the RPP, the
Executive's age at the date he leaves active employment with the Corporation
shall be deemed to be his age at the end of the Termination Period, or twelve
(12) months from the date his employment is ended in the event it is ended and
payment made under paragraph 4.10."
Please confirm your agreement with the amendments to your Employment Agreement
set forth above by signing both copies of this letter and returning one copy to
the Corporation.
Sincerely,
SCHNEIDER CORPORATION
(signed)
Gerald A. Hooper
Vice President and Chief Financial Officer
I agree to and accept the above this 17th day of November, 1998.
(signed)
Douglas W. Dodds
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Set forth below is a list of each of the subsidiaries of Smithfield Foods,
Inc. (other than subsidiaries whose names have been omitted in accordance with
Regulation S-K Item 601(21)(ii)) and their respective jurisdictions of
organization.
NAME OF SUBSIDIARY JURISDICTION OF ORGANIZATION
------------------ ----------------------------
Animex S.A. Poland
Brown's of Carolina, Inc. North Carolina
Carroll's Foods, Inc. North Carolina
Circle Four Farms, LLC North Carolina
Gwaltney of Smithfield, Ltd. Delaware
John Morrell & Co. Delaware
Lykes Meat Group, Inc. Delaware
North Side Foods Corp. Delaware
Patrick Cudahy Incorporated Delaware
Schneider Corporation Ontario, Canada
SF Investments, Inc. Delaware
The Smithfield Packing
Company, Incorporated Virginia
Societe Bretonne de
Salaisons France
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Numbers 33-51024, 33-14219, 333-34553, and
333-81917.
/s/ Arthur Andersen LLP
Richmond, Virginia
July 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-02-1999
<PERIOD-END> MAY-02-1999
<CASH> 30,590
<SECURITIES> 0
<RECEIVABLES> 254,988
<ALLOWANCES> 2,656
<INVENTORY> 348,856
<CURRENT-ASSETS> 682,080
<PP&E> 1,083,416
<DEPRECIATION> 292,640
<TOTAL-ASSETS> 1,771,614
<CURRENT-LIABILITIES> 466,215
<BONDS> 594,241
0
0
<COMMON> 20,924
<OTHER-SE> 521,322
<TOTAL-LIABILITY-AND-EQUITY> 1,771,614
<SALES> 3,774,989
<TOTAL-REVENUES> 3,774,989
<CGS> 3,235,414
<TOTAL-COSTS> 3,235,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,521
<INCOME-PRETAX> 143,438
<INCOME-TAX> 48,554
<INCOME-CONTINUING> 94,884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,884
<EPS-BASIC> 2.39
<EPS-DILUTED> 2.32
</TABLE>
