<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
SMITHFIELD FOODS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[X]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.50 par value per share; Rights to purchase Series A
Junior Participating Preferred Stock, $1.00 par value per share
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
10,652,070
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$12.76. (The price per unit was based upon (1) the number of shares to
be issued in the transaction and (2) the book value, as of July 31, 1999
(which is the latest practicable date prior to the date of filing the
preliminary proxy statement), of the shares to be received by the
acquiring party in the proposed transaction. There is no market for the
shares being acquired.)
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$135,939,980
-------------------------------------------------------------------------
(5) Total fee paid:
$27,188
-------------------------------------------------------------------------
[X]Fee paid previously by written preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ________________________________________________
(2) Form Schedule or Registration Statement No.: ___________________________
(3) Filing Party: __________________________________________________________
(4) Date Filed: ________________
<PAGE>
SMITHFIELD FOODS, INC.
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 21, 1999
As a shareholder of SMITHFIELD FOODS, INC., a Virginia corporation, you are
cordially invited to be present, either in person or by proxy, at a special
meeting of shareholders of Smithfield Foods to be held at the Omni Richmond
Hotel, 100 South 12th Street, Richmond, Virginia at 9:00 a.m., local time, on
December 21, 1999.
At the special meeting you will be asked to vote on a proposal to approve
the issuance of up to 10,652,070 shares of our common stock, plus or minus
shares to be issued by or returned to Smithfield Foods in connection with
post-closing adjustments or indemnification obligations provided for in the
Acquisition Agreement and Plan of Reorganization referred to in the attached
proxy statement, in connection with the acquisition of Murphy Farms, Inc. and
certain related corporations. If the issuance of these shares is approved,
Smithfield Foods plans to acquire all of the capital stock of the Murphy
Family Farms Companies by causing newly formed subsidiaries of Smithfield
Foods to be merged into the respective Murphy Family Farms Companies. The
Murphy Family Farms Companies will survive the mergers and become wholly-owned
subsidiaries of Smithfield Foods.
Only shareholders of record at the close of business on November 15, 1999
will be entitled to vote at the special meeting and any adjournment thereof.
The transfer books will not be closed.
Even if you plan to attend the special meeting in person, we ask that you
MARK, SIGN, DATE and RETURN the enclosed proxy promptly in the enclosed self-
addressed envelope, so that we may be assured of a quorum to transact
business. If you receive more than one proxy because you own shares registered
in different names or addresses, each proxy should be completed and returned.
Your proxy is revocable and will not affect your right to vote in person in
the event you are able to attend the meeting.
Your attention is directed to the attached proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS,
MICHAEL H. COLE
SECRETARY
Smithfield, Virginia
November 22, 1999
<PAGE>
SMITHFIELD FOODS, INC.
EXECUTIVE OFFICES
200 COMMERCE STREET
SMITHFIELD, VIRGINIA 23430
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 21, 1999
The special meeting of shareholders of SMITHFIELD FOODS, INC., a Virginia
corporation, will be held on December 21, 1999, at the time and place and for
the purposes set forth in the notice of special meeting of shareholders
accompanying this proxy statement. This proxy statement is furnished in
connection with the solicitation of proxies on behalf the board of directors
of Smithfield Foods in connection with such meeting and any continuation or
adjournment thereof.
The costs of soliciting proxies will be borne by Smithfield Foods. In
addition to solicitation by mail, certain directors, officers and employees of
Smithfield Foods may solicit proxies in person or by telephone for no
additional compensation. Smithfield Foods will also ask record holders of our
common stock who are brokerage firms, custodians and fiduciaries to forward
proxy material to the beneficial owners of such shares and upon request will
reimburse such record holders for the costs of forwarding the material in
accordance with customary charges. Smithfield Foods has retained Georgeson &
Company Inc. to assist in the solicitation of proxies at an anticipated cost
to Smithfield Foods of $7,500 plus expenses.
Any proxy given pursuant to this solicitation may be revoked by the filing
with and receipt by the Secretary of Smithfield Foods of a written revocation
or duly executed proxy bearing a later date and does not preclude the
shareholder from voting in person at the special meeting if he or she so
desires. The persons named in the form of proxy solicited by the board of
directors will vote all proxies which have been properly executed. If a
shareholder specifies on such proxy a choice with respect to the proposal to
be acted upon, the proxy will be voted in accordance with such specification.
IF NO DIRECTIONS TO THE CONTRARY ARE INDICATED, THE PERSONS NAMED IN THE
PROXY WILL VOTE THE SHARES REPRESENTED THEREBY FOR THE PROPOSAL LISTED ON THE
PROXY CARD.
If necessary, and unless the shares represented by the proxy are voted
against the proposal herein, the persons named in the proxy may also vote in
favor of a proposal to adjourn the special meeting and to reconvene it on a
subsequent date or dates without further notice, in order to solicit and
obtain sufficient votes to approve or disapprove any matters being considered
at the special meeting.
This proxy statement and the enclosed form of proxy are first being sent to
our shareholders on or about November 22, 1999.
VOTING SECURITIES
On November 15, 1999, the record date for determining shareholders entitled
to vote at the meeting, 43,922,266 shares of our common stock and one Series B
Special Voting Preferred Share, par value $1.00 (the "Series B Share"), were
outstanding and entitled to vote. Each share of common stock entitles the
holder thereof to one vote; the Series B Share entitles the holder thereof to
1,016,679 votes, as described further below; the total number of votes that
shareholders may cast at the meeting is therefore 44,938,945. The holders of
common stock and the holder of the Series B Share will vote together as a
single group at the meeting.
The Series B Share is held by CIBC Mellon Trust Company, as trustee (the
"Trustee"). The aggregate number of votes entitled to be cast by the Trustee
is equal to the number of exchangeable shares of Smithfield
1
<PAGE>
Canada Limited, a Canadian subsidiary of Smithfield Foods, issued and
outstanding on the record date (excluding any exchangeable shares held by
Smithfield Foods or its subsidiaries). As of the record date, there were
1,016,679 exchangeable shares issued and outstanding none of which are held by
Smithfield Foods or any of its subsidiaries. The exchangeable shares were
issued in exchange for shares of Schneider Corporation during the 1999 fiscal
year and are exchangeable at any time by the holders thereof for shares of our
common stock on a one-for-one basis. Each holder of exchangeable shares is
entitled to instruct the Trustee to cast, in the manner instructed, one vote
for each exchangeable share held of record by such holder on the record date.
To the extent no instructions are received from a holder of exchangeable
shares, the Trustee will not exercise the voting rights relating to such
holder's exchangeable shares. Holders of exchangeable shares will receive from
the Trustee these proxy materials and directions as to the manner in which
instructions may be given to the Trustee with respect to the voting of the
Series B Share (or alternatively, for the granting of proxies to such holders
or their designees to exercise the voting rights relating to such holders'
exchangeable shares).
A majority of the total votes entitled to be cast on matters to be
considered at the special meeting constitutes a quorum. If a share is
represented for any purpose at the special meeting, it is deemed to be present
for quorum purposes and for all other matters as well. Abstentions and shares
held of record by a broker or its nominee ("broker shares") that are voted on
any matter are included in determining the number of votes present or
represented at the special meeting. However, broker shares that are not voted
on any matter at the special meeting will not be included in determining
whether a quorum is present at such meeting.
Action on the proposal will be approved if a majority of the votes cast on
the proposal at the special meeting are cast in favor of the proposal;
provided, that the total vote cast on the proposal represents over 50% of the
shares entitled to vote. Abstentions and broker shares that are not voted are
not considered cast either for or against the proposal and, therefore, will
effect the outcome of the vote only to the extent that such shares will not
count toward satisfying the requirement that the total vote cast on the
proposal must exceed 50% of the shares entitled to vote.
PROPOSAL
At the special meeting you will be asked to vote on a proposal to approve
the issuance of up to 10,652,070 shares of our common stock, plus or minus
shares to be issued by or returned to Smithfield Foods in connection with
post-closing adjustments or indemnification obligations provided for in the
Acquisition Agreement (as defined under "The Acquisition" on page 8 of this
proxy statement), in connection with the acquisition of Murphy Farms, Inc. and
certain related corporations (the "Murphy Family Farms Companies" and
sometimes referred to collectively as "Murphy Family Farms").
If the issuance of these shares is approved, Smithfield Foods plans to
acquire all of the capital stock of each of the Murphy Family Farms Companies
by causing newly formed subsidiaries of Smithfield Foods to be merged into
each respective Murphy Family Farms Company. The Murphy Family Farms Companies
will survive the mergers and become wholly-owned subsidiaries of Smithfield
Foods.
You should refer to the section titled "The Acquisitions" and to the
Acquisition Agreement for more information regarding the acquisition of the
Murphy Family Farms Companies. A copy of the Acquisition Agreement (excluding
the forms of ancillary agreements, forms of legal opinions and schedules
attached thereto) is included as Annex A to this proxy statement.
The Smithfield Foods board of directors, by unanimous vote, has approved the
issuance of Smithfield Foods common stock in accordance with the Acquisition
Agreement, and determined that the acquisition of the Murphy Family Farms
Companies is in the best interests of Smithfield Foods and its shareholders.
The Smithfield Foods board of directors recommends that Smithfield Foods
shareholders vote FOR the proposal to issue up to 10,652,070 of Smithfield
Foods common stock, plus or minus shares to be issued by or returned to
Smithfield Foods in connection with post-closing adjustments or
indemnification obligations provided for in the Acquisition Agreement, in
connection with the acquisition of the Murphy Family Farms Companies. The
Smithfield Foods board of directors took these actions after consideration of
a number of factors described under the section of this proxy statement titled
"The Acquisitions--Smithfield Foods' Reasons for the Acquisition".
2
<PAGE>
SMITHFIELD FOODS, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical consolidated financial data
and other data of Smithfield Foods which should be read in conjunction with
and is qualified in its entirety by reference to the consolidated financial
statements and the unaudited consolidated condensed financial statements and
the notes thereto incorporated by reference herein. (See "Where You Can Find
More Information.") The selected historical consolidated financial data for
the fiscal years ended May 2, 1999, May 3, 1998, April 27, 1997, April 28,
1996 and April 30, 1995 have been derived from financial statements of
Smithfield Foods which have been audited by Arthur Andersen LLP. The selected
historical consolidated financial data for the 13-week periods ended August 1,
1999 and August 2, 1998 have been derived from unaudited consolidated
financial statements. In the opinion of management, the unaudited information
reflects all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation of the results of such periods. Results for
the period ended August 1, 1999 are not indicative of the results to be
expected for the full fiscal year.
<TABLE>
<CAPTION>
Thirteen weeks ended Fiscal year ended
-------------------- --------------------------------------------------------
August 1, August 2, May 2, May 3, April 27, April 28, April 30,
1999 1998 1999 1998 1997 1996 1995
---------- --------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................. $1,142,415 $ 865,823 $3,774,989 $3,867,442 $3,870,611 $2,383,893 $1,526,518
Cost of sales.......... 994,919 793,645 3,235,414 3,479,629 3,546,816 2,202,112 1,380,243
---------- --------- ---------- ---------- ---------- ---------- ----------
Gross profit........... 147,496 72,178 539,575 387,813 323,795 181,781 146,275
Selling, general and
administrative
expenses.............. 94,550 57,997 295,610 219,861 191,225 103,095 61,723
Depreciation expense... 24,858 12,939 63,524 42,300 35,825 25,979 19,717
Interest expense....... 14,533 9,706 40,521 31,891 26,211 20,942 14,054
Minority interests..... 2,761 (599) (3,518) 199 2,857 1,514 343
Nonrecurring
charge(1)............. -- -- -- 12,600 -- -- --
---------- --------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before income taxes... 10,794 (7,865) 143,438 80,962 67,677 30,251 50,438
Income taxes........... 3,864 (2,540) 48,554 27,562 22,740 10,465 18,523
---------- --------- ---------- ---------- ---------- ---------- ----------
Income (loss) from con-
tinuing operations.... 6,930 (5,325) 94,884 53,400 44,937 19,786 31,915
Loss from discontinued
operations............ -- -- -- -- -- (3,900) (4,075)
---------- --------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 6,930 $ (5,325) $ 94,884 $ 53,400 $ 44,937 $ 15,886 $ 27,840
========== ========= ========== ========== ========== ========== ==========
DILUTED INCOME (LOSS)
PER SHARE:
Continuing operations.. $ 0.15 $ (0.14) $ 2.32 $ 1.34 $ 1.17 $ 0.53 $ 0.92
Discontinued
operations............ -- -- -- -- -- (0.11) (0.12)
---------- --------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 0.15 $ (0.14) $ 2.32 $ 1.34 $ 1.17 $ 0.42 $ 0.80
========== ========= ========== ========== ========== ========== ==========
Average diluted shares
outstanding........... 47,088 37,537 40,962 39,732 38,558 35,000 33,923
BALANCE SHEET DATA:
Working capital........ $ 293,211 $ 278,174 $ 215,865 $ 259,188 $ 164,312 $ 88,026 $ 60,911
Total assets........... 2,230,550 1,233,836 1,771,614 1,083,645 995,254 857,619 550,225
Long term debt and cap-
ital lease
obligations........... 785,605 539,144 594,241 407,272 288,486 188,618 155,047
Shareholders' equity... 658,407 355,935 542,246 361,010 307,486 242,516 184,015
OPERATING DATA:
Fresh pork sales
(pounds).............. 691,943 606,420 2,687,412 2,539,221 2,320,477 1,635,300 955,290
Processed meats sales
(pounds).............. 525,912 332,373 1,606,021 1,370,232 1,218,835 839,341 774,615
Total hogs purchased... 4,681 4,366 19,093 17,952 16,869 12,211 8,678
</TABLE>
- --------
(1) Reflects a nonrecurring charge of $12.6 million related to civil penalties
in an environmental case.
3
<PAGE>
MURPHY FAMILY FARMS COMPANIES
SELECTED COMBINED HISTORICAL FINANCIAL INFORMATION
The following table presents selected combined historical financial
information of Murphy Farms, Inc., Quarter M Farms, Inc. and Murphy Funding,
Inc. Chief Milling Partners, Inc., which is not included in the Murphy Family
Farms Group historical financial statements and is considered immaterial to
the group, has been excluded from this selected combined historical financial
information. The selected historical balance sheet data as of October 31, 1998
and November 1, 1997 and the related statements of operations data for each of
the three years in the period ended October 31, 1998 have been derived from
the combined financial statements of the Murphy Family Farms Group which have
been audited by Ernst & Young LLP and are included with accompanying notes as
Annex B to this proxy statement. The selected combined historical financial
data as of and for the nine months ended July 31, 1999 and August 1, 1998 have
been derived from unaudited combined financial statements. The selected
historical financial data for the combined statements of operations for the
nine months ended July 31, 1999 and August 1, 1998 and the combined balance
sheet as of July 31, 1999 are included in Annex B. In the opinion of Murphy
Family Farms Companies' management, the unaudited information reflects all
adjustments (consisting only of normal and recurring adjustments) necessary
for a fair presentation of the results for such periods. Operating results for
the nine months ended July 31, 1999 are not necessarily indicative of the
results that may be expected for the entire year ending October 30, 1999. The
data should be read in conjunction with the combined financial statements and
related notes included in Annex B.
<TABLE>
<CAPTION>
Nine months ended Fiscal year ended
------------------- -----------------------------------
July 31, August 1, October 31, November 1, November 2,
1999 1998 1998 1997 1996
-------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
STATEMENT OF OPERATIONS
DATA:
Sales................. $313,338 $379,105 $492,324 $602,120 $491,274
Gross profit.......... (3,124) (16,634) (60,680) 145,690 97,410
Operating (loss)
income............... (26,376) (44,231) (102,309) 94,565 64,880
Loss on sale of
investment........... -- (4,600) (4,600) -- --
Loss from fixed asset
write down........... -- -- (4,742) -- --
Net (loss) income .... (33,807) (49,636) (111,487) 95,740 62,991
BALANCE SHEET DATA:
Working capital....... 157,902 122,972 213,990 298,575 126,386
Total assets.......... 437,066 435,719 508,006 620,741 469,801
Long-term debt........ 176,626 94,249 221,535 201,383 44,787
Shareholders' equity.. 193,091 281,994 216,523 353,563 252,448
</TABLE>
4
<PAGE>
MARKET PRICE DATA
Market Information
Smithfield Foods common stock is listed for trading on the New York Stock
Exchange under the symbol "SFD". Before September 28, 1999, Smithfield Foods
common stock was quoted on The Nasdaq National Market.
The table below sets forth the high and low sales prices for Smithfield
Foods common stock for the fiscal periods indicated as well as on September 1,
1999, the last trading day immediately preceding the public announcement of
the proposed acquisition, and on November 17, 1999, the last practicable day
for which sales prices were available at the time of the mailing of this proxy
statement.
<TABLE>
<CAPTION>
Range of Sales Prices
---------------------
High Low
---------------------
<S> <C> <C>
Fiscal 1998 (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 1999 (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
Fiscal 2000
First quarter (ended August 1, 1999)................... 34.06 23.50
September 1, 1999........................................ 30.06 28.94
November 17, 1999........................................ 23.50 23.06
</TABLE>
Holders
As of November 15, 1999, there were 1,211 record holders of Smithfield Foods
common stock. In addition, there were on such date 253 record holders of the
exchangeable shares issued by Smithfield Canada Limited. See the section of
this proxy statement titled "Voting Securities" for additional information
regarding the exchangeable shares.
Dividends
We have never paid a cash dividend on our common stock and do not anticipate
paying cash dividends on our common stock in the foreseeable future. In
addition, the terms of certain of our debt agreements prohibit the payment of
cash dividends on our common stock. The payment of cash dividends, if any,
will be made only from assets legally available for that purpose and will
depend on our 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.
5
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents historical per share data of Smithfield Foods
and pro forma per share data combined with the Murphy Family Farms Companies.
The pro forma combined information in the table is based upon the historical
financial statements of Smithfield Foods and the Murphy Family Farms Group
conformed to Smithfield Foods' periods and is unaudited. The pro forma
combined information is presented for comparison purposes only. The pro forma
information is hypothetical and is not intended to predict Smithfield Foods'
actual operating results and financial position following completion of the
acquisition. The pro forma data is presented under the purchase method of
accounting for the acquisition.
The table should be read in conjunction Smithfield Foods' Annual Report for
the fiscal year ended May 2, 1999, Smithfield Foods' unaudited financial
statements for the 13 weeks ended August 1, 1999, the historical financial
statements and notes of Murphy Family Farms Companies for the fiscal year
ended October 31, 1998, Smithfield Foods' Form 8-K/A filed July 21, 1999 and
the unaudited Pro Forma Consolidated Condensed Financial Statements for the 13
weeks and 52 weeks ended August 1, 1999 and May 2, 1999, respectively.
<TABLE>
<CAPTION>
Smithfield Foods, Inc.
-----------------------------
Historical Pro forma Combined
---------- ------------------
<S> <C> <C>
Income (loss) per share from continuing
operations:
Thirteen weeks ended August 1, 1999:
Basic......................................... 0.15 0.13
Diluted....................................... 0.15 0.12
Fiscal year 1999:
Basic......................................... 2.39 (0.05)
Diluted....................................... 2.32 (0.05)
Book value per diluted share:
As of August 1, 1999........................... 14.33 19.38
Cash dividends per share:(1)
Thirteen weeks ended August 1, 1999............ -- --
Fiscal year 1999............................... -- --
</TABLE>
- --------
(1) Smithfield Foods has never paid a cash dividend on common stock and does
not anticipate paying any cash dividends in the foreseeable future.
6
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected pro forma condensed consolidated
financial information for Smithfield Foods as of and for the periods noted,
giving effect to the completion of the acquisition. Smithfield Foods intends
to account for the transaction under the purchase method of accounting. This
financial information is unaudited and, in the opinion of Smithfield Foods,
includes all adjustments necessary to present fairly such information. The
information below is presented in accordance with generally accepted
accounting principles and is qualified in its entirety by, and should read in
conjunction with, the unaudited Pro Forma Consolidated Condensed Financial
Statements of Smithfield Foods, including the notes thereto, starting on page
17 of this proxy statement.
<TABLE>
<CAPTION>
Fiscal
Thirteen Year Ended
Weeks Ended May 2,
August 1, 1999 1999
--------------- ----------
(In thousand, except per
share amounts)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................................... $1,205,307 $4,085,744
Net income (loss)................................... 7,071 (2,592)
Net income (loss) per share:
Basic............................................. 0.13 (0.05)
Diluted........................................... 0.12 (0.05)
<CAPTION>
As of
August 31, 1999
---------------
<S> <C>
BALANCE SHEET DATA:
Total assets........................................ $2,802,721
Long-term debt and capital lease obligations........ 949,921
Shareholders' equity................................ 901,273
</TABLE>
FORWARD-LOOKING INFORMATION
This proxy statement may contain "forward-looking" information within the
meaning of the federal securities laws. The forward-looking information may
include statements concerning Smithfield Foods' or the Murphy Family Farms
Companies' 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.
7
<PAGE>
THE ACQUISITION
The following discusses the material terms of the proposed acquisition by
Smithfield Foods of the Murphy Family Farms Companies pursuant to the
Acquisition Agreement and Plan of Reorganization, dated as of November 15,
1999 (the "Acquisition Agreement"), among Smithfield Foods and Wendell H.
Murphy, Harry D. Murphy, Joyce M. Norman, Wendell H. Murphy, Jr., Wendy Murphy
Crumpler, Stratton K. Murphy, Marc D. Murphy and Angela Brown (collectively,
the "Selling Shareholders"). This discussion does not provide a complete
description of all terms and conditions of the acquisition. For further
information, please refer to the text of the Acquisition Agreement (excluding
the forms of ancillary agreements (as finally executed and delivered, the
"Ancillary Agreements"), forms of legal opinions and schedules attached
thereto), which is included as Annex A to this proxy statement. Any
capitalized terms used in this discussion of the acquisition that are not
otherwise defined in this proxy statement have the meanings given to them in
Annex A.
General
Smithfield Foods will effect the acquisition by merging four wholly-owned
subsidiaries of Smithfield Foods, each formed solely for purposes of the
acquisition, respectively with and into the four Murphy Family Farms
Companies, with the four Murphy Family Farms Companies as the surviving
corporations. The four Murphy Family Farms Companies are Murphy Farms, Inc.,
Quarter M Farms, Inc., Chief Milling Partners, Inc. and Murphy Funding, Inc.,
each a North Carolina corporation. By virtue of these four mergers, Smithfield
Foods will acquire all of the outstanding stock of the Murphy Family Farms
Companies, and the former shares of stock in such companies will be converted
into the right to receive shares of Smithfield Foods common stock, which
Smithfield Foods will issue. The Acquisition Agreement provides for an
aggregate of 10,652,070 shares of common stock to be issued by Smithfield
Foods upon the closing of the acquisition, plus or minus shares to be issued
by or returned to Smithfield Foods in connection with post-closing adjustments
or indemnification obligations provided for in the Acquisition Agreement as
summarized below (such shares from time to time being referred to as the
"Acquisition Consideration"). After the acquisition, therefore, Smithfield
Foods would then have approximately 55,591,015 shares of common stock
outstanding, based upon the number of shares outstanding at November 15, 1999.
Adjustments in Number of Shares Comprising the Acquisition Consideration
Pursuant to the terms of the Acquisition Agreement, the Acquisition
Consideration may be adjusted upward or downward in four respects, with a
resulting net adjustment either upward or downward, depending on the various
circumstances referred to below at the Effective Date (defined as the earlier
of the closing date and December 31, 1999). Any such adjustment will be made
by increasing or decreasing the number of shares of common stock comprising
the Acquisition Consideration (valuing for this purpose each share of common
stock at $31.11 per share, a value determined by negotiation between the
parties to the Acquisition Agreement). The Acquisition Consideration will be
adjusted upward, and a correspondingly greater number of shares of common
stock ultimately will be issued, if: (1) the Companies Debt of the Murphy
Family Farms Companies at the Effective Date is less than $180,108,729; (2)
the Working Capital of the Murphy Family Farms Companies at the Effective Date
is more than negative $ 7,987,096; (3) the Cash to Accrual Tax Liability as of
the Effective Date is less than $64,930,653; or (4) from the closing date
through December 31, 1999 (if the closing precedes December 31, 1999), the
four acquired Murphy Family Farms Companies generate combined after-tax
earnings. Conversely, the Acquisition Consideration will be adjusted downward,
and a correspondingly lesser number of shares of common stock ultimately will
be issued, if: (1) the Companies Debt of the Murphy Family Farms Companies at
the Effective Date is more than $180,108,729; (2) the Working Capital of the
Murphy Family Farms Companies at the Effective Date is less than negative $
7,987,096; (3) the Cash to Accrual Tax Liability as of the Effective Date is
more than $64,930,653; or (4) from the closing date through December 31, 1999
(if the closing precedes December 31, 1999), the four acquired Murphy Family
Farms Companies generate combined after-tax losses. Furthermore, in connection
with the closing, the parties will agree as to estimates of the adjustments
which will eventually be effected as summarized above, and corresponding
estimated adjustments will be made in connection with the closing, subject to
the final adjustments to be made later.
8
<PAGE>
Smithfield Foods' Reasons for the Acquisition
Smithfield Foods' board of directors believes that the acquisition is fair
to, and in the best interests of, Smithfield Foods and its shareholders.
Accordingly, after consideration of relevant business, financial, legal and
market factors, Smithfield Foods' board of directors approved the Acquisition
Agreement and the transactions contemplated thereby by unanimous vote and
unanimously voted to recommend that you vote "FOR" the approval of the
proposal to issue up to 10,652,070 of Smithfield Foods common stock (plus or
minus shares to be issued by or returned to Smithfield Foods in connection
with post-closing adjustments or indemnification obligations provided for in
the Acquisition Agreement) in connection with the acquisition of the Murphy
Family Farms Companies. In reaching its determination to approve the
Acquisition Agreement and the transactions contemplated thereby, Smithfield
Foods' board of directors consulted with its management and its accounting,
legal and other advisers, and considered a number of factors. The following
includes all of the material factors considered:
. presentations by management at meetings of the board of directors held
on September 2, 1999 and October 28, 1999, with respect to the business,
operations, assets, liabilities, financial condition and earnings of the
Murphy Family Farms Companies, on an historical and a prospective basis;
. the expectation that the acquisition of the Murphy Family Farm Companies
would be accretive to our reported earnings per share in the long term;
. the belief that the acquisition would strengthen the balance sheet of
Smithfield Foods by positively affecting our debt-to-equity ratio;
. the terms of the Acquisition Agreement, including the Acquisition
Consideration;
. the expectation that the acquisition would be accounted for as a
purchase for accounting and financial reporting purposes (see "--
Accounting Treatment");
. the fact that the shares issuable to the Selling Shareholders would be
subject to resale restrictions and "standstill" provisions for five
years (see "--Ancillary Agreements");
. the belief that the acquisition would serve Smithfield Foods' continuing
strategy of vertical integration into hog production;
. the expectation that substantially all of the Murphy Family Farms
Companies' senior management would remain in place following the
acquisition; and
. the results of the due diligence investigation conducted by Smithfield
Foods' management and personnel, with assistance from its accounting,
legal and other advisors.
The foregoing discussion of the information and factors considered by the
board of directors of Smithfield Foods is not intended to be exhaustive, but
includes all of the material factors considered by Smithfield Foods' board of
directors. In the course of its deliberations with respect to the acquisition,
Smithfield Foods' board of directors discussed the anticipated impact of the
acquisition on Smithfield Foods and Smithfield Foods' shareholders. In
reaching its determination to approve and recommend the acquisition,
Smithfield Foods' board of directors generally viewed each of the foregoing
factors as supporting its approval and recommendation of the Acquisition
Agreement and the resulting share issuance, but the board of directors did not
assign any relative or specific weight to the factors considered in reaching
such determination, and individual directors may have given differing weights
to different factors.
BASED ON THE FOREGOING, THE BOARD OF DIRECTORS OF SMITHFIELD FOODS
UNANIMOUSLY APPROVED THE ACQUISITION AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
THE HOLDERS OF SMITHFIELD FOODS COMMON STOCK AND SMITHFIELD CANADA LIMITED
EXCHANGEABLE SHARES VOTE "FOR" APPROVAL OF THE PROPOSAL TO ISSUE UP TO
10,652,070 OF SMITHFIELD FOODS COMMON STOCK (PLUS OR MINUS SHARES TO BE ISSUED
BY OR RETURNED TO SMITHFIELD FOODS IN CONNECTION WITH POST-CLOSING ADJUSTMENTS
OR INDEMNIFICATION OBLIGATIONS PROVIDED FOR IN THE ACQUISITION AGREEMENT) IN
CONNECTION WITH THE ACQUISITION OF THE MURPHY FAMILY FARMS COMPANIES.
9
<PAGE>
No Opinion of Financial Adviser
In view of the circumstances described herein, as well as Smithfield Foods'
experience in the hog production industry and in negotiating and effecting
prior acquisitions in the hog production industry and otherwise, the Board of
Directors of Smithfield Foods does not consider it in the best interests of
Smithfield Foods shareholders to employ a financial adviser with respect to
the acquisition, and accordingly Smithfield Foods has not sought the opinion
of a financial adviser.
Effective Time of the Acquisition
On the closing date, subject to the terms and subject to the satisfaction or
waiver, if permissible, of the conditions provided for in the Acquisition
Agreement, and in accordance with the North Carolina Business Corporation Act
("NCBCA"), the parties to the Acquisition Agreement will cause the four
mergers to be consummated by causing articles of merger with respect to each
to be executed and filed so that the respective mergers become effective as
soon as possible thereafter in accordance with the relevant provisions of the
NCBCA. Smithfield Foods cannot assure that the necessary Smithfield Foods
shareholder approval or any necessary regulatory approvals will be obtained or
that other conditions to the acquisition will be satisfied, but Smithfield
Foods anticipates that all such conditions will be satisfied so that the
acquisition will be consummated on or promptly after January 5, 2000, if
Smithfield Foods' shareholders approve the proposal presented in this proxy
statement. However, completion of the acquisition could be delayed.
Either Smithfield Foods or the Selling Shareholders may terminate the
Acquisition Agreement if the acquisition is not completed by 11:59 p.m. on May
31, 2000, provided that no party may terminate the Acquisition Agreement if
the sole condition to such party or parties' obligation to close then not
satisfied or waived is the failure of a governmental authority to issue any
consent, order, approval or waiver necessary for the consummation of the
transactions contemplated by the Acquisition Agreement, or the institution by
a governmental authority of an action for the purpose of enjoining or
preventing, or which questions the validity or legality of, the transactions
contemplated by the Acquisition Agreement, if there appears to be a reasonable
prospect that such consent, order, approval or waiver will be issued, or that
such action will be withdrawn, dismissed or finally adjudicated, within a
reasonable time after May 31, 2000. See "--Conditions to Consummation of the
Acquisition" and "--Waiver, Amendment, and Termination."
Termination Fee
Smithfield Foods has deposited with the Selling Shareholders $5 million
cash. In the event that the Acquisition Agreement were to be terminated
because of a material breach by Smithfield Foods of its obligations
thereunder, such deposit and any interest earned thereon would be forfeited to
the Selling Shareholders as liquidated damages in lieu of any claim by the
Selling Shareholders or the Murphy Family Farms Companies which they might
seek to maintain against Smithfield Foods or any other person. Simultaneously
with the consummation of the acquisition, or in the event that the Acquisition
Agreement were terminated for any reason other than the reason indicated in
the foregoing sentence, the deposit together with any accrued interest would
be returned to Smithfield Foods.
There is no provision in the Acquisition Agreement or otherwise for the
Selling Shareholders to pay Smithfield Foods a specified termination fee in
the event the acquisition is not consummated.
Conditions to Consummation of the Acquisition
Smithfield Foods and the Selling Shareholders are required to complete the
acquisition only after the satisfaction of various conditions set forth in
Articles VI and VII of the Acquisition Agreement. These conditions include,
without limitation:
. the holders of a majority of the voting power of Smithfield Foods
present at the special meeting must approve the proposal to issue up to
10,652,070 of Smithfield Foods common stock, plus or minus
10
<PAGE>
shares to be issued by or returned to Smithfield Foods in connection
with post-closing adjustments or indemnification obligations provided
for in the Acquisition Agreement, in connection with the acquisition of
the Murphy Family Farms Companies;
. Smithfield Foods, the Murphy Family Farms Companies and the Selling
Shareholders must receive any required regulatory approvals;
. the acquisition must qualify as a tax-free reorganization for federal
income tax purposes;
. the representations and warranties of the Selling Shareholders (as to
themselves and the respective Murphy Family Farms Companies in which
such shareholders hold interests) and Smithfield Foods as set forth in
the Acquisition Agreement must be accurate in all material respects as
of the date of the Acquisition Agreement and as of the date the
acquisition is to become effective;
. the Selling Shareholders and Smithfield Foods must perform all of their
respective agreements and comply with all of their respective covenants
as set forth in the Acquisition Agreement in all material respects;
. the Selling Shareholders, the Murphy Family Farms Companies and
Smithfield Foods must receive all other consents that may be required to
complete the acquisition or to prevent any default under any contract or
permit which would be reasonably likely to have, individually or in the
aggregate, a material adverse effect on any such party;
. there must not be any material adverse change, or any occurrence or
circumstance that might reasonably be expected over time to result in
such a change, in the Murphy Family Farms Companies since August 28,
1999 or in Smithfield Foods since the date of the Acquisition Agreement,
nor any discovery by Smithfield Foods in its due diligence investigation
of the Murphy Family Farms Companies of any facts or matters not
satisfactory to Smithfield Foods in all material respects.
. there must not be any law or order or any action taken by any court,
governmental or regulatory authority of competent jurisdiction
prohibiting or restricting the acquisition or making it illegal, which
in any such case could reasonably be expected to damage the Selling
Shareholders, the Murphy Family Farms Companies or Smithfield Foods
materially, or prevent Smithfield Foods from owning and controlling the
Murphy Family Farms Companies; and
. certain other conditions that must be satisfied, including the execution
and delivery by the parties thereto of the Ancillary Agreements, the
receipt by Smithfield Foods of certain title insurance and surveys and
the receipt by various parties of various certificates from the Selling
Shareholders, the officers of the Murphy Family Farms Companies and the
officers of Smithfield Foods.
Neither Smithfield Foods nor the Selling Shareholders can assure Smithfield
Foods' shareholders as to when or if all of the conditions to the acquisition
can or will be satisfied, or waived by the party or parties permitted to do
so. If the acquisition is not completed on or before May 31, 2000, either the
Selling Shareholders or Smithfield Foods may terminate the Acquisition
Agreement and abandon the acquisition, subject to the limitations on such
rights of termination explained under "--Effective Time of the Acquisition"
and "--Waiver, Amendment and Termination."
Regulatory Approvals; Regulatory Investigations
Subject to the matters discussed below, Smithfield Foods believes that no
regulatory approvals will be required in order to consummate the acquisition.
On October 12, 1999, Smithfield Foods received from the U.S. Department of
Justice a civil investigative demand pursuant to the Antitrust Civil Process
Act (15 U.S.C. Sections 1311-1314) in the course of an antitrust investigation
to determine whether there is, has been, or may be a violation of certain
provisions of the Clayton Act (15 U.S.C. Sections 18, 18a (Clayton Act
Sections 7, 7A)) in connection with certain acquisitions and proposed
acquisitions by Smithfield Foods, including the acquisition of the Murphy
Family Farms Companies. Smithfield Foods is cooperating fully with this civil
investigative demand.
11
<PAGE>
On November 3, 1999, Smithfield Foods received from the Attorney General of
the State of Missouri a civil investigative demand in connection with an
investigation to ascertain whether proposed acquisitions by Smithfield Foods
of certain hog production assets and facilities, including hog production
assets and facilities currently owned by the Murphy Family Farms Companies, or
Smithfield Foods' past and current business activities, including our hog
buying practices and our ownership and/or management of pork packing
facilities, violate the Missouri antitrust laws (Section 416.031 RSMo 1994).
Smithfield Foods is cooperating fully with this civil investigative demand.
At this time Smithfield Foods cannot evaluate whether and to what extent the
investigations discussed above may affect our ability to consummate the
acquisition of the Murphy Family Farms Companies or the timing of the closing
of such acquisition.
Waiver, Amendment and Termination
To the extent permitted by law, Smithfield Foods and the Selling
Shareholders may agree in writing to amend the Acquisition Agreement, whether
before or after the special meeting has been held. In addition, before or at
the time the acquisition becomes effective, either the Selling Shareholders or
Smithfield Foods, or both, may waive any default in the performance of any
term of the Acquisition Agreement by the other party or parties, or may waive
or extend the time for the compliance or fulfillment by the other party or
parties of any and all of its or their obligations under the Acquisition
Agreement. In addition, either Smithfield Foods or the Selling Shareholders
may waive any of the conditions precedent to its or their obligations under
the Acquisition Agreement. To be effective, a waiver must be in writing and
signed by a duly authorized officer of Smithfield Foods or all of the Selling
Shareholders, as the case may be.
At any time before the acquisition becomes effective, Smithfield Foods and
the Selling Shareholders may agree to terminate the Acquisition Agreement. In
addition, the respective parties specified below may terminate the Acquisition
Agreement in the following respective circumstances:
. Smithfield Foods may terminate if any event occurs which renders
impossible compliance with one or more of the conditions set forth in
Article VI of the Acquisition Agreement (some of which are summarized
under "--Conditions to Consummation of the Acquisition" above), which
condition or conditions are not waived by Smithfield Foods;
. the Selling Shareholders may terminate if any event occurs which renders
impossible compliance with one or more of the conditions set forth in
Article VII of the Acquisition Agreement (some of which are summarized
under "--Conditions to Consummation of the Acquisition" above), which
condition or conditions are not waived by the Selling Shareholders;
. either Smithfield Foods or the Selling Shareholders may terminate if the
acquisition is not completed by 11:59 p.m. on May 31, 2000, provided
that no party may terminate the Acquisition Agreement pursuant to this
provision if the sole condition to such party or parties' obligation to
close then not satisfied or waived is the failure of a governmental
authority to issue any consent, order, approval or waiver necessary for
the consummation of the transactions contemplated by the Acquisition
Agreement, or the institution by a governmental authority of an action
for the purpose of enjoining or preventing, or which questions the
validity or legality of, the transactions contemplated by the
Acquisition Agreement, if there appears to be a reasonable prospect that
such consent, order, approval or waiver will be issued, or that such
action will be withdrawn, dismissed or finally adjudicated, within a
reasonable time after May 31, 2000; and
. Smithfield Foods may terminate if (a) Smithfield Foods shall have
discovered adverse facts or matters during the course of its due
diligence review of the Murphy Family Farms Companies, which Smithfield
Foods reasonably determines is expected to require an amount in excess
of $10 million to cure or correct, (b) Smithfield Foods specifically
describes these facts or matters in writing to the Selling Shareholders,
requesting they be cured or corrected or, in the alternative, requesting
a specified adjustment to the Acquisition Consideration in lieu of such
cure or correction, and (c) the Selling
12
<PAGE>
Shareholders fail within five business days to agree to either cure or
correct, or to adjust the Acquisition Consideration as specified in lieu
thereof (or fail to perform such agreement to the reasonable
satisfaction of Smithfield Foods).
If the Acquisition Agreement is terminated, the Acquisition Agreement will
become void and have no effect, except that certain provisions of the
Acquisition Agreement, including those relating to the obligations to share or
allocate various expenses and maintain the confidentiality of certain
information obtained, will survive. Termination of the Acquisition Agreement
will not relieve any defaulting or breaching party, whether or not it is the
terminating party, of liability for damages actually incurred by the other
party or parties as a result of breach of the Acquisition Agreement by the
breaching party. See "--Expenses and Fees."
Conduct of Business Pending the Acquisition
The Acquisition Agreement contains various covenants of the Selling
Shareholders regarding the manner in which they will operate the Murphy Family
Farms Companies businesses pending completion of the acquisition. In general,
these covenants are designed to ensure that the Murphy Family Farms Companies
continue to conduct their respective businesses only in the usual, regular and
ordinary course before the acquisition becomes effective and to impose certain
limitations on the operations of the Murphy Family Farms Companies during such
period.
Smithfield Foods and the Selling Shareholders have also agreed not to take
any action that would jeopardize the treatment of the acquisition as a tax-
free reorganization under the Internal Revenue Code. Smithfield Foods and the
Selling Shareholders have each agreed to use reasonable efforts to take all
actions necessary to complete the acquisition and the other transactions
contemplated by the Acquisition Agreement.
Management and Operations after the Acquisitions
The acquisition will not change the present management team or board of
directors of Smithfield Foods. Information concerning the management of
Smithfield Foods is included in the documents incorporated by reference in
this proxy statement. See "Where You Can Find More Information."
In the acquisition, the board of directors and officers of Smithfield Foods'
merger subsidiaries, all of whom are officers of Smithfield Foods, will become
the members of the board of directors and officers of the respective Murphy
Family Farms Companies as the corporations surviving the Merger. Promptly
thereafter, however, Smithfield Foods expects to install most of the former
Murphy Family Farms Companies officers and management as the officers and
management of the acquired companies.
Smithfield Foods believes that it is important to the integration of the
respective businesses of Smithfield Foods and the Murphy Family Farms
Companies, and to the future profitability and operations of the combined
entities, that certain senior management of the Murphy Family Farms Companies
continue their employment by the Murphy Family Farms Companies or Smithfield
Foods after the acquisition is completed.
Expenses and Fees
Smithfield Foods and the Selling Shareholders generally will pay its or
their own expenses in connection with the acquisition, including the fees and
expenses of its own accountants, lawyers or other advisers, subject to certain
more specific allocations of costs as set forth in Section 5.7 to the
Acquisition Agreement.
13
<PAGE>
Ancillary Agreements
Pursuant to the terms of the Acquisition Agreement, and as conditions
precedent to the closing of the acquisition, the parties specified below will
enter into the respective Ancillary Agreements summarized below.
Agreement with Shareholders. Each of the parties to the Acquisition
Agreement will enter into an Agreement with Shareholders, which agreement will
expire on the fifth anniversary of the closing date. Under such agreement,
each Selling Shareholder will agree to observe customary "standstill"
arrangements with respect to all shares of Smithfield Foods common stock held
from time to time by each. Such standstill obligations include commitments not
to participate in any solicitation of proxies or in any election contest
concerning Smithfield Foods, not to oppose any proposal presented by
management at a meeting of Smithfield Foods shareholders and not to acquire or
substantially influence control over Smithfield Foods or its board, among
other commitments. Under the agreement, the shares of common stock received by
the respective Selling Shareholders as Acquisition Consideration will be
subject to the following restriction on transfer during the five-year period
of the agreement: no transfers within any 12-month period of shares comprising
in aggregate ten percent or more of the shares received by such Selling
Shareholder as Acquisition Consideration. Furthermore, with respect to all
shares of Smithfield Foods common stock held by any Selling Shareholder from
time to time, each Selling Shareholder has committed not to sell to any one
person or group shares of common stock aggregating five percent or more of the
outstanding common stock.
Registration Rights Agreement. Subject to the terms of the Agreement with
Shareholders summarized above, the terms of which shall control, each of the
parties to the Acquisition Agreement will enter into a Registration Rights
Agreement pursuant to which Smithfield Foods will grant to the respective
Selling Shareholders certain registration rights customarily referred to as
"piggyback" registration rights. Such rights will apply during the five-year
period beginning on the closing date of the acquisition. The registrable
securities to which such rights will relate will be all the shares of
Smithfield Foods common stock comprising the Acquisition Consideration, as
well as any securities which may subsequently be issued in respect thereof.
Such securities will remain registrable securities only so long as held of
record and beneficially by each such Selling Shareholder. If during the five-
year piggyback rights period Smithfield Foods proposes to register any of its
common stock for sale for its own account for cash (with certain customary
exceptions) in a manner that would permit registration of registrable
securities for cash sale to the public, then Smithfield Foods will give notice
to the Selling Shareholders, who may exercise their piggyback rights with
respect thereto, provided such shareholders propose to sell in such
registration an aggregate of at least 500,000 shares of common stock and
provided that Smithfield Foods opts to complete its proposed registration. The
agreement provides for customary adjustments and for customary terms with
respect to registration procedures, indemnification, contribution and selling
shareholder holdback arrangements. Smithfield Foods has agreed to pay the
expenses of any such registration, excluding underwriting discounts and
commissions, fees and expenses of counsel to Selling Shareholders and certain
other items.
Non-Competition Agreements. Each of Wendell H. Murphy and Harry D. Murphy
will enter into Non-Competition Agreements, pursuant to which each will agree
to observe until the fifth anniversary of the closing date specified
limitations regarding competition with the business of Smithfield Foods or the
Murphy Family Farms Companies, use of their confidential information and
interference with their business relationships.
Agreement Regarding Related Party Grower Contracts. From time to time prior
to entering into the Acquisition Agreement with Smithfield Foods, certain of
the Selling Shareholders, as well as certain other affiliates and related
parties of the Murphy Family Farms Companies, entered into hog grower
contracts with one or more of the Murphy Family Farms Companies, pursuant to
which these individuals and their affiliates are paid to raise hogs owned by
the Murphy Family Farms Companies. A number of these contracts are expected to
remain in force at the time of the closing under the Acquisition Agreement. In
connection with such contracts, all such respective individuals and Smithfield
Foods will enter into an Agreement regarding Related Party Grower Contracts,
which agreement will in effect operate as a master amendment to each such
existing contract. Under the agreement, the end date of the term of each such
contract will be made the tenth anniversary of the
14
<PAGE>
closing of the acquisition, with Smithfield Foods having the right to extend
each contract individually by up to two ten-year terms. Smithfield Foods will
also agree that if the Murphy Family Farms Companies subsequently effect a
general increase in fees for all Murphy Family Farms Companies growers during
the term of any such related party grower contract, Smithfield Foods will
cooperate to increase the fees payable under such related party contracts
accordingly. Smithfield Foods' obligations under the agreement are conditional
upon the accuracy of the other parties' respective representations therein
that none of the payment terms of such related party contracts are
substantially more favorable to such related party producer than those of non-
related producers, and that such related party producer is in compliance with
all the terms of such contract.
Escrow Agreement. Each of the parties to the Acquisition Agreement will
enter into an Escrow Agreement providing for the escrow deposit of 1,000,000
of the shares of Smithfield Foods common stock comprising the Acquisition
Consideration, subject to the effectuation of the post-closing adjustments
summarized above.
Material U.S. Federal Income Tax Consequences
No gain or loss will be recognized for federal income tax purposes by
Smithfield Foods or its current shareholders upon the consummation of the
acquisition.
Accounting Treatment
Smithfield Foods intends to account for the acquisition of the Murphy Family
Farms Companies using the purchase method of accounting in accordance with
generally accepted accounting principles. Under the purchase method of
accounting, the recorded assets and liabilities of the Murphy Family Farms
Companies will be valued at fair value at the date of acquisition.
Shareholders' Rights
The acquisition will have no impact on the rights of the holders of
Smithfield Foods common stock, other than with respect to the voting dilution
that accompanies any increase in the number of outstanding shares of
Smithfield Foods common stock.
In connection with the execution and delivery of the Acquisition Agreement,
Smithfield Foods amended its Rights Agreement, as amended, dated as of May 1,
1998, to ensure that the issuance of the shares comprising the Acquisition
Consideration will not result in any of the Selling Shareholders becoming as a
result thereof an "Acquiring Person" under the rights plan. The amendment also
provided that if any Selling Shareholder acquires any other shares of
Smithfield Foods common stock, then such person will become an "Acquiring
Person", which event generally would cause the rights issued under the rights
agreement to become exercisable in accordance with their terms.
Interest of Certain Persons in the Acquisition; Certain Relationships and
Related Transactions
Wendell H. Murphy, Harry D. Murphy, Joyce M. Norman, Wendell H. Murphy, Jr.,
Wendy Murphy Crumpler, Stratton K. Murphy, Marc D. Murphy and Angela Brown,
all of whom are related by blood are collectively the holders of all of the
capital stock of the Murphy Family Farms Companies. From 1991 until his
resignation in May 1998, Wendell H. Murphy was a director of Smithfield Foods
and served on the audit committee of the board of directors for fiscal years
1991 to 1997.
Wendell H. Murphy is the chairman of the board and chief executive officer
and the principal stockholder of Murphy Farms, Inc., which is one of the
Murphy Family Farms Companies. Smithfield Foods has a contract with Murphy
Farms which obligates Smithfield Foods to purchase hogs finished by Murphy
Farms in the Southeast. Pursuant to the purchase agreement, Smithfield Foods
purchased $65,165,000 of live hogs from Murphy Farms through July 31, 1999 in
fiscal 2000, $239,028,000 in fiscal 1999, $366,397,000 in fiscal 1998,
$433,861,000 in fiscal 1997, $253,033,000 in fiscal 1996 and $168,105,000 in
fiscal 1995. Smithfield Foods believes that the prices paid under the purchase
agreement with Murphy Farms are equivalent to market.
15
<PAGE>
Prior to May 1999, Smithfield of Utah, Inc. ("Smithfield-Utah"), a wholly-
owned subsidiary of Smithfield Foods, was a participant in a joint hog
production arrangement with certain other companies to produce hogs in the
state of Utah for sale to an unrelated party. During fiscal years 1995 through
1999, one of the other companies participating in the joint hog production
arrangement was West Isle Partners, Inc., of which Wendell H. Murphy was the
president and a director and members of Mr. Murphy's family were the sole
shareholders. Smithfield-Utah contributed $46,100,000 to the arrangement in
fiscal 1999, $6,300,000 in fiscal 1998, $12,673,000 in fiscal 1997, $7,083,000
in fiscal 1996 and $4,050,000 in fiscal 1995. In June 1998, Smithfield Foods
paid $15,000,000 to West Isle Partners in connection with the complete
withdrawal of West Isle Partners from the arrangement. As a result of this and
subsequent acquisitions in December 1998 and May 1999, Smithfield Foods now
owns 100% of this hog production operation. Smithfield Foods believes that the
terms of this former joint arrangement, as well as our purchase of the other
companies' interests in the arrangement, were no less favorable to Smithfield
Foods than if entered into with unaffiliated parties.
16
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
As of August 1, 1999
<TABLE>
<CAPTION>
Historical
------------------------
Smithfield
Foods,
Inc. Murphy Family
as of Farms Pro Forma
August 1, as of Adjustments Pro Forma
1999 July 31, 1999 (Note 2) Combined
---------- ------------- ----------- ----------
In thousands
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash.................. $ 27,305 $ 41,216 $ (22,610)(A) $ 45,911
Accounts receivable,
net.................. 283,689 9,919 (1,028)(B) 292,580
Inventories........... 496,513 168,533 21,684 (C) 686,730
Other current assets.. 20,370 5,583 (1,859)(A) 24,094
---------- -------- --------- ----------
Total current
assets............. 827,877 225,251 (3,813) 1,049,315
Net property, plant and
equipment.............. 1,009,947 151,314 (11,426)(D) 1,251,466
101,631 (C)
Other assets............ 392,726 60,501 (45,268)(E) 501,940
(3,124)(A)
97,105 (C)
---------- -------- --------- ----------
$2,230,550 $437,066 $ 135,105 $2,802,721
========== ======== ========= ==========
Liabilities and
Shareholders' Equity
Current liabilities:
Notes payable......... $ 122,649 $ 13,150 $ -- $ 135,799
Current portion of
long-term debt and
capital lease
obligations.......... 31,638 7,200 38,838
Accounts payable...... 215,385 6,007 (15,283)(A) 205,081
(1,028)(B)
Accrued liabilities... 164,994 40,992 -- 205,986
---------- -------- --------- ----------
Total current
liabilities........ 534,666 67,349 (16,311) 585,704
Long-term debt and
capital lease
obligations............ 785,605 164,316 949,921
Other noncurrent
liabilities............ 211,855 12,310 (12,310)(A) 325,806
113,951 (F)
Minority interests...... 40,017 -- -- 40,017
Shareholders' equity.... 658,407 193,091 (11,426)(D) 901,273
(45,268)(E)
(136,397)(G)
242,866 (H)
---------- -------- --------- ----------
$2,230,550 $437,066 $ 135,105 $2,802,721
========== ======== ========= ==========
</TABLE>
See the accompanying Notes to Pro Forma Consolidated Condensed Financial
Statements.
17
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
13 Weeks Ended August 1, 1999
<TABLE>
<CAPTION>
Historical
-----------------------------------
Smithfield
Foods, Inc. for Murphy Family Farms Pro Forma
the 13 Weeks for the 13 Weeks Adjustments Pro Forma
Ended 8/1/99 Ended 7/31/99 (Note 3) Combined
--------------- ------------------- ----------- ----------
In thousands
<S> <C> <C> <C> <C>
Sales................... $1,142,415 $128,057 $(65,165)(I) $1,205,307
Cost of sales........... 994,919 111,051 (65,165)(I) 1,040,805
---------- -------- -------- ----------
Gross profit............ 147,496 17,006 -- 164,502
Selling, general and
administrative
expenses............... 94,550 6,977 75 (J) 102,209
607 (K)
Depreciation expense.... 24,858 6,753 (896)(K) 30,715
Interest expense........ 14,533 2,851 -- 17,384
Minority interests...... 2,761 -- -- 2,761
---------- -------- -------- ----------
--
Income before income
taxes.................. 10,794 425 214 11,433
Income taxes............ 3,864 -- 328 (L) 4,362
170 (M)
---------- -------- -------- ----------
Net income.............. $ 6,930 $ 425 $ (284) $ 7,071
========== ======== ======== ==========
Net income per share
Basic................. $ 0.15 $ 0.13
========== ==========
Diluted............... $ 0.15 $ 0.12
========== ==========
Average common shares
outstanding
Basic................. 45,859 10,652 56,511
========== ======== ==========
Diluted............... 47,088 10,652 57,740
========== ======== ==========
</TABLE>
See the accompanying Notes to Pro Forma Consolidated Condensed Financial
Statements.
18
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
52 Weeks Ended May 2, 1999
<TABLE>
<CAPTION>
Historical
----------------------------------------------
Smithfield Carroll's Foods, Murphy Family
Foods, Inc. for Inc. for Farms for
the 52 Weeks the 52 Weeks the 52 Weeks Pro Forma
Ended 5/2/99 Ended 3/27/99 Ended 5/1/99 Adjustments Pro Forma
(Audited) (Unaudited) (Unaudited) (Note 3) Combined
--------------- ---------------- ------------- ----------- ----------
In thousands
<S> <C> <C> <C> <C> <C>
Sales................... $3,774,989 $334,128 $ 433,161 $(456,534)(I) $4,085,744
Cost of sales........... 3,235,414 277,134 474,712 (456,534)(I) 3,530,726
---------- -------- --------- --------- ----------
Gross profit............ 539,575 56,994 (41,551) -- 555,018
Selling, general and
administrative
expenses............... 295,610 69,662 39,468 600 (J) 417,531
2,429 (K)
9,762 (N)
Depreciation expense.... 63,524 13,314 29,255 (1,984)(K) 104,109
Interest expense........ 40,521 9,965 3,855 -- 54,341
Loss on sale of
investment............. -- -- 4,600 (4,600)(O) --
Minority interests...... (3,518) -- -- -- (3,518)
---------- -------- --------- --------- ----------
Income before income
taxes.................. 143,438 (35,947) (118,729) (6,207) (17,445)
Income taxes............ 48,554 -- -- (1,511)(L) (14,853)
(61,896)(M)
---------- -------- --------- --------- ----------
Net income (loss)....... $ 94,884 $(35,947) $(118,729) $ 57,200 $ (2,592)
========== ======== ========= ========= ==========
Net income (loss) per
share
Basic................. $ 2.39 $ (0.05)
========== ==========
Diluted............... $ 2.32 $ (0.05)
========== ==========
Average common shares
outstanding
Basic................. 39,628 14,852 54,480
========== ========= ==========
Diluted............... 40,962 14,852 54,480
========== ========= ==========
</TABLE>
See the accompanying Notes to Pro Forma Consolidated Condensed Financial
Statements.
19
<PAGE>
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Reporting
The unaudited Pro Forma Consolidated Condensed Financial Statements of
Smithfield Foods are provided to give effect to the acquisition on or around
January 5, 2000, of all the capital stock of Murphy Farms, Inc., Quarter M
Farms, Inc., Chief Milling Partners, Inc. and Murphy Funding, Inc. in exchange
for approximately 10.7 million shares of Smithfield Foods common stock and the
assumption of approximately $180.1 million in debt, plus other liabilities.
The purchase price is subject to post-closing adjustments made on or around
the January 5, 2000 closing balance sheet. The acquisition agreement
specifically excludes certain assets, as defined, the most significant of
which is the Murphy Family Farms Companies' shares of Smithfield Foods common
stock.
The pro forma information is based on the historical financial statements of
Smithfield Foods and Murphy Family Farms giving effect to the acquisition
under the purchase method of accounting. Chief Milling Partners, Inc., which
is not included in the Murphy Family Farms historical financial statements and
is considered immaterial to the group, has been excluded from these pro forma
financial statements. The purchase price allocations have been estimated on a
preliminary basis, and as a result, post-closing adjustments to the carrying
value of assets and liabilities may occur. Smithfield Foods expects that any
purchase price adjustment will not result in a material change to the purchase
price. The pro forma information does not purport to be indicative of the
combined historical or future results of operation or financial position that
would have been or will be reported had the assumptions and adjustments been
transacted as described below.
The Pro Forma Consolidated Condensed Balance Sheet as of August 1, 1999 (as
of July 31, 1999 for Murphy Family Farms) presents the financial position
assuming the acquisition had been completed as of that date. The Pro Forma
Consolidated Condensed Statements of Operations for the 13 and 52 weeks ended
August 1, 1999 and May 2, 1999 (for the 13 and 52 weeks ended July 31, 1999
and May 1, 1999, respectively, for Murphy Family Farms) present the results of
operations for the combined entities assuming that the acquisition had been
completed as of the beginning of the respective periods. In addition, the
results of operations for Carroll's Foods, Inc ("CFI") for the 52 week period
ended March 27, 1999 are included in the Pro Forma Consolidated Condensed
Statement of Operations for the 52 weeks ended May 1, 1999. CFI was acquired
effective May 3, 1999, after Smithfield Foods' most recent fiscal year ended
May 2, 1999, and is an individually significant transaction. Details on the
CFI acquisition are available on Form 8-K/A filed July 21, 1999. The results
of operations of CFI are included in the results of operations of Smithfield
Foods for the 13 weeks ended August 1, 1999.
The Pro Forma Consolidated Condensed Financial Statements should be read in
conjunction with Smithfield Foods' Annual Report for the fiscal year ended May
2, 1999, Smithfield Foods' unaudited financial statements for the 13 weeks
ended August 1, 1999, the historical financial statements and notes of Murphy
Family Farms for the fiscal year ended October 31, 1998 and Smithfield Foods'
Form 8-K/A filed July 21, 1999.
(2) Consolidated Condensed Balance Sheet Pro Forma Adjustments
The Pro Forma Consolidated Condensed Balance Sheet gives effect to the
adjustments described below.
(A) To settle or exclude certain account balances related to Murphy Family
Farms that are not being acquired or assumed by Smithfield Foods.
(B) To eliminate intercompany accounts.
(C) To adjust the carrying value of asset values to preliminary estimates
of fair market value and to recognize the excess purchase price over
the fair value of assets acquired and liabilities assumed as goodwill.
20
<PAGE>
(D) To eliminate the net book value of fixed assets that are excluded
assets according to the terms of the purchase agreement.
(E) To eliminate the value of marketable securities and certain long-term
notes receivable owned by Murphy Family Farms that are excluded assets
according to the terms of the purchase agreement.
(F) To record a deferred tax liability on the step-up in carrying value of
property, plant and equipment and for income taxes associated with a
change from the cash method to the accrual method of accounting for
federal income tax purposes for Murphy Family Farms. The latter
liability will be paid ratably over the next 10 years.
(G) To eliminate the remaining equity of Murphy Family Farms related to
assets acquired and liabilities assumed not eliminated by other
adjustments.
(H) To record the issuance of 10.7 million shares of Smithfield Foods
common stock in connection with the acquisition of Murphy Family Farms
at an average of $22.80 per share.
(3) Consolidated Condensed Statements of Operations Pro Forma Adjustments
The Pro Forma Consolidated Condensed Statements of Operations give effect to
the adjustments described below.
(I) To eliminate intercompany sales.
(J) To record amortization expense associated with anticipated acquisition
costs. Acquisition costs are amortized over a 5-year period.
(K) To record additional amortization expense associated with goodwill and
to record the change in depreciation expense for the carrying value of
property, plant and equipment and the adoption of Smithfield Foods'
depreciation policy. See adjustments C.
(L) To record the tax effect of the pro forma adjustments at the marginal
tax rate.
(M) To recognize, at the marginal tax rate, CFI's and Murphy Family Farms'
reported results that would have been realized as part of the
consolidated group.
(N) To adjust for the gain realized by CFI in the sale of marketable
securities that were excluded assets in that acquisition.
(O) To reverse the loss associated with the sale of Murphy Family Farms'
interest in a hog production joint venture to Smithfield Foods.
21
<PAGE>
SMITHFIELD FOODS
Smithfield Foods 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. Throughout this proxy statement, references to
Smithfield Foods include our subsidiaries, unless otherwise indicated.
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. Collectively, these subsidiaries
currently operate 48 slaughtering and further processing plants.
To complement its processing operations, Smithfield Foods 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.
Our business is based around four strategic initiatives:
. vertical integration into hog production through company-owned hog
production operations and long-term partnerships and alliances with
other large and efficient hog producers;
. use of genetics which produce hogs that are among the leanest
commercially available to enable Smithfield Foods to market highly
differentiated pork products;
. continued growth through strategic acquisitions; and
. a heightened emphasis on expansion into international markets.
Since 1975, when current management assumed control, Smithfield Foods has
expanded both our production capacity and our 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, we
also expanded our operations internationally through acquisitions in France,
Canada and Poland.
For the fiscal year ended May 2, 1999, Smithfield had sales of $3.8 billion
and net income of $94.9 million.
Smithfield Foods common stock is listed for trading on the New York Stock
Exchange. On November 17, 1999, the closing price of Smithfield Foods common
stock on the New York Stock Exchange was $23.31.
Our principal executive offices are located at 200 Commerce Street,
Smithfield, Virginia 23430 and our telephone number is (757) 365-3000.
For further information regarding Smithfield Foods, please refer to the
section of this proxy statement titled "Where You Can Find More Information".
22
<PAGE>
MURPHY FAMILY FARMS COMPANIES
The Murphy Family Farms Companies (also referred to collectively herein as
"Murphy Family Farms") are the nation's second largest breeder and producer of
premium quality hogs. Murphy Family Farms is a fully integrated swine
production operation that uses advanced scientific and management techniques
to minimize its costs of production. As a fully integrated hog producer,
Murphy Family Farms' principal operations are the breeding and sale of premium
quality swine, the production of its own breeding stock using purchased
genetics and the production and milling of feed for hogs grown on Murphy
Family Farms facilities and on contract grower farms. In addition to the swine
facilities owned by Murphy Family Farms, Murphy Family Farms also contracts
with affiliates and independent farmers to breed and raise Murphy Family Farms
owned hogs using Murphy Family Farms produced feed. Murphy Family Farms enters
into long-term contracts with pork processors that provide price premiums for
large quantities of premium quality carcasses. For the year ended October 31,
1998, Murphy Family Farms generated net sales of approximately $492 million.
Murphy Family Farms' executive offices are located at 4134 Highway 117 South,
Rose Hill, North Carolina 28458 and its telephone number is (910) 289-2111.
Murphy Family Farms consists of four companies, Murphy Farms, Inc., Quarter
M Farms, Inc., Chief Milling Partners, Inc. and Murphy Funding, Inc. Murphy
Farms, Inc. performs all administrative services for the other three
companies. Murphy Farms, Inc. and Quarter M Farms, Inc. are hog production
companies. Chief Milling Partners, Inc. leases the largest feed mill in North
America, located in Rose Hill, North Carolina, to Murphy Family Farms. The
activities of Murphy Funding, Inc. are limited to the purchase and sale of
notes receivable in connection with the construction or purchase of buildings,
facilities and equipment required to care for the swine raised in the
operations of Murphy Family Farms. Murphy Farms, Inc. was incorporated in
1962. Quarter M Farms, Inc. was incorporated in 1973. Chief Milling Partners,
Inc. was incorporated in 1993. Murphy Funding, Inc. was incorporated in 1997.
Hog Production Operations
The hog production operations of Murphy Family Farms have two divisions,
North Carolina and the Midwest. The Midwest division began operations in 1991
to take geographic advantage of lower feed costs and therefore lower
production costs in Iowa. In addition to Iowa, as of September 1, 1999, Murphy
Family Farms' Midwest division had added facilities or contract grower
arrangements in Illinois, Oklahoma, Kansas, South Dakota, Missouri, Texas and
Minnesota. With the economic downturn in swine prices in 1998, Murphy Family
Farms placed all major start-up activity on hold. Therefore, its current farm
sites are mature operations with static production volume.
Murphy Family Farms uses advanced management techniques to produce premium
quality hogs on a large scale as a low cost producer. Murphy Family Farms
raises breeding stock, optimizes diets for its hogs at each stage of the
growth process, and processes feed for its hogs. Murphy Family Farms believes
its economies of scale and production methods, together with its use of
advanced genetics, make it a low cost producer.
Murphy Family Farms 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 farm. Murphy Family Farms currently has approximately 330,000
breeder sows. Murphy Family Farms' commercial sow farms house between 500 to
11,000 sows, with an average of approximately 3,600 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 transferred to
a nursery farm where they are fed a closely monitored diet and grow to
approximately 45 pounds, a process which takes approximately seven weeks. The
pigs are then transferred to a finisher farm and grown to approximately 240-
250 pounds, a process that generally takes about five months. When the hogs
reach market weight, they are transported to the processing plant. Murphy
Family Farms produces approximately 6,000,000 market hogs per year.
Approximately 73% of the sow inventory is located in North Carolina,
approximately 16% is located in Missouri, approximately 10% is located in
Oklahoma, and approximately 1% in Illinois. Murphy Family Farms has only
nursery and finishing farms in Kansas, South Dakota, and Texas and short-term
grower arrangements in Minnesota.
23
<PAGE>
Murphy Family Farms utilizes affiliated and independent farmers and their
facilities to breed sows and raise market hogs. Under multi-year contracts,
the farmer provides the initial facility investment, labor and front line
management in exchange for a service fee. Currently, approximately 58% of
Murphy Family Farms' sow farms are managed by independent farmers.
Nutrient Management and Other Environmental Issues
All of Murphy Family Farms' hog production facilities have been designed to
meet or exceed all applicable zoning and other governmental regulations.
Murphy Family Farms 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 collaboration with
manufacturers regarding development and testing of new equipment.
Employees
As of September 1, 1999 Murphy Family Farms has approximately 1,800
employees, none of whom are covered by collective bargaining agreements.
Murphy Family Farms believes that its relationship with its employees is good.
Regulation
Like other participants in the pork production industry, Murphy Family Farms
is subject to laws and regulations administered by federal, state and other
government entities, including the Environmental Protection Agency 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
Murphy Family Farms 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 Murphy Family Farms'
financial position or results of operations.
North Carolina has adopted a moratorium on the construction of additional
swine production facilities. This restriction does not limit Murphy Family
Farms' ability to enter into additional contract grower arrangements in North
Carolina or to construct additional facilities in other states.
Market Price and Dividends
Each of the Murphy Family Farms Companies is an S Corporation under the
Internal Revenue Code. Each corporation is owned by a distinct group of the
Murphy family, but all the shares of the Murphy Family Farms Companies are
held by less than ten members of the Murphy family. Dividends have been
declared annually through fiscal year 1998 ending October 31, 1998. There is
no trading market for the shares of the Murphy Family Farms Companies. As a
result of the acquisition of the Murphy Family Farms Companies by Smithfield
Foods, Wendell Murphy will own in excess of 5% of the common stock of
Smithfield Foods.
24
<PAGE>
MURPHY FAMILY FARMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Murphy Family Farms' business operations consist principally of the breeding
and finishing of swine for sale to domestic pork processors. Substantially all
of its sales are made to two customers (See Note 7 of Notes to Financial
Statements). Murphy Family Farms' operating results are directly impacted by
fluctuations in the price of market hogs sold to processors, as well as the
cost of corn, soybean meal and related ingredients purchased for the
manufacture of feed consumed by animals during the production/grow out
process.
In connection with the purchase of grain for anticipated feed manufacturing
requirements, commodity futures have been utilized to reduce the effect of
grain market price fluctuations. The futures contracts are accounted for as
hedges and related gains and losses are deferred and recognized as a component
of cost of goods sold. There were no significant open futures positions at
October 31, 1998 or July 31, 1999.
Each of the Murphy Family Farms Companies has elected to be taxed as an S
Corporation under the Internal Revenue Code and various states' tax codes. The
income of an S Corporation is taxed directly to its stockholders and no
federal or state income taxes are paid by the company.
Murphy Family Farms has completed the assessment of its information
technology readiness for the year 2000. It has substantially completed the
process of modifying or replacing portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The costs of modifications or replacements to Murphy Family
Farms' computer system have not been, nor are they expected to be, material.
Also, Murphy Family Farms has obtained assurances regarding the year 2000
readiness of its major customers and suppliers.
Chief Milling Partners, Inc., which is not included in the Murphy Family
Farms Group historical financial statements and is considered immaterial to
the group, has been excluded from Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Subsequent Events
On September 2, 1999, the stockholders of the Murphy Family Farms Companies
announced that they had reached an agreement in principle to sell the Murphy
Family Farms Companies to Smithfield Foods. The acquisition is subject to the
successful negotiation of a definitive acquisition agreement, successful
completion of due diligence, approval by the Smithfield Foods board of
directors and shareholders, as well as certain other conditions.
During September 1999, portions of Eastern North Carolina experienced severe
flooding and moderate wind damage from Hurricane Floyd. Murphy Family Farms'
losses, including dead animals and property damage, are expected to amount to
approximately $500 thousand, which approximates the Murphy Family Farms
Companies' insurance deductible.
Results of Operations
Nine Months Ended July 1999 and 1998
Net losses for the first nine months of 1999 and 1998 were $33.8 million and
$49.6 million and resulted from industry-wide reductions in market hog sale
prices driven by supply and demand imbalances.
Sales volumes in terms of pounds sold were up 12.9% for 1999 compared to
1998, reflecting growth from midwest operations with a slight decline in east
coast volumes. The financial benefit from volume increases was more than
offset by realized price decreases of 26.8% or $101 million as compared to the
1998 period. These price declines were first experienced during the second
half of fiscal 1998 and the impact on the full year 1998 is discussed in a
subsequent section.
25
<PAGE>
Cost of sales per pound for the first nine months of 1999 was 11.5% lower
than the year ago period primarily because of reductions in grain costs due to
oversupply, as well as favorable fixed cost leverage from higher sales volumes
and management cost reduction initiatives. Excluded from this comparison is
the impact of inventory lower of cost or market provisions established during
fiscal 1998. The provision included in cost of sales for the first nine months
of 1998 was $19 million (full year 1998 provision--$49 million).
General and administrative expenses for the first nine months of 1999 were
$23.3 million, or 15.6% lower than 1998 as a result of cost reduction
initiatives. Interest expense for the 1999 period increased over the year ago
period by $3.8 million as a result of increased borrowing levels associated
with the operating losses and higher interest rates. Interest income for 1999
was $2.8 million lower than 1998 as a result of reduced funding levels of
grower construction notes and from selling grower notes receivable to a bank.
Fiscal 1998 results included a $4.6 million loss from the sale to Smithfield
Foods of Murphy Family Farms' interest in a hog production joint venture.
Fiscal Year 1998 Compared to 1997 and 1996
The combined net loss for fiscal 1998 was $111.5 million compared to net
earnings in 1997 and 1996 of $95.7 million and $63.0 million. The significant
decline in 1998 operating performance was driven by lower market hog prices as
discussed above, as well as a related provision of $49 million to value swine
inventory at the lower of cost or market value.
Sales volume for fiscal 1998, in terms of pounds sold, increased 16.7% over
1997 and pounds sold in fiscal 1997 increased 18.9% over 1996. Both
comparisons reflect the continued growth of the Murphy Family Farms Companies,
particularly the ramp up of the midwest operations. Fiscal 1998 sales prices
declined from 1997 levels to $.38 per pound, resulting in a substantial
decline in 1998 revenue of $180 million partially offset by the increase in
sales volume. Realized sales prices of $.55 per pound in fiscal 1997 and $.53
in fiscal 1996, together with the volume increases described above, drove
strong operating results for these fiscal years. Due to funding shortfalls
attributable to the 1998 operating losses and 1999 expectations, the rate of
midwest expansion was curtailed dramatically during late 1998.
Excluding the fiscal year 1998 lower of cost or market adjustment ($49
million) previously discussed, cost of sales per pound for 1998 decreased 5.4%
from 1997, and fiscal 1997 costs were 2.6% lower than 1996. The favorable cost
comparisons for both years reflect reductions in grain prices resulting from
over supplies of corn and soybeans compared to higher fiscal 1996 prices due
to short supply. In addition, hedging activity in 1998 also contributed to the
lower 1998 costs compared to 1997 levels. The lower cost levels also include
the impact of favorable fixed cost leverage due to higher sales volumes.
General and administrative expenses for 1998 amounted to $41.6 million and
were $9.5 million lower than fiscal 1997 due primarily to management cost
reduction initiatives. General and administrative costs for 1997 were $18.6
million higher than fiscal 1996 levels and reflected the continued growth in
operations. Interest expense for fiscal 1998 was $4.2 higher than fiscal 1997
due primarily to funding requirements related to the fiscal 1998 operating
losses. Interest expense for 1997 and 1996 was substantially comparable.
Interest income for 1998 was $8.3 million compared to $6.8 million in 1997 and
$3.1 million in 1996. The growth in interest income reflected financing of
contract farm construction, offset in part by the sale of grower notes
receivable to a bank. During 1998, an investment in a commercial hog
production joint venture was sold to Smithfield Foods at a loss of $4.6
million. Also, in 1998, fixed assets writedowns amounted to $4.7 million as
discussed in the accompanying financial statements.
Liquidity and Sources of Capital
As reflected in the accompanying cash flow statements, operating cash flow
for the first nine months of fiscal 1999 was substantially lower than the
comparable year ago 1998 period, and full year fiscal 1998 reflected an
operating cash flow deficit. Such operating cash shortfalls resulted primarily
from the severe cash losses driven by the low market hog prices previously
discussed.
26
<PAGE>
The substantial 1998 operating losses caused the Murphy Family Farms
Companies to be in violation of certain financial covenants under a revolving
credit agreement as of October 31, 1998. Accordingly, it was necessary to
renegotiate various covenants and replace certain borrowings under the loan
agreement with $125 million of term debt (See Note 4 of Notes to Financial
Statements).
The net working capital ratio at July 31, 1999 was 3.34 compared to 4.06 at
October 31, 1998. Debt to total capital was approximately 50% at July 31,
1999.
As of July 31, 1999, the Murphy Family Farms Companies had $75 million of
available financing under their unsecured revolving credit agreement. It is
believed that such financing, as well as the longer maturities under the term
debt referred to above, will provide the Murphy Family Farms Companies with
the funding required to meet their business and financial commitments.
Capital expenditures for the first nine months of fiscal 1999 and all of
1998 were significantly lower than the comparable prior year periods due to
the reduction in the rate of midwest expansion as well as management
initiatives to minimize capital spending that would not adversely affect
operations and productivity.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk pertaining to the Murphy Family Farms Companies' operations
results from changes both in prices of market hogs sold to pork processors and
in commodity prices for corn and soybean meal.
The Murphy Family Farms Companies have from time to time utilized commodity
futures and purchased options for hedging purposes to reduce the effect of
changing commodity prices for corn and soybean meal. Those contracts meeting
risk reduction and correlation criteria are recorded using hedge accounting.
Gains and losses on hedge transactions are recorded as a component of the
related inventory purchase. There were no significant open positions
outstanding at October 31, 1998 (most recent fiscal year end) or July 31,
1999.
Subsequent to July 31, 1999, the Murphy Family Farms Companies instituted a
program to hedge about 50% of their expected east coast hog production for the
months of September through December, 1999. Under this program, the Murphy
Family Farms Companies believe they can better manage hog production margins.
As of October 14, 1999, the company had open futures contracts with total
unrealized hedging losses of approximately $700 thousand.
27
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders
The only persons known by Smithfield Foods to beneficially own more than
five percent of our common stock as of November 15, 1999, are as follows:
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership (Number of Shares) (1)
-------------------------------------------------------------
Percent
Name And Address of Beneficial Owner Direct Other Total of Class (2)
- ------------------------------------ ------------ ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Joseph W. Luter, III.... 3,717,618 850,064(3) 4,567,682(3) 10.1%
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, VA 23430
Carroll M. Baggett...... 5,265,809(4) -- 5,265,809(4) 11.7%
James O. Matthews
Jeffrey S. Matthews
Post Office Box 707
Warsaw, NC 28398
</TABLE>
- --------
(1) Pursuant to current regulations of the Securities and Exchange Commission
("SEC"), securities must be listed as "beneficially owned" by a person who
directly or indirectly has or shares the power to vote ("voting power") or
the power to dispose of ("dispositive power") the securities, whether or
not the person has any economic interest in the securities. In addition, a
person is deemed a beneficial owner if he has the right to acquire
beneficial ownership within 60 days, whether upon the exercise of a stock
option or warrant, conversion of a convertible security or otherwise.
Shares of common stock listed under the "Direct" column are those which
are owned and held as outstanding shares and over which such person,
except as noted below, has sole voting power and sole dispositive power.
Shares shown under the "Other" column are those subject to other forms of
deemed "beneficial ownership" pursuant to the aforesaid regulations, as
described in the indicated footnotes.
(2) The Series B Share has voting and other rights substantially equivalent to
1,016,679 shares of common stock. See "Voting Securities" above. The
percentages shown in this table have been calculated as if these 1,016,679
equivalent common shares were outstanding and part of the class of common
stock. None of the persons listed in the table owns any exchangeable
shares of Smithfield Canada which would entitle him or her to direct the
voting of the Series B Share.
(3) Includes 650,064 shares owned by a corporation of which Mr. Luter is an
officer, director and the owner of 81% of its capital stock and 200,000
shares which Mr. Luter has the right to acquire pursuant to the exercise
of presently exercisable stock options. Mr. Luter has sole voting power
and sole dispositive power with respect to the 650,064 shares owned by the
corporation. Mr. Luter may be deemed a control person of Smithfield Foods.
(4) Each of the named individuals (who are siblings) has sole voting power and
sole dispositive power with respect to one-third of these shares. As a
result of certain agreements among the individuals and Smithfield Foods
relating to the resale of these shares, and to facilitate any desired
dispositions of their separate shares, the individuals likely will, from
time to time in the future, act cooperatively in any such dispositions.
For purposes of the reporting requirements under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), these arrangements may cause
the individuals to be deemed to constitute a group; however, each of the
individuals expressly disclaims the existence of such a group. Information
regarding shares beneficially owned by these individuals was obtained from
Schedules 13G dated May 12, 1999 and Form 4's filed subsequently thereto.
28
<PAGE>
Executive Officers and Directors
The following information with respect to beneficial ownership, as of
November 15, 1999, of shares of our common stock is furnished with respect to
(i) each director of Smithfield Foods, (ii) each person who on May 2, 1999,
was our chief executive officer and the next four most highly compensated
executive officers, and (iii) all current directors and executive officers as
a group, together with their respective percentages:
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Number of Shares (1)
------------------------------------------------
Percent
Name Direct Other Total of Class (2)
- ---- --------- --------- --------- ------------
<S> <C> <C> <C> <C>
Robert L. Burrus, Jr......... 1,000 -- 1,000 *
Douglas W. Dodds............. -- -- -- *
F. J. Faison, Jr............. -- -- -- *
Ray A. Goldberg.............. -- -- -- *
George E. Hamilton, Jr....... 130,000 9,000(3) 139,000(3) *
Robert G. Hofmann, II........ -- 459,008(4) 459,008(4) *
Richard J. Holland........... 18,800 -- 18,800 *
Roger R. Kapella............. 64,000 -- 64,000 *
Lewis R. Little.............. 15,000 130,000(5) 145,000(5) *
Joseph W. Luter, III......... 3,717,618 850,064(6) 4,567,682(6) 10.1%
William H. Prestage.......... -- 120,000(7) 120,000(7) *
Joseph B. Sebring............ 10,450 -- 10,450 *
Timothy A. Seely............. 3,400 -- 3,400 *
Aaron D. Trub (8)............ 160,364 143,000(8) 303,364(8) *
*
All current directors and
executive officers as a
group (15 persons).......... 4,050,268 1,570,072(9) 5,620,340(9) 12.4%
</TABLE>
- --------
* Less than 1% of class
(1) Pursuant to current regulations of the SEC, securities must be listed as
"beneficially owned" by a person who directly or indirectly has or shares
voting power or dispositive power with respect to the securities, whether
or not the person has any economic interest in the securities. In
addition, a person is deemed a beneficial owner if he has the right to
acquire beneficial ownership within 60 days, whether upon the exercise of
a stock option or warrant, conversion of a convertible security or
otherwise. Shares of common stock listed under the "Direct" column are
those which are owned and held as outstanding shares and over which such
person, except as noted below, has sole voting power and sole dispositive
power. Shares shown under the "Other" column include other forms of
"beneficial ownership" pursuant to the aforesaid regulations, as described
in the indicated footnotes.
(2) The Series B Share has voting and other rights substantially equivalent to
1,016,679 shares of common stock. See "Voting Securities" above. The
percentages shown in this table have been calculated as if these 1,016,679
equivalent common shares were outstanding and part of the class of common
stock. None of the persons listed in the table owns any exchangeable
shares of Smithfield Canada which would entitle him to direct the voting
of the Series B Share.
(3) Includes 9,000 shares owned by Mr. Hamilton's son with respect to which
Mr. Hamilton disclaims beneficial ownership.
(4) Reflects 459,008 shares owned by a corporation of which Mr. Hofmann is an
officer, director and the owner of 50% of its capital stock.
(5) Reflects 130,000 shares which Mr. Little has the right to acquire pursuant
to the exercise of presently exercisable stock options.
(6) Reflects 650,064 shares owned by a corporation of which Mr. Luter is an
officer, director and the owner of 81% of its capital stock and 200,000
shares which Mr. Luter has the right to acquire pursuant to the exercise
of presently exercisable stock options. Mr. Luter has sole voting power
and sole dispositive power with respect to the 650,064 shares owned by the
corporation. Mr. Luter may be deemed a control person of Smithfield Foods.
(7) Reflects 120,000 shares owned by Prestage Farms, Inc., of which Mr.
Prestage is an officer, director and the principal shareholder. Prestage
Farms, Inc. has sole voting power and sole dispositive power with respect
to such shares.
(8) Reflects 70,000 shares which Mr. Trub has the right to acquire pursuant to
the exercise of presently exercisable stock options. Includes 47,000
shares owned by Mr. Trub's wife, 16,000 shares owned by Mr. Trub's
daughter and 10,000 shares owned by a foundation with respect to which Mr.
Trub and his wife share voting and dispositive power. Mr. Trub disclaims
beneficial ownership with respect to all such shares. Prior to his
retirement on September 1, 1999, Mr. Trub was Vice President, Chief
Financial Officer and Secretary of Smithfield Foods.
(9) Includes 330,000 shares subject to presently exercisable stock options.
29
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
One or more representatives of Arthur Andersen LLP, our independent public
accountants, will be present at the special meeting to make a statement if
they desire to do so and to be available to respond to appropriate questions
that may be asked by shareholders.
OTHER MATTERS
The board of directors does not know of any matter to be brought before the
special meeting other than the matters described in the Notice of Meeting. If
any matters not set forth in the Notice of Meeting accompanying this proxy
statement are properly brought before the special meeting, the persons named
in the enclosed proxy will vote thereon in accordance with their best
judgment.
ADDITIONAL INFORMATION
Shareholder Proposals for Inclusion in the Proxy Statement
Proposals of shareholders intended to be presented at our 2000 Annual
Meeting of Shareholders must be received by the Secretary of Smithfield Foods
for inclusion in our proxy statement and form of proxy relating to that
meeting by April 13, 2000. Any such proposal must meet the applicable
requirements of the Exchange Act and the rules and regulations thereunder.
Other Shareholder Proposals
Our bylaws prescribe the procedures that a shareholder must follow to
nominate directors for election at an annual meeting or to bring other
business before an annual meeting (other than matters that have been included
in our proxy statement for such meeting). The chairman of the meeting may
refuse to acknowledge the nomination of any person as a director or any other
proposal by a shareholder not made in compliance with these procedures. The
following summary of these procedures is qualified by reference to our bylaws,
a copy of which may be obtained, without charge, upon written request to the
Secretary, Smithfield Foods, Inc., 200 Commerce Street, Smithfield, Virginia
23430.
A shareholder who desires to nominate a director for election at an annual
meeting must give timely written notice thereof to the Secretary of Smithfield
Foods by personal delivery or by registered or certified mail, postage
prepaid, at the address shown above. To be timely, a shareholder's notice for
nominations to be made at the 2000 Annual Meeting must be received: (i) on or
after May 1, 2000 and before June 1, 2000 if the annual meeting is to be held
during the month of August or September, 2000; or (ii) not less than 50 days
before the annual meeting in all other cases. The notice must contain the
information specified in the bylaws regarding the shareholder giving the
notice and each person whom the shareholder wishes to nominate for election as
a director. The notice must be accompanied by the written consent of each
proposed nominee to serve as a director of Smithfield Foods, if elected.
A shareholder who desires to bring any other business before an annual
meeting (other than business which the shareholder has sought to have included
in our proxy statement for such meeting) must give timely written notice
thereof to the Secretary of Smithfield Foods at the address shown above and be
a shareholder of record both at the time such notice is given and on the
record date of the meeting. To be timely, a shareholder's notice of such
business to be brought before the 2000 Annual Meeting must be received: (i) on
or after May 1, 2000 and before June 1, 2000 if the annual meeting is to be
held during the month of August or September, 2000; or (ii) not less than 50
days before the annual meeting in all other cases. The notice must contain the
information specified in the bylaws regarding the shareholder giving the
notice and the business proposed to be brought before the meeting.
30
<PAGE>
With respect to shareholder proposals not included in our proxy statement
for the 2000 Annual Meeting, the persons named in the board's proxy for the
2000 Annual Meeting will be entitled to exercise the discretionary voting
power conferred by such proxy under the circumstances specified in Rule 14a-
4(c) under the Exchange Act.
WHERE YOU CAN FIND MORE INFORMATION
Smithfield Foods files annual, quarterly and special reports, proxy
statements and other information with the SEC. SEC filings are available to
the public over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document filed at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
The SEC allows companies to "incorporate by reference" the information filed
with them, which means that important information can be disclosed to you by
referring to those documents. The information incorporated by reference is an
important part of this proxy statement, and information that is filed by the
Smithfield Foods later with the SEC will automatically update and supersede
this information. The documents listed below and any future filings made with
the SEC prior to the date the special meeting is concluded under Sections
13(a), 14 or 15(d) of the Exchange Act are incorporated by reference:
. Form 10-K filed August 2, 1999
. Form 10-Q filed September 14, 1999
. Forms 8-K filed July 21, 1999 and September 8, 1999
You may request a copy of these filings at no cost, by writing or
telephoning Smithfield Foods at the following address and telephone number:
200 Commerce Street, Smithfield, Virginia 23430, Attention: Michael H. Cole,
Secretary, telephone number: (804) 365-3000.
BY ORDER OF THE BOARD OF DIRECTORS,
MICHAEL H. COLE
SECRETARY
November 22, 1999
31
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<PAGE>
ANNEX A
ACQUISITION AGREEMENT
AND PLAN OF REORGANIZATION
Among
SMITHFIELD FOODS, INC.,
WENDELL H. MURPHY,
HARRY D. MURPHY,
JOYCE M. NORMAN
WENDELL H. MURPHY, JR.
WENDY MURPHY CRUMPLER,
STRATTON K. MURPHY
MARC D. MURPHY
AND
ANGELA BROWN
Dated as of November 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Article I DEFINITIONS................................................... 1
1.1 Definitions.................................................... 1
Article II ACQUISITION AND PLAN OF REORGANIZATION....................... 1
2.1 The Mergers.................................................... 1
2.2 Statement of Estimated Consideration; Exchange of Shares....... 2
2.3 Closing........................................................ 2
2.4 Adjustment of Estimated Consideration.......................... 2
Article III REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.............. 4
3.1 Organization; Qualification.................................... 4
3.2 Capitalization; Validity of Shares; Voting Trusts.............. 5
3.3 Authority Relative to Agreements............................... 5
3.4 Consents and Approvals......................................... 5
3.5 Non-Contravention.............................................. 5
3.6 Environmental and Land Use Matters............................. 6
3.7 Licenses and Permits........................................... 7
3.8 Compliance with Laws........................................... 7
3.9 Financial Statements; Midwestern Operations Cost Advantage..... 8
3.10 Absence of Changes............................................. 8
3.11 No Undisclosed Liabilities..................................... 10
3.12 Litigation..................................................... 10
3.13 Real Property.................................................. 10
3.14 Personal Property.............................................. 12
3.15 Inventory...................................................... 13
3.16 Sufficiency of Assets.......................................... 13
3.17 Books and Records.............................................. 13
3.18 Intellectual Property; Computer Software....................... 14
3.19 Material Contracts............................................. 14
3.20 Insurance...................................................... 15
3.21 Labor Matters.................................................. 16
3.22 Employee Plans................................................. 17
3.23 Tax Matters.................................................... 18
3.24 Transactions with Certain Persons.............................. 20
3.25 Suppliers and Customers........................................ 20
3.26 Warranties; Product Liability.................................. 20
3.27 Banking Relationships.......................................... 21
No Other Agreements to Sell the Assets or Stock of the
3.28 Companies...................................................... 21
3.29 Prohibited Payments............................................ 21
3.30 Year 2000 Matters.............................................. 21
3.31 Brokers........................................................ 21
3.32 Securities Act and Other Securities Ownership Matters.......... 21
3.33 Full Disclosure................................................ 22
Article IV REPRESENTATIONS AND WARRANTIES OF BUYER...................... 22
4.1 Organization; Qualification.................................... 22
4.2 Buyer Common Shares to be Issued; Securities Act Matters....... 22
4.3 Authority Relative to Agreements............................... 23
4.4 Consents and Approvals......................................... 23
4.5 Non-Contravention.............................................. 23
</TABLE>
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<TABLE>
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4.6 Brokers.......................................................... 23
4.7 Full Disclosure.................................................. 23
Article V ADDITIONAL AGREEMENTS........................................... 24
5.1 Conduct of Business.............................................. 24
5.2 Forbearances..................................................... 24
5.3 Negotiations with Others; Notification........................... 24
5.4 Investigation of Business and Properties......................... 25
5.5 Confidentiality.................................................. 25
5.6 No Disclosure; Public Announcements.............................. 25
5.7 Transfer Taxes; Expenses......................................... 26
5.8 Efforts to Consummate............................................ 26
5.9 Regulatory Matters............................................... 27
5.10 Environmental Investigation...................................... 27
5.11 Related Party Accounts........................................... 27
5.12 Materials Received After Closing................................. 27
5.13 Further Assurances............................................... 27
5.14 Rights to Examine Books and Records.............................. 27
5.15 Certain Tax Matters.............................................. 28
5.16 Allocation of Consideration...................................... 28
5.17 Deposit of $5 Million............................................ 28
5.18 Excluded Assets; Related Land.................................... 28
Article VI CONDITIONS TO OBLIGATIONS OF BUYER............................. 28
6.1 Representations and Warranties................................... 28
6.2 Performance of this Agreement.................................... 29
6.3 Consents and Approvals........................................... 29
6.4 Injunction, Litigation, etc...................................... 29
6.5 Legislation...................................................... 29
6.6 Proceedings...................................................... 29
6.7 Opinion of Counsel............................................... 29
6.8 Closing Deliveries............................................... 29
6.9 Material Adverse Change.......................................... 30
6.10 Financing and Other Agreements................................... 30
6.11 Resignations..................................................... 30
6.12 Due Diligence.................................................... 30
6.13 Tax Matters...................................................... 30
6.14 Agreement with Shareholders...................................... 30
6.15 Escrow Agreement................................................. 30
6.16 Escrow Deposit................................................... 30
6.17 Agreement Regarding Related Party Grower Contracts............... 31
6.18 Non-Competition Agreement........................................ 31
6.19 Title Insurance.................................................. 31
6.21 Sale of Feedmills................................................ 31
6.22 Minimum Number of Sows........................................... 31
</TABLE>
<TABLE>
<C> <S> <C>
Article VII CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS...................... 31
7.1 Representations and Warranties..................................... 31
7.2 Performance of this Agreement...................................... 31
7.3 Consents and Approvals............................................. 31
7.4 Injunction, Litigation, etc........................................ 32
</TABLE>
A-ii
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<TABLE>
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<C> <S> <C>
7.5 Legislation................................................... 32
7.6 Proceedings................................................... 32
7.7 Opinion of Counsel............................................ 32
7.8 Closing Deliveries............................................ 32
7.9 Escrow Agreement.............................................. 32
7.10 Escrow Deposit and Estimated Consideration Price.............. 32
7.11 Registration Rights Agreement................................. 32
7.12 Material Adverse Change....................................... 32
7.13 Tax Free Reorganizations...................................... 32
7.14 Agreement regarding Related Party Grower Contracts............ 32
Article VIII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION................ 33
8.1 Survival of Representations................................... 33
8.2 Indemnification by Shareholders............................... 33
8.3 Indemnification by Buyer...................................... 34
8.4 Notice and Defense of Claims.................................. 34
8.5 Calculation of Covered Liabilities............................ 35
8.6 Exclusive Remedy following Closing............................ 36
8.7 No Circular Recovery.......................................... 36
Article IX TERMINATION................................................... 36
9.1 Termination................................................... 36
9.2 Procedure: Effect of Termination.............................. 37
9.3 Additional Termination Right.................................. 37
Article X GENERAL PROVISIONS............................................. 37
10.1 Notices....................................................... 37
10.2 Interpretation................................................ 38
10.3 Entire Agreement.............................................. 38
10.4 No Third Party Beneficiaries.................................. 39
10.5 Shareholders' Representatives................................. 39
10.6 Successors and Assigns........................................ 39
10.7 Severability.................................................. 39
10.8 Amendment..................................................... 39
10.9 Extension; Waiver............................................. 39
10.10 Disclosure Schedules.......................................... 39
10.11 Counterparts.................................................. 40
10.12 Governing Law................................................. 40
10.13 Jurisdiction.................................................. 40
10.14 Specific Performance.......................................... 40
EXHIBITS
A Form of Escrow Agreement
B Form of Registration Rights Agreement
C Form of Agreement with Shareholders
D Form of Agreement regarding Related Party Grower Contracts
E Form of Noncompetition Agreement
F Form of Opinion of Counsel for Shareholders
G Form of Opinion of Counsel for Buyer
SCHEDULES
1.1(a) Excluded Assets
1.1(b) Related Land
1.1(c) Working Capital Rules
</TABLE>
A-iii
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<TABLE>
<C> <S>
1.1(d) Working Capital
2.1 Mergers and Consideration Allocations
3.1 Organization and Qualification
3.2 Capitalization
3.4 Consents and Approvals
3.5 Non-Contravention
3.6(a) Environmental Permits
3.6(b) Hazardous Emissions, etc.
3.6(c) Waste Disposal Sites
3.6(e) Environmental Decrees and Orders
3.6(f) Environmental Reports
3.6(h) Land Use Restrictions
3.6(i) Environmental Permits
3.7 Licenses and Permits
3.8 Compliance with Laws
3.9(c) Midwestern Operations Cost Advantage
3.10 Absence of Changes
3.11 Undisclosed Liabilities
3.12 Litigation
3.13 Owned Real Property
3.13(a) Eminent Domain, etc.
3.13(b) Leased Real Property
3.14(b) Owned Personal Property
3.14(c) Leased Personal Property
3.14(e) Production Summary Report
3.16 Non-Assets Used in Business
3.18 Intellectual Property
3.19 Material Contracts
3.20 Insurance
3.21(a) Employment Agreements
3.21(b) Grievances
3.21(c) Unfair Labor Practices
3.21(d) Affirmative Action Plans
3.21(e) Wages
3.21(f) Actions relating to Employment Practices
3.21(g) OSHA
3.21(i) Employees
3.22 Employee Plans
3.22(b)(iv) Employment at Will
3.23 Tax Matters
3.24 Transactions with Certain Persons
3.25(a) Suppliers
3.25(b) Customers
3.27 Banking Relationships
4.4 Consents and Approvals
4.5 Noncontravention
5.2 Exceptions to Forbearances
5.11 Related Party Accounts
8.2(a) Retained Liabilities
10.2(a) The Companies' Executive Officers
10.2(b) Buyer's Executive Officers
</TABLE>
A-iv
<PAGE>
ACQUISITION AGREEMENT AND
PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
dated as of November 15, 1999, is made among SMITHFIELD FOODS, INC., a
Virginia corporation ("Buyer"), WENDELL H. MURPHY, HARRY D. MURPHY, JOYCE M.
NORMAN, WENDELL H. MURPHY, JR., WENDY MURPHY CRUMPLER, STRATTON K. MURPHY,
MARC D. MURPHY and ANGELA BROWN (individually, a "Shareholder" and
collectively the "Shareholders").
RECITALS
Shareholders own all of the outstanding shares of capital stock of Murphy
Farms, Inc., a North Carolina corporation ("Murphy Farms") and of each other
corporation listed on Schedule 3.2, in each case in the respective amounts
indicated on such Schedule (Murphy Farms and such other corporations being the
"Companies", and all such shares in the Companies being referred to as the
"Shares"). Buyer and the Shareholders desire for Buyer to acquire all of the
capital stock of each of the Companies by causing Subsidiaries of Buyer (each
a "Buyer Sub", and collectively the "Buyer Subs") to merge into the respective
Companies, with the Companies being the Surviving Corporations (the "Surviving
Corporations"), all for the consideration hereinafter set forth. For federal
income tax purposes, the parties to this Agreement intend that each such
merger qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, the parties hereto agree as
follows:
ARTICLE I
Definitions
1.1 Definitions. The terms listed in Appendix A have the respective meanings
specified therein.
ARTICLE II
Acquisition and Plan of Reorganization
2.1 The Mergers.
(a) The Mergers. Upon the terms and subject to the satisfaction or
waiver, if permissible, of the conditions hereof, and in accordance with
the NCBCA, on the Closing Date the Buyer Subs shall be merged with and into
the Companies as set forth in Schedule 2.1 (the "Mergers"). Following the
Mergers, the separate corporate existences of the Buyer Subs shall cease
and the Companies shall continue as the Surviving Corporations (the
"Surviving Corporations") and shall be governed by the NCBCA.
(b) Effective Time. On the Closing Date, the parties shall cause the
Mergers to be consummated by causing articles of merger with respect to the
Mergers to be executed and filed, and the Mergers shall become effective in
accordance with the relevant provisions of the NCBCA (the "Effective
Time").
(c) Effects of the Mergers. The Mergers shall have the effects set forth
in Section 11-06 of the NCBCA.
(d) Articles of Incorporation and By-Laws. The Articles of Incorporation
of the applicable Company, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the applicable Surviving
Corporation. The By-Laws of the applicable Buyer Sub, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the
applicable Surviving Corporation.
(e) Directors. The directors of the applicable Buyer Sub immediately
prior to the Effective Time shall be the initial directors of the
applicable Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier
death, resignation or removal.
A-1
<PAGE>
(f) Officers. The officers of the applicable Buyer Sub immediately prior
to the Effective Time shall be the initial officers of the applicable
Surviving Corporation and shall hold office until their respective
successors are duly elected and qualified, or their earlier death,
resignation or removal.
(g) Conversion of the Companies' Stock. Each share of common stock of
each Company outstanding immediately prior to the Effective Time (other
than shares of common stock, if any, owned by Buyer, or any Subsidiary of
Buyer) shall, by virtue of the Mergers and without any action on the part
of the holder thereof, automatically be converted into the right to receive
the Consideration allocated to such Company as set forth in Schedule 2.1
divided by the aggregate number of shares of common stock of such Company
outstanding at the Effective Time (other than shares of common stock, if
any, owned by Buyer or any Subsidiary of the Buyer or the Companies or any
Subsidiary of the Companies). Each share of common stock of the Companies
owned by Buyer or any Subsidiary of Buyer or the Companies or any
Subsidiary of the Companies immediately prior to the Effective Time shall,
by virtue of the Mergers and without any action on the part of the holder
thereof, automatically be canceled and cease to exist at and after the
Effective Time and no consideration shall be paid with respect thereto.
(h) Conversion of Buyer Sub Common Stock. Each share of common stock of
each Buyer Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Mergers and without any action on the part of
the holder thereof, automatically be converted into and thereafter
represent one validly issued, fully paid and nonassessable share of common
stock of the applicable Surviving Corporation, so that thereafter Buyer
will be the sole and exclusive owner of all of the outstanding capital
stock of each of the Surviving Corporations.
2.2 Statement of Estimated Consideration; Exchange of Shares.
(a) Prior to the Closing Date, the Shareholders' Representatives shall
deliver to Buyer a statement signed by the Shareholders' Representatives
setting forth in reasonable detail the calculation of the Estimated
Consideration, allocated among each of the Companies, which calculation
shall be acceptable to Buyer, acting reasonably.
(b) At the Closing, Buyer will (i) deposit with the Escrow Agent the
Escrow Deposit to be held and disbursed in accordance with the terms of the
Escrow Agreement, and (ii) deliver to the Shareholders' Representatives
such number of Buyer Common Shares as shall equal the Estimated
Consideration minus the Escrow Deposit.
(c) If, after the Closing Date, certificates representing shares of
common stock of the Companies are presented to the Surviving Corporations'
such certificates shall be canceled and exchanged for Buyer Common Shares
as provided in this Section 2.2.
2.3 Closing. The closing (the "Closing") shall take place at the offices of
McGuire, Woods, Battle & Boothe LLP, One James Center, Richmond, Virginia, at
10:00 a.m. local time on January 5, 2000 or such other date as the parties
shall agree (the "Closing Date"). If the Closing takes place, the Closing and
all of the transactions contemplated by this Agreement shall be deemed for all
purposes, including (i) tax purposes and (ii) the transfer of the benefits and
burdens of ownership, including income and loss, to have occurred on the
Effective Date, subject in each case to the other provisions of this Agreement
(including without limitation the transfer of the Excluded Assets and the
indemnification provisions herein).
2.4 Adjustment of Estimated Consideration.
(a) As promptly as practicable, but in no event later than the later of
(i) 90 days after the Closing Date and (ii) 30 days after the receipt by
Buyer and Buyers' Auditors of the final federal income Tax Returns for the
periods ending as of the day before the Effective Date for each of the
Companies, Buyer shall prepare and deliver to the Shareholders'
Representatives (i) schedules showing (A) the line items comprising the
Working Capital as of the Effective Date, (B) the Companies Debt as of the
Effective Date, (C) the net
A-2
<PAGE>
present value of the cash to accrual basis tax liability and (D), in the
event the Closing Date is before December 31, 1999, the Surviving
Corporations Earnings Adjustment and (ii) a schedule setting forth the
calculation of the Consideration, in each case, setting forth in reasonable
detail the data and calculations set forth therein, together with a
certification, signed by the Vice President and Chief Financial Officer of
Buyer, stating that the foregoing schedules have been prepared in
conformity with GAAP applied on a basis consistent with the basis on which
the Audited Financial Statements and the Interim Financial Statements were
prepared, except as otherwise contemplated by the definitions of Working
Capital, Companies Debt and the Surviving Corporations Earnings, and in
conformity with the provisions of this Agreement (collectively, the
"Preliminary Closing Date Adjustment Schedules").
(b) The Shareholders, Shareholders' Auditors and other representatives of
the Shareholders shall have full access during normal business hours to all
relevant books and records and employees of the Companies to the extent
required to review the Preliminary Closing Date Adjustment Schedules and
the resolution of any dispute with respect thereto, and shall be permitted
to review the working papers, if any, of Buyer or Buyer's Auditors relating
thereto. Buyer and Buyer's Auditors shall cooperate with the Shareholders
and Shareholders' Auditors in facilitating such review. Unless the
Shareholders' Representatives gives written notice to Buyer on or before
the 45th day after the Shareholders' Representatives' receipt of the
Preliminary Closing Date Adjustment Schedules specifying in reasonable
detail all disputed items and the basis therefor, the Shareholders shall be
deemed to have accepted and agreed to the Preliminary Closing Date
Adjustment Schedules. If the Shareholders' Representatives so notify Buyer
in writing of the Shareholders' objection to one or more items set forth in
the Preliminary Closing Date Adjustment Schedules, Buyer and the
Shareholders' Representatives shall, within 30 days following such notice
(the "Resolution Period"), attempt to resolve their differences with
respect to any disputed amounts and any resolution by them as to any
disputed amounts shall be in writing and shall be final, binding and
conclusive. The Shareholders shall be deemed to have accepted and agreed to
the items set forth in the Preliminary Closing Date Adjustment Schedules
that are not disputed in the manner set forth above. During the period of
any dispute within the contemplation of this Section 2.6, Buyer, the
Buyer's Auditors and other representatives of Buyer shall be permitted to
review the working papers, if any, of the Shareholders' Auditors relating
to the Preliminary Closing Date Adjustment Schedules. The Shareholders and
the Shareholders' Auditors shall cooperate with Buyer and the Buyer's
Auditors in facilitating such review.
(c) If at the conclusion of the Resolution Period amounts remain in
dispute, then all amounts remaining in dispute shall be submitted, as soon
as practicable, to the Neutral Auditors. The parties agree to execute a
reasonable engagement letter if requested by the Neutral Auditors. The
Neutral Auditors shall act as an arbitrator to determine only those issues
still in dispute. The Neutral Auditors' determination shall be made within
30 days after the expiration of the Resolution Period, shall be set forth
in a written statement delivered to Buyer and the Shareholders'
Representatives and shall be final, binding and conclusive. The term "Final
Closing Date Adjustment Schedules," as used herein, means the definitive
Closing Date Adjustment Schedules agreed, or deemed to have been agreed, to
by Buyer and the Shareholders' Representatives in accordance with Section
2.6(b) or the definitive Closing Date Adjustment Schedules resulting from
the determination by the Neutral Auditors in accordance with this Section
2.6(c) (in addition to those items theretofore agreed by Buyer and the
Shareholders' Representatives).
(d) After the resolution of all disputes with respect to the Final
Closing Date Adjustment Schedules the parties shall determine the
difference between the Estimated Consideration and the Consideration (the
"Consideration Adjustment"). In the event that the Consideration as set
forth in the Final Closing Date Adjustment Schedules is greater than the
Estimated Consideration, (i) the Escrow Agreement shall terminate and the
entire Escrow Fund shall be distributed to the Shareholders'
Representatives for distribution to the Shareholders as their interests
shall appear and (ii) Buyer shall issue to the Shareholders such additional
whole number of Buyer Common Shares as equals the amount of the
Consideration Adjustment (ignoring for this purpose any fractional share
calculated). In the event that the Consideration as set forth in the Final
Closing Date Adjustment Schedules is less than the Estimated Consideration,
and the Consideration Adjustment is not more than the number of Buyer
Common Shares held in the Escrow Fund (i) there shall
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be delivered to Buyer from the Escrow Fund such whole number of Buyer
Common Shares as equals the amount of the Consideration Adjustment
(ignoring for this purpose any fractional share calculated), and the
balance, if any, of the Escrow Fund shall be delivered to the Shareholders'
Representatives for distribution to the Shareholders as their interests
shall appear. In the event that the Consideration as set forth in the Final
Closing Date Adjustment Schedules is less than the Estimated Consideration,
and the Consideration Adjustment is more than the number of Buyer Common
Shares held in the Escrow Fund (i) there shall be delivered to Buyer the
entire Escrow Fund and (ii) the Shareholders shall redeliver to Buyer such
whole number of Buyer Common Shares received by the Shareholders at the
Closing as equals the difference between the amount of the Consideration
Adjustment minus the number of Buyer Common Shares distributed to Buyer
from the Escrow Fund (ignoring for this purpose any fractional share
calculated). All deliveries contemplated by this Section 2.4(d) shall be
made within ten (10) Business Days after delivery of the Final Closing Date
Adjustment Schedules.
(e) The fees of Buyer's Auditors incurred in connection with the
preparation of the Preliminary and Final Closing Date Adjustment Schedules
shall be borne by Buyer, and the fees of the Shareholders' Auditors
incurred in connection with their review of the Preliminary and Final
Closing Date Adjustment Schedules shall be borne by the Shareholders. The
fees of any Neutral Auditors shall be borne by the Shareholders and Buyer
in such amount(s) as shall be determined by the Neutral Auditors based on
the proportion that the aggregate dollar amount of disputed items submitted
to the Neutral Auditors that is unsuccessfully disputed by the
Shareholders, on the one hand, or Buyer, on the other hand, as determined
by the Neutral Auditors, bears to the total dollar amount of such disputed
items so submitted.
ARTICLE III
Representations and Warranties of Shareholders
As an inducement to Buyer to enter into this Agreement, Shareholders hereby
make, as of the date hereof and as of the Closing Date, the following
representations and warranties to Buyer, except as otherwise set forth in
written disclosure schedules (the "Schedules") delivered to Buyer prior to the
execution hereof, a copy of which is attached hereto. The Schedules are
numbered to correspond to the various sections of this Article III setting
forth certain exceptions to the representations and warranties contained in
this Article III and to certain other information called for by this
Agreement. Unless otherwise specified, no disclosure made in any particular
Schedule shall be deemed made in any other Schedule unless expressly made
therein (by cross-reference or otherwise) unless, and only to the extent that,
it would fairly be understood on its face to contain information which also is
applicable to the representations and warranties to which such other Schedule
relates.
Each Shareholder, as to himself or herself and as to each of the Companies
in which he or she is a shareholder, jointly and severally with each other
Shareholder in such Company, represents and warrants to Buyer the following;
provided that (i) as to each Shareholder other than Wendell H. Murphy and
Harry D. Murphy, such representations are based solely on his or her actual
knowledge, (ii) no Shareholder makes any representation with respect to (A)
Excluded Assets or (B) any Company in which he or she is not, and has never
been, a shareholder and (iii) in so far as any representation relates to
Contract Farms such representation is based solely on the actual knowledge of
Shareholders:
3.1 Organization; Qualification.
(a) Each of the Companies is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdictions disclosed
in Schedule 3.1, respectively; and each of the Companies has all power and
authority to own or lease all of its respective properties and assets and
to carry on its business as it is presently being conducted. Each of the
Companies is duly qualified and in good standing to transact business in
each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification
necessary, except where the failure to be in good standing or to be duly
qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the
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Companies. Each jurisdiction in which any of the Companies is qualified to
do business is set forth in Schedule 3.1. Shareholders have heretofore
delivered to Buyer complete and correct copies of the Articles of
Incorporation and Bylaws of each of the Companies as currently in effect.
(b) A complete list of the directors and officers of each of the
Companies is set forth in Schedule 3.1.
(c) Since January 1, 1987, none of the Companies has or has ever had any
Subsidiary except as disclosed in Schedule 3.1.
3.2 Capitalization; Validity of Shares; Voting Trusts.
(a) The authorized capitalization of each of the Companies and the shares
of capital stock thereof which are outstanding are set forth in Schedule
3.2. All of the outstanding shares of capital stock (i) have been duly
authorized, are validly issued, fully paid and nonassessable, and were not
issued in violation of any preemptive rights, and (ii) except as set forth
in Schedule 3.2, are owned beneficially and of record as set forth in
Schedule 3.2, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws) and
Encumbrances. As to any Subsidiary of any Company, all of the outstanding
capital stock of each such Subsidiary is as described in Schedule 3.2 and
is duly authorized, validly issued, fully paid and nonassessable and,
except as set forth in Schedule 3.2, all of the capital stock of each such
Subsidiary is wholly-owned by one or more of the Companies. Except for
Encumbrances which are set forth in Schedule 3.2 and will be released prior
to Closing, all shares of capital stock of such Subsidiaries are owned free
and clear of encumbrances.
(b) Except as set forth in Schedule 3.2, (i) none of the Companies has
any commitment to issue or sell any shares of capital stock, or any
securities or obligations convertible into or exchangeable for, or giving
any Person any right to acquire from any of the Companies, any shares of
capital stock, and no such securities or obligations are outstanding and
(ii) there are no obligations or commitments of any kind for the
repurchase, redemption or other acquisition of any shares of capital stock
of any of the Companies.
(c) Except as set forth in Schedule 3.2, none of the Companies, directly
or indirectly, owns any capital stock of or other equity interest in any
corporation, partnership or other Person.
(d) Except as set forth in Schedule 3.2, there are no shareholders
agreements, voting trusts, proxies or other agreements or understandings
with respect to or concerning the purchase, sale or voting of the capital
stock or any other ownership interests of any of the Companies.
3.3 Authority Relative to Agreements. Each Shareholder has all necessary
power and authority to execute and deliver this Agreement and the Ancillary
Agreements and to consummate the transactions contemplated hereby and thereby
and to perform Shareholder's obligations hereunder and thereunder. This
Agreement has been, and when executed the Ancillary Agreements will have been,
duly executed and delivered by each Shareholder and, assuming that Buyer has
duly authorized, executed and delivered this Agreement and the Ancillary
Agreements, this Agreement constitutes, and the Ancillary Agreements, when
executed and delivered will constitute, valid and binding obligations of each
Shareholder, enforceable against each Shareholder and each Shareholder's
heirs, assigns and personal representatives in accordance with their terms.
3.4 Consents and Approvals. No consent, waiver, agreement, approval or
authorization of, or declaration, filing, notice or registration to or with,
any Governmental Authority is required to be made or obtained by any
Shareholders or any of the Companies in connection with the execution,
delivery and performance of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereby and thereby other
than those set forth in Schedule 3.4. Except as set forth in Schedule 3.4,
there is no requirement that any party to any Material Contract to which any
Shareholders or any of the Companies is a party, or by which any of them is
bound, consent to the execution and delivery of this Agreement or the
Ancillary Agreements by any Shareholders or the consummation of the
transactions contemplated hereby and thereby.
3.5 Non-Contravention. The execution, delivery and performance by
Shareholders of this Agreement and the Ancillary Agreements does not, and the
consummation by Shareholders of the transactions contemplated
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hereby and thereby will not (i) violate or result in a breach of any provision
of the Articles of Incorporation or Bylaws of any of the Companies, (ii)
except as described in Schedule 3.5, conflict with, result in a breach of or
result in a default (or give rise to any right of termination, cancellation or
acceleration) under the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement, lease or other instrument or
obligation to which any Shareholders or any of the Companies is a party or by
which any Shareholders or any of the Companies is bound, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to any
Shareholders or any of the Companies or any of their Assets.
3.6 Environmental and Land Use Matters.
(a) Except as set forth in Schedule 3.6(a), none of the Companies is
required to obtain any Environmental Permits to conduct the Business as it
is presently being conducted, including those relating to (i) emissions,
discharges or threatened discharges of pollutants, contaminants, solid
waste, hazardous or toxic substances or petroleum into the air, surface
water, ground water or the ocean, or on or into the land ("Hazardous
Emissions") or (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, solid waste, hazardous or toxic substances, or petroleum
("Handling Hazardous Substances"), whether by any of the Companies or by a
third party on its or their behalf. Schedule 3.6(a) contains a complete and
correct list of all such Environmental Permits, all of which are in full
force and effect and all of which will remain in full force and effect
following consummation of the transactions contemplated hereby. The
Facilities are in compliance with all Environmental Permits and
Environmental Laws, and Shareholders have not received any notice from any
Governmental Authority indicating that the Facilities are not in compliance
or requesting information that may reasonably result in issuance of notice
that the Facilities are not in compliance.
(b) No underground storage tanks or underground storage receptacles for
Hazardous Substances are located on the Facilities, there have been no
releases of Hazardous Substances in, on, under or from the Facilities and,
to the knowledge of the Shareholders no owners or operators of real
property adjacent to the Facilities spilled, released or discharged any
Hazardous Substances onto such adjacent properties. Except as set forth in
Schedule 3.6(b), no facts, conditions or events exist which (i) interfere
with, prevent, or, with the passage of time, could interfere with or
prevent continued compliance in all material respects with any of the
Environmental Permits or any Environmental Law, (ii) may give rise to any
liability of any of the Companies (whether based in contract, tort, implied
or express warranty, criminal or civil statute or otherwise) under any
Environmental Law relating to the Hazardous Emissions or Handling Hazardous
Substances or (iii) obligate any of the Companies or, with the passage of
time, could cause any of the Companies to be obligated to clean up, remedy,
abate or otherwise restore to a former condition, by themselves or jointly
with others, any contaminated surface water, ground water, soil or any
natural resources associated therewith either on the Facilities or at any
property owned by a third party, or any building, structural or insulation
materials located on or in the Facilities that contain greater than
1% asbestos, and none of the Companies have received any notice of, or are
otherwise aware of any facts, events or conditions which interfere with or
prevent continued compliance or give rise to any such liability or
obligation.
(c) Schedule 3.6(c) contains a complete list of all waste disposal sites
to which the Companies have transported, or have caused to be transported,
solid or hazardous waste for purposes of disposal since January 1, 1994.
(d) Since January 1, 1994, or to the knowledge of the Shareholders prior
to such date, the Companies have not (i) released any person from any claim
under any Environmental Law or waived any rights concerning any violation
of Environmental Law or (ii) contractually indemnified any person for any
violation of Environmental Law related to the Facilities or any real
property formerly owned by the Companies.
(e) Except as set forth in Schedule 3.6(e), there are no consent decrees,
consent orders, judgments, judicial or administrative orders or agreements
(other than Licenses and Permits) with or liens by any
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Governmental Authority or quasi-governmental entity relating to any
Environmental Law which regulate, obligate or bind any of the Companies.
(f) True and correct copies of any Environmental Reports prepared since
January 1, 1994, have been delivered to Buyer, and a list of all such
reports, audits and assessments is set forth in Schedule 3.6(f).
(g) There are no (i) accumulations of mining spoil, spent batteries, used
tires, used appliances, out-of-service equipment, spent or outdated
fertilizers or chemicals (or containers or packages therefor) or other
accumulations of solid waste discarded at the Facilities or (ii) currently
operated or formerly used landfills at the Facilities.
(h) (i) The Facilities have all special exceptions, special use permits,
conditional use permits, variances, zoning permits, certificates of
occupancy, consents and approvals ("Land Use Approvals") as necessary to
own and operate the Facilities as they are currently being operated, all
such Land Use Approvals are in full force and effect and all will remain in
full force and effect following consummation of the transactions
contemplated hereby; (ii) the Facilities are in compliance with all Land
Use Approvals and zoning and land use laws, rules, regulations, ordinances
and judicial and administrative consents and orders ("Land Use
Requirements"); (iii) the Facilities are being operated in compliance with
all nutrient management and waste management plans, and similar plans; (iv)
neither the Companies nor Shareholders have received any written notice
from any Governmental Authority of any (a) violation of any Land Use
Requirements, (b) pending or threatened proceedings or governmental action
or (c) process that seeks to modify the zoning classifications of any of
the Facilities; and (v) no facts, conditions or events exist which
interfere with, prevent, or, with the passage of time, could continue to
interfere with or prevent continued compliance of the Facilities with the
Land Use Requirements or the operation of the Facilities as currently being
operated or their expansion, including, without limitation, any non-
conforming use designations, other than as disclosed in Schedule 3.6(h).
(i) Except as set forth in Schedule 3.6(i), Shareholders do not have
knowledge that any Environmental Permits or Land Use Approvals that are not
yet required to be obtained by the date hereof for the ownership or
operation of the Facilities, but that are reasonably anticipated to be
required in the future, will not be granted prior to the time when needed,
free from any terms or conditions that would require material changes in
the current activities or operations at the Facilities or would materially
limit any of the Companies' currently planned future activities or
operations.
3.7 Licenses and Permits. The Companies have all Licenses and Permits
required to conduct the Business as it is presently being conducted. Schedule
3.7 contains a complete and correct list of all such Licenses and Permits, all
of which are in full force and effect and all of which will remain in full
force and effect following consummation of the transactions contemplated
hereby. The Business has been conducted in compliance in all material respects
with such Licenses and Permits. Since January 1, 1994, no notice of a
violation of any such License or Permit has been received by the Companies or
Shareholders or, to the knowledge of Shareholders, recorded or published, and
no proceeding is pending or, to the knowledge of Shareholders threatened, to
revoke or limit any of them. Shareholders do not believe and have no reason to
believe that the Licenses or Permits in effect on the date hereof will not be
renewed or will be renewed with conditions that materially affect the
operation of the Business. The Companies and the Shareholders have not
received any written notice to the effect that, or otherwise have any
knowledge that, (i) the Companies are not currently in compliance with, or are
in violation of, any such Licenses and Permits in any material respect or (ii)
any currently existing circumstances are likely to result in a failure of the
Companies to comply with, or in a violation by the Companies of, any such
Licenses and Permits in any material respect.
3.8 Compliance with Laws. The Companies have not violated, and are in
compliance with, (i) all applicable laws, statutes, ordinances, regulations,
rules, policies, guidelines and orders of every federal, state, local or
foreign government and every federal, state, local or foreign court or other
Governmental Authority (collectively, "Laws") and (ii) every judgment,
decision, decree or order of any court or governmental agency, department,
authority or instrumentality (collectively, "Decrees"), relating to the
Assets, Business or operations
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of the Companies, except to the extent that any such violation or failure to
comply is likely to result in Covered Liabilities of less than $50,000 singly
or $250,000 in the aggregate. The Companies have not received any written
notice to the effect that, nor do Shareholders have knowledge that, (i) the
Companies are not currently in compliance with, or are in violation of, any
applicable Laws or (ii) any currently existing circumstances are reasonably
likely to result in a failure of the Companies to comply with, or a violation
by the Companies of, any Laws, which such failure to comply or violation would
be reasonably likely to result in Covered Liabilities in excess of $50,000
singly or $250,000 in the aggregate.
3.9 Financial Statements; Midwestern Operations Cost Advantage.
(a) Buyer has previously been delivered true and complete copies of (i)
the audited financial statements, including the notes thereto, of the
Companies for the three years ended October 31, 1998 (the "Audited
Financial Statements") together with the report on such financial
statements of Shareholders' Auditors, and (ii) the unaudited financial
statements of the Companies for the ten months ended August 28, 1999 (the
"Interim Financial Statements"). The Audited Financial Statements present
fairly, in all material respects, the financial position of the Companies
as of such dates and the results of operations and cash flows for such
periods and have been prepared in accordance with GAAP. The Interim
Financial Statements present fairly the financial position of the Companies
as of such date and the results of operations and cash flows for the
periods set forth therein and have been prepared in accordance with GAAP
applied on a consistent basis, subject to changes resulting from normal
year-end audit adjustments and the absence of footnotes required by GAAP.
(b) The accounting and financial records of the Companies have been
prepared and maintained in accordance with GAAP, consistently applied
throughout the periods indicated except as expressly disclosed in the notes
to the Audited Financial Statements, and sound bookkeeping practices. The
Companies maintain systems of internal accounting controls sufficient to
provide reasonable assurance that (i) material transactions are executed in
accordance with management's general or specific authorizations, (ii)
material transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(c) The hog raising costs of the Companies' Midwestern operations are at
least $3.00/cwt. lower than the hog raising costs of the Companies' Eastern
operations, as set forth in Schedule 3.9(c).
3.10 Absence of Changes. Except as set forth in Schedule 3.10, since August
28, 1999 (except as otherwise expressly noted below), (a) the Business has
been operated in the ordinary course consistent with past practices, (b) there
has not been any Material Adverse Change with respect to the Business, or any
material deterioration of relations between the Companies and their suppliers
(including without limitation parties to grower contracts of the Companies),
customers or Personnel and (c) to the knowledge of Shareholders, there has
been and is no threatened Material Adverse Change with respect to the
Companies. Without limiting the generality of the foregoing, except as
contemplated by Section 5.18 hereof and except as set forth in Schedule 3.10,
the Companies have not:
(i) sold, assigned, leased or transferred any of the Assets that exceed
$100,000 individually or $250,000 in the aggregate in book value or fair
market value, other than (A) Inventory sold or disposed of in the ordinary
course of business, consistent with past practice, to Buyer or persons who
are not Affiliates of the Companies for fair consideration and (B) the
assets comprising the feedmill operations as contemplated by Section 6.20
hereof;
(ii) canceled or terminated, or amended, modified or waived any material
term of, any Material Contract, except in the ordinary course of business;
(iii) (A) increased the compensation payable or to become payable to any
of its directors or officers, (B) increased the base compensation payable
or to become payable to any of its Personnel who are not
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directors or officers, except for normal periodic increases in such base
compensation (not exceeding, in each case, 5%) in the ordinary course of
business, consistent with past practice, (C) increased the sales commission
rate payable or to become payable to any of its Personnel who are not
directors or officers, (D) granted, made or accrued any loan, bonus,
severance, termination or continuation fee, incentive compensation
(excluding sales commissions), service award or other like benefit,
contingently or otherwise, to or for the benefit of any of its Personnel,
except pursuant to the Employee Plans set forth in Schedule 3.22, (E)
adopted, amended or caused or suffered any addition to or modification of
any Employee Plan, other than (1) contributions made in the ordinary course
of business, consistent with past practice or (2) the extension of coverage
to any of its Personnel who become eligible after the date of this
Agreement, (F) granted any stock options or performance unit grants or
other interest under any Employee Plan, (G) entered into any new employment
or consulting agreement or caused or suffered any written or oral
termination, cancellation or amendment of any such employment or consulting
agreement to which it is a party (except with respect to any employee at
will without a written agreement), (H) entered into any collective
bargaining agreement or caused or suffered any termination or amendment of
any collective bargaining agreement to which it is a party or (I) with
respect to any Shareholders, or any Affiliate of any Shareholders, granted,
made or accrued any payment or distribution or other like benefit,
contingently or otherwise, or otherwise transferred Assets, including any
payment of principal of or interest on any debt owed to any such
Shareholders or Affiliate, other than (1) any payments to such person in
the ordinary course of business in his capacity as an employee of the
Companies and (2) any transactions between the Companies, in the ordinary
course of business and on an arms' length basis;
(iv) made any capital expenditure or commitment to make any capital
expenditure in excess of $100,000;
(v) executed (A) any Lease for real property or (B) any Lease for
personal property involving annual payments in excess of $50,000, or, with
respect to clauses (A) and (B) of this clause (v), offered to execute any
Lease or incurred any liability therefor;
(vi) made any payments or given any other consideration to customers or
suppliers, other than payments under, and in accordance with the terms of,
Contracts in effect at the time of such payment;
(vii) changed its accounting methods, principles or practices, including
any change in the application or interpretation of GAAP;
(viii) suffered any damage, destruction or casualty loss (whether or not
covered by insurance) affecting its physical properties that exceeded
$100,000 in any one instance or $250,000 in the aggregate;
(ix) (A) issued or sold, or entered into any agreement obligating it to
issue or sell (B) directly or indirectly redeemed, purchased or otherwise
acquired, or split, combined, reclassified or otherwise adjusted, any class
or series of capital stock, or any securities convertible into or
exchangeable for capital stock or (C) declared or paid any dividend or
other distribution in respect of any class or series of capital stock;
(x) (A) incurred any indebtedness for borrowed money or entered into any
commitment to borrow money except for drawings under the Companies'
revolving line of credit in the ordinary course of business or (B) incurred
any obligations for any performance bonds, payment bonds, bid bonds, surety
bonds, letters of credit, guarantees or similar instruments;
(xi) taken any action in anticipation of the execution of this Agreement
or for any other reason to delay or defer expenses (including delay or
postponement of capital expenditures or the payment of accounts payable),
liabilities or obligations of any kind whatsoever or to accelerate any
income, revenue, payment or similar item, other than in the ordinary course
of business consistent with past practice;
(xii) paid, discharged or satisfied any liability, other than any such
payment, discharge or satisfaction in the ordinary course of business,
consistent with past practice of (A) liabilities reflected or reserved
against on the balance sheets in the Audited Financial Statements, the
Unaudited Financial Statements or in the
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Interim Financial Statements or incurred subsequent thereto in the ordinary
course of business, consistent with past practice, or (B) liabilities
under, and in accordance with the terms of, any Material Contracts,
Licenses and Permits and other commitments set forth in the Schedules;
(xiii) changed or amended any of their articles of incorporation or
bylaws or similar organizational documents;
(xiv) (A) acquired (by merger, consolidation, acquisition of stock, other
securities or assets or otherwise), (B) made a capital investment (whether
through the acquisition of an equity interest, the making of a loan or
advance or otherwise) in or (C) guaranteed indebtedness for borrowed money
of, (1) any Person or (2) any portion of the assets of any Person that
constitutes a division or operating unit of such Person;
(xv) mortgaged or pledged, or otherwise made or suffered any Encumbrance
(other than any Permitted Encumbrance) on, any of their material Assets or
group of their Assets that is material in the aggregate;
(xvi) revalued any of their Assets, including any write-off of notes or
accounts receivable or any increase in any reserve (other than in the
ordinary course of business consistent with past practice), involving in
excess of $10,000 individually or $50,000 in the aggregate (such amounts to
be calculated without netting any decrease);
(xvii) amended, cancelled or suffered termination of any License or
Permit that is material to any of the Companies;
(xviii) canceled, waived or released any right or claim (or series of
related rights or claims) involving in excess of $10,000 individually or
$50,000 in the aggregate; or
(xix) made any material change in the policies or practices relating to
purchasing practices, selling practices, returns, discounts or other terms
of purchase or sale or accounting therefor or in policies of employment; or
entered into any Contract to do any of the foregoing.
3.11 No Undisclosed Liabilities. The Companies do not have any liabilities,
obligations or commitments of any nature, whether absolute, accrued,
contingent or otherwise and whether due or to become due, except (i) as and to
the extent set forth in the balance sheet included in the Audited Financial
Statements and the Interim Financial Statements or specifically disclosed in
the notes thereto, (ii) liabilities and obligations incurred after October 31,
1998 in the ordinary course of business and not prohibited by this Agreement
and (iii) as set forth in Schedule 3.11. None of the liabilities described in
clause (ii) of this Section 3.11 relates to any breach of Contract, breach of
warranty, tort, infringement or violation of Law or arose out of any Action.
3.12 Litigation. Except as set forth in Schedule 3.12, there is no
outstanding order, writ, injunction, judgment or decree by any court or
Governmental Authority or any Action pending or, to the knowledge of
Shareholders, threatened (i) against, related to or affecting (A) the
Companies, the Business, their operations or their Assets, (B) any director,
officer or Shareholder in any of the Companies in their capacity as such or
(C) any Employee Plan of the Companies, (ii) relating to the transactions
contemplated hereby, (iii) that involve the risk of criminal liability or (iv)
in which the Companies are a plaintiff (including any derivative suits brought
by or on behalf of the Companies), and Shareholders do not have knowledge of
any event or development that is reasonably expected to result in any such
Action. The Companies are not in default with respect to any Action listed in
Schedule 3.12, and there are no unsatisfied judgements or awards against the
Companies or the Business or their Assets. To the knowledge of Shareholders,
none of the Actions listed in Schedule 3.12, if adversely determined, would
reasonably be expected to have a Material Adverse Effect on the Companies,
individually or in the aggregate.
3.13 Real Property.
(a) Owned Real Property. Schedule 3.13 contains a complete and correct
list of all of the real property (other than Leased Real Property
(hereinafter defined)) used in connection with the Business (together with
the Related Land, the "Real Property"). Except as set forth in Schedule
3.13 and except for
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Permitted Encumbrances, the Companies have good and marketable fee simple
title to all of the Real Property, including the buildings, structures and
other improvements located thereon, free and clear of any Encumbrances.
Without limiting the foregoing, there are no outstanding options or rights
of first refusal or first offer to purchase the Real Property, or any
portion thereof or interest therein. Except as disclosed in Schedule
3.13(a), there are no eminent domain (which term, as used herein, shall
include other compulsory acquisitions or takings by Governmental Authority)
proceedings pending or, to the knowledge of Shareholders, threatened
against any Real Property or any material portion thereof which proceedings
(if resulting in a taking of any Real Property by a Governmental Authority)
could have a material adverse effect on the use or value of such Real
Property as now used by the Companies. Shareholders have delivered or
caused to be delivered to Buyer, with respect to the Real Property, true
and correct copies of any title insurance commitments, title insurance
policies and surveys in the possession of Shareholders or the Companies.
Except as disclosed in Schedule 3.13(a), none of Shareholders or the
Companies has received any notice from any Governmental Authority of any
zoning, land use, building, fire or health code or other legal violation in
respect of any Real Property, other than violations which have been
corrected or which could not, individually or in the aggregate, have a
material adverse effect on the use or value of such Real Property as now
used in the Business. Each Real Property is adequate (from both a legal and
a physical perspective, including, without limitation, with respect to
compliance with recorded agreements affecting the Real Property and listed
in Schedule 3.13(a), but only to the extent compliance with such agreements
is the responsibility of Shareholders or the Companies under the terms of
such agreements) for the use now made thereof in the Business, except for
such inadequacies as could not, individually or in the aggregate, have a
material adverse effect on the use of such Real Property as now used in the
Business.
(b) Leased Real Property.
(i) Schedule 3.13(b) sets forth all leases ("Real Property Leases")
pursuant to which Facilities are leased by the Companies (as lessee),
true and correct copies of which have been delivered to Buyer. Such
Real Property Leases constitute all leases, subleases or other
occupancy agreements pursuant to which the Companies occupy or use such
Facilities. The Companies have a good and valid leasehold interest in
all leased property described in such Real Property Leases (the "Leased
Real Property"), free and clear of any and all Encumbrances other than
any Permitted Encumbrances which would not permit the termination of
the lease therefor by the lessor. With respect to each such parcel of
Leased Real Property (A) to the knowledge of Shareholders, there are no
pending or threatened condemnation proceedings or Actions relating to
such Leased Real Property, (B) neither the Companies nor, to the
knowledge of Shareholders, any third party has entered into any
sublease, license, option, right, concession or other agreement or
arrangement, written or oral, granting to any Person (other than the
Companies) the right to use or occupy such Leased Real Property or any
portion thereof or interest therein (C) the Companies have not received
written notice of any pending or, to the knowledge of Shareholders,
threatened special assessment relating to such Leased Real Property and
(D) the Companies enjoy peaceful and undisturbed possession of the
Leased Real Property.
(ii) With respect to each such Real Property Lease listed in Schedule
3.13(b), (A) there is no material default under any such Real Property
Lease by the Companies or, to the knowledge of Shareholders, by any
other party thereto, (B) except as set forth in Schedule 3.4, the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not cause a
material default under any such Real Property Lease, (C) each such Real
Property Lease is a valid and binding obligation of the respective
lessors and Companies, is in full force and effect with respect to the
lessors and the Companies and is enforceable against the respective
lessors and Companies in accordance with its terms, except as the
enforceability thereof may be limited by (1) applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws in effect which affect the enforcement of creditors'
rights generally or (2) general principles of equity, whether
considered in a proceeding at law or in equity, (D) no action has been
taken by the Companies and, to the knowledge of Shareholders no event
has occurred which, with notice or lapse of time or both, would permit
termination, modification or acceleration by a party thereto other than
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the Companies, without the consent of the Companies, under any such
Real Property Lease that is material to the Companies, (E) to the
knowledge of Shareholders, no party has repudiated in writing any
material term thereof or threatened in writing to terminate, cancel or
not renew any such Real Property Lease that is material to the
Companies and (F), except as set forth in Schedule 3.13(b), the
Companies have not assigned, transferred, conveyed, mortgaged or
encumbered any interest therein or in any leased property subject
thereto (or any portion thereof).
(c) Compliance, Utilities and Other Matters. With respect to the Real
Property and the Leased Real Property:
(i) the buildings and improvements are located within the boundary
lines of the described parcels of land, are not in violation of
applicable setback requirements, zoning laws and ordinances (and none
of the properties or buildings or improvements thereon is subject to
"permitted non-conforming use" or "permitted non-conforming structure"
classifications) and do not encroach on any easement which burdens the
land. Access to the property is provided by paved public right of way
with adequate curb cuts available;
(ii) all Facilities thereon have received all approvals of
Governmental Authorities (including Licenses and Permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in compliance in all material respects with
applicable laws, rules and regulations;
(iii) all Facilities thereon are supplied with utilities and other
services necessary for the present operation of such Facilities,
including gas, electricity, water, telephone, sanitary sewer and storm
sewer; and
(iv) each of the Companies' hog production facilities is situated on
farm land (including adjacent spray fields) sufficient in terms of size
and soil condition to permit adequate land application of all effluents
(including land application spraying) from the hog production operation
to the extent allowed under the Environmental Permits and Land Use
Approvals, and there is sufficient lagoon capacity to store all
effluents during periods when land application is not permitted under
such Environmental Permits and Land Use Approvals.
3.14 Personal Property.
(a) General. The fixed asset ledger included in the Companies' Books and
Records is true, correct and complete in all material respects.
(b) Owned Personal Property. Except as set forth in Schedule 3.14(b), the
Companies own all such personal property owned by them, free and clear of
any and all Encumbrances other than Permitted Encumbrances. With respect to
each such item of personal property (i) there are no leases, subleases,
licenses, options, rights, concessions or other agreements, written or
oral, granting to any party or parties the right of use of any portion of
such item of personal property, (ii) there are no outstanding options or
rights of first refusal in favor of any other party to purchase any such
item of personal property or any portion thereof or interest therein and
(iii) there are no parties (other than the Companies, and their Personnel
in their capacity as such) who are in possession of or who are using any
such item of personal property;
(c) Leased Personal Property.
(i) Except as set forth in Schedule 3.14(c), the Companies have a
good and valid leasehold interest in all of such Fixtures and
Equipment, vehicles and other tangible personal property Assets leased
by them from third parties, free and clear of any and all Encumbrances
other than Permitted Encumbrances which would not permit the
termination of the lease therefor by the lessor. Schedule 3.14(c) sets
forth all Leases for personal property ("Personal Property Leases")
involving annual payments in excess of $5,000, true and correct copies
of which have been delivered to Buyer.
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(ii) With respect to each such Lease listed in Schedule 3.14(c), (A)
there is no material default under any such Personal Property Lease by
the Companies or, to the knowledge of Shareholders, by any other party
thereto, (B), except as set forth in Schedule 3.4, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not cause a material default
under any such Personal Property Lease, (C) such Personal Property
Lease is a valid and binding obligation of the Companies, is in full
force and effect with respect to the Companies and is enforceable
against the Companies in accordance with its terms, except as the
enforceability thereof may be limited by (1) applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws in effect which affect the enforcement of creditors'
rights generally or (2) general principles of equity, whether
considered in a proceeding at law or in equity, (D) no action has been
taken by the Companies and, to the knowledge of Shareholders no event
has occurred which, with notice or lapse of time or both, would permit
termination, modification or acceleration by a party thereto other than
the Companies, without the consent of the Companies, under any such
Personal Property Lease that is material to the Companies, (E) to the
knowledge of Shareholders, no party has repudiated in writing any term
thereof or threatened in writing to terminate, cancel or not renew any
such Personal Property Lease that is material to the Companies and (F)
except as set forth in Schedule 3.14(c), the Companies have not
assigned, transferred, conveyed, mortgaged or encumbered any interest
therein or in any leased property subject thereto (or any portion
thereof).
(d) Maintenance. The Fixtures and Equipment have been maintained in good
repair in accordance with the usual practices in the United States of
businesses similar to the Business, are in good operating condition and
repair, ordinary wear and tear excepted, and are useable in the ordinary
course of the Business as it is presently being conducted.
(e) Sows. The Companies own not less than 327,000 producing sows as set
forth in the production summary report dated September 25, 1999 attached
hereto as Schedule 3.14(e).
3.15 Inventory. The Inventory, wherever located (including items in
transit), owned by the Companies and used or held for use in connection with
the Business (i) is usable or saleable in the ordinary course of business,
(ii) is sufficient but not excessive in kind or amount for the conduct of the
Business as it is presently being conducted, (iii) meets the quality control
standards of the Companies and (iv) is carried on the books of the Companies
at an amount which reflects valuations not in excess of the lower of cost or
market determined in accordance with GAAP applied on a consistent basis.
3.16 Sufficiency of Assets. Except as set forth in Schedule 3.16, the Assets
constitute all of the properties and assets used or held for use in connection
with, necessary for, or material or otherwise relating to the Business. Except
as set forth in Schedule 3.16, the Assets used in the Business that are owned
by any Person other than the Companies are leased or licensed to the Companies
under valid, current leases or license arrangements that will, subject to
obtaining the consents required to be obtained as set forth in Schedule 3.4,
remain in full force and effect following consummation of the transactions
contemplated hereby. The Assets are in all material respects suitable and
adequate for the purposes for which such Assets are currently used, including
conducting the hog production operations with 327,000 producing sows. There
are no facts or conditions affecting the Assets that, individually or in the
aggregate, could interfere in any material respect with the use, occupancy or
operation thereof as currently used, occupied or operated, or their adequacy
for such use, occupancy or operation.
3.17 Books and Records. The Companies have made and kept Books and Records
and accounts which, in reasonable detail, accurately and fairly reflect the
activities of the Companies in all material respects. The minute books of the
Companies are true, correct and complete and contain copies of the minutes and
records of, and accurately and adequately reflect, all meetings and actions
taken by written consent of the board of directors, committees of the board of
directors and shareholders of the Companies or similar governing bodies and
investors. The copies of the stock record books and the stock certificate
books, or records of equity interests and
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evidences thereof, of the Companies are true, correct and complete and
accurately and adequately reflect all transactions in connection with the
Companies' capital stock through and including the date hereof.
3.18 Intellectual Property; Computer Software.
(a) Schedule 3.18 sets forth a complete and correct list of all
Intellectual Property used or held by the Companies in connection with the
Business. Shareholders have delivered to Buyer true, correct and complete
copies of each registration, application or other material document
relating to the Intellectual Property set forth in Schedule 3.18. The
Companies own, or possess adequate and enforceable licenses or other rights
to use, all Intellectual Property used in the Business as it is currently
conducted, and such ownership and licenses will not cease to be valid and
in full force and effect in any material respect by reason of the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby. There is no Action pending or, to
the knowledge of Shareholders, threatened, against the Companies asserting
that the Companies' use of any Intellectual Property infringes the rights
of any third party or otherwise contesting their rights with respect to any
Intellectual Property and no third party has given written notice to the
Companies that such third party is claiming ownership of or right to use
any Intellectual Property, and, to the knowledge of Shareholders (i) there
are no grounds for any such assertion and (ii) no third party is infringing
upon the rights of the Companies in the Intellectual Property in a manner
which would have a Material Adverse Effect on the Companies.
(b) The Companies own, or possess adequate and enforceable licenses or
other rights to use, all material computer software used in the Business,
and such ownership and licenses will not cease to be valid and in full
force and effect in any material respect by reason of the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.19 Material Contracts.
(a) Schedule 3.19 sets forth a complete and accurate list of all
Contracts in the following categories (each, a "Material Contract") as of
the date hereof (except to the extent that any such category specifies a
different date, in which case such corresponding list is made as of such
specified date):
(i) each Contract (or group of related Contracts) concerning a
partnership or joint venture with, or any other investment in (whether
through the acquisition of an equity interest, the making of a loan or
advance or otherwise) any other Person;
(ii) each Contract (or group of related Contracts) (A) under which a
Company has created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) indebtedness for borrowed money, (B)
constituting a Capital Lease, (C) under which the Companies have
granted (or may grant) a security interest or lien on any of their
Assets or (D) under which the Companies have incurred any obligations
for any performance bonds, payment bonds, bid bonds, surety bonds,
letters of credit, guarantees or similar instruments;
(iii) each Contract (or group of related Contracts) concerning
confidentiality regarding the Intellectual Property;
(iv) each Contract (or group of related Contracts) with any
Personnel, any Affiliate of the Companies or, to the knowledge of
Shareholders, any member of any such person's immediate family,
including (A) Contracts to employ or terminate officers or employees or
independent contractors and other Contracts with present or former
shareholders, directors or officers or similar persons or other
Personnel of the Companies or (B) Contracts that will result in the
payment by, or the creation of any commitment or obligation (absolute
or contingent) of Buyer or the Companies to pay, any severance,
termination, "golden parachute" or other similar payments to any
present or former Personnel following termination of employment or
otherwise as a result of the consummation of the transactions
contemplated hereby;
(v) each Contract (or group of related Contracts), including open
purchase orders or groups of related open purchase orders, for the
purchase or sale of raw materials, commodities, supplies, products
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or other property providing for payments in excess of $50,000 over the
life of such Contract (or group of related Contracts);
(vi) each Contract (or group of related Contracts) providing for
payments in excess of $50,000 over the life of such Contract (or group
of related Contracts), except for such Contracts that are cancelable on
not more than 30 days' notice by the Companies without penalty or
increased cost;
(vii) each distribution, franchise, license, commission, consulting,
agency or advertising Contract related to the Assets of the Companies
or the Business involving annual payments in excess of $50,000, except
for such Contracts that are cancelable on not more than 30 days' notice
by the Companies without substantial penalty or substantial increased
cost;
(viii) each Contract (or group of related Contracts) containing
covenants restraining or limiting the freedom of the Companies or any
officer, director or shareholder or Affiliate thereof to engage in any
line of business or compete with any Person including by restraining or
limiting the right to establish, continue or expand any of the Business
anywhere in the world;
(ix) each option with respect to any real property or any personal
property, whether the Companies are the grantor or grantee thereunder;
(x) each Contract (or group of related Contracts) relating to
commission arrangements with others;
(xi) each Contract (or group of related Contracts) with the United
States, state or local government or any agency or department thereof
or any foreign sovereign or corresponding foreign governmental unit;
(xii) each other Contract (or group of related Contracts) not entered
into in the ordinary course of business, consistent with past practice;
(xiii) each Contract (or group of related Contracts), other than any
Contract covered by any other clause of this Section 3.19, the
consequences of a default or termination under which would have a
Material Adverse Effect on the Companies; and
(xiv) each Contract (or group of related Contracts) which is a grower
contract.
Shareholders have provided to Buyer in connection with its investigation of
the Companies a true and correct copy of each written Contract listed in
Schedule 3.19 and have included as part of Schedule 3.19 a brief summary of
the material terms of each material oral Contract.
(b) With respect to each Contract set forth or described in Schedule
3.19, (i) there is no material default under any such Contract by the
Companies or, to the knowledge of Shareholders, by any other party to any
such Contract, (ii) the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not cause a material default under any such Contract; (iii) such Contract
is a valid and binding obligation of the Companies, is in full force and
effect with respect to the Companies and is enforceable against the
Companies in accordance with its terms, except as the enforceability
thereof may be limited by (A) applicable bankruptcy, insolvency,
moratorium, reorganization, fraudulent conveyance or similar laws in effect
which affect the enforcement of creditors' rights generally or (B) general
principles of equity, whether considered in a proceeding at law or in
equity; (iv) no action has been taken by the Companies and, to the
knowledge of Shareholders, no event has occurred which, with notice or
lapse of time or both, would permit termination, modification or
acceleration by a party thereto other than the Companies under any such
Contract; and (v) no party has repudiated any term thereof or threatened to
terminate, cancel or not renew any such Contract.
3.20 Insurance. Schedule 3.20 contains a complete and accurate list of all
policies or binders for business interruption, fire, liability, title,
worker's compensation, product liability, errors and omissions and other forms
of insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration
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date, annual premium and a general description of the coverage provided)
maintained by the Companies. Such insurance provides, and during its term has
provided, coverage to the extent and in the manner (i) adequate for the
Assets, Business and operations of the Companies, and the risks insured
against in connection therewith and (ii) as may be or may have been required
by law and by any and all material Contracts to which the Companies are or
have been a party. The Companies are not in material default under any of such
policies or binders, and they have not failed to give any notice or to present
any material claim under any such policy or binder in a due and timely
fashion. Since January 1, 1994, no insurer has refused, denied or disputed
coverage of any material claim made thereunder. No insurer has advised the
Companies that it intends to reduce coverage or increase any premium in any
material respect or fail to renew any existing policy or binder. All such
policies and binders are in full force and effect on the date hereof and shall
be kept in full force and effect through the Closing.
3.21 Labor Matters.
(a) Schedule 3.21(a) includes a complete list and description of all
employment contracts, personnel policies, employment practices,
supervisors' manuals, commission, and any other arrangements applicable to
any employee or former employee or any beneficiary or dependent thereof,
whether or not written, whether or not deemed terminable at will or legally
enforceable, and whether covering one person or more than one person,
entered into, issued, adopted, or followed by the Companies, other than any
arrangement listed below in Schedule 3.22 as an Employee Plan. For purposes
of this Section 3.21, the terms "employee" or "employees" shall be
considered to include individuals rendering personal services to the
Companies as independent contractors.
(b) Schedule 3.21(b) identifies and describes all written and unwritten
grievances or complaints filed or submitted since January 1, 1994, by any
employee or applicant for employment against the Companies or their
employees whether pursuant to a collective bargaining agreement, a formal
or informal grievance procedure afforded employees, or otherwise, including
without limitation, any claims of sexual, racial or other harassment,
discriminatory treatment, breach of collective bargaining agreement, breach
of contract or violation of policy.
(c) Schedule 3.21(c) identifies and describes all unfair labor practice
charges, union organizing efforts, union certifications, bargaining unit
definitions, demands for recognition or collective bargaining, strikes or
work stoppages, union election results, National Labor Relations Board
proceedings or related court cases relating to or affecting any employees
of the Companies since January 1, 1994.
(d) Schedule 3.21(d) identifies and describes all affirmative action
plans, audits, results, conciliation agreements, Office of Federal Contract
Compliance charges or proceedings, Equal Employment Opportunity Commission
employment charges or proceedings, state or local unfair employment
practice charges or proceedings, or any written or unwritten claims or
suspected claims of discrimination, unequal pay or retaliation relating to
any current or former employee or applicant for employment of the Companies
since January 1, 1994.
(e) Schedule 3.21(e) identifies and describes all state or federal wage
and hour, wage payment, or other wage related investigations, claims, or
proceedings, any other local, state or federal investigations, claims, or
proceedings related to any current or former practice, current or former
employee or applicant for employment of the Companies since January 1,
1994.
(f) Schedule 3.21(f) identifies and describes all Actions not expressly
identified and described in previous schedules under this section which
relate to current or former employment practices, current or former
employees or applicants for employment of the Companies, including claims
relating to the Family and Medical Leave Act, immigration law compliance,
the Worker Adjustment and Retraining Notification Act, wrongful discharge,
tortious interference, intentional infliction of emotional distress, or any
other claim raised by or on behalf of a current or former employee or
applicant for employment since January 1, 1994.
(g) Schedule 3.21(g) identifies and describes all Occupational Health and
Safety Act or state occupational safety and health citations, charges,
lawsuits, inspections, investigations, claims, and
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proceedings and all current, former, or suspected claims for unsafe or
unhealthy working conditions, including claims for exposure to asbestos,
carcinogenic substances or other workplace risks since January 1, 1994.
(h) All policies and practices of the Companies are in all material
respects in compliance with, and have been administered in compliance with,
all applicable requirements of law, including but not limited to federal,
state, or local Laws relating to employment, including Laws relating to
wrongful discharge, breach of express or implied contract, fraud,
misrepresentation, defamation, or liability in tort, duties to prevent,
disclose, warn of or remedy unhealthy or unsafe workplace conditions, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Americans with Disabilities Act, the Fair Labor Standards Act,
ERISA, COBRA, the Family and Medical Leave Act, the Occupational Safety and
Health Act, the Worker Adjustment and Retraining Notification Act, workers
compensation statutes, and other federal, state, local or foreign
regulations, rules, statutes, or ordinances relating to employees or
employment.
(i) Schedule 3.21(i) sets forth a true and complete list of all employees
to whom the Companies are paying compensation, disability, workman's
compensation and/or pension benefits, and sets forth the current annual
rate of compensation for each such employee together with bonuses and
incentives.
3.22 Employee Plans.
(a) Schedule 3.22 contains a complete list of Employee Plans. True and
complete copies of each of the following documents have been delivered to
Buyer: (i) each Employee Plan (trust agreements and amendments), summary
plan descriptions, summaries of material modifications, a general
description of employees covered by each Benefit Arrangement and a complete
description of any Employee Plan which is not in writing, (ii) any letters
issued by the Internal Revenue Service and opinion letters issued by the
Department of Labor with respect to each Employee Plan, and any self-
correction statement or memorandum the Companies have prepared pursuant to
Rev. Proc. 98-22, as amended, (iii) and for the three most recent plan
years, Annual Reports on Form 5500 Series filed for each Employee Plan.
(b) Types of Employee Plans.
(i) Pension Plans.
(A) No Employee Plan is a Pension Plan subject to Title IV or
Section 302 of ERISA or Section 412 or 4971 of the Internal Revenue
Code.
(B) To the knowledge of Shareholders, no event or condition exists
or has occurred that could adversely affect the qualified and tax-
exempt status of each Pension Plan.
(C) Each Pension Plan complies in all material respects, both as
to form and in operation, with all requirements, including ERISA and
the Internal Revenue Code.
(ii) Multiemployer Plans. None of the Companies or any ERISA
Affiliate has any liability with respect to a Multiemployer Plan.
(iii) Welfare Plans.
(A) Each Welfare Plan complies in all material respects, both as
to form and operation, with all requirements, including ERISA and
the Internal Revenue Code.
(B) Except as required by the Internal Revenue Code or ERISA, or
as set forth in Schedule 3.22, none of the Companies, any ERISA
Affiliate or any Welfare Plan has any present or future obligation
to make any payment to any Welfare Plan. The Companies and/or an
ERISA Affiliate may amend or terminate any such Welfare Plan.
(C) The insurance policies or other funding instruments, if any,
for each Welfare Plan provide coverage for each individual covered
thereunder.
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(iv) Benefit Arrangements. Each Benefit Arrangement presently
complies in all material respects with its terms and with the
requirements prescribed by any and all requirements. Except as provided
by Law, or in any employment agreement set forth in Schedule
3.22(b)(iv), the employment of all persons presently employed or
retained by the Companies is terminable at will.
(v) Unrelated Business Taxable Income. No Employee Plan has incurred
any liability under Section 511 of the Internal Revenue Code.
(vi) Deductibility of Payments. There is no arrangement that,
individually or collectively, requires the payment by the Companies of
any amount (i) that is not deductible under Section 162(a)(1) or 404 of
the Internal Revenue Code or (ii) that is, or which as a result of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby could be, an "excess parachute
payment" pursuant to Section 280G of the Internal Revenue Code.
(vii) Fiduciary Duties and Prohibited Transactions. No plan fiduciary
of any Employee Plan has engaged in, or has any liability in respect
of, any transaction in violation of Sections 404 or 406 of ERISA or any
"prohibited transaction," as defined in Section 4975(c)(1) of the
Internal Revenue Code, for which no exemption exists under Section 408
of ERISA or Section 4975(c)(2) or (d) of the Internal Revenue Code.
(viii) Litigation. To the knowledge of Shareholders, there is no
Action, order, writ, injunction, judgment or decree outstanding or, to
the knowledge of Shareholders, any governmental audit or investigation,
relating to or seeking benefits under any Employee Plan that is pending
or threatened.
(ix) No Amendments. None of the Companies or any ERISA Affiliate has
announced an intention to create, or otherwise created, a legally
binding commitment to adopt or amend any additional Employee Plan.
(x) No Acceleration or Creation of Rights. Neither the execution and
delivery of this Agreement by the Companies nor the consummation of the
transactions contemplated hereby will result in the acceleration or
creation of any rights of any person to benefits under any Employee
Plan.
(xi) No Other Material Liability. No event has occurred in connection
with which the Companies or any Employee Plan, directly or indirectly,
could be subject to any material liability (A) under any statute,
regulation or governmental order relating to any Employee Plan or (B)
pursuant to any obligation of the Companies to indemnify any person
against liability incurred under any such statute, regulation or order
as they relate to the Employee Plans.
(xii) Severance Agreements. No Shareholder is a party to any
severance or similar arrangement in respect of any of the Personnel.
(c) There does not now exist, nor, to the knowledge of Shareholders, do
any circumstances exist that could result in, any Controlled Group
Liability that would be a liability of the Companies following the
Effective Date.
3.23 Tax Matters.
(a) Filing of Tax Returns. The Companies have timely filed with the
appropriate taxing authorities all Tax Returns (including information
returns and other material information) in respect of Taxes required to be
filed through the date hereof and will timely file any such Tax Return
required to be filed on or prior to the Effective Date. All such Tax
Returns are complete and accurate in all material respects. The Companies
do not currently have outstanding any request for any extension of time
within which to file Tax Returns in respect of any Taxes. Shareholders have
delivered to Buyer complete and accurate copies of the federal, state and
local income Tax Returns (and examination reports and statements of
deficiency) for the years 1996, 1997 and 1998.
(b) S-Corporation. Each of the Companies is, and has at all times since
the date of making the election under Section 1362(a) of the Internal
Revenue Code as set forth in Schedule 3.23 been, an
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"S corporation" (within the meaning of Section 1361(a) of the Internal
Revenue Code) for each taxable year (or portion thereof), and no action has
or will be taken to terminate and no condition exists which could result in
the termination of such S corporation status. None of the Companies is or
has been liable for the Tax imposed under Section 1375(a) of the Internal
Revenue Code; and none of the Companies is or has been liable for the Tax
imposed under Section 1374(a) of the Internal Revenue Code.
(c) Payment of Taxes. All Taxes for which any of the Companies is or may
be liable in respect of periods (or portions thereof) ending on or before
the Effective Date have been timely paid, or a reserve for Tax liability
(other than any reserve for deferred Taxes established to reflect timing
differences between book and tax income) adequate in accordance with GAAP
has been established therefor, as set forth in the Financial Statements.
(d) Audits, Investigations or Claims. No deficiencies for Taxes have been
claimed, proposed or assessed in writing by any Taxing Authority against
any of the Companies which have not been paid or reserved in the Financial
Statements. Since January 1, 1994, no claim has been made by any Taxing
Authority in a jurisdiction in which a Company does not file Tax Returns
that such Company is or may be subject to taxation by such jurisdiction.
Except as set forth in Schedule 3.23(d), there are no pending or, to the
knowledge of Shareholders, threatened audits, investigations or claims for
or relating to any liability in respect of Taxes that in the reasonable
judgment of Shareholders are likely to result in an additional amount of
Taxes, and there are no matters under discussion with any Taxing Authority
with respect to Taxes that in the reasonable judgment of Shareholders is
likely to result in an additional liability for Taxes to the Companies.
Audits of federal, state, and local returns for income Taxes by the
relevant taxing or other governmental authorities have been completed for
the periods set forth in Schedule 3.23. No income Tax Return is currently
the subject of audit, and the Companies have not been notified in writing
that any Taxing Authority intends to audit a Return for Taxes for any other
period. No extension of a statute of limitations relating to Taxes is in
effect with respect to the Companies. Except as set forth in Schedule
3.23(d), no power of attorney which is currently in force has been executed
by the Companies with respect to any matters relating to Taxes.
(e) Encumbrances. There are no Encumbrances for Taxes (other than current
taxes not yet due and payable) on the Assets of the Companies.
(f) Safe Harbor Lease Property. None of the Assets of the Companies is
property that (i) is required to be treated as being owned by any other
person pursuant to the so-called safe harbor lease provisions of former
Section 168(f)(8) of the Internal Revenue Code, (ii) directly or indirectly
secures any debt the interest on which is tax-exempt under Section 103(a)
of the Internal Revenue Code or (iii) is "tax-exempt use property" within
the meaning of Section 168(h) of the Internal Revenue Code.
(g) Tax Election. All elections with respect to Taxes affecting the
Companies as of the date hereof are set forth in Schedule 3.23. None of the
Companies has consented at any time to have the provisions of Section
341(f)(2) of the Internal Revenue Code (or similar provisions under state
or local law) apply to any disposition of the Assets. None of Companies has
agreed to make, or is required to make, any adjustment under Section 481(a)
of the Internal Revenue Code (or similar provisions under state or local
law) by reason of a change in accounting method or otherwise.
(h) Withholding. The Companies have paid over all Taxes required to have
been withheld and paid to any Governmental Authority in connection with
amounts paid or owing to any employee, independent contractor, creditor,
shareholder, equity investor or other third party.
(i) Combined Returns. No Company has been included in any consolidated,
combined or unitary Tax Return provided for under the laws of the United
States, any state or locality with respect to Taxes for any taxable period
for which the statute of limitations has not expired. None of the Companies
has any liability for the Taxes of any Person under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
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(j) Tax Sharing Agreements. There are no tax sharing agreements or
similar arrangements (whether written or unwritten) with respect to or
involving any of the Companies pursuant to which any of the Companies may
be liable for Taxes of another Person.
(k) Section 280G. None of the Companies has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will not be deductible under Section
280G of the Internal Revenue Code.
(l) Section 6662. Each of the Companies has disclosed on its federal
income Tax Return all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662 of the Internal Revenue Code.
3.24 Transactions with Certain Persons. Except as disclosed in Schedule
3.24, (i) no officer, director or shareholder of the Companies or any member
of any such Person's immediate family is currently a party to any transaction,
arrangement or relationship with the Companies and (ii) no employee or any
member of any such Person's immediate family is currently a party to any
material transaction, arrangement or relationship with the Companies,
including any Contract or Lease (A) providing for the furnishing of services
by, (B) providing for the rental of real or personal property from, or (C)
otherwise requiring payments to (other than (1) dividends or distributions to
any shareholder of the Companies in his or her capacity as such or (2)
compensation for services as officers, directors or employees of the
Companies), any such Person or any corporation, partnership, trust or other
entity in which any such Person has an interest as an officer, director,
trustee or partner, or as the holder of more than 10% of such entity's equity
securities. The only Contracts, Leases, arrangements, relationships or other
items listed in Schedule 3.24 that will remain in place after the Closing or
with respect to which the Companies will have any ongoing obligations or
duties are those items which are explicitly identified in Schedule 3.24 as
remaining in place or having ongoing obligations or duties.
3.25 Suppliers and Customers.
(a) Schedule 3.25(a) sets forth for each of the fiscal years 1997 and
1998, the name and address of each of the ten largest suppliers of the
Companies based on the aggregate value of supplies (including without
limitation Inventory) ordered by the Companies during such period, and the
amount each such supplier invoiced the Companies during each such period.
Except as set forth in Schedule 3.25(a), no Shareholder has received any
notice or otherwise has knowledge that there has been any material adverse
change in the Companies' relations with any of their suppliers, including
in the price of such Inventory or other goods and services, or that any
such supplier will not sell supplies, Inventory or other goods and services
to the Companies after the Closing on terms and conditions similar to those
used in its current sales to the Companies.
(b) Schedule 3.25(b) sets forth for each of the fiscal years 1997 and
1998 the name and address of each of the ten largest customers of the
Companies (other than Buyer and its Affiliates) during such period, and the
amount of each customer's purchases during each such period. Except as set
forth in Schedule 3.25(b), no Shareholder has received any notice or
otherwise has knowledge that there has been any material adverse change in
the Companies' relations with any of their customers, including in the
prices paid to the Companies, or that any such customer will not make
purchases from the Companies after the Closing on terms and conditions
similar to those used in its current purchases from the Companies.
3.26 Warranties; Product Liability.
(a) Except as is provided by applicable Law, there are no express or
implied warranties contained in any contract or agreement relating to goods
and services of the Companies.
(b) Except as set forth in Schedule 3.26(b), the Companies do not have,
nor to the knowledge of Shareholders is there any reason to believe that
there is any basis for alleging, any material liability, damage, loss, cost
or expense as a result of any failure to meet any specification with
respect thereto, defect or other deficiency (whether of design, materials,
workmanship, labeling, instructions or otherwise) ("Product Liability")
with respect to any livestock or other item sold or services rendered by or
on behalf of the
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Companies, whether such Product Liability is incurred by reason of express
warranty (including any warranty of merchantability or fitness), any
doctrine of common law (tort, contract or other), any statutory provision
or otherwise and irrespective of whether such Product Liability is covered
by insurance. Except as set forth in Schedule 3.26(b), to the knowledge of
Shareholders (i) no livestock or other item sold by the Companies and (ii)
no livestock or other item produced for the Companies by any third party,
has been recalled or subject to a post-sale warning ("Recall") voluntary or
involuntarily since January 1, 1994, no Recall is being considered or
investigated by the Companies, and no Recall has been requested or ordered
by any Governmental Authority or consumer group.
3.27 Banking Relationships. Schedule 3.27 sets forth a complete and accurate
list of all accounts, including checking accounts, cash contribution accounts,
safe deposit boxes, borrowing arrangements and certificates of deposit that
the Companies have with any banks, savings and loan associations or other
financial institutions, indicating in each case account numbers, if
applicable, and the person or persons authorized to act or sign on behalf of
the Companies in respect of any of the foregoing. No person holds any power of
attorney or similar authority from the Companies with respect to any such
accounts.
3.28 No Other Agreements to Sell the Assets or Stock of the Companies. Other
than this Agreement and sales of Inventory in the ordinary course of business,
consistent with past practice, none of the Shareholders or the Companies has
any legal obligation, absolute or contingent, to any other person or firm to
(i) sell or effect a sale of all or substantially all of the Assets of the
Companies, (ii) sell or effect a sale of all or substantially all of the
capital stock or equity interests of the Companies, (iii) effect any merger,
consolidation or other reorganization of the Companies or (iv) enter into any
Contract or cause the entering into a Contract with respect to any of the
foregoing.
3.29 Prohibited Payments. The Companies have not, directly or indirectly,
(i) made or agreed to make any contribution, payment or gift to any government
official, employee or agent where either the contribution, payment or gift or
the purpose thereof was illegal under the Laws of any federal, state, local or
foreign jurisdiction, (ii) established or maintained any unrecorded fund or
asset for any purpose or made any false entries on the Books and Records for
any reason, (iii) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other Person, to any candidate for
federal, state, local or foreign public office or (iv) paid or delivered any
fee, commission or any other sum of money or item of property, however
characterized, to any finder, agent, government official or other party, in
the United States or any other country, which in any manner relates to the
Assets, Business or operations of the Companies, which Shareholders know or
have reason to believe to have been illegal under any federal, state or local
Laws (or any rules or regulations thereunder) of the United States or any
other country having jurisdiction.
3.30 Year 2000 Matters. The Companies have completed a review and assessment
of all areas within their operations (including those affected by material
suppliers) that could be adversely affected by the inability of computer
systems used by the Companies (and their material suppliers) to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999 ("Year 2000 Computer System Issues") and have
undertaken all such measures as Shareholders reasonably believe would cause
the Business to address and accommodate Year 2000 Computer System Issues by
the date hereof.
3.31 Brokers. No broker, finder or investment banker is entitled to any fee
or commission for services rendered on behalf of the Companies or Shareholders
in connection with the transactions contemplated by this Agreement.
3.32 Securities Act and Other Securities Ownership Matters.
(a) Each of the Shareholders is an "accredited investor" as defined under
both subsections (5) and (6) of Rule 501(a) of Regulation D under the
Securities Act, and each is an individual resident in the State of North
Carolina. Each Shareholder is acquiring Buyer Common Shares hereunder
solely for investment purposes for his or her own account as principal and
not with a view to resale or distribution except pursuant to an effective
registration statement filed under the Securities Act or an applicable
exemption from such
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registration. Each Shareholder acknowledges that Buyer's offering and sale
of Buyer Common Shares hereunder will not be registered under the
Securities Act or any other securities laws, and that accordingly
restrictions will apply to the Shareholders' ability to transfer or sell
such securities, and that an appropriate legend to such effect will be
placed on each stock certificate representing any such shares. Each
Shareholder acknowledges that none of the securities may be resold unless
their offer and sale are registered under the Securities Act and applicable
state securities laws, or unless appropriate exemptions from registration
are available. Each Shareholder agrees that he or she will not directly or
indirectly offer, transfer, sell, pledge, hypothecate or otherwise dispose
of any Buyer Common Shares (or solicit any offer to buy, purchase or
otherwise acquire, or to take a pledge of, any such shares) except in
compliance with the Securities Act and applicable state securities laws and
regulations. Each Shareholder acknowledges that he or she and his or her
representatives have had an opportunity to examine the financial and
business affairs of Buyer and an opportunity to ask questions of and
receive answers from Buyer's management, and that he or she and his or her
representatives have such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and
risks of an investment in Buyer in making an informed investment decision
with respect thereto.
(b) Each of the Shareholders is an individual who does not share the same
principal residence as any of the other Shareholders. No Shareholder either
directly or through entities controlled by such Shareholder will hold 10%
or more of the outstanding Buyer Common Shares following consummation of
the transactions contemplated hereby.
3.33 Full Disclosure. None of the representations and warranties of
Shareholders in this Article III (a representation and warranty being deemed
to include, for the purpose of the Section to which it is referenced and not
for the purpose of any other Section, the information contained in the
Schedules hereto) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Article IV
Representations And Warranties Of Buyer
As an inducement to Shareholders to enter into this Agreement, Buyer hereby
makes, as of the date hereof and as of the Closing Date, the following
representations and warranties to Shareholders, except as otherwise set forth
in written disclosure schedules (the "Schedules") delivered to Shareholders
prior to the execution hereof, a copy of which is attached hereto. The
Schedules are numbered to correspond to the various sections of this Article
IV setting forth certain exceptions to the representations and warranties
contained in this Article IV and to certain other information called for by
this Agreement. Unless otherwise specified, no disclosure made in any
particular Schedule shall be deemed made in any other Schedule unless
expressly made therein (by cross-reference or otherwise).
Buyer represents and warrants to Shareholders the following:
4.1 Organization; Qualification. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia and has all power and authority to own all of its properties and
assets and to carry on its business as it is presently being conducted.
4.2 Buyer Common Shares to be Issued; Securities Act Matters.
(a) Each of the Buyer Common Shares to be issued as contemplated by this
Agreement has been duly authorized and, when issued in accordance with this
Agreement, will be, validly issued, fully paid and nonassessable and free
of preemptive rights.
(b) Neither the Buyer nor any person acting on its behalf has, directly
or indirectly, offered any Buyer Common Shares to be issued hereunder for
sale to, or solicited any offers to buy any thereof from, or otherwise
approached or negotiated with respect thereto with, anyone other than
Shareholders, and neither
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the Buyer nor any Person acting on its behalf has taken or will take any
action that would cause the Buyer's offer, issuance or sale of any such
shares hereby to violate the provisions of Section 5 of the Securities Act
or any applicable state securities laws and regulations.
4.3 Authority Relative to Agreements. Buyer has all necessary power and
authority to execute and deliver this Agreement and the Ancillary Agreements
and to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. The execution and delivery
by Buyer of this Agreement and the Ancillary Agreements and the consummation
by it of the transactions contemplated hereby and thereby have been duly
authorized by the board of directors of Buyer and no other proceedings on the
part of Buyer are necessary with respect thereto except the approval of
Buyer's shareholders required under law and/or applicable standards of the New
York Stock Exchange. This Agreement has been, and when executed and delivered
the Ancillary Agreements will have been, duly executed and delivered by Buyer
and, assuming that Shareholders have duly authorized, executed and delivered
this Agreement, this Agreement constitutes, and the Ancillary Agreements will
constitute, valid and binding obligations of Buyer, enforceable against Buyer
in accordance with their terms.
4.4 Consents and Approvals. Except as set forth in Schedule 4.4, no
consent, waiver, agreement, approval or authorization of, or declaration,
filing, notice or registration to or with, any Governmental Authority is
required to be made or obtained by Buyer in connection with the execution,
delivery and performance of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereby and thereby other
than those set forth in Schedule 4.4. There is no requirement that any party
to any agreement, contract, lease, note, loan, evidence of indebtedness,
purchase order, letter of credit, franchise agreement, undertaking, covenant
not to compete, employment agreement, license, instrument, obligation,
commitment or purchase and sales order to which Buyer is a party or by which
it is bound, consent to the execution and delivery of this Agreement or the
Ancillary agreements by Buyer or the consummation of the transactions
contemplated hereby or thereby, other than those set forth in Schedule 4.4 and
except for such consents the failure of which to obtain, individually or in
the aggregate, would not have a Material Adverse Effect on Buyer.
4.5 Non-Contravention. Except as set forth in Schedule 4.5, the execution,
delivery and performance by Buyer of this Agreement and the Ancillary
Agreements do not, and the consummation by Buyer of the transactions
contemplated hereby and thereby will not (i) violate or result in a breach of
any provision of the Articles of Incorporation, as amended to date, or Bylaws
of Buyer, (ii) conflict with, result in a breach of or result in a default (or
give rise to any right of termination, cancellation or acceleration) under the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement, lease or other instrument or obligation to which Buyer is
a party or by which Buyer is bound or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer,
excluding from the foregoing clauses (ii) and (iii) such requirements,
defaults, breaches, rights or violations that would not have a Material
Adverse Effect on Buyer or that become applicable as a result of (1) the
business or activities in which the Companies or any of their Affiliates is
engaged, or (2) any acts or omissions by, or facts pertaining to, the
Companies or any of their Affiliates.
4.6 Brokers. No broker, finder or investment banker is entitled to any fee
or commission from Buyer for services rendered on behalf of Buyer in
connection with transactions contemplated by this Agreement.
4.7 Full Disclosure. None of the representations and warranties of Buyer in
this Article IV (a representation and warranty being deemed to include, for
the purpose of the Section to which it is referenced and not for the purpose
of any other Section, the information contained in the Schedules hereto)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
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Article V
Additional Agreements
5.1 Conduct of Business. From the date hereof until the Closing,
Shareholders will cause the Companies to conduct the Business only in the
ordinary and usual course and in a manner consistent with past practices;
maintain in good repair, normal wear and tear excepted, at its expense, all of
its material structures and Equipment; pay accounts payable and other
obligations in the ordinary course of business consistent with past practice;
and use commercially reasonable efforts to preserve intact the present
business organization and operations of the Business, keep available the
services of its officers, employees, representatives, agents and consultants,
and preserve its relationships with licensors, suppliers, dealers, customers
and others having business relationships with it. Shareholders shall cause the
Companies' management to meet with Buyer on a regular and frequent basis to
discuss the general status of the ongoing operations of the Business and any
issues relating to the conduct thereof. Shareholders shall give prompt notice
to Buyer of (i) any emergency or material change in the normal conduct of its
business or operations, (ii) the threat or initiation of any material Action
against the Companies, (iii) the initiation of any investigation of the
Companies' business by any party, whether private or governmental, (iv) the
occurrence or non-occurrence of any event which would be reasonably likely to
cause Shareholders to believe that any representation or warranty of
Shareholders herein is untrue or inaccurate, or the failure of Shareholders to
comply with or satisfy any covenant, agreement or condition to be complied
with or satisfied by them hereunder, and (v) any budget revisions approved by
the board of directors or management of any of the Companies, and will keep
Buyer fully informed of developments with respect to such events and afford
Buyer's representatives access to all materials and other information in their
possession relating thereto.
5.2 Forbearances. Except as set forth in Schedule 5.2, Shareholders shall
cause the Companies not, from the date hereof until the earlier of (i) the
Closing or (ii) termination under Article IX, without the written consent of
Buyer, (A) to take or fail to take any action or enter into any transaction of
the kind which if taken or failed to be taken after August 28, 1999 would have
been in violation of Section 3.10 or (B) to engage in any practice, or take,
or fail or omit to take, any action or enter into any transaction, other than
in the ordinary course of business and consistent with past practices, that
would reasonably be expected to (1) impair or prevent Shareholders from
consummating the transactions contemplated by this Agreement or (2) cause or
result in any of the representations and warranties set forth in Article III
to be untrue in any material respect at any time after the date hereof through
the Closing Date. In addition, except as set forth in Schedule 5.2,
Shareholders shall cause the Companies not to (i) declare, set aside for
payment or pay any dividends or distributions in respect of any class or
series of capital stock or equity interest or (ii) pay any item that is not a
current liability in the Final Closing Date Adjustment Schedules, in each case
after the close of business on the date immediately preceding the Effective
Time. Shareholders will not, and will not permit any of the Companies, to take
any action that could, directly or indirectly, (i) cause any of the Mergers to
fail to qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code or (ii) cause a disallowance of the election under
Sections 447 and 481(a) of the Internal Revenue Code. In addition,
notwithstanding anything herein to the contrary, Shareholders shall cause the
Companies no to (i) declare or pay any distributions or dividends in respect
of any class or series of capital stock, (ii) pay any Shareholders' Expenses
or (iii) pay any item (other than liabilities to persons who are not
Affiliates of Shareholders incurred after the Effective Date in the ordinary
course of business) that is not a current liability in the Final Closing Date
Adjustment Schedules, in each case after the close of business on the
Effective Date.
5.3 Negotiations with Others; Notification.
(a) No Solicitation. From the date hereof until the earlier of (i) the
Closing or (ii) termination of this Agreement under Article IX,
Shareholders shall not, and shall cause the Companies, and shall instruct
each of their respective representatives (including investment bankers,
attorneys and accountants) not to, directly or indirectly, enter into,
solicit, initiate, conduct or continue any discussions or negotiations
with, or encourage or respond to any inquiries or proposals by, or provide
any information to, or otherwise cooperate in any other way with, any
Person or group, other than Buyer and its representatives, concerning any
sale of all or any substantial portion of the Assets or the Business of, or
of any shares of capital stock or equity interest or other securities of,
the Companies, or any merger, consolidation, recapitalization, liquidation,
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dissolution or similar transaction involving the Companies (each such
transaction being referred to herein as a "Proposed Acquisition
Transaction"). Shareholders hereby represent that neither they nor the
Companies are presently engaged in discussions or negotiations with any
party other than Buyer with respect to any Proposed Acquisition
Transaction. Shareholders agree not to release, or permit any of the
Companies to release, any third party from, or waive any provision of, any
confidentiality or standstill agreement to which any of them is a party.
(b) Notification. Shareholders shall (i) immediately notify Buyer (orally
and in writing) if any offer is made, any discussions or negotiations are
sought to be initiated, any inquiry, proposal or contact is made or any
information is requested with respect to any Proposed Acquisition
Transaction, (ii) promptly notify Buyer of the terms of any proposal which
they may receive in respect of any such Proposed Acquisition Transaction,
including the identity of the prospective purchaser or soliciting party,
(iii) promptly provide Buyer with a copy of any such offer, if written, or
a written summary (in reasonable detail) of such offer, if not in writing,
and (iv) keep Buyer informed of the status of such offer and the offeror's
efforts and activities with respect thereto.
5.4 Investigation of Business and Properties. Shareholders shall cause the
Companies to afford Buyer, any financial institution providing financing to
Buyer, and their respective counsel, accountants, financial advisors and other
representatives, reasonable access during regular business hours upon
reasonable notice, to make such reasonable inspection of the Assets, business
and operations of the Companies and to inspect and make copies of Contracts,
Books and Records and all other documents and information reasonably requested
by Buyer and related to the operations and business of the Companies,
including historical financial information concerning the business of the
Companies and to meet with designated Personnel of the Companies and/or their
representatives; provided that any such access shall be conducted in such a
manner as not to interfere unreasonably with the operation of the Business;
provided further, that no disclosure to Buyer, its counsel, accountants or
other representatives after the date hereof, except by amendment to the
Schedules approved in writing by the Buyer, shall be deemed to be a reduction
of, or otherwise affect, the representations and warranties of Shareholders
set forth in this Agreement. In connection with the obligations provided for
in previous sentence, Shareholders shall furnish to Buyer promptly upon
request (i) all additional documents and information with respect to the
affairs of the Companies and (ii) access during regular business hours to the
Companies' Personnel and to the Companies' accountants and counsel as Buyer,
or its counsel or accountants, may from time to time reasonably request and
Shareholders shall instruct the Companies' Personnel, accountants and counsel
to cooperate with Buyer, and to provide such documents and information as
Buyer and its representatives may reasonably request.
5.5 Confidentiality. Unless and until the Closing has been consummated,
Buyer shall hold, and shall cause its counsel, accountants and other
representatives to hold, in confidence all confidential data and information
relating to the Companies made available to Buyer, together with all analyses,
compilations, studies and other documents and records prepared by Buyer or any
of its representatives which contain or otherwise reflect or are generated
from such information. If the transactions contemplated by this Agreement are
not consummated, Buyer agrees to keep confidential all data and information
relating to the Companies or the Business, and upon written request of
Shareholders, to return or cause to be returned to Shareholders all written
materials and all copies that contain any such confidential data or to certify
to Shareholders that such materials have been destroyed. Notwithstanding the
foregoing, Buyer may disclose this Agreement and the information and data in
Buyer's possession in connection therewith (i) to its lenders (and their
counsel), (ii) to the investment bankers (and their counsel) in connection
with any offering of securities by Buyer and (iii) to the extent such
disclosure is required by Law or legal process. Shareholders will
correspondingly observe all of the same
restrictions and perform the same obligations as are undertaken by Buyer in
the preceding portions of this Section 5.5 with respect to Shareholders'
receipt, possession and use of any confidential data and information relating
to the Buyer or its business.
5.6 No Disclosure; Public Announcements. Prior to Closing, without the prior
written consent of the other party, and except for filings required by Law or
legal process, neither party will issue any press release or otherwise make
any public statements with respect to this Agreement and the transactions
contemplated hereby.
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5.7 Transfer Taxes; Expenses.
(a) All transfer, documentary, sales, use, registration and other such
Taxes and the related fees (including any penalties, interests and
additions to Tax) incurred in connection with the sale of the Shares
pursuant to this Agreement or the transactions contemplated hereby shall be
paid by Shareholders. The parties shall cooperate in timely preparing and
filing all Tax Returns as may be required to comply with the provisions of
such Tax Laws.
(b) Any filing fees due in respect of filings made by Buyer under any law
or regulation applicable to the transactions contemplated hereby or the
parties hereto in connection therewith shall be paid equally by Buyer and
Shareholders; provided, that Shareholders shall pay any such filing fees
which are for a filing related to Shareholders' acquisition of Buyer Common
Shares as contemplated herein; provided further that Buyer shall pay all
fees and expenses incurred in connection with (i) filings with the
Securities and Exchange Commission with respect to approval by Buyer's
shareholders of this Agreement and issuance to Shareholders of the Buyer
Common Shares as contemplated by Article II hereof and (ii) the change of
the name of the Companies.
(c) Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and
expenses, it being understood that the fees and expenses of Ernst & Young
LLP and The Sanford Holshouser Law Firm PLLC with respect to this Agreement
and the transactions contemplated hereby, as well as any interest,
prepayment, penalties or other costs associated with any indebtedness of
any of the Companies and incurred in connection with the transactions
contemplated hereby (the "Shareholders' Expenses") which have not either
been paid prior to the Effective Date or accrued as a current liability in
the determination of Working Capital as of the Effective Date in the Final
Closing Date Adjustment Schedules shall be paid by Shareholders.
5.8 Efforts to Consummate. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated hereby, including the obtaining of
all necessary consents, waivers, authorizations, orders and approvals of third
parties, whether private or governmental, required of it to enable it to
comply with the conditions precedent to consummating the transactions
contemplated by this Agreement. Each party agrees to cooperate fully with the
other party in assisting it to comply with this Section 5.8, and Shareholders
agree to take such steps as may be necessary to remove any Encumbrances (other
than Permitted Encumbrances) which affect the Assets. Without limiting the
generality of the foregoing, (i) Shareholders agree to provide and to cause
the Companies and their Personnel to provide all necessary cooperation with
the arrangement of any financing, or amendments or waivers in connection with
existing financing arrangements, to be consummated in respect of the
transactions contemplated by this Agreement, including participation in
meetings, due diligence sessions and road shows, the preparation of offering
memoranda and similar documents as Buyer shall reasonably request; (ii)
Shareholders agree to provide and to cause the Companies and their Personnel
to provide all necessary cooperation and information in connection with the
preparation of any fairness opinion which the Buyer may request of any
investment bank or similar firm, in each case as the Buyer or such bank shall
reasonably request; and (iii) each party hereto shall defend and cooperate
with each other party in defending any legal proceedings, whether judicial or
administrative and whether brought derivatively or on behalf of third parties,
challenging this Agreement or the consummation of the transactions
contemplated hereby. No consideration, whether such consideration shall
consist of the payment of money or shall take any other form, for any such
consent, waiver or agreement necessary to the consummation of the transactions
contemplated hereby shall be given or promised by Shareholders or the
Companies without the prior written approval of Buyer. No Shareholder shall
seek to exercise any dissenters rights or similar rights which may become
available in connection with any of the transactions contemplated hereby. In
the event that, owing to restrictions imposed by any Laws, the Buyer would be
prevented from acquiring one or more portions of the Companies' Assets or
Business as contemplated herein, then the parties hereto shall fully cooperate
in arranging for the sale or other disposition to a third party of such
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portion or portions of the Companies' Assets or Business as are necessary to
enable the parties hereto to consummate the transactions contemplated by this
Agreement on terms as nearly as possible identical to the terms provided for
at the time this Agreement was executed and delivered by the parties hereto.
Notwithstanding the foregoing, nothing contained herein shall require (i)
Buyer to enter into any agreement or other arrangement for the financing of
the transactions contemplated hereby on terms that are not satisfactory to
Buyer, in its sole discretion or (ii) any party hereto to initiate any
litigation, make any substantial payment or incur any material economic
burden, except for payments a party presently is contractually obligated to
make, to obtain any consent, waiver, authorization, order or approval.
5.9 Regulatory Matters. Shareholders and Buyer shall, as promptly as
practicable after the date hereof, submit and cause their respective ultimate
parent entities to submit all documents, reports and notifications, and
satisfy all requests for additional information, if any, pursuant to any
federal or state filing requirements applicable to the transactions
contemplated hereby or the parties hereto in connection therewith.
5.10 Environmental Investigation. Buyer shall have the right, at its sole
cost and expense, to (i) conduct tests of the soil surface or subsurface
waters and air quality at, in, on, beneath or about the Facilities, and to
conduct such other procedures as may be recommended by an environmental
consultant engaged by Buyer based on its professional judgment, in a manner
consistent with good engineering practice, (ii) inspect records, reports,
permits, applications, monitoring results, studies, correspondence, data,
historical information and any other information or documents relevant to
environmental conditions or environmental noncompliance and (iii) inspect all
buildings and equipment at the Facilities including, without limitation, the
visual inspection of the physical plants for asbestos-containing construction
materials; provided that in each case, such tests and inspections shall be
conducted only (A) during regular business hours and upon reasonable notice
and (B) in a manner that will not materially interfere with the operation of
the business of the Companies and/or the use of, access to or egress from the
Facilities. Shareholders shall make available such Personnel, attorneys and
consultants of the Companies for such discussions regarding the environmental
condition and compliance of the Facilities as the Buyer shall reasonably
request.
5.11 Related Party Accounts. Except as and to the extent set forth in
Schedule 5.11, and except for accounts payable and receivable incurred in the
ordinary course of business with the Shareholders and their Affiliates as
contract growers, contemporaneously with the Closing, Shareholders and their
Affiliates (other than the Companies), on the one hand, and the Companies, on
the other hand, shall satisfy and/or terminate (without recourse), as between
Shareholders and their Affiliates (other than the Companies), on the one hand,
and the Companies, on the other hand, all amounts (i) due by a Shareholder and
its Affiliates (other than the Companies), on the one hand, to the Companies,
on the other hand, or (ii) due by the Companies, on the one hand, to
Shareholders and their Affiliates (other than the Companies), on the other
hand. Any liability for Taxes arising from such satisfaction or termination of
such amounts shall be the responsibility of Shareholders.
5.12 Materials Received After Closing. Following the Closing Buyer may open
all mail, telegrams and other communications and packages it receives which
are addressed to Shareholders which Buyer reasonably believes is related to
the Business and deal with the contents thereof in its discretion to the
extent that the contents thereof relate to the Business. Buyer agrees to
deliver to Shareholders all other such material it receives which is addressed
to Shareholders and does not relate to the Business. In the event Shareholders
collect or otherwise receive any payments in respect of the Business after the
Closing Date, they shall immediately deliver such payments in the form
received (but duly endorsed, if necessary) to Buyer.
5.13 Further Assurances. At the Closing or from time to time thereafter, the
parties hereto shall execute and deliver such other instruments of assignment,
transfer and delivery and shall take such other actions as the other
reasonably may request in order to consummate, complete and carry out the
transactions contemplated by this Agreement.
5.14 Rights to Examine Books and Records. From and after the Closing, upon
reasonable prior notice from Shareholders, Buyer will afford Shareholders'
authorized representatives, including Shareholders'
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accountants and counsel, reasonable access during regular business hours and
for reasonable purposes related to Shareholders' prior interest in the
Companies, in order to examine and review, or, at Shareholders' expense, to
make copies of, the Books and Records to the extent they relate to periods
prior to the Effective Date; provided that any such access shall be conducted
in such a manner as not to interfere unreasonably with the operation of the
Business.
5.15 Certain Tax Matters. Buyer shall have the right, at its own expense, to
control any audit or examination by any Taxing Authority ("Tax Audit"),
initiate any claim for refund, and contest, resolve and defend against any
assessment, notice of deficiency, or other adjustment or proposed adjustment.
Shareholders shall furnish Buyer and the Companies with their full
cooperation.
5.16 Allocation of Consideration. The Consideration has been agreed upon by
the parties and allocated among the Companies as set forth in Schedule 2.1.
The parties agree that the values reflected in Schedule 2.1 were separately
established as a result of good faith bargaining and that in reporting the
transactions contemplated hereby to the Internal Revenue Service as required
by the Internal Revenue Code, they will use such amounts (subject to
adjustment pursuant to Section 2.4) and cooperate with each other in meeting
the requirements of the Internal Revenue Code and the regulations promulgated
thereunder.
5.17 Deposit of $5 Million. Pursuant to the terms of a Memorandum of Intent
dated as of August 31, 1999, between the Buyer, the Companies and the
Shareholders, the Buyer deposited with the Shareholders $5 million cash (the
"Deposit"). Upon any termination of this Agreement pursuant to clause (iii) of
Section 9.1 as a result of a material breach by Buyer of its obligations under
this Agreement, such Deposit and any interest earned thereon shall be
forfeited to the Shareholders as liquidated damages in lieu of any claim which
the Shareholders or the Companies might otherwise seek to maintain against the
Buyer or any other Person. Simultaneously with the Closing, or immediately
upon any termination of this Agreement other than as specified in the
preceding sentence, such Deposit together with any accrued interest earned
thereon shall be returned to the Buyer.
5.18 Excluded Assets; Related Land. No later than the day preceding the
Closing Date Shareholders shall (i) cause the Companies to distribute to the
appropriate Shareholders the Excluded Assets and (ii) have contributed or
sold, or caused the appropriate entities to have contributed or sold, the
Related Land to such of the Companies as Buyer shall designate pursuant to
documentation (including general warranty deeds) in form and substance
satisfactory to Buyer.
ARTICLE VI
Conditions to Obligations of Buyer
The obligation of Buyer to consummate the transactions contemplated by this
Agreement shall be subject, in the sole discretion of Buyer, to the
satisfaction, at or prior to the Closing, of each of the following conditions,
any of which may be waived by Buyer in accordance with Section 10.8:
6.1 Representations and Warranties. The representations and warranties of
Shareholders contained in Article III hereof shall be true and correct in all
respects (in the case of any representation or warranty containing any
materiality qualification) and in all material respects (in the case of any
representation or warranty without any materiality qualification) as of the
date of this Agreement and as of the date of Closing; provided that
"knowledge," "best knowledge" and similar terms and phrases shall be deemed to
be deleted therefrom; provided further that to the extent that any such
representations and warranties were made as of a specified date, such
representations and warranties shall continue on the date of Closing to have
been true as of such specified date.
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6.2 Performance of this Agreement. Shareholders shall have, in all material
respects, performed all covenants and agreements and complied with all
conditions required by this Agreement to be performed or complied with by them
prior to or at the Closing.
6.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications, waivers and Licenses and
Permits listed in Schedule 3.4 or otherwise necessary to effect the
transactions contemplated hereby shall have been filed, made or obtained and
all waiting periods specified by law or regulation with respect thereto shall
have expired or been terminated.
6.4 Injunction, Litigation, etc. No Actions by any Governmental Authority or
any other Person shall have been instituted for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated hereby and which could reasonably be expected to damage the
Companies materially or prevent Buyer from owning and controlling the
Companies.
6.5 Legislation. No statute, rule or regulation shall have been proposed
(and reasonably believed to be likely of enactment) or enacted which prohibits
or might prohibit, restrict or materially delay the consummation of the
transactions contemplated by this Agreement.
6.6 Proceedings. All corporate or similar proceedings of the Companies or
the Shareholders that are required in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to Buyer and its counsel; and Buyer, having used its reasonable best
efforts, shall have obtained the approval of Buyer's shareholders required
under law and/or applicable standards of the New York Stock Exchange.
6.7 Opinion of Counsel. Shareholders shall have delivered to Buyer an
opinion of The Sanford Holshouser Law Firm PLLC, counsel for the Shareholders,
dated as of the date of Closing, substantially with respect to the matters set
forth in Exhibit F hereto, and stating that such opinion is made for the
benefit of Buyer and Buyer's institutional lenders and that Buyer's
institutional lenders shall be entitled to rely thereon as if such opinion
were addressed to them.
6.8 Closing Deliveries. Buyer shall have received, at or prior to the
Closing, the following:
(i) a certificate executed by the Secretary of each of the Companies
certifying as of the date of Closing (A) a true and correct copy of the
certificate or articles of incorporation of each of the Companies, (B) a
true and correct copy of the bylaws of each of the Companies, and (C)
incumbency matters;
(ii) a certificate executed by the Shareholders' Representatives
certifying that, as of the date of Closing, (i) he or she has made inquiry
of the appropriate Personnel of the Companies and (ii) the conditions set
forth in Sections 6.1, 6.2, 6.3 and 6.9 have been satisfied;
(iii) a copy of the certificate or articles of incorporation of each of
the Companies and all amendments thereto, each certified as of a recent
date by the Secretary of State of the applicable jurisdiction of
organization or other appropriate governmental official;
(iv) a certificate of the appropriate Secretary of State or other
appropriate governmental official certifying the good standing of the
Companies in their respective jurisdictions of organization and all other
states where they are qualified to do business;
(v) physical possession of all original minute books, corporate seals and
stock ownership records of the Companies, as well as the actual stock
certificates representing all the shares of capital stock of the Companies;
(vi) physical possession of all Books and Records (other than those
covered by clause (vi) above), Licenses and Permits, policies, Contracts,
plans or other instruments of the Companies that are in the possession of
the Companies, all such materials to be deemed delivered to Buyer if they
are present at any
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of the farms, plants, offices, processing or manufacturing facilities,
stores, warehouses or administration buildings owned or leased by the
Companies;
(vii) UCC-11 searches with respect to the Companies, the Business and the
Assets used in the Business; and
(viii) all other documents and certificates required to be delivered by
Shareholders pursuant to the terms of this Agreement.
6.9 Material Adverse Change. There shall not have been any Material Adverse
Change in the Assets, liabilities, condition (financial or otherwise), results
of operations or business of the Companies since August 28, 1999, nor any
occurrence or circumstance that with the passage of time might reasonably be
expected to result in such change, and there shall not be any material
liability not shown in the Interim Financial Statements or otherwise disclosed
herein; provided, that a decline in the market prices paid for live hogs shall
not in and of itself be such a Material Adverse Change.
6.10 Financing and Other Agreements. Buyer shall have obtained and
consummated financing arrangements, or amended its existing financing
arrangements, on terms and conditions satisfactory to Buyer, sufficient to
enable the Buyer to consummate the transactions contemplated hereby (including
without limitation to assume or refinance the indebtedness of the Companies)
without causing a default, penalty or premium to occur under any agreements or
arrangements to which Buyer is a party or by which Buyer is bound, all as
determined by Buyer in its sole discretion.
6.11 Resignations. Each director and officer of each of the Companies shall
have submitted his or her resignation effective as of the Closing.
6.12 Due Diligence.
(a) Buyer shall not have discovered in any due diligence investigation of
the business, properties and financial data of the Companies after the date
of this Agreement pursuant to Section 5.4 hereof or otherwise any matters
or facts that are not satisfactory to the Buyer in all material respects.
(b) Buyer on or prior to the Closing Date shall have received all
relevant environmental surveys and studies that it shall have requested,
and all such surveys and studies shall report findings satisfactory to the
Buyer in all material respects.
6.13 Tax Matters. The Mergers shall qualify as tax-free reorganizations
under Section 368(a) of the Internal Revenue Code. Shareholders shall have
provided Buyer with (i) all forms, certificates and/or other instruments
required to pay all transfer and recording Taxes and charges arising from the
transactions contemplated by this Agreement, together with evidence
satisfactory to Buyer that such transfer Taxes and charges have been paid,
(ii) a clearance certificate or similar document(s) which may be required by
any state taxing authority to relieve Buyer of any obligation to withhold any
portion of the payments to Shareholders pursuant to this Agreement and (iii) a
statement prepared in accordance with Section 1445 of the Internal Revenue
Code and Treasury Regulations thereunder certifying that the Companies are
not, and were not at any time after January 1, 1993, a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Internal Revenue Code.
6.14 Agreement with Shareholders. Shareholders shall have executed and
delivered to Buyer the Agreement with Shareholders substantially in the form
of Exhibit C hereto, which shall be in full force and effect.
6.15 Escrow Agreement. Shareholders shall have executed and delivered to
Buyer and the Escrow Agent the Escrow Agreement substantially in the form of
Exhibit A hereto.
6.16 Escrow Deposit. The Escrow Deposit shall have been deposited with the
Escrow Agent.
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6.17 Agreement Regarding Related Party Grower Contracts. Shareholders shall
have executed and delivered to Buyer the Agreement regarding Related Party
Grower Contracts substantially in the form of Exhibit D hereto.
6.18 Non-Competition Agreement. Each of Wendell H. Murphy and Harry D.
Murphy shall have executed and delivered to Buyer a Noncompetition Agreement
substantially in the form of Exhibit E hereto, which shall be in full force
and effect.
6.19 Title Insurance. The Companies shall have obtained from one or more
nationally recognized title insurance companies reasonably satisfactory to
Buyer a fee owner's title insurance policy, in each case in form and substance
reasonably satisfactory to Buyer, together with endorsements reasonably
requested by Buyer, including, without limitation, "extended coverage,"
access, zoning, non-imputation, comprehensive and contiguity endorsements, in
an amount determined by Buyer, insuring the Companies, showing that the
Companies have good and marketable fee simple title to the Real Property, free
and clear of all Encumbrances other than Permitted Encumbrances. In connection
therewith, Shareholders shall facilitate Buyer's dealing directly with the
title insurance company and shall provide to the title insurance company such
affidavits and indemnifications in customary form and substance as shall be
required by the title insurance company.
6.21 Sale of Feedmills. The assets comprising the feedmill operations of
Murphy Farms, Inc. and Chief Milling Partners, Inc. shall have been sold to
Pork Plus, Inc., a North Carolina corporation, and Pork Plus, Inc. shall have
entered into a milling contract and administrative services agreement with
Murphy Farms, Inc. all on terms satisfactory to Buyer.
6.22 Minimum Number of Sows. The Companies shall own not less than 327,000
producing sows as of the Closing Date.
ARTICLE VII
Conditions to Obligations of Shareholders
The obligation of Shareholders to consummate the transactions contemplated
by this Agreement shall be subject, in the sole discretion of Shareholders, to
the satisfaction, at or prior to the Closing, of each of the following
conditions, any of which may be waived by Shareholders in accordance with
Section 10.8.
7.1 Representations and Warranties. The representations and warranties of
Buyer contained in Article IV hereof shall be true and correct in all respects
(in the case of any representation or warranty containing any materiality
qualification) and in all material respects (in the case of any representation
or warranty without any materiality qualification) as of the date of this
Agreement and as of the date of Closing; provided that "knowledge," "best
knowledge" and similar terms and phrases shall be deemed to be deleted
therefrom; provided further that to the extent that any such representations
and warranties were made as of a specified date, such representations and
warranties shall continue on the date of Closing to have been true as of such
specified date.
7.2 Performance of this Agreement. Buyer shall have, in all material
respects, performed all covenants and agreements and complied with all
conditions required by this Agreement to be performed or complied with by it
prior to or on the date of Closing.
7.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications or waivers listed in
Schedule 4.4 or otherwise necessary to effect the transactions contemplated
hereby shall have been filed, made or obtained and all waiting periods
specified by law or regulation with respect thereto shall have expired or been
terminated.
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7.4 Injunction, Litigation, etc. No Actions by any Governmental Authority or
any other Person shall have been instituted for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated hereby and which could reasonably be expected to damage
Shareholders or the Companies materially if the transactions contemplated
hereby are consummated.
7.5 Legislation. No statute, rule or regulation shall have been proposed
(and reasonably believed to be likely of enactment) or enacted which prohibits
or might prohibit, restrict or materially delay the consummation of the
transactions contemplated this Agreement.
7.6 Proceedings. All corporate or similar proceedings of Buyer that are
required in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in form and substance to Shareholders and
their counsel.
7.7 Opinion of Counsel. Buyer shall have delivered to Shareholders an
opinion of McGuire, Woods, Battle & Boothe LLP, counsel for Buyer, dated as of
the Closing Date, substantially with respect to the matters set forth in
Exhibit G attached hereto.
7.8 Closing Deliveries. Shareholders shall have received, at or prior to the
Closing, the following:
(i) a certificate executed by the Secretary of Buyer certifying as of the
Closing Date (i) a true and correct copy of the articles of incorporation
as amended of Buyer, (ii) a true and correct copy of the bylaws of Buyer,
(iii) a true and correct copy of the resolutions of the board of directors
of Buyer authorizing the execution, delivery and performance of this
Agreement by Buyer and the consummation of the transactions contemplated
hereby and (iv) incumbency matters;
(ii) a certificate executed by a Vice President of Buyer certifying that,
as of the date of Closing, the conditions set forth in Sections 7.1, 7.2,
and 7.3 with respect to Buyer have been satisfied;
(iii) a copy of the articles of incorporation of Buyer and all amendments
thereto, each certified as of a recent date by the Clerk of the State
Corporation Commission of the Commonwealth of Virginia; and
(iv) all other documents and certificates required to be delivered by
Buyer pursuant to the terms of this Agreement.
7.9 Escrow Agreement. Buyer shall have executed and delivered to
Shareholders and the Escrow Agent the Escrow Agreement substantially in the
form of Exhibit A hereto.
7.10 Escrow Deposit and Estimated Consideration Price. The Escrow Deposit
shall have been deposited with the Escrow Agent, and the balance of the
Estimated Consideration shall be ready for delivery to Shareholders.
7.11 Registration Rights Agreement. Buyer shall have executed and delivered
to Shareholders the Registration Rights Agreement substantially in the form of
Exhibit B hereto.
7.12 Material Adverse Change. There shall not have been any Material Adverse
Change in the Assets, liabilities, condition (financial or otherwise), results
of operations or business of Buyer after the date hereof, nor any occurrence
or circumstance that with the passage of time might reasonably be expected to
result in such change; provided that a decline in the market price for Buyer
Common Shares shall not in and of itself be such a Material Adverse Change.
7.13 Tax Free Reorganizations. The Mergers shall qualify as tax-free
reorganizations under Section 368(a) of the Internal Revenue Code.
7.14 Agreement regarding Related Party Grower Contracts. Buyer shall have
executed and delivered to the Shareholders to be parties thereto the Agreement
regarding Related Party Grower Contracts substantially in the form of Exhibit
D hereto.
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ARTICLE VIII
Survival of Representations; Indemnification
8.1 Survival of Representations. Except as set forth in the next sentence of
this Section 8.1, the representations and warranties of Shareholders contained
in this Agreement (including the Schedules hereto) or any certificate or
instrument delivered pursuant hereto will not survive the Closing. The
representations and warranties contained in Sections 3.1, 3.2, 3.3 and 3.24
shall survive the Closing indefinitely; the representations and warranties
contained in Sections 3.4, 3.5, 3.13, 3.14 and 3.32 until the earlier of (i)
the 60th day after receipt by Buyer of the audited financial statements for
Buyer for the fiscal year ending April 29, 2001 and (ii) September 30, 2001;
and the representations and warranties in Section 3.23 shall survive until 90
days after the expiration of the last of the limitation periods contained in
the Internal Revenue Code or other applicable Tax law during which an
assessment or reassessment can be made (the respective dates on which the
representations and warranties hereunder lapse are hereinafter referred to as
the "Survival Date"). Notwithstanding the provisions of the preceding
sentence, any representation or warranty in respect of which indemnification
may be sought under Section 8.2 shall survive the Survival Date if written
notice, given in good faith, of the specific breach thereof is given to the
indemnifying party prior to the Survival Date, whether or not liability has
actually been incurred. All representations and warranties of Buyer contained
in this Agreement (including the Schedules hereto) or any certificate or
instrument delivered pursuant hereto will survive until September 30, 2001;
provided that the representations and warranties contained in Sections 4.1 and
4.5 shall survive the Closing indefinitely.
8.2 Indemnification by Shareholders.
(a) Subject to the limitations contained in this Article VIII,
Shareholders will jointly and severally indemnify and hold harmless Buyer,
its Subsidiaries, Affiliates, each of their respective partners, directors,
officers, employees and agents, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Buyer
Indemnified Parties") from and against, and pay or reimburse (in Buyer
Common Shares to be valued at $31.11 per share, subject to customary
adjustment in the event of a stock split, etc.) the Buyer Indemnified
Parties for, any and all Covered Liabilities actually incurred or paid by
the Buyer Indemnified Parties as a result of:
(i) any inaccuracy contained in, omission from or breach of, a
representation and warranty made by Shareholders in this Agreement or
in any document delivered pursuant hereto; provided that in determining
whether an inaccuracy, omission or breach has occurred and the amount
of any Covered Liabilities, any knowledge (except actual knowledge with
respect to Contract Farms), materiality, material adverse effect,
substantial compliance or similar exception or qualification contained
in or otherwise applicable to such representation or warranty shall be
disregarded;
(ii) the nonfulfillment, nonperformance or other breach of any
covenant or agreement of Shareholders contained in this Agreement and
(iii) any liability or obligation of the Companies that is a Retained
Liability set forth in Schedule 8.2(a);
provided that (i) each Shareholder other than Wendell H. Murphy and Harry
D. Murphy, shall be obligated to provide such indemnification only if he or
she had actual knowledge of the inaccuracy or omission in such
representation or warranty and (ii) no Shareholder shall be obligated to
provide indemnification with respect to any Company in which he or she is
not, and has never been, a shareholder.
(b) The claims for indemnity by Buyer Indemnified Parties pursuant to
this Section 8.2 are referred to as "Buyer Claims." The indemnity provided
for in this Section 8.2 is not limited to matters asserted by third parties
against any Buyer Indemnified Party, but includes Covered Liabilities
actually incurred or sustained by any Buyer Indemnified Party in the
absence of third party claims.
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8.3 Indemnification by Buyer.
(a) Subject to the limitations contained in this Article VIII, Buyer will
indemnify and hold harmless Shareholders, their Affiliates, each of their
respective partners, directors, officers, employees and agents, and each of
the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Shareholders Indemnified Parties") from and against,
and pay or reimburse (in Buyer Common Shares to be valued at $31.11 per
share, subject to customary adjustment in the event of a stock split, etc.)
the Shareholders Indemnified Parties for, any and all Covered Liabilities
actually incurred or paid by the Shareholders Indemnified Parties as a
result of:
(i) any inaccuracy contained in, omission from or breach of, a
representation and warranty made by Buyer in this Agreement or in any
document delivered pursuant hereto; provided that in determining
whether an inaccuracy, omission or breach has occurred and the amount
of any Covered Liabilities, any knowledge, materiality, material
adverse effect, substantial compliance or similar exception or
qualification contained in or otherwise applicable to such
representation or warranty shall be disregarded; and
(ii) the nonfulfillment, nonperformance or other breach of any
covenant or agreement of Buyer contained this Agreement.
(b) The claims for indemnity by Shareholders Indemnified Parties pursuant
to this Section 8.3 are referred to as "Shareholders Claims." The indemnity
provided for in this Section 8.3 is not limited to matters asserted by
third parties against any Shareholders Indemnified Party, but includes
Covered Liabilities actually incurred or sustained by any Shareholders
Indemnified Party in the absence of third-party claims.
8.4 Notice and Defense of Claims.
(a) Whenever a claim shall arise for indemnification hereunder (a
"Claim"), the party seeking indemnification (an "indemnified party") shall
give reasonably prompt notice to the party from whom indemnification is
sought (an "indemnifying party") of such Claim and the facts, in reasonable
detail, constituting the basis for such claim (a "Claim Notice"); provided
that failure of an indemnified party to give prompt written notice of any
Claim shall not release, waive or otherwise affect an indemnifying party's
obligations with respect thereto except to the extent that the indemnifying
party is adversely affected in its ability to defend against such Claim or
is otherwise prejudiced thereby.
(b) In the case of a Claim involving the assertion of a claim by a third
party (whether pursuant to an Action or otherwise, a "Third-Party Claim"),
if the indemnifying party shall acknowledge in writing to the indemnified
party that the indemnifying party shall be obligated to indemnify the
indemnified party under the terms of its indemnity hereunder in connection
with such Third-Party Claim, then (i) the indemnifying party shall be
entitled and, if it so elects, shall be obligated at its own cost, risk and
expense, (A) to take control of the defense and investigation of such
Third-Party Claim and (B) to pursue the defense thereof in good faith by
appropriate actions or proceedings promptly taken or instituted and
diligently pursued, including to employ and engage attorneys of its own
choice reasonably acceptable to the indemnified party to handle and defend
the same, and (ii) the indemnifying party shall be entitled (but not
obligated), if it so elects, to compromise or settle such Third-Party
Claim, which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably
withheld. In the event the indemnifying party elects to assume control of
the defense and investigation of such lawsuit or other legal action in
accordance with this Section 8.4(b), the indemnified party may, at its own
cost and expense, participate in the investigation, trial and defense of
such Third-Party Claim; provided that, if the named Persons to an Action
include both the indemnifying party and the indemnified party and the
indemnified
party has been advised in writing by counsel that there may be one or more
legal defenses available to such indemnified party that are different from
or additional to those available to the indemnifying party, the indemnified
party shall be entitled, at the indemnifying party's cost, risk and
expense, to separate counsel of its own choosing. If the indemnifying party
fails to assume the defense of such Third-Party Claim or fails
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to acknowledge to the indemnified party that it is obligated to indemnify
the indemnified party in accordance with this Section 8.4(b) within 10
calendar days after receipt of the notice of such Third Party Claim, the
indemnified party against which such Third-Party Claim has been asserted
shall (upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost, risk and
expense, the defense, compromise and settlement of such Third-Party Claim
on behalf of and for the account of the indemnifying party if the
indemnifying party is held liable therefor; provided that such Third-Party
Claim shall not be compromised or settled without the written consent of
the indemnifying party, which consent shall not be unreasonably withheld.
In the event the indemnifying party assumes the defense of the Third Party
Claim, the indemnifying party shall keep the indemnified party reasonably
informed of the progress of any such defense, compromise or settlement, and
in the event the indemnified party assumes the defense of the Third Party
Claim, the indemnified party shall keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement. If
the indemnifying party is held liable for the Third-Party Claim, the
indemnifying party shall be liable for any settlement of any Third-Party
Claim effected pursuant to and in accordance with this Section 8.4(b) and
for any final judgment (subject to any right of appeal), and the
indemnifying party agrees to indemnify and hold harmless each indemnified
party from and against any and all Covered Liabilities by reason of such
settlement or judgment.
(c) Any Covered Liabilities for which an indemnifying party is
responsible shall, subject to the provisions of Section 8.5 hereof, be paid
directly by the indemnifying party. Upon Final Determination (as defined
below) of the amount of a claim for indemnification, the indemnifying party
shall pay the amount of such claim within 20 days after the date of such
Final Determination together with interest at the prime rate of The Chase
Manhattan Bank from time to time, from (and including) the later of (i) the
date of delivery of the Claim Notice or (ii) the date such Covered
Liability was paid or incurred, to (and including) the date immediately
preceding the date of payment; provided that no such interest shall be paid
if such Claim is paid by Shareholders to a Third Party.
(d) If the Claim involves a matter other than a Third Party Claim, the
indemnifying party shall have thirty (30) days to object to such Claim by
delivery of a written notice of such objection to such indemnified party
specifying in reasonable detail the basis for such objection. Failure to
timely so object shall constitute a final and binding acceptance of the
Claim by the indemnifying party, and the Claim shall be paid in accordance
with the further provisions hereof. If an objection is timely interposed by
the indemnifying party, then the indemnified party and the indemnifying
party shall negotiate in good faith for a period of thirty (30) business
days from the date the indemnified party receives such objection prior to
commencing any arbitration, formal legal action, suit or proceeding with
respect to such Claim for indemnification. Upon Final Determination (as
defined below) of the amount of a Claim for indemnification, the
indemnifying party shall pay the amount of such Claim within thirty (30)
days of the date of such Final Determination.
(e) A "Final Determination" of a Claim shall be (i) a judgment of any
court determining the validity of a disputed Claim, if no appeal is pending
from such judgment or if the time to appeal therefrom has elapsed (it being
understood that the indemnified party shall have no obligation to appeal);
or (ii) an award of any arbitrator or arbitration panel determining the
validity of such disputed Claim, if the arbitration is binding and there is
not pending any motion to set aside such award or if the time within which
to move to set aside such award has elapsed; or (iii) a written termination
of the dispute with respect to such Claim signed by all of the parties
thereto or their attorneys; or (iv) a written acknowledgment of the
indemnifying party that it no longer disputes the validity of such Claim;
(v) settlement of the Claim reached and reduced to writing pursuant to
negotiation of the parties or (vi) such other evidence of final
determination of a disputed Claim as shall be reasonably acceptable to the
parties.
8.5 Calculation of Covered Liabilities.
(a) Insurance Proceeds. To the extent that any Buyer Claim or
Shareholders Claim is covered by insurance held by such Buyer Indemnified
Party or Shareholders Indemnified Party, such indemnified party shall be
entitled to indemnification pursuant to Section 8.2 or 8.3, as applicable,
only with respect to the amount of the Covered Liabilities that are in
excess of the cash proceeds received by such indemnified party
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pursuant to such insurance. If such indemnified party receives such cash
insurance proceeds prior to the time such Claim is paid, then the amount
payable by the indemnifying party pursuant to such Claim shall be reduced
by the amount of such proceeds. If such indemnified party receives such
cash insurance proceeds after such Claim has been paid, then upon the
receipt by the indemnified party of any cash proceeds pursuant to such
insurance up to the amount of Covered Liabilities incurred by such
indemnified party with respect to such Claim, such indemnified party shall
promptly repay any portion of such amount which was previously paid by the
indemnifying party to such indemnified party in satisfaction of such Claim.
(b) Effect of Taxes. The amount of any indemnity payments for Covered
Liabilities under Section 8.2 or 8.3 above shall be (i) decreased to
reflect the actual Tax Benefit, if any, to the indemnified party resulting
from the Covered Liabilities giving rise to such indemnity payments and
(ii) increased to reflect the actual Tax Loss, if any, payable by such
indemnified party as a result of the receipt of such Covered Liabilities,
in each case subject to the limitations on indemnification contained in
Section 8.5. In either case, the amount shall be determined by the
indemnified party taking into account only the taxable period in which such
indemnity payment accrues (and prior periods) and not any subsequent
periods. If an indemnity payment is made prior to the filing of relevant
Tax Returns, the amount shall be determined on an estimated basis. Proper
adjustments shall be made if the actual Tax Benefit or actual Tax Loss
differ from the estimated amount. Any indemnity payment made pursuant to
Section 8.2 or 8.3 shall be treated by Buyer and Shareholders as an
adjustment to the Consideration.
8.6 Exclusive Remedy following Closing. Except for covenants to be performed
after the Closing ("Post-Closing Covenants") and actions grounded in fraud,
the parties hereto acknowledge and agree that in the event the Closing occurs,
the indemnification provisions in this Article VIII shall be the exclusive
remedy of Buyer and Shareholders with respect to the transactions contemplated
by this Agreement. With respect to Post-Closing Covenants and actions grounded
in fraud, (i) the right of a party to be indemnified and held harmless
pursuant to the indemnification provisions in this Agreement shall be in
addition to and cumulative of any other remedy of such party at law or in
equity and (ii) no such party shall, by exercising any remedy available to it
under this Article VIII, be deemed to have elected such remedy exclusively or
to have waived any other remedy, whether at law or in equity, available to it.
8.7 No Circular Recovery. No Shareholder shall be entitled to make any claim
for indemnification against Buyer, the Surviving Corporations or any of their
respective Affiliates by reason of the fact that he or she was a controlling
person, director, officer, employee, agent or other representative of the
Companies (whether such claim is pursuant to any statute, charter, bylaw,
contractual obligation or otherwise) with respect to any matter relating to or
arising out of a matter which is subject to the provisions of Section 8.2.
Article IX
Termination
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(i) by the mutual written consent of Shareholders and Buyer;
(ii) by Buyer, if any event occurs which renders impossible compliance
with one or more of the conditions set forth in Article VI hereof, which
condition or conditions are not waived by Buyer;
(iii) by Shareholders, if any event occurs which renders impossible
compliance with one or more of the conditions set forth in Article VII
hereof, which condition or conditions are not waived by Shareholders; or
(iv) by Shareholders or Buyer if the Closing has not occurred by 11:59
p.m. on May 31, 2000; provided that no party hereto may terminate this
Agreement pursuant to this clause (iv) if the sole condition to such
party's obligation to close then not satisfied or waived is (A) the failure
of a Governmental Authority to issue any consent order, approval or waiver
necessary for the consummation of the transactions
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contemplated hereby, or (B) the Institution of an Action by a Governmental
Authority for the purpose of enjoining or preventing, or which questions
the validity or legality of, the transactions contemplated hereby, if there
appears to be a reasonable prospect that such consent, order, approval, or
waiver will be issued, or that such Action will be withdrawn, dismissed or
finally adjudicated, within a reasonable time after May 31, 2000.
9.2 Procedure: Effect of Termination. If this Agreement is terminated as
provided in Section 9.1 or 9.3, written notice thereof shall forthwith be
given by the terminating party to the other party, and this Agreement shall
thereupon terminate and become void and of no further force and effect and
there shall be no further liability or obligation on the part of either party
hereto except for the obligations under Sections 5.5, 5.7, 5.17, 9.1 and 9.3;
provided that, subject to the provisions of Section 5.17, termination of this
Agreement by Buyer or Shareholders pursuant to clause (ii) or (iii) of Section
9.1 or pursuant to Section 9.3, respectively, shall not relieve any defaulting
or breaching party (the "Breaching Party"), whether or not it is the
terminating party, of liability for damages actually incurred by the other
party as a result of breach of this Agreement by the Breaching Party.
9.3 Additional Termination Right. In addition to any other rights of
termination provided for hereunder or otherwise, the Buyer shall have the
right to terminate this Agreement according to the procedures set forth in the
next sentence. Buyer may at any time prior to Closing give Shareholders
written notice that Buyer has discovered adverse facts or matters during the
course of its due diligence review which Buyer has reasonably determined are
expected to require an amount in excess of $10 million to cure or correct,
specifying the adverse facts or matters to be cured and, in the alternative,
an amount by which the Buyer proposes to reduce the Consideration in lieu of
such cure or correction; Shareholders shall thereupon have five (5) Business
Days to notify Buyer in writing whether Shareholders will (i) undertake to
cure or correct such matters to the reasonable satisfaction of Buyer, (ii)
instead accept the specified reduction in the Consideration, or (iii) decline
as to both (i) and (ii). If Shareholders decline pursuant to the foregoing
clause (iii), or choose clause (i) but do not perform or cause to be performed
the obligations thereunder to the reasonable satisfaction of Buyer, or if
Shareholders fail to give the required notice hereunder within five Business
Days, then Buyer shall forthwith have the option to terminate this Agreement
upon written notice to Shareholders of the same.
Article X
General Provisions
10.1 Notices. All notices required to be given hereunder shall be in writing
and shall be deemed to have been given if (i) delivered personally or by
documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in
the manner hereinabove described, to the others entitled to notice:
(a)If to Shareholders or to the Shareholders' Representatives, to:
Wendell H. Murphy
Murphy Farms, Inc.
P.O. Box 759
U.S. Highway 117 South
Rose Hill, North Carolina 28458
Facsimile No: (910) 289-6401
with a copy to:
The Sanford Holshouser Law Firm PLLC
219 Fayetteville Street
Suite 1000
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P. O. Box 2447
Raleigh, North Carolina 27602
Attention: Reef C. Ivey, II
Facsimile No. (919) 829-0272
(b)If to Buyer, to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Richard J. M. Poulson
Facsimile No.: (757) 365-3017
and to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Michael H. Cole
Facsimile No. (757) 365-3025
with a copy to:
McGuire, Woods, Battle & Boothe LLP
One James Center
Richmond, Virginia 23219
Attention: Leslie A. Grandis
Facsimile No. (804) 775-1061
If given personally or by documented courier or delivery service, or
transmitted by facsimile, a notice shall be deemed to have been given when it
is received. If given by mail, it shall be deemed to have been given on the
third business day following the day on which it was posted.
10.2 Interpretation. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. For purposes of this Agreement, the words
"includes" and "including" shall mean "including without limitation." As used
herein, "knowledge of Shareholders" shall mean (i) with respect to each of
Wendell H. Murphy and Harry D. Murphy, the actual knowledge of such
Shareholder together with the actual knowledge of the executive officers of
the Companies identified in Schedule 10.2(a) hereto after inquiry of other
Personnel of the Companies who would reasonably be expected to have the
relevant information, and (ii) with respect to any other Shareholder, his or
her actual knowledge solely; and "knowledge of Buyer" shall mean the actual
knowledge of the executive officers of Buyer identified in Schedule 10.2(b)
hereto after inquiry of other Personnel of Buyer who would reasonably be
expected to have the relevant information. All accounting terms not defined in
this Agreement (either in Article I or in the context in which it is used)
shall have the meaning determined by GAAP. All capitalized terms defined
herein are equally applicable to both the singular and plural forms. The
language in all parts of this Agreement shall be construed, in all cases,
according to its fair meaning. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that any rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
10.3 Entire Agreement. This Agreement together with the Schedules and
Exhibits hereto contain the entire agreement among the parties with respect to
the subject matter hereof, and there are no agreements, understandings,
representations or warranties between the parties other than those set forth
or referred to herein; provided that the forms of agreements and opinions
attached hereto as Exhibits or Schedules shall be superseded by the copies of
such agreements and opinions executed and delivered by the respective parties
thereto, the
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execution and delivery of such agreements and opinions by the parties thereto
to be conclusive evidence of such parties' approval of any change or
modification therein.
10.4 No Third Party Beneficiaries. Except as set forth in Article VIII,
nothing in this Agreement (whether expressed or implied) is intended to confer
upon any person other than the parties hereto and their respective permitted
successors and assigns, any rights or remedies under or by reason of this
Agreement nor is anything in this Agreement intended to relieve or discharge
the liability of any party hereto, nor shall any provision hereof give any
person any right of subrogation against, or action over against any party.
Without limiting the generality of the foregoing, nothing contained herein
shall confer any third-party beneficiary right (actual or implied) upon any
employee of the Companies or obligate the Companies to continue any such
employee in its employ for any specified period of time or at any specified
salary, wages or benefits after the Closing Date.
10.5 Shareholders' Representatives. Wendell H. Murphy and Harry D. Murphy
shall be the designated representatives of all the Shareholders (the
"Shareholders' Representatives") with authority to make all decisions and
determinations and to take all actions (including giving consents and waivers
or agreeing to any amendments to this Agreement or to the termination hereof)
required or permitted hereunder on behalf of any Shareholder, and any such
action, decision or determination so made or taken shall be deemed the action,
decision or determination of each such Shareholder, and any notice, document,
certificate or information required to be given to any Shareholders shall be
deemed so given if given to the Shareholders' Representatives. The
Shareholders agree that the Shareholders' Representatives shall not have any
liability to the Shareholders for any action, or failure to act, in their
capacity as Shareholders' Representatives.
10.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, as applicable; provided that
Shareholders shall not assign their rights or delegate their obligations under
this Agreement without the express prior written consent of Buyer; provided
further, that in the event of assignment by Buyer, Buyer shall not be released
from its obligations under this Agreement.
10.7 Severability. In the event that this Agreement or any other instrument
referred to herein, or any of their respective provisions, or the performance
of any such provision, is found to be invalid, illegal or unenforceable under
applicable law now or hereafter in effect, the parties shall be excused from
performance of such portions of this Agreement as shall be found to be
invalid, illegal or unenforceable under the applicable laws or regulations
without, to the maximum extent permitted by law, affecting the validity of the
remaining provisions of the Agreement. Should any method of termination of
this Agreement or a portion thereof be found to be invalid, illegal or
unenforceable, such method shall be reformed to comply with the requirements
of applicable law so as, to the greatest extent possible, to allow termination
by that method. Nothing herein shall be construed as a waiver of any party's
right to challenge the validity of such law.
10.8 Amendment. This Agreement may be amended, modified or supplemented at
any time by the parties hereto. This Agreement may be amended only by an
instrument in writing signed by each of the parties hereto.
10.9 Extension; Waiver. At any time prior to the Closing either
Shareholders, on the one hand, or the Buyer, on the other, may (i) extend the
time for the performance of any of the obligations of the Buyer, on the one
hand, or Shareholders, on the other, (ii) waive a breach of a representation
or warranty of such other party or parties hereto or (iii) waive compliance by
such other party or parties hereto with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid if set forth in
a written instrument signed by such party or parties giving the extension or
waiver. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
10.10 Disclosure Schedules. Certain of the representations and warranties
set forth in this Agreement contemplate that there will be attached Schedules
setting forth information that might be "material" or have a
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"Material Adverse Effect" on the Companies, the Shareholders or the Buyer. The
parties may, at their respective option, include in such Schedules items that
are not material or are not likely to have such a Material Adverse Effect in
order to avoid any misunderstanding, and any such inclusion shall not be
deemed to be an acknowledgment or representation that such items are material
or would have a Material Adverse Effect, to establish any standard of
materiality or Material Adverse Effect or to define further the meaning of
such terms for purposes of this Agreement.
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.12 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of North Carolina without regard to any laws or regulations
relating to choice of laws (whether of the State of North Carolina or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of North Carolina.
10.13 Jurisdiction. The parties hereto irrevocably submit to the non-
exclusive jurisdiction of the United States District Court for the Western
District of North Carolina (or, if subject matter jurisdiction in that court
is not available, in the courts of the State of North Carolina, Mecklenburg
County) over any dispute arising out of or relating to this Agreement or any
agreement or instrument contemplated hereby or entered into in connection
herewith or any of the transactions contemplated hereby or thereby. Each party
hereby irrevocably agrees that all claims in respect of such dispute or
proceeding shall be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable Law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum in
connection therewith. THE PARTIES HERETO WAIVE THE RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING SEEKING ENFORCEMENT OF SUCH
PARTY'S RIGHTS UNDER THIS AGREEMENT. Each Shareholder hereby designates Reef
C. Ivey, II as its agent for service of process, which agent may be
substituted at any time upon ten days' notice to Buyer, but which substitute
agent shall in no event be located outside the Commonwealth of Virginia or
State of North Carolina, and each Shareholder irrevocably consents to the
service of any and all process in any action or proceeding arising out of or
relating to this Agreement by the delivery of such process to such agent.
10.14 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event any of the provisions of this Agreement were not
performed in accordance with the terms hereof and that each of the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy available at law or in equity.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first above written.
SMITHFIELD FOODS, INC.
/s/ Joseph W. Luter, III
By: _________________________________
Name: Joseph W. Luter, III
Title: Chairman of the Board and
Chief Executive Officer
/s/ Wendell Murphy
_____________________________________
Wendell H. Murphy
/s/ Harry D. Murphy
_____________________________________
Harry D. Murphy
/s/ Joyce M. Norman
_____________________________________
Joyce M. Norman
/s/ Wendell H. Murphy, Jr.
_____________________________________
Wendell H. Murphy, Jr.
/s/ Wendy Murphy Crumpler
_____________________________________
Wendy Murphy Crumpler
/s/ Stratton K. Murphy
_____________________________________
Stratton K. Murphy
/s/ Marc D. Murphy
_____________________________________
Marc D. Murphy
/s/ Angela Brown
_____________________________________
Angela Brown
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APPENDIX A
Definitions
The following terms, as used herein, have the following meanings:
"Action" means any complaint, claim, prosecution, indictment, action, suit,
arbitration, investigation, governmental audit, inquiry or proceeding by or
before any Governmental Authority.
"Affiliate" of a Person means a Person who, directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, such Person.
"Ancillary Agreements" means the Escrow Agreement, the Registration Rights
Agreement, the Agreement with Shareholders, the Noncompetition Agreements and
the Agreement regarding Related Party Grower Contracts.
"Assets" means all of the Companies' right, title and interest in and to all
properties, assets and rights of any kind, whether tangible or intangible,
real or personal, owned by the Companies or in which the Companies have any
interest whatsoever, other than the items specifically identified as Excluded
Assets on Schedule 1.1(a).
"Audited Financial Statements" has the meaning set forth in Section 3.9.
"Benefit Arrangement" means any employment, consulting, severance or other
similar contract, arrangement or policy (written or oral) and each plan,
arrangement, program, agreement or commitment (written or oral) providing for
insurance coverage (including, without limitation, any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health or
accident benefits (including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Internal
Revenue Code providing for the same or other benefits) or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation
rights, stock purchases or other forms of incentive compensation or post-
retirement insurance, compensation or benefits which (i) is not a Welfare
Plan, Pension Plan or Multiemployer Plan, (ii) is entered into, maintained,
contributed to or required to be contributed to, as the case may be, by the
Companies or any ERISA Affiliate or under which the Companies or any ERISA
Affiliate may incur any liability, and (iii) covers any employee or former
employee of the Companies or any ERISA Affiliate (with respect to their
relationship with any such entity).
"Books and Records" means all books, records, lists, ledgers, files,
reports, plans, drawings and operating records of every kind (in any form or
medium) relating to the Companies, the Assets, Business operations, customers,
suppliers and personnel, including (i) all corporate books and records of the
Companies, (ii) all disk or tape files, printouts, runs or other computer-
based information and the Companies' interest in all computer programs
required to access, and the equipment containing, all such computer-based
information, (iii) all product, business and marketing plans, (iv) all
environmental control records, (v) all sales, maintenance and production
records, (vi) equipment warranty information, (vii) litigation files, (viii)
customer and supplier lists and information and (ix) personnel records.
"Breaching Party" has the meaning set forth in Section 9.2.
"Business" means the hog production business conducted by the Companies.
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in Raleigh, North Carolina or New York, New York are
authorized by Law to close.
"Buyer's Auditors" means Arthur Andersen LLP.
"Buyer Claims" has the meaning set forth in Section 8.2(b).
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"Buyer Common Shares" means the Common Stock, par value $.50 per share, of
the Buyer.
"Buyer Indemnified Parties" has the meaning set forth in Section 8.2(a).
"Buyer SEC Filings" has the meaning set forth in Section 4.2.
"Buyer Sub" and "Buyer Subs" have the meanings set forth in the Recitals.
"Capital Lease" means any lease of which any of the Companies is the lessee
which is required to be capitalized on the balance sheet in accordance with
GAAP.
"Cash to Accrual Tax Liability" means the net present value (based on a 7%
discount rate and a combined federal and state corporate income tax rate of
39.5%) of the tax liability that will be incurred by Buyer under Sections 447
and 481 of the Internal Revenue Code when it converts from the cash method to
the accrual method of accounting with respect to the Companies for federal
income tax purposes as of the Effective Date, as determined in accordance with
the methodology set forth in Schedule 1.1(b).
"Cash to Accrual Tax Liability Adjustment" means the number of Buyer Common
Shares equal to (i) the amount (which may be positive or negative) by which
the Cash to Accrual Tax Liability is more or less than $64,930,653, divided by
(ii) $31.11. Subject to the impact on the calculation of Consideration of the
Companies Debt Adjustment, the Surviving Corporations Earnings Adjustment and
the Working Capital Adjustment, if the Cash to Accrual Tax Liability is more
than $64,930,653, there will be a decrease in the number of Buyer Common
Shares, and if the Cash to Accrual Tax Liability is less than $64,930,653,
there will be an increase in the number of Buyer Common Shares, comprising the
Consideration.
"Claim" has the meaning set forth in Section 8.4.
"Claim Notice" has the meaning set forth in Section 8.4.
"Closing" has the meaning set forth in Section 2.3.
"Closing Date" has the meaning set forth in Section 2.3.
"Companies" has the meaning set forth in the Recitals, and "Company" means
whichever of the Companies the context suggests.
"Companies Debt" means the interest bearing indebtedness (plus any accrued
interest or associated prepayment or other penalties or costs incurred in
connection with the transactions contemplated hereby on such indebtedness) of
the Companies, their respective Subsidiaries and certain other entities in
which one or more of the Companies or their Subsidiaries own an interest, for
borrowed money from third parties other than the Shareholders, the Companies
or their respective Subsidiaries or Affiliates, computed pursuant to Schedule
1.1(d) and the percentages reflected therein; provided that Companies Debt
shall not include (i) indebtedness of the Companies to the Shareholders or
indebtedness under the Companies lines of credit, in each case to the extent
included as a current liability in calculating Working Capital as of the
Effective Date as set forth in the Final Closing Date Adjustment Schedules or
(ii) Murphy Funding Debt.
"Companies Debt Adjustment" means the number of Buyer Common Shares equal to
(i) the amount (which may be positive or negative) by which the Companies Debt
on the Effective Date is more or less than $180,108,729, divided by (ii)
$31.11. Subject to the impact on the calculation of Consideration of the Cash
to Accrual Tax Liability Adjustment, the Surviving Corporations' Earnings
Adjustment and the Working Capital Adjustment, if the Companies Debt as of the
Effective Date is more than $180,108,729, there will be a decrease in the
number of Buyer Common Shares, and if the Companies Debt as of the Effective
Date is less than $180,108,729, there will be an increase in the number of
Buyer Common Shares, comprising the Consideration.
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"Consideration" means 10,652,070 Buyer Common Shares adjusted for the
Working Capital Adjustment adjusted for the Cash to Accrual Tax Liability
Adjustment adjusted for the Companies Debt Adjustment adjusted for the
Surviving Corporations Earnings Adjustment.
"Consideration Adjustment" has the meaning specified in Section 2.4(d).
"Contract" means any agreement, contract, lease, note, loan, evidence of
indebtedness, purchase order, letter of credit, franchise agreement,
undertaking, covenant not to compete, employment agreement, license,
instrument, obligation, commitment, purchase and sales order, quotation and
other executory commitment to which any of the Companies is a party or which
relates to the Business or any of the Assets of the Companies, whether oral or
written, express or implied, and which pursuant to its terms has not expired,
terminated or been fully performed by the parties thereto.
"Contract Farms" means those farms that are not owned or leased by the
Companies with respect to which the Companies have entered into contracts with
third parties under which the farm facilities are used to complete a stage of
production of swine owned by the Companies.
"Controlled Group Liability" means any and all liabilities under (i) Title
IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 or 4971 of the
Internal Revenue Code, (iv) the continuation coverage requirements of Sections
601 et seq. of ERISA and Section 4980B of the Internal Revenue Code and (v)
the disclosure and reporting requirements of Sections 101 et seq. of ERISA,
other than such liabilities that arise solely out of, or relate solely to,
employees or former employees of the Companies.
"Covered Liabilities" means any and all debts, losses, liabilities, claims,
fines, royalties, deficiencies, damages (including diminution in value and/or
increased insurance premiums), Actions, obligations, payments (including those
arising out of any demand, assessment, settlement, judgment or compromise
relating to any Action), costs (including costs of mitigation) and expenses
(including interest and penalties due and payable with respect thereto and
reasonable attorneys' and accountants' fees and any other out-of-pocket
expenses incurred in investigating, preparing, defending, avoiding or settling
any Action or in investigating, preserving or enforcing another party's
obligations hereunder), matured or unmatured, accrued or unaccrued, liquidated
or unliquidated, including any of the foregoing arising under, out of or in
connection with any Action, order or consent decree of any Governmental
Authority or award of any arbitrator of any kind, or any law, rule,
regulation, contract, commitment or undertaking.
"Debt Instruments" has the meaning set forth in Section 6.12.
"Decrees" has the meaning set forth in Section 3.8.
"Effective Date" means the earlier of the Closing Date and January 1, 2000.
"Effective Time" has the meaning set forth in Section 2.1(b).
"Election Companies" has the meaning set forth in Section 5.16(a).
"Employee Plans" means all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment,
conditional sales agreement, encumbrance or other right of third parties,
whether voluntarily incurred or arising by operation of law, and includes any
agreement to give any of the foregoing in the future, and any contingent sale
or other title retention agreement or lease in the nature thereof.
"Environmental Laws" means all applicable federal, state, district, local
and foreign laws, all rules or regulations promulgated thereunder, and all
orders, consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to health, safety, pollution
or protection of the
A-44
<PAGE>
environment (including ambient air, surface water, ground water, land surface
or subsurface strata), including (i) laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals,
industrial materials, wastes or other substances into the environment and (ii)
laws relating to the identification, generation, manufacture, processing,
distribution, use, treatment, storage, disposal, recovery, transport or other
handling of pollutants, contaminants, chemicals, industrial materials,
wastes or other substances, in each case as in effect on the Closing Date. By
way of example only, Environmental Laws include the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Toxic Substances Control Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and
Recovery Act, as amended ("RCRA"), the Clean Water Act, as amended, the Safe
Drinking Water Act, as amended, the Clean Air Act, as amended, the Atomic
Energy Act of 1954, as amended, the Occupational Safety and Health Act, as
amended, and all analogous laws promulgated or issued by any state or other
governmental authority.
"Environmental Permit" means all registrations, applications, filings,
certifications, notices, orders, licenses, permits, approvals, consents,
qualifications, authorizations and waivers of any Governmental Authority
issued under or with respect to an Environmental Law.
"Environmental Reports" means any and all written analyses, summaries or
explanations, in the possession or control of the Companies, of (i) Hazardous
Emissions, Handling Hazardous Substances or any environmental conditions in,
on or about the properties of the Companies or (ii) the Companies' compliance
with Environmental Laws.
"Equipment" means all machinery, equipment, computer equipment (including
hardware and software), furniture, vehicles, tools, dies, molds and parts,
office and other supplies, spare parts, fuel and other tangible personal
property (other than Excluded Assets) wherever located (including any of the
foregoing purchased subject to any conditional sales agreement or title
retention agreement in favor of any other Person).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity which is (or at any relevant time was) a
member of a "controlled group of corporations" with, under "common control"
with, or a member of an "affiliated service group" with, or otherwise required
to be aggregated with, any of the Companies as set forth in Section 414(b),
(c), (m) or (o) of the Internal Revenue Code.
"Escrow Agent" means the Person appointed as the escrow agent under the
Escrow Agreement.
"Escrow Agreement" means the agreement entered into by or on behalf of
Shareholders, on the one hand, and Buyer, on the other hand, substantially in
the form of Exhibit A hereto.
"Escrow Fund" means, at any time, the Buyer Common Shares held under the
Escrow Agreement at such time.
"Escrow Deposit" means 1,000,000 Buyer Common Shares of the Estimated
Consideration.
"Estimated Consideration" means 10,652,070 Buyer Common Shares adjusted for
the estimated Working Capital Adjustment adjusted for the estimated Cash to
Accrual Tax Liability Adjustment adjusted for the estimated Companies Debt
Adjustment adjusted for the estimated Surviving Corporations Earnings
Adjustment.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Excluded Assets" means the items of real or personal property listed in
Schedule 1.1(a).
"Facilities" means all farms, plants, offices, processing or manufacturing
facilities, stores, warehouses, administration buildings and all real property
owned or leased by the Companies other than Excluded Assets;
A-45
<PAGE>
provided that for purposes of the representations and warranties set forth in
Article III, Facilities shall include Contract Farms.
"Final Closing Date Adjustment Schedules" has the meaning set forth in
Section 2.4(c).
"Final Determination" has the meaning set forth in Section 8.4.
"Financial Statements" means the Audited Financial Statements, any Unaudited
Financial Statements and/or the Interim Financial Statements as the context
requires.
"Fixtures and Equipment" means all of the furniture, fixtures, furnishings,
machinery, equipment, spare parts, supplies, appliances, vehicles and other
tangible personal property owned by the Companies, wherever located, including
all warranty rights with respect thereto.
"GAAP" means generally accepted accounting principles in the United States
of America, as in effect from time to time, consistently applied.
"Governmental Authority" means any federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Handling Hazardous Substances" has the meaning set forth in Section 3.6.
"Hazardous Emissions" has the meaning set forth in Section 3.6.
"Hazardous Substances" means all pollutants, contaminants, chemicals,
wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or
otherwise hazardous substances or materials (whether solids, liquids or gases)
subject to regulation, control or remediation under Environmental Laws. By way
of example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable, explosive and radioactive materials, PCBs,
pesticides, herbicides, asbestos, sludge, slag, acids, metals, solvents, waste
waters and solid waste.
"indemnified party" has the meaning set forth in Section 8.4.
"indemnifying party" has the meaning set forth in Section 8.4.
"Intellectual Property" means all trade names (including the trade names
"Murphy Family Farms" and a large red "M"), trademarks and service marks,
patents, patent rights, copyrights, whether domestic or foreign, (as well as
applications, registrations or certificates for any of the foregoing),
inventions, trade secrets, proprietary processes, software and other
industrial and intellectual property rights.
"Interim Financial Statements" has the meaning set forth in Section 3.9.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended.
"Inventory" means all livestock (including hogs, piglets and piglets in
gestation), genetic lines and any associated biological materials, all
inventories of feeds (including pre-purchased grain and feed ingredients),
injectable and other treatments and similar materials, and any other raw
materials, work-in-process and finished goods, wherever located (including
items in transit).
"Land Use Approvals" has the meaning set forth in Section 3.6(g).
"Land Use Requirements" has the meaning set forth in Section 3.6(g).
"Laws" has the meaning set forth in Section 3.8.
A-46
<PAGE>
"Lease" means a Real Property Lease or a Personal Property Lease.
"Leased Real Property" has the meaning set forth in Section 3.13(b).
"Licenses and Permits" means all registrations, applications, filings,
certifications, notices, orders, licenses, permits, approvals, consents,
qualifications, authorizations and waivers of any Governmental Authority, but
does not include Environmental Permits.
"Material Adverse Effect" or "Material Adverse Change" means as to any
Person (i) any material adverse effect on or material adverse change with
respect to (A) the business, operations, assets, applicable environmental or
other regulatory requirements or risks, liabilities, condition (financial or
otherwise), results of operations or prospects of such Person and its
Subsidiaries, taken as a whole, or (B) the right or ability of such Person or
any of its Subsidiaries to consummate the transactions contemplated hereby or
(ii) any event or condition which, with the passage of time, the giving or
receipt of notice or the occurrence or nonoccurrence of any other
circumstance, action or event, would reasonably be expected to constitute a
"Material Adverse Effect" or "Material Adverse Change" with respect to such
Person.
"Material Contracts" has the meaning set forth in Section 3.19.
"Merger Consideration" means the merger consideration allocated to the
Companies as set forth on Schedule 2.1 hereto.
"Mergers" has the meaning set forth in Section 2.1(a).
"Multiemployer Plan" means any "multiemployer plan," as defined in Section
4001(a)(3) or 3(37) of ERISA, which (i) any of the Companies or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Companies or any ERISA
Affiliate may incur any liability and (ii) covers any employee or former
employee of the Companies or any ERISA Affiliate (with respect to their
relationship with any such entity).
"Murphy Funding Debt" means the debt arising under the Transfer and
Administration Agreement among the Companies and NationsBank, N.A. dated as of
October 15, 1997, as amended.
"NCBCA" means the North Carolina Business Corporation Act.
"Neutral Auditors" means PricewaterhouseCoopers LLP.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plans" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) which (i) any of the
Companies or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five years prior to the Closing
Date, maintained, administered, contributed to or was required to contribute
to, or under which any of the Companies or any ERISA Affiliate may incur any
liability (including, without limitation, any contingent liability) and (ii)
covers any employee or former employee of any of the Companies or any ERISA
Affiliate (with respect to their relationship with any such entity).
"Permitted Encumbrances" means (i) statutory liens for current state and
local property taxes or assessments not yet due or delinquent; (ii)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to
which there is no default on the part of the Companies; provided that the same
shall be fully discharged of record before the Closing; (iii) exceptions shown
on the surveys furnished by Shareholders to Buyer on or before the date hereof
and which do not materially affect the use, value, enjoyment, occupancy or
marketability of such property; and (iv) such
A-47
<PAGE>
other recorded liens, imperfections in title, charges, easements, restrictions
and encumbrances which do not materially affect the use, value, enjoyment,
occupancy or marketability of such property.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a limited liability partnership, an association, a trust or
any other entity or organization, including a governmental or political
subdivision or an agency or instrumentality thereof.
"Personal Property Lease" has the meaning set forth in Section 3.14(c)(i).
"Personnel" of a corporation means all directors, officers and employees of
such corporation and its Subsidiaries, and "Personnel" of any Person other
than an individual or a corporation means all persons responsible for or
performing duties and functions similar to those of directors, officers and
employees for such Person and its Subsidiaries.
"Pre-Closing Covenants" has the meaning set forth in Section 8.5.
"Post-Closing Covenants" has the meaning set forth in Section 8.7.
"Preliminary Closing Date Adjustment Schedules" has the meaning set forth in
Section 2.4(a).
"Real Property" has the meaning set forth in Section 3.13(a).
"Real Property Lease" has the meaning set forth in Section 3.13(b)(i).
"Related Land" means the parcels of real property set forth in Schedule
1.1(b) and any additional parcels of real property owned by Shareholders or
any Affiliate that are necessary to enable Shareholders to comply with the
representation set forth in the first sentence of Section 3.16 to be
transferred to the Companies as contemplated by Section 5.18.
"Required Working Capital" means negative $7,987,096.
"Resolution Period" has the meaning set forth in Section 2.4(b).
"Securities Act" means the Securities Act of 1933, as amended, together with
the rules and regulations promulgated thereunder.
"Shareholders' Auditors" means Ernst & Young LLP.
"Shareholders Claims" has the meaning set forth in Section 8.3(b).
"Shareholders Indemnified Parties" has the meaning set forth in Section
8.3(a).
"Shareholders' Expenses" has the meaning set forth in Section 5.7(c).
"Shareholders' Representatives" has the meaning set forth in Section 10.5.
"Subsidiary" means any corporation or other business entity, whether or not
incorporated (other than an Excluded Asset), of which at least 50% of the
securities or interests having, by their terms, ordinary voting power to elect
members of the Board of Directors, or other persons performing similar
functions with respect to such entity, is held directly or indirectly by such
party.
"Survival Date" has the meaning set forth in Section 8.1.
"Surviving Corporations" has the meaning set forth in the Recitals.
A-48
<PAGE>
"Surviving Corporations Earnings" means the combined after-tax earnings or
losses of the Surviving Corporations from the Closing Date through December
31, 1999, as determined in accordance with the methodology set forth in
Schedule 1.1(e).
"Surviving Corporations Earnings Adjustment" means the number of Buyer
Common Shares equal to (i) an amount (which may be positive or negative) equal
to the Surviving Corporations Earnings, divided by (ii) $31.11. Subject to the
impact on the calculation of Consideration of the Companies Debt Adjustment,
the Working Capital Adjustment and the Cash to Accrual Tax Liability, if the
Surviving Corporations Earnings Adjustment is negative, there will be a
decrease in the number of Buyer Common Shares, and if the same is positive,
there will be an increase in the number of Buyer Common Shares, comprising the
Consideration.
"Tangible Asset Value" has the meaning set forth in Section 5.16(c).
"Tax Audit" has the meaning set forth in Section 5.16.
"Tax Benefit" means the tax effect of any item of loss, deduction or credit
or any other item (including any increase in tax basis of Assets of the
Companies) which decreases Taxes paid or payable.
"Tax Returns" means any and all returns, reports, declarations and
information statements with respect to Taxes required to be filed by or on
behalf of any of the Companies with any Governmental Authority, including
consolidated, combined or unitary returns and all amendments thereto.
"Tax Law" means the Internal Revenue Code, foreign, federal, state or local
laws relating to Taxes and any regulations or official administrative
pronouncements released thereunder.
"Tax Loss" means the tax effect of any item (including any decrease in tax
basis of Assets of the Companies) which increases Taxes paid or payable.
"Taxes" means (i) all federal, state and local, whether domestic or foreign,
taxes or assessments, including those relating to income, gross receipts,
gross income, capital stock, franchise, profits, employees and payroll,
withholding, foreign withholding, social security, unemployment, disability,
license, real property, personal property, intangibles, stamp, excise, sales,
use, transfer, occupation, value added, ad valorem, customs duties, premium,
windfall profits, escheat, environmental (including taxes under Section 59A of
the Internal Revenue Code), alternative minimum or estimated taxes or other
similar tax, duty or governmental charge, together with any interest,
penalties or additions to tax or additional amounts with respect to the
foregoing, whether disputed or not and (ii) any obligations under any
agreements or arrangements with respect to any Taxes described in clause (i)
hereof.
"Taxing Authority" means any Governmental Authority including social
security administration, domestic or foreign, having jurisdiction over the
assessment, determination, collection, or other imposition of Tax.
"Third Party Claim" has the meaning set forth in Section 8.4.
"Welfare Plan" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, which (i) any of the Companies or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or
under which the Companies or any ERISA Affiliate may incur any liability and
(ii) covers any employee or former employee of the Companies or any ERISA
Affiliate (with respect to their relationship with any such entity).
"Working Capital" means (a) the book value of all Assets other than (i)
fixed assets, (ii) Inventory, (iii) Excluded Assets and (iv) as to any
partnerships, joint ventures or limited liability companies to which any
Company is a party or in which any Company holds an investment, the
proportionate share of third parties in the Assets (other than fixed assets
and Inventory) thereof, minus (b) all liabilities of the Companies other than
Companies Debt (including for this purpose only the Companies' proportionate
share of such liabilities of any
A-49
<PAGE>
such partnership, joint venture or limited liability companies), all as
determined in accordance with GAAP applied on a basis consistent with the
Audited Financial Statements and the Interim Financial Statements and as
adjusted in accordance with the "Working Capital Adjustment Rules" set forth
in Schedule 1.1(c).
"Working Capital Adjustment" means the number of Buyer Common Shares equal
to (i) an amount (which may be positive or negative) by which the Working
Capital of the Companies on the Effective Date is more or less than the
Required Working Capital, divided by (ii) $31.11. Subject to the impact on the
calculation of Consideration of the Cash to Accrual Tax Liability Adjustment,
the Companies Debt Adjustment, and the Surviving Corporations Earnings
Adjustment, if the Working Capital as of the Effective Date is less than the
Required Working Capital, there will be a decrease in the number of Buyer
Common Shares comprising the Consideration and if the Companies Debt as of the
Effective Date is more than the Required Working Capital, there will be an
increase in the number of Buyer Common Shares comprising the Consideration.
A-50
<PAGE>
Annex B
MURPHY FAMILY FARMS GROUP
AUDITED COMBINED FINANCIAL STATEMENTS
Years ended October 31, 1998, November 1, 1997 and November 2, 1996
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. B-2
Audited Combined Financial Statements
Combined Balance Sheets..................................................... B-3
Combined Statements of Operations........................................... B-4
Combined Statements of Stockholders' Equity................................. B-5
Combined Statements of Cash Flows........................................... B-6
Notes to Combined Financial Statements...................................... B-7
</TABLE>
B-1
<PAGE>
Report of Independent Auditors
The Board of Directors
Murphy Family Farms Group
We have audited the accompanying combined balance sheets of Murphy Family
Farms Group as of October 31, 1998 and November 1, 1997, and the related
combined statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended October 31, 1998. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Murphy
Family Farms Group at October 31, 1998 and November 1, 1997, and the combined
results of their operations and their cash flows for each of the three years
in the period ended October 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Raleigh, North Carolina
October 15, 1999
B-2
<PAGE>
Murphy Family Farms Group
Combined Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
October 31 November 1 July 31
1998 1997 1999
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................. $ 8,771 $ 13,242 $ 41,216
Trade accounts receivable.................. 59,378 50,110 7,165
Accounts receivable--related party......... 2,859 2,812 2,754
Notes receivable........................... 9,260 12,736 2,618
Notes receivable--related party............ 1,208 547 1,893
Inventories................................ 200,750 283,071 168,533
Other current assets....................... 1,712 1,852 1,072
-------- -------- --------
Total current assets..................... 283,938 364,370 225,251
Fixed assets................................. 166,213 164,300 151,314
Notes receivable--noncurrent................. 4,846 18,535 10,332
Notes receivable--related party--noncurrent.. 30,392 41,991 14,926
Investments in equity securities............. 21,720 29,966 33,706
Other assets................................. 897 1,579 1,537
-------- -------- --------
Total assets............................. $508,006 $620,741 $437,066
======== ======== ========
Liabilities and stockholders' equity
Current liabilities:
Notes payable--related party............... $ 7,918 $ -- $ --
Line of credit............................. 9,488 -- 13,150
Accrued compensation....................... 17,541 18,404 17,794
Accounts payable........................... 5,958 17,409 6,007
Accrued grower fees........................ 14,770 15,891 13,247
Other accrued expenses..................... 5,666 5,484 9,951
Current portion of long-term debt.......... 8,607 8,607 7,200
-------- -------- --------
Total current liabilities................ 69,948 65,795 67,349
Long-term debt............................... 211,261 194,596 164,316
Notes payable--related party................. 10,274 6,787 12,310
Stockholders' equity:
Common stock............................... 61 61 61
Additional paid-in-capital................. 1,384 1,384 1,384
Unrealized gains on investments............ 11,666 21,307 22,041
Retained earnings.......................... 203,412 330,811 169,605
-------- -------- --------
Total stockholders' equity............... 216,523 353,563 193,091
-------- -------- --------
Total liabilities and stockholders'
equity.................................. $508,006 $620,741 $437,066
======== ======== ========
</TABLE>
See accompanying notes.
B-3
<PAGE>
Murphy Family Farms Group
Combined Statements of Operations
(In Thousands)
<TABLE>
<CAPTION>
Nine months Nine months
Year ended Year ended Year ended ended ended
October 31 November 1 November 2 July 31 August 1
1998 1997 1996 1999 1998
---------- ---------- ---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 492,324 $602,120 $491,274 $313,338 $379,105
Cost of goods sold...... 553,004 456,430 393,864 316,462 395,739
--------- -------- -------- -------- --------
Gross margin............ (60,680) 145,690 97,410 (3,124) (16,634)
General and
administrative
expense................ 41,629 51,125 32,530 23,252 27,597
--------- -------- -------- -------- --------
Operating (loss)
income................. (102,309) 94,565 64,880 (26,376) (44,231)
Loss on sale of
investment............. (4,600) -- -- -- (4,600)
Loss from fixed asset
writedown.............. (4,742) -- -- -- --
Loss from investment
writedown.............. -- (1,684) -- -- --
Interest expense........ (8,130) (3,945) (4,996) (10,742) (6,943)
Interest income......... 8,294 6,804 3,107 3,311 6,138
--------- -------- -------- -------- --------
Net (loss) income....... $(111,487) $ 95,740 $ 62,991 $(33,807) $(49,636)
========= ======== ======== ======== ========
</TABLE>
See accompanying notes.
B-4
<PAGE>
Murphy Family Farms Group
Combined Statements of Stockholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Comprehensive Retained
Stock Capital Income Earnings Total
------ ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at November 3,
1995...................... $61 $1,384 $ 4,965 $185,702 $192,112
Net income............... -- -- -- 62,991 62,991
Changes in unrealized
gains on investments.... -- -- 1,229 -- 1,229
--------
Comprehensive income..... 64,220
Dividends paid........... -- -- -- (3,883) (3,883)
--- ------ ------- -------- --------
Balance at November 2,
1996...................... 61 1,384 6,194 244,810 252,449
Net income............... -- -- -- 95,740 95,740
Changes in unrealized
gains on investments.... -- -- 15,113 -- 15,113
--------
Comprehensive income..... 110,853
Dividends paid........... -- -- -- (9,739) (9,739)
--- ------ ------- -------- --------
Balance at November 1,
1997...................... 61 1,384 21,307 330,811 353,563
Net loss................. -- -- -- (111,487) (111,487)
Changes in unrealized
gains on investments.... -- -- (9,641) -- (9,641)
--------
Comprehensive loss....... (121,128)
Dividends paid........... -- -- -- (15,912) (15,912)
--- ------ ------- -------- --------
Balance at October 31,
1998...................... 61 1,384 11,666 203,412 216,523
(unaudited)
Net loss................. -- -- -- (33,807) (33,807)
Changes in unrealized
gains on investments.... -- -- 10,375 -- 10,375
--------
Comprehensive loss....... (23,432)
--- ------ ------- -------- --------
Balance at July 31, 1999... $61 $1,384 $22,041 $169,605 $193,091
=== ====== ======= ======== ========
</TABLE>
See accompanying notes.
B-5
<PAGE>
Murphy Family Farms Group
Combined Statements of Cash Fows
(In Thousands)
<TABLE>
<CAPTION>
Year
ended Nine months Nine months
October Year ended Year ended ended ended
31 November 1 November 2 July 31 August 1
1998 1997 1996 1999 1998
--------- ---------- ---------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net (loss) income....... $(111,487) $ 95,740 $ 62,991 $(33,807) $ (49,636)
Depreciation............ 25,769 20,610 17,215 20,621 17,206
Loss on sale of
investment............. 4,600 -- -- -- 4,600
Gain on sale of assets.. -- -- (1,741) -- --
Lower of cost or market
inventory provision.... 49,000 -- -- -- 18,600
Changes in operating
assets and liabilities:
Trade accounts
receivable........... (9,294) (25,887) (25,628) 52,819 48,093
Inventories........... 33,321 (50,325) (38,754) 32,217 103,466
Other investments and
assets............... (571) (528) 46 2,020 (7,152)
Accounts payable and
accrued expenses..... (13,015) 18,443 14,215 387 (8,241)
--------- --------- --------- -------- ---------
Cash (used in) provided
by operating
activities............. (21,677) 58,053 28,344 74,257 126,936
Investing activities
Purchases of fixed
assets-net of proceeds
from sale of assets
(net of write downs)... (27,682) (71,148) (34,506) (5,661) (30,802)
Other long term
investments (net of
write downs)........... -- (599) -- -- --
Net receipts
(disbursements)
relating to notes
receivable............. 23,480 (10,116) (13,274) 16,830 17,692
Other, net.............. -- -- -- (2,271) (8,216)
--------- --------- --------- -------- ---------
Cash (used in) provided
by investing
activities............. (4,202) (81,863) (47,780) 8,898 (21,326)
Financing activities
Net proceeds of
revolving credit
agreement.............. 25,500 161,500 -- 3,662 2,000
Net proceeds
(repayments) of long-
term debt.............. 2,332 (5,133) (4,925) (46,454) (107,133)
Proceeds of short-term
borrowings............. 37,528 145,916 462,252 -- --
Repayments of short-term
borrowings............. (28,040) (270,903) (427,242) (7,918) --
Dividends paid.......... (15,912) (9,739) (3,883) -- (15,912)
--------- --------- --------- -------- ---------
Cash provided by (used
in) financing
activities............. 21,408 21,641 26,202 (50,710) (121,045)
--------- --------- --------- -------- ---------
(Decrease) increase in
cash and cash
equivalents............ (4,471) (2,169) 6,766 32,445 (15,435)
Cash and cash
equivalents at
beginning of period.... 13,242 15,411 8,645 8,771 13,242
--------- --------- --------- -------- ---------
Cash and cash
equivalents at end of
period................. $ 8,771 $ 13,242 $ 15,411 $ 41,216 $ (2,193)
========= ========= ========= ======== =========
</TABLE>
See accompanying notes.
B-6
<PAGE>
Murphy Family Farms Group
Notes to Combined Financial Statements
October 31, 1998
1. Summary of Principal Accounting Policies and Other Information
Basis of Presentation
Murphy Family Farms Group (the "Company") is the combination of several
companies, which are related through common family ownership. The combined
financial statements include accounts of Murphy Farms, Inc. ("Murphy"),
Quarter M Farms, Inc. ("Quarter M") and Murphy Funding, Inc. ("Funding"). All
of the companies combined are referred to as the "Companies". All significant
intercompany accounts and transactions have been eliminated in combination.
These entities are presented on a combined basis as they represent the
historical financial statements of the businesses which were agreed in
principle to be acquired by Smithfield Foods, Inc. (Note 11). The Company is
engaged in the breeding and finishing of swine for sale primarily to domestic
pork processors with Funding facilitating the financing of swine facilities.
All information related to July 31, 1999 and August 1, 1998 is unaudited.
Fiscal Year
Murphy and Quarter M have adopted a 52 and 53 week year that ends the
Saturday closest to October 31. The fiscal years ended October 31, 1998 and
November 1, 1997 consisted of 52 weeks and the year ended November 2, 1996
consisted of 53 weeks. Funding is on a calendar year end. The two month
difference has an immaterial impact on the combined financial statements.
Use of Estimates
The preparation of the combined financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Highly liquid, short-term investments with a maturity of three months or
less when purchased are considered to be cash equivalents.
Revenue Recognition
The Company recognizes revenue when the swine are shipped to processors.
Investments
Investments in equity securities are classified as available-for-sale and
carried at fair market value, which is determined from publicly quoted market
prices. Unrealized holding gains and losses are carried as a separate
component of stockholders' equity. There were no realized gains or losses on
equity securities during 1998, 1997 and 1996.
During 1996 and 1997, Quarter M acquired, for $1.7 million, a related
parties' interest in a partnership that owns a restaurant. In August of 1997,
the partnership was dissolved and the investment in a restaurant commercial
venture was written off.
Notes Receivable and Payable
Certain notes are due on demand but classified as long-term due to
management's expectations that these loans will not be collected or paid
within one year.
B-7
<PAGE>
Murphy Family Farms Group
Notes To Combined Financial Statements -- (Continued)
As of October 31, 1998 and November 1, 1997, the balance of a related party
note receivable was $24 million and $17.9 million, respectively, including
accrued interest. An allowance of $13.1 million and $10 million exists as of
October 31, 1998 and November 1, 1997, respectively. As of July 31, 1999 the
balance of the note receivable and the allowance were $26.3 million and $14.1
million, respectively.
During 1998, Murphy Farms sold its portion of a pork production commercial
venture to Smithfield Foods, Inc. resulting in cash proceeds from the
transaction of approximately $15 million. Prior to the transaction, Murphy
Farms had an investment in and advances for the commercial venture totaling
$19.6 million. The advances and investment were written off resulting in a
loss of $4.6 million.
Inventories
Swine and grain inventories are stated at the lower of cost or market value.
Swine inventory cost includes the cost of feed, medication, and overhead.
Prepurchased grain and feed ingredients are stated at the lower of cost
(moving average) or market value. The remaining inventory, which consists of
feed, medication and supplies, is stated at the lower of cost (first-in,
first-out) or market.
Fixed Assets
Fixed assets are recorded at cost and consist of property, equipment and
purchased breeding stock. Depreciation is computed primarily by the declining
balance method. The cost of internally raising stock for breeding purposes is
charged to expense as incurred.
Impairment losses relating to fixed assets are recognized when expected
future cash flows are less than the assets carrying value. Accordingly, when
indicators of impairment are present, the Company evaluates the carrying value
of fixed assets in relation to the operating performance and expected future
undiscounted cash flows of the underlying business. In 1998, a $4.7 million
charge for impairment of fixed assets was recorded.
Futures Contracts
In connection with the purchase of grain for anticipated feed manufacturing
requirements, commodity futures contracts are utilized to reduce the effect of
grain market price fluctuations. The futures contracts are accounted for as
hedges and related gains and losses are deferred and recognized as a component
of cost of goods sold. There were no significant open positions at October 31,
1998.
Fair Value of Financial Instruments
The fair value of all financial instruments is estimated to approximate
their carrying amounts. Because of the short-term maturity of cash and cash
equivalents and accounts receivable, their carrying amounts approximate fair
value. The fair value of notes receivable is based on the underlying interest
rate and terms, maturities, collateral, and credit status of the receivables.
The fair value of debt is based upon the Company's current incremental
borrowing rates for similar borrowing arrangements.
New Accounting Pronouncements
In June 1998, the FASB issued FAS No. 133 "Accounting for Derivatives
Instruments and Hedging Activities." SFAS No. 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded
in other contracts, by requiring that an entity recognizes those items as
assets or liabilities in the combined statement of financial position and
measure them at fair value. This statement is effective for
B-8
<PAGE>
Murphy Family Farms Group
Notes To Combined Financial Statements -- (Continued)
fiscal years beginning after June 15, 2000. The Company does not expect the
adoption to have a material effect on the Company's combined financial
statements.
Income Taxes
The Companies have elected to be taxed as S Corporation under the Internal
Revenue Code and various states' tax codes. The income of an S Corporation are
taxed directly to the stockholders and no federal or state income taxes are
paid by the Companies.
Reclassification
Certain amounts in the October 31, 1998 financial statements have been
reclassified to conform to the July 31, 1999 presentation. These
reclassifications had no effect on net loss or equity as previously reported.
2. Inventories
<TABLE>
<CAPTION>
October 31 November 1 July 31
1998 1997 1999
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
(In Thousands)
Prepurchased grain and feed ingredients.. $ 90,416 $117,421 $ 6,380
Swine, less reserve for lower of cost or
market valuation at October 31, 1998.... 95,538 152,516 151,752
Grain.................................... 11,626 11,009 8,198
Medication and other supplies............ 3,170 2,125 2,203
-------- -------- --------
$200,750 $283,071 $168,533
======== ======== ========
</TABLE>
Depressed hog market prices required a 1998 write down of swine inventory
cost to estimated net realizable value. The loss provision amounted to $49
million and was included in cost of goods sold in the combined statements of
operations. The provision was calculated by estimating costs to complete the
current inventory and comparing that amount to the expected revenues over the
period the inventory was estimated to be sold. At July 31, 1999, the hog
market prices had improved and no loss provision was considered necessary.
3. Fixed Assets
Fixed assets include the following categories with the estimated depreciable
lives.
<TABLE>
<CAPTION>
Depreciable October 31 November 1 July 31
Lives 1998 1997 1999
----------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Land........................ -- $ 34,156 $ 24,521 $ 33,988
Buildings................... 27-39 7,172 6,616 7,223
Farm facilities............. 5-10 147,558 101,797 149,404
Breeding stock.............. 3 9,743 10,089 11,250
Machinery and equipment..... 3-10 75,141 70,953 74,587
Leasehold improvement....... 7-15 810 810 810
Construction in progress.... -- 4,985 42,815 5,410
--------- -------- ---------
279,565 257,601 282,672
Less accumulated
depreciation............... (113,352) (93,301) (131,358)
--------- -------- ---------
$ 166,213 $164,300 $ 151,314
========= ======== =========
</TABLE>
B-9
<PAGE>
Murphy Family Farms Group
Notes To Combined Financial Statements -- (Continued)
4. Financing Arrangements
Notes Receivable
In late 1997, Murphy and Funding entered into a loan securitization
agreement providing for the sale of loans associated with the financing of
swine growing facilities for contract producers and affiliate parties. Under
the loan securitization agreement, the maximum balance on loans outstanding
cannot exceed $50 million. The balance on loans outstanding was approximately
$38 million at October 31, 1998 and approximately $44 million at July 31,
1999. The proceeds from these sales were included under notes receivable
financing activities in the statement of cash flows.
Short-term Borrowings
The Company has a line of credit with a bank. The balance under the line of
credit was $9.5 million at October 31, 1998 and $13.1 million at July 31,
1999. There were no outstanding borrowings under the line of credit at
November 1, 1997. The weighted average interest rate on outstanding borrowings
was 5.6% at October 31, 1998 and 6.8% at July 31, 1999.
Long-term Debt
At October 31, 1998, Murphy was not in compliance with certain financial
covenants of its unsecured revolving credit agreement. The outstanding balance
under the agreement was $187 million. As of March 2, 1999, the Company
resolved these non-compliance issues and replaced outstanding borrowings under
the revolving credit agreement with $125 million of term debt. Additionally,
the revolving credit agreement was modified to provide for total unsecured
borrowings of up to $75 million, with interest at LIBOR plus an amount ranging
from 1.25% to 2.25%, based on the ratio of liabilities to tangible net worth.
The term of the revised unsecured revolving credit agreement is for a three
year period ending in 2002.
At October 31, 1998, Quarter M was not in compliance with certain financial
covenants, including minimum net worth, under a note payable agreement. The
lender agreed to waive these covenants through November 1, 1999 and in July,
1999, the note was replaced with a new borrowing arrangement.
B-10
<PAGE>
Murphy Family Farms Group
Notes To Combined Financial Statements -- (Continued)
Long-term debt and notes payable to related parties, reflecting the
refinancing and modification of revolving credit terms in 1998, consists of
the following:
<TABLE>
<CAPTION>
October 31 November 1 July 31
1998 1997 1999
---------- ---------- -----------
(In Thousands) (Unaudited)
<S> <C> <C> <C>
Revolving credit agreement................... $ 62,000 $161,500 $ --
Unsecured note payable to bank, with interest
payable monthly at a calculated rate based
on LIBOR; monthly principal payments of $521
are payable 2002-2006....................... 25,000 -- 25,000
Unsecured note payable to an insurance
company, with interest payable quarterly at
8.5%, annual principal payments of $15,000
are payable 2002-2006....................... 75,000 -- 75,000
Unsecured note payable to an insurance
company, due 2002, with interest payable
quarterly at LIBOR plus 2.5%................ 25,000 -- 25,000
Note payable to bank, secured by certain land
and farm facilities, due in 2002, with
monthly payments of $595 plus interest at a
calculated rate (6.4% at October 31, 1998).. 28,571 36,310 23,810
Note payable to bank, secured by certain
land, equipment and fixtures, with interest
payable monthly at LIBOR plus 0.85%......... 3,733 5,133 --
Note payable to bank, secured by certain
accounts, inventory and farm products, due
in 2005,with interest payable monthly at
LIBOR plus 0.75%-1.75%...................... -- -- 22,000
Notes payable to related parties, unsecured,
due upon demand, with interest payable
monthly at prime (8.45% 12 month average)... 18,192 6,787 12,310
Other........................................ 564 260 706
-------- -------- --------
238,060 209,990 183,826
Less current portion......................... 16,525 8,607 7,200
-------- -------- --------
$221,535 $201,383 $176,626
======== ======== ========
</TABLE>
Excluding the revolving credit agreement, future principal payments required
for long-term debt at October 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999................................................................ $ 16,525
2000................................................................ 8,600
2001................................................................ 8,371
2002................................................................ 50,300
2003................................................................ 21,200
Thereafter.......................................................... 71,064
--------
$176,060
========
</TABLE>
The various debt agreements described above contain restrictive financial
and other covenants including working capital, minimum net worth and
limitations on leverage. Other covenants include, but are not limited to,
restrictions on the distribution of assets, redemption of capital and payment
of dividends as set forth in the loan agreement.
Murphy has guaranteed payments to lending institutions totaling $7.5 million
relating to three pools of contract growers that have aggregate borrowings
from the lending institutions up to $54 million. The proceeds were provided to
finance swine facilities for contract growers.
B-11
<PAGE>
Murphy Family Farms Group
Notes To Combined Financial Statements -- (Continued)
Quarter M is the direct guarantor of approximately $1 million relating to
the indebtedness of a related party which matures within one year. Quarter M
has also guaranteed repayment of $11.6 million in contract grower financing
under a letter of credit with commercial banks. The contract grower financing
matures from 2004 to 2008.
Interest expense is capitalized as a component of the construction cost of
property and equipment. During 1998, 1997 and 1996, total interest incurred
was $8.8 million, $4.5 million and $5.4 million of which $0.7 million, $0.6
million and $0.4 million was capitalized, respectively. For the periods ending
July 31, 1999 and August 1, 1998 total interest incurred was $10.7 million and
$6.9 million, respectively, of which none was capitalized. Interest paid for
1998, 1997 and 1996 was $8.8 million, $4.3 million and $5.8 million,
respectively. For the periods ending July 31, 1999 and August 1, 1998 interest
was paid in the amount of $9.3 million and $7.2 million, respectively.
5. Employee Benefit and Profit Sharing Plan
Murphy sponsors a profit sharing and 401(k) plan that requires participants
to have attained the age of twenty-one years and have one year of service with
the Company. Accrued contributions to the plan, which are determined at the
discretion of the Board of Directors, were approximately $1.0 million, $2.7
million and $1.9 million in 1998, 1997 and 1996, respectively. For the periods
ending July 31, 1999 and August 1, 1998 accrued contributions to the plan were
approximately $0.9 million and $2 million, respectively.
6. Related Party Transactions
Business is routinely transacted with various companies and individuals that
are related to the Murphy Family Farms Group because they share the same
stockholders, are owned by immediate stockholders, family members, or are
stockholders or executive officers of the Company. All related party
transactions are conducted at current market prices.
Certain property is leased from related parties at specified annual rentals
plus $3.50 to $4.50 for each swine grown on the leased property. In addition,
the Company leases land from related parties at specified annual rentals.
These leases are cancelable with a 15-day notice. Payments under these
agreements amounted to $2.8 million, $2.9 million and $2.5 million for 1998,
1997 and 1996. For the periods ending July 31, 1999 and August 1, 1998
payments under these agreements amounted to $1.9 million and $2.1 million,
respectively.
7. Concentration of Credit Risk
Substantially all of the Company's swine is sold to two principal customers,
Smithfield Foods, Inc. and IBP, Inc. Annual sales to these customers were
approximately $480 million, $586 million and $460 million in 1998, 1997 and
1996, respectively. For the periods ending July 31, 1999 and August 1, 1998
sales to these customers were approximately $306 million and $368 million,
respectively. Receivables from these customers, which are unsecured, were
$50.4 million and $42.0 million at October 31, 1998 and November 1, 1997,
respectively. At July 31, 1999 receivables from these customers were $1.2
million.
The Company performs periodic credit evaluations of its customers' financial
condition and closely monitors collections. There have been no significant
credit losses relating to customers. The Company also performs evaluations of
the relative credit standing of those financial institutions that are
considered in the Company's investment and funding strategies.
8. Commitments and Contingencies
The Company has a commitment to a financial institution to purchase a
livestock breeding facility upon default of the related loan on such property
by a related party. The estimated cost of the property as of October 31, 1998
was approximately $2.3 million.
B-12
<PAGE>
Murphy Family Farms Group
Notes To Combined Financial Statements -- (Continued)
The Company, like others engaged in agricultural production, is subject to
federal, state and local environmental laws and regulations. The Company's
environmental policies and practices are designed to ensure
compliance with these laws and regulations. Management does not believe that
costs of such compliance will have a material effect on the Company's
financial position, results of operations or liquidity.
Various claims and lawsuits arising in the normal course of business are
being pursued by and are pending against the Company. In the opinion of
management, the ultimate resolution of these items will not have a material
adverse effect on the operations and financial position of the Company.
9. Year 2000 (Unaudited)
See discussion of year 2000 in the Murphy Family Farms Group Management
Discussion and Analysis section.
10. Stockholders' Equity
As discussed in Note 1, the companies comprising Murphy Family Farms Group
elected S Corporation status for federal and state income tax purposes. All
companies are incorporated in North Carolina.
Common stock is comprised of the following:
<TABLE>
<CAPTION>
Common
Company Stock
------- --------------
(In Thousands)
<S> <C>
Murphy Farms, Inc., $0.10 par value, 100,000 shares authorized,
408,000 shares issued and outstanding......................... 41
Quarter M Farms, Inc., $1 par value, 100,000 shares authorized,
19,784 shares issued and outstanding.......................... 20
Murphy Funding, Inc., $1 par value, 100 shares authorized, 100
shares issued and outstanding................................. --
---
61
===
</TABLE>
11. Subsequent Events
During September 1999, the Company experienced flood losses as a result of
Hurricane Floyd. The Company believes its loss approximates $500,000,
representing the deductible portion of its insurance.
On September 2, 1999, the stockholders of the companies comprising the
combined group announced that they had reached an agreement in principle to
sell the Company to Smithfield Foods, Inc. The acquisition is subject to,
among other things, the successful negotiation of a definitive acquisition
agreement, successful completion of due diligence, approval by Smithfield
Foods, Inc.'s Board of Directors and Shareholders, and any applicable
regulatory fillings and approvals by governmental agencies.
B-13
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- -
PROXY____________________________________________________________________ PROXY
SMITHFIELD FOODS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard J. Holland, Joseph W. Luter, III and
Michael H. Cole, and each of them, proxies with full power of substitution, to
vote the shares of common stock in Smithfield Foods, Inc. which the
undersigned would be entitled to vote if personally present at the special
meeting of shareholders of Smithfield Foods to be held on December 21, 1999 or
any adjournments thereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
USING THE ENCLOSED ENVELOPE.
SMITHFIELD FOODS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
[ ]
1. Proposal to authorize
issuance of up to
10,652,070 shares of the
common stock of
Smithfield Foods, Inc.
(plus or minus shares to
be issued by or returned
to Smithfield Foods in
connection with post-
closing adjustments or
indemnification
obligations provided for
in the acquisition
agreement) in connection
with the acquisition of
the Murphy Family Farms
Companies.
IN THEIR DISCRETION, THE PROXIES ARE
AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
For Against Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL
BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL.
The undersigned acknowledges receipt
of the notice of said special meeting
and of the proxy statement attached
thereto.
Dated: ___________, 1999
Signature(s) __________________________
_______________________________________
Please sign exactly as name appears at
left. When signing as attorney, execu-
tor, administrator, trustee, guardian,
etc., give full title as such.
<PAGE>
REPORT TO INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Smithfield Foods, Inc.:
We have audited the 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 included in the Company's Form 10-K Annual Report filed August 2, 1999.
These financial statements are the responsibilities 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
<PAGE>
REPORT TO 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, which was filed on August
2, 1999, 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
