-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E0txF2yW1F/KkpyStRJRmGs2+VN3O8025Yrw2ZpXkgJHt09TtmWl/8TpW/PolltM EdEx/wvxAguSScN0Oq2d4g== 0000950123-01-504009.txt : 20010702 0000950123-01-504009.hdr.sgml : 20010702 ACCESSION NUMBER: 0000950123-01-504009 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 49 FILED AS OF DATE: 20010629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIUM STANDARD FARMS INC /NEW CENTRAL INDEX KEY: 0001021968 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 431755411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-64180 FILM NUMBER: 1672081 BUSINESS ADDRESS: STREET 1: 423 W 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8164727675 MAIL ADDRESS: STREET 1: 423 W 8TH STREET STREET 2: SUITE 200 CITY: KANSAS CITY STATE: MO ZIP: 64105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUNDY INTERNATIONAL INC CENTRAL INDEX KEY: 0001143963 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 561312631 STATE OF INCORPORATION: NC FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-64180-01 FILM NUMBER: 1672082 BUSINESS ADDRESS: STREET 1: 423 WEST 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8164727675 MAIL ADDRESS: STREET 1: 423 WEST 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIUM STANDARD FARMS OF NORTH CAROLINA INC CENTRAL INDEX KEY: 0001143964 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 061594088 STATE OF INCORPORATION: NC FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-64180-02 FILM NUMBER: 1672083 BUSINESS ADDRESS: STREET 1: 423 WEST 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8164727675 MAIL ADDRESS: STREET 1: 423 WEST 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUNDY PACKING CO/MO CENTRAL INDEX KEY: 0001143965 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 560507254 STATE OF INCORPORATION: NC FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-64180-03 FILM NUMBER: 1672084 BUSINESS ADDRESS: STREET 1: 423 WEST 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8164727675 MAIL ADDRESS: STREET 1: 423 WEST 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSF GROUP HOLDINGS INC CENTRAL INDEX KEY: 0001143967 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 43181535 STATE OF INCORPORATION: NC FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-64180-04 FILM NUMBER: 1672085 BUSINESS ADDRESS: STREET 1: 423 WEST 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8164727675 MAIL ADDRESS: STREET 1: 423 WEST 8TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 S-4 1 y50886s-4.txt FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 2001 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PREMIUM STANDARD FARMS, INC. (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2011 43-1755411 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
423 WEST 8TH STREET, SUITE 200 KANSAS CITY, MISSOURI 64105 (816) 472-5837 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ PSF GROUP HOLDINGS, INC. THE LUNDY PACKING COMPANY LUNDY INTERNATIONAL, INC. DELAWARE 6719 NORTH CAROLINA 2011 NORTH CAROLINA 0213 43-1818535 56-0507254 56-1312631 423 WEST 8TH ST, SUITE 200 423 WEST 8TH ST, SUITE 200 423 WEST 8TH ST, SUITE 200 KANSAS CITY, MO 64105 KANSAS CITY, MO 64105 KANSAS CITY, MO 64105 (816) 472-5837 (816) 472-5837 (816) 472-5837
PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. DELAWARE 0213 06-1594088 423 WEST 8TH ST, SUITE 200 KANSAS CITY, MO 64105 (816) 472-5837 ------------------------ STEPHEN A. LIGHTSTONE EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER 423 WEST 8TH STREET, SUITE 200 KANSAS CITY, MO 64105 (816) 472-5837 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: JEFFREY T. HAUGHEY AND H. DALE DIXON III BLACKWELL SANDERS PEPER MARTIN LLP TWO PERSHING SQUARE 2300 MAIN STREET, SUITE 1000 KANSAS CITY, MISSOURI 64108 (816) 983-8000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - --------------- If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - --------------- ------------------------ CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED EXCHANGE NOTES OFFERING PRICE(1)(2) REGISTRATION FEE(1)(2) - --------------------------------------------------------------------------------------------------------------------------------- 9 1/4% Senior Notes due 2011(3)............ $175,000,000 100% $175,000,000 $43,750 - --------------------------------------------------------------------------------------------------------------------------------- Guarantees of the 9 1/4% Senior Notes due 2011(4).................................. N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) The registration fee has been calculated pursuant to Rule 457(f)(2) and Rule 457(n) under the Securities Act of 1933 and reflects the book value of the notes as of June 25, 2001. The Proposed Maximum Aggregate Offering Price is estimated solely for the purpose of calculating the registration fee. (2) The Proposed Maximum Aggregate Offering Price is based on the book value of the notes, as of June 25, 2001, in the absence of a market for them as required by Rule 457(f)(2) under the Securities Act of 1933. (3) The 9 1/4% Senior Notes due 2011 will be the obligations of Premium Standard Farms, Inc. (4) Each of PSF Group Holdings, Inc., The Lundy Packing Company, Lundy International, Inc., and Premium Standard Farms of North Carolina, Inc. will guarantee on an unconditional basis the obligations of Premium Standard Farms, Inc. under the 9 1/4% Senior Notes due 2011. Pursuant to Rule 457(n), no additional registration fee is being paid in respect of the guarantees. The guarantees are not traded separately. THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JUNE 29, 2001 PROSPECTUS PREMIUM STANDARD FARMS, INC. OFFER TO EXCHANGE $175,000,000 PRINCIPAL AMOUNT OF ITS 9 1/4% SENIOR NOTES DUE 2011, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING 9 1/4% SENIOR NOTES DUE 2011 We are offering to exchange all of our outstanding 9 1/4% senior notes due 2011, which we refer to as the old notes, for our registered 9 1/4% senior notes due 2011, which we refer to as the exchange notes. We refer to the old notes and the exchange notes collectively as the notes. The terms of the exchange notes are identical to the terms of the old notes except that the exchange notes have been registered under the Securities Act of 1933 and, therefore, are freely transferable. PLEASE CONSIDER THE FOLLOWING: - Our offer to exchange old notes for exchange notes will be open until 5:00 p.m., New York City time, on , 2001, unless we extend the offer. - You should also carefully review the procedures for tendering the old notes beginning on page 26 of this prospectus. - If you fail to tender your old notes, you will continue to hold unregistered securities and your ability to transfer them could be adversely affected. - No public market currently exists for the notes. We do not intend to list the exchange notes on any securities exchange and, therefore, no active public market is anticipated. INFORMATION ABOUT THE NOTES: - The notes will mature on June 15, 2011. - We will pay interest on the notes semi-annually on June 15 and December 15 of each year beginning December 15, 2001 at the rate of 9 1/4% per annum. - We may redeem the notes on or after June 15, 2006 at the rates set forth on page 75 of this prospectus. - We also have the option until June 15, 2004, to redeem up to 35% of the original aggregate principal amount of the notes with the net proceeds of certain types of qualified equity offerings. - Our parent, PSF Group Holdings, and our wholly-owned domestic subsidiaries have guaranteed the notes. - The notes are unsecured obligations and are effectively junior to all of our secured indebtedness and the secured indebtedness of the guarantors. - If we undergo a change of control or sell some of our assets, we may be required to offer to purchase notes from you. YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS PROSPECTUS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE EXCHANGE NOTES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. , 2001 3 TABLE OF CONTENTS
PAGE ---- Summary..................................................... 1 Risk Factors................................................ 11 The Exchange Offer.......................................... 24 Use of Proceeds............................................. 31 Capitalization.............................................. 32 Unaudited Pro Forma Consolidated Statement of Operations.... 33 Selected Historical Consolidated Financial Information...... 35 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 38 Business.................................................... 46 Management.................................................. 61 Principal Stockholders...................................... 69 Related Party Transactions.................................. 71 Description of the Credit Agreement......................... 72 Description of the Notes.................................... 74 Important United States Federal Tax Consequences............ 109 Plan of Distribution........................................ 113 Legal Matters............................................... 113 Independent Auditors........................................ 113 Index to Financial Statements............................... F-1
------------------------ WHERE YOU CAN FIND MORE INFORMATION Upon effectiveness of the Registration Statement of which this prospectus is a part, we will file annual and quarterly and other information with the Securities and Exchange Commission (the "Commission"). You may read and copy any reports, statements and other information we file at the Commission's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call 1-800-SEC-0330 for further information on the public reference rooms. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the Commission at http://www.sec.gov. We have filed a Registration Statement on Form S-4 to register with the Commission the exchange notes and the guarantees to be issued in exchange for the old notes. This prospectus is part of that Registration Statement. As allowed by the Commission's rules, this prospectus does not contain all of the information you can find in the Registration Statement or the exhibits to the Registration Statement. This information is available free of charge to any holders of securities of Premium Standard Farms upon written or oral request to Stephen A. Lightstone, Premium Standard Farms, Inc., 423 West 8th Street, Suite 200, Kansas City, Missouri 64105, telephone: (816) 472-5837. IN ORDER TO OBTAIN TIMELY DELIVERY OF SUCH DOCUMENTS, HOLDERS MUST REQUEST THIS INFORMATION NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER FOR THE NOTES. We have not authorized anyone to give you any information or to make any representations about the transactions we discuss in this prospectus other than those contained herein. If you are given any information or representations about these matters that is not discussed, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable law. The information contained in this prospectus is current only as of the date on the cover page of this prospectus and may change after that date. The delivery of this prospectus does not, under any circumstances, mean that there has not been a change in our affairs since the date hereof. It also does not mean that the information in this prospectus is correct after this date. i 4 MARKET AND INDUSTRY DATA AND FORECASTS Market data and certain industry forecasts used throughout this prospectus were obtained from internal surveys, market research, consultant surveys, publicly available information and industry publications and surveys. Reports prepared or published by Sparks Companies, Inc., the National Pork Producers Council, Agrimetrics Associates Inc. and the USDA were the primary sources for third-party industry data and forecasts. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon our management's knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not know what assumptions regarding general economic growth were used in preparing the forecasts we cite. We do not make any representation as to the accuracy of information described in this paragraph. FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking statements" within the meaning of Section 17A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. When used in this prospectus, the words "anticipates," "believes," "expects," "intends" and similar expressions identify such forward-looking statements. Although we believe that such statements are based on reasonable assumptions, these forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include, among others, the following: - economic conditions generally and in our principal markets; - competitive practices in the pork production and processing industries; - the impact of consolidation in the pork production and processing industries; - the impact of current and future laws, governmental regulations and fiscal policies affecting our industry and operations, including environmental laws and regulations; - the availability of additional capital to fund future commitments and expansion and the cost and terms of financing; - outbreaks of disease in our herds; - feed ingredient costs; - fluctuations in live hog prices and the price of pork products; - customer demands and preferences; and - the occurrence of natural disasters and other occurrences beyond our control. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. ii 5 SUMMARY This summary highlights some of the information in this prospectus and summarizes the material terms of the exchange offer. It is not complete and may not contain all of the information that you should consider before deciding to exchange your old notes. You should read the entire prospectus carefully, including the "Risk Factors" section and the financial statements and the notes to those statements. In this prospectus, the terms "we," "us," and "our" refer collectively to Premium Standard Farms, Inc. and its subsidiaries. All of our outstanding capital stock is owned by PSF Group Holdings, Inc. OUR COMPANY We are a leading vertically integrated provider of pork products to the wholesale and retail, food service and institutional markets in the United States. By combining modern, efficient production and processing facilities, sophisticated genetics, and strict control over the variables of health, diet and environment, we produce value-added premium pork products. We are the second largest owner of sows in North America, with over 200,000 sows producing approximately 3.9 million hogs per year in production operations located on over 100,000 acres in Missouri, Texas and North Carolina. We are also the eighth largest pork processor in the United States, with two plants capable of processing over 3.7 million hogs per year. In our fiscal year ended March 31, 2001, we generated revenues of $540.6 million, operating income of $60.6 million, EBITDA of $112.3 million and net income of $22.0 million. Our production and processing operations are organized as three separate pods located in Missouri, Texas and North Carolina. Our Missouri and North Carolina pods each combine hog production farms with a pork processing plant. Our Texas pod currently has only hog production operations. We eventually plan to add a pork processing plant in Texas to achieve full integration of the pod similar to our Missouri operations. Our pods incorporate feed mill operations and internal trucking facilities to maximize our ability to control costs, manage feed formulations and minimize the risk of disease. The designs of our processing facilities are modern and efficient, incorporating unique animal handling systems and sophisticated monitoring techniques to ensure high quality pork products. Because of our integrated hog production and pork processing operations, we have achieved the distinction of being the first pork company to receive Process Verified accreditation from the USDA, which periodically audits the entire process ensuring traceability from farms to the customer. We sell fresh pork products to select supermarket chains, meat distributors, further processors, food service companies, and institutional food customers. The strict quality control provided by the vertical integration of our production and processing operations allows us to provide premium products and to focus on discriminating customers in the retail, food service, export and further processing markets. We believe this allows us to obtain higher prices for our products than our more commodity-focused competitors. In addition to our sales of fresh pork products, we also sell excess live hogs, processed meat products and pork by-products. INDUSTRY OVERVIEW Pork products are the third largest source of meat protein in the United States and the largest source globally. The market for pork products in the United States totaled 97.9 million hogs and 18.9 billion pounds of pork in a $33 billion industry in 2000. The primary driver of demand for pork products in the United States has been population growth. However, between 1997 and 1999, U.S. per capita consumption increased from 45.8 pounds to 50.9 pounds per annum according to the National Pork Producers Council. U.S. exports of pork products have grown substantially in recent years. Between 1995 and 2000, exports increased at an 11.1% compound annual growth rate from 770 million pounds to 1.3 billion pounds. U.S. exports are projected by Sparks Companies, Inc. to increase an additional 16% in calendar year 2001. 1 6 The United States pork industry is divided into two segments: hog production and pork processing. Hog production, while rapidly consolidating, remains highly fragmented, with nearly 86,000 producers in 2000. In contrast, pork processing is a competitive, but highly concentrated and consolidating industry, with the top ten processors representing approximately 87% of total federally inspected industry capacity in 2000. Based on Sparks Companies, Inc.'s recent analysis of the USDA Hog and Pig Report released in March 2001, we estimate that live hog prices will average approximately $43 per hundred weight in 2001, and hog production is expected to be slightly higher for 2001 as compared to 2000. Pork product prices in 2001 are expected to decrease slightly, with the total amount of commercial processing in the U.S. estimated at 99.1 million hogs in 2001 compared to 97.9 million hogs in 2000. We expect several on-going industry trends to continue in 2001. These include increasing consumer demand for high-quality pork products in the United States and globally, continued consolidation of the hog production industry, further integration of hog production and pork processing operations and stricter environmental regulations governing new and existing hog operations. We believe the trends will result in favorable demand for our products, more stable live hog and pork product prices and generally improved industry conditions. COMPETITIVE STRENGTHS We believe the following competitive strengths position us to enhance our growth and profitability: - Vertically Integrated Production and Processing. All of the hogs used by our Milan, Missouri processing plant are sourced from our Missouri and Texas hog production operations. In fiscal 2001, since our North Carolina acquisitions, approximately 61% of hogs used by our Clinton, North Carolina plant were supplied by our North Carolina hog production operations, with the remaining 39% supplied through contracts with independent producers. Vertical integration gives us strict control over our process, from a hog's initial genetic makeup to the pork product ultimately produced and shipped. This is a powerful advantage for competing effectively in the rapidly consolidating pork industry because it allows us to: - produce premium and specialty products, which typically command higher prices than commodity price products, by regulating the variables of genetics, environment, health and diet; - target premium customers, who are willing to pay premium prices, by tailoring our production process to meet the exacting specifications of discriminating customers in our target market; - reduce our production costs and maximize value, by significantly reducing our hog procurement costs and streamlining our logistics, transportation and production schedules and capturing more of the value of our hogs through our own processing rather than passing this value on to other processors; and - reduce earnings volatility and exposure to market fluctuations, by providing us with an assured supply of hogs and reducing our exposure to pricing volatility. - Strong Market Position with Large Scale Operations. Our large-scale integrated operations, geographic dispersal and strong market position allow us to serve a broad range of customers in our target market, while maintaining economies of scale and marketing leverage. - Efficient, Modern Facilities and Operations. Our Milan, Missouri processing plant is currently one of the most modern and technically advanced facilities of its kind, and we believe our Clinton, North Carolina plant will be the most advanced facility of its kind in the United States when our North Carolina capital improvement plans are complete. Our hog production operations allow us to achieve industry-leading productivity statistics. According to data compiled by Agrimetrics Associates, Inc., our costs of production are in the lowest quartile of all pork producers surveyed, and we are consistently among the top processors in terms of return on hogs processed, which is a function of both price and yield. 2 7 - Experienced Management Team. Our senior and operational management personnel, on average, have over thirteen years of experience in farm production and/or the fresh meat industry. BUSINESS STRATEGY We are pursuing a strategy designed to increase our revenues and cash flow. Key elements of our strategy include: - Further Develop Vertical Integration. We intend to increase integration in our North Carolina operations by renovating our recently acquired processing plant, upgrading the genetics of our breed stock, improving feed manufacturing and increasing supervision of contract growers in order to put in place a USDA Process Verified program similar to the program that is in place for our fully integrated Missouri operations. Ultimately, we intend to have two fully-integrated geographically separated pods located in these states, allowing us to serve the U.S. and international markets cost effectively. When justified in the future by market conditions, customer relationships and other circumstances, we also intend to expand our Texas operations to add a processing plant that will create a third fully integrated pod modeled upon our Missouri operations. - Focus on High Quality and Value-Added Products. We intend to continue to focus on producing high quality and value-added products for our discriminating customers, and to further differentiate ourselves from commodity oriented competitors by developing new brands and additional products. We believe our capital improvements to our Clinton, North Carolina processing plant will allow us to market premium products similar to those produced by our Milan, Missouri plant, as well as smoked and processed pork products. - Expand Production and Processing Capacity. We intend to further expand hog production at our Texas facilities by adding 10,000 new sows, which we expect will produce approximately 200,000 new hogs per year beginning in fiscal year 2003. In addition, we believe our Texas production facilities have adequate space and have obtained all environmental and land use permits required for further expansion in a manner that could replicate our Missouri hog production facilities. We also intend, through modernization and efficiency efforts, to increase processing capacity at our Clinton, North Carolina plant from its current 6,500 hogs per day to 8,000 hogs per day on an eight-hour shift, with additional capacity to process up to 10,000 hogs per day on a ten-hour shift on a seasonal basis. - Maintain Position as a Low Cost Producer. We intend to continue to measure our production and processing activities continually in an effort to increase our hog production efficiencies, lower our break-even costs, improve our processing yields and develop new value-added products. - Continue Expansion into International Markets. We intend to continue our efforts to develop sales outside the United States. In particular, we intend to increase our export volumes to Japan, as this market ascribes significant value to premium, process-controlled traceable products. We also intend to actively expand sales in the South Korean, Chinese and Taiwanese markets. - Manage Market Risks. We will continue to draw upon the strength of our risk management team and monitor daily opportunities to lock in favorable margins by hedging both feed and energy costs, as well as fresh meat sales. - Environmental Stewardship. We will continue to be a leader in the pork industry in researching, developing and implementing new waste handling and environmental technologies and solutions, including source reduction, risk reduction, improved manure treatment, beneficial reuse of waste products (creating value-added products) and water reuse. OUR HISTORY The hog production business of Premium Standard Farms was originally founded in 1988. In 1994, we completed construction of our Milan, Missouri processing plant. Due primarily to start-up costs and the 3 8 low level of initial production at that plant, as well as the rapid expansion of our Missouri and Texas operations, the corporation that previously ran our Missouri and Texas operations filed Chapter 11 bankruptcy on July 2, 1996. In September 1996, the reorganization became effective and our business emerged from Chapter 11. Premium Standard Farms in its current corporate form resulted from this restructuring. Since emerging from bankruptcy, we have expanded our business in two significant ways. On May 13, 1998, we expanded our Missouri operations in a series of transactions with ContiGroup Companies, Inc. (formerly known as Continental Grain). In these transactions, ContiGroup purchased a 51.0 percent ownership interest in our parent company, PSF Group Holdings, for $182.3 million. In exchange, we purchased the North Missouri Farms hog production operations then owned by ContiGroup for $75.0 million. Our transactions with ContiGroup were treated for accounting purposes as a reverse acquisition by ContiGroup. Thus, even though we trace our roots as a business to the Premium Standard Farms that underwent reorganization and emerged from bankruptcy in 1996, the financial data included in this prospectus for the periods prior to May 1998 relates to ContiGroup's North Missouri Farms operations rather than to Premium Standard Farms itself. Despite this accounting treatment, we will discuss the pre-1998 business of Premium Standard Farms at times in this prospectus since that business provided the basis for our current vertically integrated operations. In fiscal 2001, we expanded our operations through two acquisitions in North Carolina. We acquired The Lundy Packing Company, which consisted of hog production and pork processing operations, on August 25, 2000. On September 22, 2000, we then acquired Premium Standard Farms of North Carolina from ContiGroup. In the latter transaction, ContiGroup received cash and additional shares of PSF Group Holdings stock, bringing its overall ownership of our parent's outstanding common stock to 53.1 percent. Premium Standard Farms is a Delaware company formed in 1996. PSF Group Holdings, our parent corporation, is a Delaware company formed in 1998. Our principal executive offices are located at 423 West 8th Street, Suite 200, Kansas City, Missouri and our telephone number is (816) 472-7675. 4 9 SUMMARY OF THE TERMS OF THE EXCHANGE OFFER THE EXCHANGE OFFER............ $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of old notes. As of the date hereof $175.0 million in aggregate principal amount of old notes are outstanding. Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to certain third parties unrelated to us, we believe that exchange notes issued pursuant to the exchange offer in exchange for old notes may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, unless you: - are an "affiliate" of ours within the meaning of Rule 405 under the Securities Act; - are a broker-dealer who purchased old notes directly from us for resale under Rule 144A or Regulation S or any other available exemption under the Securities Act; - acquired the exchange notes other than in the ordinary course of your business; or - have an arrangement with any Person to engage in the distribution of exchange notes. However, the Commission has not considered the exchange offer in the context of a no-action letter and we cannot be sure that the staff of the Commission would make a similar determination with respect to the exchange offer as in such other circumstances. Furthermore, in order to participate in the exchange offer, you must make the representations set forth in the letter of transmittal that we are sending you with this prospectus. Registration Rights Agreement..................... We sold the old notes on June 7, 2001, in a private placement in reliance on Section 4(2) of the Securities Act. The old notes were immediately resold by the initial purchasers in reliance on Rule 144A and Regulation S under the Securities Act. At the same time, we entered into a registration rights agreement with the initial purchasers requiring us to make the exchange offer. The registration rights agreement also requires us to use reasonable best efforts to consummate the exchange offer by December 7, 2001. If we do not do so, the interest rate on the old notes will increase, initially by 0.50%. See "The Exchange Offer -- Purpose and Effect." Expiration Date............... The exchange offer will expire at 5:00 p.m., , 2001, New York City time, or a later date and time if we extend it (the "Expiration Date"). Withdrawal.................... The tender of the old notes pursuant to the exchange offer may be withdrawn at any time prior to the Expiration Date. Any old notes not accepted for exchange for any reason will be returned 5 10 without expense as soon as practicable after the expiration or termination of the exchange offer. Interest on the Exchange Notes and the Old Notes............. Interest on the exchange notes will accrue from the date of the original issuance of the old notes or from the date of the last payment of interest on the old notes, whichever is later. No additional interest will be paid on the old notes tendered and accepted for exchange. Conditions to the Exchange Offer......................... The exchange offer is subject to customary conditions, some of which may be waived by us. See "The Exchange Offer -- Conditions to Exchange Offer." Procedures for Tendering Old Notes......................... If you wish to accept the exchange offer, you must complete, sign and date the letter of transmittal, or a copy of the letter of transmittal, in accordance with the instructions contained in this prospectus and in the letter of transmittal, and mail or otherwise deliver the letter of transmittal, or the copy, together with the old notes and any other required documentation, to the exchange agent at the address set forth in this prospectus. If you are a person holding the old notes through the Depository Trust Company and wish to accept the exchange offer, you must do so through the Depository Trust Company's Automated Tender Offer Program, by which you will agree to be bound by the letter of transmittal. By executing or agreeing to be bound by the letter of transmittal, you will be making a number of important representations to us, as described under "The Exchange Offer -- Purpose and Effect." Under the circumstances specified in the registration rights agreement, we may be required to file a "shelf" registration statement for the old notes for a continuous offering under Rule 415 under the Securities Act. We will accept for exchange any and all old notes that are properly tendered in the exchange offer prior to the Expiration Date. The exchange notes issued in the exchange offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." Exchange Agent................ Wilmington Trust Company is serving as exchange agent in connection with the exchange offer. Federal Income Tax Considerations................ We believe the exchange of old notes for exchange notes in the exchange offer will not constitute a sale or an exchange for federal income tax purposes. See "Important Federal Income Tax Considerations." Effect of Not Tendering....... Old notes that are not tendered or that are tendered but not accepted will, following the completion of the exchange offer, continue to be subject to their existing transfer restrictions. We will have no further obligation to provide for registration under the Securities Act of such old notes. 6 11 SUMMARY OF THE TERMS OF THE EXCHANGE NOTES Issuer........................ Premium Standard Farms, Inc. Securities Offered............ $175,000,000 aggregate principal amount of 9 1/4% Senior Notes due 2011. Maturity...................... June 15, 2011. Interest...................... Payable semi-annually in arrears on June 15 and December 15, commencing December 15, 2001. Optional Redemption........... We may redeem any of the exchange notes beginning on June 15, 2006. The initial redemption price is 104.625% of their principal amount plus accrued interest. The redemption price will decline each year after 2006 and will be 100% of their principal amount, plus accrued interest, beginning on June 15, 2009. In addition, before June 15, 2004, we may redeem up to 35% of the exchange notes at a redemption price of 109.250% of their principal amount plus accrued interest, using the proceeds from sales of specified kinds of our capital stock. We may make such redemption only if after such redemption, at least 65% of the aggregate principal amount of exchange notes originally issued remains outstanding. Change of Control............. Upon a change of control, we will be required to make an offer to purchase the exchange notes at a price equal to 101% of their principal amount plus accrued interest to the date of repurchase. We may not have sufficient funds available at the time of any change of control to make any required debt repayment. Ranking....................... The exchange notes will be senior unsecured obligations. The exchange notes will rank equally in right of payment with all of our unsecured unsubordinated indebtedness. The exchange notes will be effectively junior to all our secured indebtedness. As of March 31, 2001, after giving effect to this offering and the application of the proceeds therefrom, we would have had $274.5 million in indebtedness outstanding, including $92.7 million of secured indebtedness under our credit facility. Guarantees.................... PSF Group Holdings and each of our wholly owned domestic subsidiaries will fully and unconditionally guarantee the exchange notes on a senior unsecured basis. As of March 31, 2001, the guarantors had $4.7 million of indebtedness (other than their obligations under our credit facility), all of which was secured. The guarantee by each guarantor will rank equally in right of payment with each guarantor's unsecured indebtedness. The guarantees will be effectively junior to all secured indebtedness of the guarantors. Certain Covenants............. The terms of the exchange notes will limit our ability and the ability of our subsidiaries to: - incur additional indebtedness; - create liens; 7 12 - pay dividends and make distributions in respect of capital stock; - redeem capital stock; - make investments or other restricted payments; - sell assets; - issue or sell stock of restricted subsidiaries; - enter into transactions with affiliates; and - effect a consolidation or merger. These covenants are subject to a number of important qualifications and exceptions. RISK FACTORS See "Risk Factors" beginning on page 11 for a discussion of certain risks relating to us, our business and an investment in the exchange notes. 8 13 SUMMARY HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA FINANCIAL INFORMATION The following tables set forth summary historical consolidated financial information for PSF Group Holdings from inception (May 13, 1998, the date of the ContiGroup acquisition) through March 31, 2001, and summary unaudited pro forma information for the year ended March 31, 2001. The summary historical consolidated financial information in the table below has been derived from our consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report, and are included in the back of this prospectus. The historical consolidated financial information presented for the year ending March 31, 2001 reflects our acquisition of The Lundy Packing Company on August 25, 2000 and our acquisition of Premium Standard Farms of North Carolina, Inc. on September 22, 2000, both of which were accounted for in accordance with the purchase method of accounting. The unaudited pro forma statement of operations set forth below gives effect to our acquisitions of The Lundy Packing Company and Premium Standard Farms of North Carolina and this offering and the application of the net proceeds therefrom as if they had been consummated on March 26, 2000. The unaudited pro forma financial statement of operations is not necessarily indicative of future results of operations or the results that might have occurred if the foregoing transactions had been consummated on such date. There can be no assurance that assumptions used in the preparation of the pro forma financial data will prove to be correct. This data should be read in conjunction with "Unaudited Pro Forma Consolidated Statement of Operations," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and the notes thereto included in the back of this prospectus.
HISTORICAL PRO FORMA ----------------------------------------- ----------------- FOR THE FOR THE FOR THE PERIOD FISCAL YEARS ENDED FISCAL YEAR ENDED --------------- ---------------------- ----------------- MAY 13, 1998 TO MARCH 25, MARCH 31, MARCH 31, MARCH 27, 1999 2000 2001 2001 --------------- --------- --------- ----------------- (DOLLARS IN THOUSANDS) STATEMENTS OF OPERATIONS DATA: Net sales.................................. $237,090 $306,266 $ 540,576 $680,076 Cost of goods sold......................... 249,757 265,929 456,184 593,195 Selling, general and administrative expenses................................. 20,027 18,830 19,413 20,933 Impairment of fixed assets(1).............. -- 5,000 -- -- Amortization expense....................... 1,945 2,320 3,180 3,490 Other expense (income)..................... 682 (47) 1,210 2,648 Operating income (loss).................... (35,321) 14,234 60,589 59,810 Interest expense, net...................... 17,601 21,220 23,208 27,019 Income tax expense (benefit)............... (20,377) (1,699) 15,367 13,531 Net income (loss).......................... (32,545) (5,287) 22,014 19,260 OTHER FINANCIAL DATA: GAAP cash flow: Operating activities..................... $ (7,620) $ 55,522 $ 61,679 --
9 14
HISTORICAL PRO FORMA ----------------------------------------- ----------------- FOR THE FOR THE FOR THE PERIOD FISCAL YEARS ENDED FISCAL YEAR ENDED --------------- ---------------------- ----------------- MAY 13, 1998 TO MARCH 25, MARCH 31, MARCH 31, MARCH 27, 1999 2000 2001 2001 --------------- --------- --------- ----------------- (DOLLARS IN THOUSANDS) Investing activities..................... (17,322) (15,242) (145,992) -- Financing activities..................... (227) (42,677) 91,219 -- EBITDA(2).................................. 2,330 62,527 112,292 $121,101 EBITDA margin(3)........................... 0.98% 20.42% 20.77% 17.81% Capital expenditures....................... $ 22,126 $ 23,669 $ 43,224 -- Debt to EBITDA(4).......................... 90.72x 2.81x 2.38x 2.27x Depreciation, amortization and impairment............................... $ 37,651 $ 48,293 $ 51,703 $ 58,850 EBITDA to interest expense(5).............. 0.13x 2.94x 4.65x 4.33x Ratio of earnings to fixed charges(6)...... -- -- 2.47x 2.10x Pounds of pork sales (millions)............ 296.79 345.84 603.88 -- Total hogs processed (millions)............ 1.61 1.92 3.02 --
FOR THE FOR THE PERIOD FISCAL YEARS ENDED --------------- ---------------------- MAY 13, 1998 TO MARCH 25, MARCH 31, MARCH 27, 1999 2000 2001 --------------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA (AT PERIOD END): Working capital............................................. $ 70,010 $ 51,698 $119,764 Property, plant, equipment and breedstock................... 456,961 427,662 496,882 Goodwill.................................................... 59,438 57,398 75,998 Total assets................................................ 617,455 584,498 773,440 Total long-term debt and capital leases (including current portion).................................................. 211,384 175,997 267,216 Shareholders' equity........................................ 324,955 319,668 357,837
- --------------- (1) During fiscal 2000, certain assets under construction, which were originally being constructed for an expansion in Texas, were determined to be unrecoverable due to a change in expansion plans. A non-cash impairment loss was taken during the year ended March 25, 2000. (2) EBITDA represents earnings before interest, taxes, depreciation, amortization and impairment of fixed assets. EBITDA and the related ratios are presented because we believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, other companies in our industry may calculate EBITDA differently than we do. Therefore, EBITDA is not necessarily comparable to similarly titled measures of these companies. EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See the Statements of Cash Flow included in our consolidated financial statements. (3) Represents EBITDA as a percentage of net sales. (4) Represents debt divided by EBITDA. (5) Represents EBITDA divided by gross interest expense. (6) The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include net income (loss) before taxes and fixed charges. Fixed charges include interest, amortization of debt expense and the portion of rental expense that is representative of the interest factor in these rentals. For the period ended March 27, 1999 and the fiscal year ended 2000 our earnings were insufficient to cover our fixed charges by $52.9 million and $7.0 million, respectively. 10 15 RISK FACTORS You should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your original investment. RISK FACTORS RELATED TO OUR BUSINESS WE HAVE A LIMITED OPERATING HISTORY UNDER OUR EXISTING CORPORATE STRUCTURE UPON WHICH YOU CAN EVALUATE OUR PERFORMANCE. In 1998, ContiGroup purchased a 51% ownership interest in our parent and simultaneously, we purchased the North Missouri Farms hog production operations owned by ContiGroup. These transactions were treated for accounting purposes as a reverse acquisition by ContiGroup. As a result, ContiGroup's North Missouri Farms operations, not our Missouri and Texas operations, are considered our predecessor, and the financial information in this prospectus prior to May 1998 relate to the operations of our predecessor. On August 25, 2000, we acquired The Lundy Packing Company for approximately $67.2 million in cash and the assumption of approximately $31.0 million in debt. On September 22, 2000, we purchased ContiGroup's North Carolina hog production operations for $16.2 million in cash and $16.2 million in shares of Class B Common Stock of PSF Group Holdings. These acquisitions significantly increased our operations, however, they are included in our historical results of operations only from their date of acquisition. As a result of these transactions, we have a limited operating history under our existing corporate structure upon which you can evaluate our performance. OUR HISTORY OF OPERATIONS INCLUDES NET LOSSES AND BANKRUPTCY, AND WE MAY INCUR NET LOSSES IN THE FUTURE. On July 2, 1996, we filed a plan of reorganization under Chapter 11 of the United States Bankruptcy Code, which became effective on September 17, 1996. Because ContiGroup's North Missouri Farms operations are considered our predecessor, our bankruptcy reorganization is not reflected in the financial statements included in this prospectus. Our bankruptcy resulted from our net losses from December 31, 1992 to June 30, 1996 totaling $207.3 million, excluding restructuring items. These losses were due in significant part to a combination of aggressive expansion of the Missouri and Texas operations, high break-even costs, high feed ingredient prices, interest expense, "start-up" losses on newly constructed units, and depreciation on assets which had not yet reached their full productive and earning capacity. As a result of these losses, we did not make a required interest payment of approximately $7.0 million due on our then-outstanding senior secured notes. Although we generated $22.0 million of net income in fiscal 2001, we experienced net losses from operations of approximately $5.3 million in fiscal 2000 and approximately $32.5 million in fiscal 1999. These losses were due primarily to low hog and pork prices. Our management currently expects that increased industry hog production could cause live hog prices to decline in fiscal 2002 and that these price declines could adversely affect our cash flow and operating results during these periods. There can be no assurance as to our ability to generate positive cash flow in future periods. If we are unable to generate positive cash flow in the future, we may not be able to make required payments on our debt obligations, including your notes. 11 16 IF OUR PORK PRODUCTS BECOME CONTAMINATED, WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS AND PRODUCT RECALLS. Pork products may be subject to contamination by disease producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella and generic E coli. These pathogens are generally found in the environment and as a result, there is a risk that they as a result of food processing could be present in our processed pork products. This risk may be controlled, but may not be eliminated, by adherence to good manufacturing practices and finished product testing. Once contaminated products have been shipped for distribution, illness and death may result if the pathogens are not eliminated at the further processing, foodservice or consumer level. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on our business, reputation, prospects, results of operations and financial condition. PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD ADVERSELY AFFECT OUR BUSINESS REPUTATION AND EXPOSE US TO INCREASED SCRUTINY BY FEDERAL AND STATE REGULATORS. The packaging, marketing and distribution of food products entails an inherent risk of product liability and product recall and the resultant adverse publicity. We may be subject to significant liability if the consumption of any of our products causes injury, illness or death. We could be required to recall certain of our products in the event of contamination or damage to the products. In addition to the risks of product liability or product recall due to deficiencies caused by our production or processing operations, we may encounter the same risks if any third party tampers with our products. We cannot assure you that we will not be required to perform product recalls, or that product liability claims will not be asserted against us, in the future. Any claims that may be made may create adverse publicity that would have a material adverse effect on our ability to market our products successfully and on our business, reputation, prospects, financial condition and results of operations. OUR OPERATIONS ARE SUBJECT TO NUMEROUS LAWS AND REGULATIONS, EXPOSING US TO POTENTIAL CLAIMS AND COMPLIANCE COSTS THAT COULD ADVERSELY AFFECT OUR BUSINESS. Various federal, state and local environmental and health and safety laws and regulations apply to our operations. Those laws and regulations particularly relate to our processing plants and our waste treatment lagoons and facilities. Our pork processing plants are subject to regulation by the USDA and we cannot assure you that USDA enforcement proceedings will not be brought against us in the future. Such proceedings could cause disruptions in our operations and lead to material costs, liabilities or other losses. Prior to our acquisition of the North Carolina processing plant, that plant had received a high number of USDA-FSIS Non-Compliance Reports. We cannot assure you that our capital improvements to our North Carolina plant will be successful in alleviating all of the USDA's concerns. The nature of our hog production operations exposes us to the risk of environmental claims, including claims for damages to property, nuisance and injury to persons resulting from the environmental, health and safety impacts of our operations, and these claims could cause us to experience material costs, liabilities or other losses. We were a successor to a nuisance suit brought by neighbors of our northern Missouri pork operations. For more information, see "Business -- Litigation." The risks of nuisance and community issues are inherent in our operations even if we are in compliance with applicable regulations, and the risk of claims based on these issues may increase in the future. Further, confined animal feeding operations such as ours have recently come under intense review by federal, state and local regulators. These regulators, including the federal Environmental Protection Agency, have proposed new regulations and attempted to apply certain existing regulations for the first time to agricultural operations. These regulations could result in the prevention or restriction of some of our operations, and noncompliance with them has resulted, and may in the future result, in the imposition of fines and penalties. The State of Missouri, for example, has promulgated a new rule that comes into 12 17 effect on January 1, 2002 to regulate odor emissions from large animal feeding operations such as ours. This rule required us to develop plans to reduce odor emissions and to submit such plans to state authorities. This rule also requires us to make any changes needed to reduce odors at the property line to certain established levels. We have also entered into a consent judgment with the Attorney General of Missouri pursuant to which we are obligated to spend $25 million over the course of five years. For more information, see "Business -- Litigation." The State of North Carolina has issued a moratorium on construction of new waste treatment lagoons and spray fields associated with hog operations. We anticipate that this moratorium will be extended until more effective and environment-friendly technologies for the handling of animal wastes are developed. On September 29, 2000, we reached agreement with the Attorney General of North Carolina with respect to our acquired waste lagoons and spray fields. In that agreement, we committed to implement "Environmentally Superior Technologies" within three years after an independent panel has determined that such technologies are both effective and economically feasible to construct and operate. We cannot assure you, however, that the technologies will not cost more than we anticipate. We also cannot assure you that lagoons and spray fields will not be banned in North Carolina in the future, leading to increased competition for growers and disruption to our North Carolina operations. We are a defendant in a citizen's action suit seeking to enforce alleged violations of the Clean Air Act, Clean Water Act and CERCLA. The plaintiffs are seeking injunctive relief, civil penalties and attorneys' fees. The federal Environmental Protection Agency has also intervened in the case. We cannot assure you that our defense will be successful. We cannot assure you that future events, such as changes in existing laws and regulations or enforcement policies which result in additional compliance costs, or additional claims for nuisance, personal injury or property damage, will not have a material adverse effect on our business, financial condition and results of operations. For additional information on environmental, health and safety regulation and compliance, see "Business -- Regulation" and "Business -- Litigation." CHANGES IN CORPORATE FARMING LAWS IN SOME OF THE STATES WHERE WE OPERATE OR A FINDING THAT WE ARE NOT IN COMPLIANCE WITH EXISTING LAWS COULD ADVERSELY AFFECT OUR BUSINESS. Several states have enacted "corporate farming laws" that restrict the ability of corporations to engage in farming activities. Missouri is among these states, but Texas and North Carolina currently are not. Missouri's corporate farming law in many cases bars corporations from owning agricultural land and engaging in farming activities. We believe our operations currently comply with the Missouri corporate farming law and its existing exemptions, but the Missouri laws could be subject to challenge or amendment by Missouri governmental bodies in the future. Further, even with the exemptions, the corporate farming laws restrict our ability to expand beyond the counties in which we currently operate. OUTBREAKS OF DISEASE CAN ADVERSELY AFFECT OUR REVENUES AND OPERATING MARGINS. The productivity and profitability of any hog operation depends, to a great extent, on the ability to maintain animal health and control disease. Disease can reduce the number of offspring weaned per sow and hamper the growth of hogs to finished size. Diseases can be spread from other infected hogs, in feed, in trucks, by rodents or birds, by people visiting the farms or through the air. We have experienced outbreaks of certain diseases in the past, and may in the future, including Transmittable Gastroenteritis (TGE), and Porcine Reproductive and Respiratory Syndrome (PRRS), a respiratory disease commonly affecting swine herds. We also face the risk of outbreaks of other diseases that have not affected our herds previously, including foot-and-mouth disease, which is a highly contagious viral disease affecting swine, cattle, sheep and goat herds. Until the outbreaks of the disease recently reported in Europe which have led to the destruction of thousands of animals, foot-and-mouth disease had been primarily limited to Africa, the 13 18 Middle East, Asia and South America. Although foot-and-mouth disease is generally not lethal in adult pigs, mortality is common when younger pigs are infected. If we experience an outbreak of foot-and-mouth disease, we will likely be required to destroy all of our herd that has the potential of being infected. If this occurs, our production and our ability to sell our pork products would be adversely affected. In addition, because foot-and-mouth disease is highly contagious and destructive to susceptible livestock, if an outbreak of foot-and-mouth disease were confirmed in the United States, our ability to export our pork products could be adversely affected, even if our herds were not infected with the disease. IF WE ARE NOT ABLE TO COMPLETE THE CAPITAL IMPROVEMENTS TO OUR PROCESSING FACILITIES IN NORTH CAROLINA TIMELY OR EFFICIENTLY, WE MAY BE REQUIRED TO INCUR ADDITIONAL COSTS AND MAY NOT ACHIEVE ANTICIPATED INCREASES IN SALES AND MARGINS. We need to make substantial improvements in our North Carolina processing facility in order to increase capacity and to bring this facility up to the same quality as our Missouri processing facility. We are currently in the process of implementing these capital improvements. We expect the total cost of these improvements to be approximately $37 million and to complete the improvements by the fourth quarter of our fiscal year 2002. We do not expect to benefit significantly from these improvements until they are completed. If we are not able to complete the improvements on schedule, our business could be adversely affected in the following ways: - we may not be able to obtain Process Verified accreditation from the USDA for our pork products processed at this facility, which would adversely affect our ability to increase our export sales from this facility; - we may not be able to increase our production of higher-margin pork products at our North Carolina facility; - we may not be able to improve the level of customer service that our North Carolina facility has historically provided, which could adversely affect our ability to increase our customer base and to target discriminating customers; and - we may be required to continue to operate our North Carolina facility at less than full capacity, which would adversely affect our sales and margins. In addition, our costs of completing the improvements may exceed the amounts we have budgeted, which could require us to borrow additional funds for, or dedicate additional cash flow to, the capital improvement project. Our inability to complete the capital improvements on time may also divert our management's attention from our day-to-day business. IF WE ARE NOT ABLE TO COMPLETE THE EXPANSION OF OUR TEXAS HOG PRODUCTION OPERATIONS TIMELY OR EFFICIENTLY, WE MAY BE REQUIRED TO INCUR ADDITIONAL COSTS AND MAY NOT ACHIEVE ANTICIPATED INCREASES IN REVENUES. We are currently expanding our Texas hog production facilities to house an additional 10,000 sows and their offspring. We expect to complete this expansion in 2002 at a total cost of approximately $25 million. We do not expect to benefit significantly from this expansion until it is completed. If we are not able to complete this expansion on schedule, our business could be adversely affected in the following ways: - because we have already begun to produce the additional hogs at our Texas facility, we may be required to contract with third parties to finish our hogs at a higher cost; - we may not receive the additional revenues we anticipate from the increased sales of market hogs from our Texas operations; and - because we expect to use some of the additional animals we produce to replenish our existing breeding herds, we may be required to purchase higher cost replacement sows for our existing operations. 14 19 In addition, our costs of completing the expansion may exceed the amounts we have budgeted, which could require us to borrow additional funds for, or dedicate additional cash flow to, the expansion project. Our inability to complete the Texas expansion on time may also divert our management's attention from our day-to-day business. OUR FEED COMPONENT COSTS AND THE SALES OF OUR PORK PRODUCTS ARE SUBJECT TO SEASONAL VARIATIONS AND, AS A RESULT, OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE. Our quarterly operating results are influenced by seasonal fluctuations in the price of our primary feed components, corn and soybean meal, and by seasonal fluctuations in wholesale pork prices. The prices we pay for our feed components are generally lowest in August, September and October, which corresponds with the corn and soybean harvests. Generally, the prices for these commodities will increase over the following months leading up to the next harvest due to the storage costs. As a result, our costs in the production side of our business tend to increase during this period. Live hog and wholesale pork prices are similarly affected by seasonal factors. It generally takes approximately 11 months from conception for a hog to reach market weight, and because sows are generally less productive in summer months as a result of seasonal conditions, there are generally fewer hogs available in the months of April, May and June. This decrease in supply of live hogs generally causes live hog and wholesale pork prices to be higher on average during these months, and our revenues tend to increase accordingly. Conversely, there are generally more hogs available in the months of October, November and December, which generally causes live hog and wholesale pork prices to be lower on average during these months and adversely affects our revenues. As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our sales and operating margins between quarters within a single fiscal year are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of our future performance. INCREASES IN THE COSTS OF OUR FEED COMPONENTS COULD ADVERSELY AFFECT OUR COSTS AND OPERATING MARGINS. The results in our business can be negatively affected by increased costs of our feed components, which consist primarily of corn and soybean meal. The cost and supply of feed components are determined by constantly changing market forces of supply and demand, which are driven by matters over which we have no control, including weather, current and projected worldwide grain stocks and prices, grain export prices and supports and governmental agricultural policies. For example, the annual average price of corn has ranged from a low of $1.72 per bushel to a high of $3.70 per bushel during the period from 1980 to 2000. The annual average price of soybean meal has ranged from a low of $131.53 per ton to a high of $250.28 per ton in the same period. In our fiscal year ended March 31, 2001, our purchases of feed components comprised approximately 30.5% of our total cost of goods sold. As a result of our Texas hog production expansion, we expect our feed component costs to increase as a percentage of our total costs over the next 12 to 24 months, and we will be more vulnerable to increases in feed component costs. Unless live hog and wholesale pork prices correspondingly increase, increases in the prices of our feed components would adversely affect our operating margins. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview -- Cost of Goods Sold." We purchase a portion of our feed requirements in advance at fixed prices in order to hedge our short-term exposure to future price fluctuations. We use forward contracts, as well as futures and options contracts, to establish adequate supplies of future grain requirements and to reduce the risk of market fluctuations. These contracts may result in off-balance sheet market risk which is dependent on fluctuations in the grain markets. In periods of declining commodity prices, our advance purchases and hedging transactions could result in our paying more for feed components than our competitors. For further discussion of the risks associated with commodity prices, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Market Risk." 15 20 DECREASES IN WHOLESALE PORK AND LIVE HOG PRICES COULD ADVERSELY AFFECT OUR REVENUES AND OPERATING MARGINS. Our revenues depend greatly on the price at which pork products can be sold. These prices can be volatile as a result of a number of factors. The most important factors are the supply and demand in the markets for pork and other meat products, particularly beef and poultry. Any significant decrease in pork product prices for a sustained period of time could have a material adverse effect on our revenues and, unless our feed component and other costs correspondingly decrease, in our operating margins. For example, the annual average USDA #2 cutout price, which is a standard measure for determining current market prices of pork primal cuts, has ranged from a low of $53.02 per hundred weight to a high of $76.87 per hundred weight during the period from 1990 to 2000. The cyclical nature of pricing and investment in our industry is likely to continue and as a result, we may experience periods of overcapacity, declining prices and lower profit margins at times in the future. Our revenues are primarily derived from the sale of pork products. In fiscal 2001 approximately 12% of our revenues came from our sale of hogs to other processors. We expect this to increase slightly when our Texas hog production expansion is complete. As a result, our business, financial condition and results of operation could be materially impacted by significant changes in the selling price for hogs. For example, an excess supply of live hogs in the industry caused live hog prices to reach a record low in December of 1998, hitting a one-day low of $8.00 per hundred weight, averaging $14.17 per hundred weight for the month of December, and averaging $31.91 per hundred weight in 1998 and $31.49 in 1999, as compared to an average of $47.80 per hundred weight for the period between 1990 and 1997. These low prices produced losses in the production side of our business that could not be entirely offset by margins from our processing operation. Our management currently anticipates that higher production levels in our industry generally are likely to exert downward pressure on hog prices in fiscal 2002. OUR REVENUES DEPEND ON OUR HERD PRODUCTIVITY AND FEED EFFICIENCY, AND DECREASES IN PRODUCTIVITY AND EFFICIENCY CAN ADVERSELY AFFECT OUR PROFITABILITY AND MARGINS. Sow herd productivity and feed efficiency are important measures by which we evaluate the performance of our production operations. Sow productivity is commonly calculated as the number of offspring per sow per year that reach 45 to 50 pounds and measures the performance of our breeding, gestation, farrowing and nursery operations. Changes in sow productivity can have a material effect on profitability and margins because a substantial portion of the costs of operating a sow unit are either fixed or related to the number of sows. Sows generally have approximately six litters during their reproductive lives, and are most productive on average during the third and fourth litters. Rapid expansion of our sow herd can adversely affect our sow herd productivity because the additional sows will be less productive in their earlier litters. Sow productivity also can be influenced by a number of other factors, including the number and quality of our employees, the health condition of our hogs and their genetics and environment. Feed efficiency is commonly measured in terms of feed conversion ratios. A feed conversion ratio is calculated by the number of pounds of feed, which consists primarily of corn and soybean meal, consumed to produce a pound of live weight in hogs in our finishing units. It is a measure of the performance of our hog-finishing operations. Changes in feed efficiency affect per head feed consumption. As a result, they affect the aggregate cost of feed, which is the primary cost component in our hog-production operations. A number of factors influence feed efficiency, including, the capacity and use of our finishing facilities, the number and quality of our employees, the health condition of our animals, genetics, and the nutrient value of available feed ingredients. Because of the many factors involved, we cannot assure you that existing herd productivity and feed efficiency levels will be maintained in the future. We also cannot assure you that any decline in those levels will not have a material adverse effect on our costs, operating margins or ability to compete with other hog producers. 16 21 CHANGES IN CONSUMER PREFERENCES AND DISTRIBUTION CHANNELS COULD ADVERSELY AFFECT OUR BUSINESS. Like other food producing businesses, we are subject to the risks of: - evolving consumer preferences and nutritional and health-related concerns; and - changes in food distribution channels and increased buying power of large supermarket chains, warehouse clubs, mass merchandisers, supercenters and other retail outlets that tend to resist price increases and have stringent inventory and management requirements. The occurrence of any of these risks could have a material adverse effect on our business, financial condition and results of operations. THE OCCURRENCE OF UNANTICIPATED NATURAL DISASTERS COULD DESTROY OUR HERDS AND FACILITIES. The occurrence of unanticipated natural disasters could adversely affect our business in the following ways: - our production and processing operations materially depend on the availability of large supplies of fresh water, and our animals' health and our ability to operate our processing facilities at full capacity could be adversely affected if we experience a shortage of fresh water due to floods, droughts, depletion of underground aquifers or other causes beyond our control; - one of our principal costs in the production side of our business is feed costs, and our feed costs may increase if crop supplies are reduced as a result of droughts, floods, hail storms, crop diseases or other causes beyond our control; and - our production and processing facilities and our swine herds could be materially damaged by floods, hurricanes and tornadoes. OUR PROFITABILITY MAY SUFFER AS A RESULT OF COMPETITION IN OUR MARKETS. We operate in a highly competitive environment and face significant competition in all of our markets. Some of our competitors possess significantly greater financial, technical and other resources than we do. Some of our larger competitors may be able to decrease pricing of pork products in the markets in which we operate. The hog production and processing industries are rapidly consolidating, and the consolidation process may lead to more vertically integrated pork producers. We could experience increased price competition for our pork products and lose existing customers if other vertically integrated hog and pork processing companies gain market share or if the influence of relatively higher-cost products of smaller farms decreases. When hog prices are lower than our hog production costs, our non-integrated pork processing competitors may have a cost advantage. Those competitors can purchase lower cost hogs on the spot market, while we would have to continue to use hogs produced by our own hog production operations. We cannot assure you that we will have sufficient resources to compete effectively in our industry. OUR PERFORMANCE DEPENDS ON FAVORABLE LABOR RELATIONS WITH OUR EMPLOYEES. ANY DETERIORATION OF THOSE RELATIONS OR INCREASE IN LABOR COSTS COULD ADVERSELY AFFECT OUR BUSINESS. Our employees are not represented by any labor union. However, in 1997, the Western Missouri & Kansas Laborers' District Council of the Laborers' International Union of North America, AFL-CIO, filed a petition with the National Labor Relations Board, seeking an election among the production and maintenance employees at our Milan, Missouri facility. Our employees voted not to form a union when that election was conducted. We cannot assure you that further efforts will not be made to unionize our work force. In 1993, the United Food and Commercial Workers Union (UFCW) commenced an organizing campaign among employees at The Lundy Packing Company. Notwithstanding a number of objections by Lundy, the NLRB certified the UFCW as the collective bargaining representative. The United States Court of Appeals for the Fourth Circuit invalidated the NLRB's certification of the UFCW and dismissed 17 22 the case. The United States Supreme Court denied certiorari requested by the NLRB and UFCW. There can be no assurance that additional organization efforts will not be attempted. In addition, we have experienced high turnover in our Missouri production and processing employees in the past, and our location in rural Missouri limits our ability to find replacement workers for those operations. Our Missouri operations are currently located in five sparsely populated counties, and we currently employ approximately 2,200 people. As a result, we have a limited pool of potential replacement workers for those operations. Any significant increase in labor costs, deterioration of employee relations, slowdowns or work stoppages at any of our locations, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on our business, financial condition and results of operations. See "Business -- Employees." OUR INVOLVEMENT IN INTERNATIONAL MARKETS EXPOSES US TO POLITICAL AND ECONOMIC RISKS IN FOREIGN COUNTRIES, AS WELL AS TO RISKS RELATED TO CURRENCY VALUES AND IMPORT/EXPORT POLICIES. We intend to expand our international sales. In our fiscal year ended March 31, 2001, exports, primarily to Japan, Canada, Russia and Mexico, accounted for approximately 8% of our total revenues. The markets for our products in countries outside of the United States vary in several material respects from markets in the United States. These variances include differences in pork consumption levels and marketing and distribution practices. Our international activities also pose other risks not faced by companies that limit themselves to United States markets. These risks include: - changes in foreign currency exchange rates; - exchange controls; - changes in a specific country's or region's political or economic conditions, particularly in emerging markets; - hyperinflation; - tariffs, other trade protection measures and import or export licensing requirements; - potentially negative consequences from changes in tax laws; and - different regulatory structures and unexpected changes in regulatory requirements. We cannot assure you that we will be successful in identifying favorable international expansion opportunities or that we will be able to further penetrate and compete effectively in international markets. THE LOSS OF ONE OR MORE OF OUR FOUR LARGEST CUSTOMERS COULD SIGNIFICANTLY AND ADVERSELY AFFECT OUR CASH FLOW, MARKET SHARE AND PROFITS. In fiscal 2001, our four largest customers accounted for approximately 27% of our total revenues, and we expect that these customers will continue to account for a substantial portion of our revenues for the foreseeable future. As a result, if we lose one or more of these customers, or if there is a decline in the amount of pork products they purchase from us, our cash flow, market share and profits would be adversely affected. In addition, our export sales are predominately focused on Japan, and in fiscal 2001, our sales to Japanese customers represented approximately 6% of our total revenues. Substantially all of our Japanese exports were sold through a relationship with our Japanese trading partner, with whom we renewed a three-year contract under which, in Japan, we sell exclusively to this partner certain of the chilled pork products we produce at our Milan plant. If we lose our relationship with our Japanese trading partner, our cash flow, market share and profits could be materially and adversely affected. 18 23 CONTIGROUP HAS THE ABILITY, SUBJECT TO CERTAIN SUPERMAJORITY APPROVAL REQUIREMENTS, TO DIRECT OUR BUSINESS AND AFFAIRS, AND CONTIGROUP'S INTERESTS COULD CONFLICT WITH YOURS. ContiGroup currently owns 53.1%, or approximately 48.0% if all outstanding warrants are exercised, of our parent company's common stock and has the right to elect a majority of our parent company's board of directors. As a result, ContiGroup currently has the ability, subject to certain supermajority approval requirements, to direct our parent's and our business and affairs. The interests of ContiGroup and its affiliates could conflict with your interests. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of ContiGroup as a stockholder in our parent could conflict with your interests as a holder of our debt. In addition, our Chief Executive Officer and General Counsel are also officers of ContiGroup and, as such, may face similar conflicts of interest. Our stockholders may also have an interest in pursuing acquisitions, divestitures, financing or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to you as a holder of the exchange notes. In addition, ContiGroup currently owns and may in the future own businesses that directly compete with ours. STATEMENTS MADE IN THIS PROSPECTUS ABOUT FUTURE PLANS AND EVENTS MAY PROVE TO BE INACCURATE. We have made forward-looking statements in this document, including statements about forecasts, our plans, strategies and prospects, under the headings "Summary," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. We can give you no assurance that our plans, intentions and expectations will be achieved. Forward-looking statements involve risks, uncertainties and assumptions including those identified above. Actual results may differ materially from those expressed in these forward-looking statements. You should understand that many important factors, in addition to those discussed in this "Risk Factors" section and elsewhere in this prospectus, could cause our results to differ materially from those expressed in forward-looking statements. These factors include: - economic conditions generally and in our principal markets; - competitive practices in the pork production and processing industries; - the impact of consolidation in the pork production and processing industries; - the impact of current and future laws, governmental regulations and fiscal policies affecting our industry and operations, including environmental laws and regulations; - the availability of additional capital to fund future commitments and expansion and the cost and terms of financing; - outbreaks of disease in our herds; - feed ingredient costs; - fluctuations in live hog prices and the price of pork products; - customer demands and preferences; and - the occurrence of natural disasters and other occurrences beyond our control. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Forecasts are particularly likely to be inaccurate, especially over longer periods of time. In addition, we do not know what assumptions regarding general economic growth or other factors were used in preparing the forecasts we cite. We do not have any intention or obligation to update forward-looking statements after we distribute this prospectus. 19 24 RISK FACTORS RELATED TO THE SECURITIES OFFERED WE HAVE SUBSTANTIAL DEBT OUTSTANDING THAT COULD NEGATIVELY IMPACT OUR BUSINESS AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE EXCHANGE NOTES. We have a significant amount of outstanding debt. As of March 31, 2001, taking into account this offering and the application of the offering proceeds, we would have had total consolidated debt outstanding of $274.5 million. Our high level of debt could: - make it difficult to satisfy our obligations, including making interest payments under the notes and our other debt obligations; - limit our ability to obtain additional financing to operate our business; - limit our flexibility in planning for and reacting to changes in our industry; - place us at a competitive disadvantage relative to some of our competitors that have less debt; - increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates, lower hog prices or a downturn in our business or the economy; and - require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow for other purposes. DESPITE OUR SUBSTANTIAL INDEBTEDNESS, WE MAY STILL INCUR SIGNIFICANTLY MORE DEBT, WHICH COULD INTENSIFY THE RISKS DESCRIBED ABOVE. The terms of the indenture do not prohibit us from incurring significant additional indebtedness in the future. As of March 31, 2001, we had $82.5 million available for additional borrowing under our revolving credit facility. We intend to borrow additional funds to fund our capital expenditures and working capital needs. We may also incur additional debt to finance future acquisitions. We may secure any additional debt we borrow, and if we do, such debt will be effectively senior to the exchange notes. If we borrow additional funds for these or other purposes, it will become more likely that we will experience some or all of the risks described above. BECAUSE THE EXCHANGE NOTES ARE EFFECTIVELY SUBORDINATED TO OUR SECURED DEBT, IF WE ARE IN DEFAULT ON OUR SECURED DEBT YOU MAY NOT RECEIVE FULL PAYMENT ON YOUR EXCHANGE NOTES. The exchange notes are effectively subordinated to our secured debt up to the value of the collateral securing that debt. As a result, if we are in default on these obligations, you may not receive principal and interest payments on your exchange notes. As of March 31, 2001, we had $122.5 million of secured debt outstanding under the bank credit facilities, and the ability to borrow $82.5 million more under these facilities. All borrowings under our credit facility are secured by substantially all of our assets and substantially all of the assets of our subsidiaries and are guaranteed by our parent, PSF Group Holdings. WE MAY NOT HAVE SUFFICIENT CASH FLOW TO PAY YOUR EXCHANGE NOTES AND OUR OTHER DEBT. Our ability to pay principal and interest on your exchange notes and on our other debt and to fund our planned capital expenditures depends on our future operating performance. Our future operating performance is subject to a number of risks and uncertainties that are often beyond our control, including general economic conditions and financial, competitive, regulatory and environmental factors. For a discussion of some of these risks and uncertainties, please see "Risk Factors -- Risk Factors Related to Our Business." Consequently, we cannot assure you that we will have sufficient cash flow to meet our liquidity needs, including paying our indebtedness. If our cash flow and capital resources are insufficient to allow us to make scheduled payments on your notes or our other debt, we may have to sell assets, seek additional capital or restructure or refinance our 20 25 debt. We cannot assure you that the terms of our debt will allow these alternative measures or that such measures would satisfy our scheduled debt service obligations. If we cannot make scheduled payments on our debt: - our debtholders could declare all outstanding principal and interest to be due and payable; - the lenders under our credit facility could terminate their commitments and commence foreclosure proceedings against our assets; - we could be forced into bankruptcy or liquidation; and - you could lose all or a part of your investment in the exchange notes. THE TERMS OF OUR DEBT MAY RESTRICT OUR ABILITY TO PLAN FOR OR RESPOND TO CHANGES IN OUR BUSINESS, WHICH COULD LIMIT OUR ABILITY TO MAKE INTEREST OR PRINCIPAL PAYMENTS ON YOUR EXCHANGE NOTES. Either our senior secured credit facility or the indenture governing your notes, or both, restrict, among other things, our ability to: - grant liens on our assets; - merge or consolidate with, or acquire substantially all of the assets of, another company; - enter into transactions with our affiliates; - make investments; - incur additional debt or issue guarantees; - sell, lease or otherwise dispose of our assets; - make capital expenditures; - pay dividends or make distributions to our stockholders; - purchase or redeem our capital stock; - issue or distribute capital stock of our subsidiaries; - enter into operating leases of property; - pay subordinated debt; - construct additional hog production facilities; and - materially change our business. Our credit facility requires us to maintain specified financial ratios and meet specific financial tests. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, would prevent us from borrowing under our revolving credit facility and could cause us to be required to repay our borrowings before their due date. If we were unable to make this repayment or otherwise refinance these borrowings, our lenders could foreclose on our assets. If we were unable to refinance these borrowings on favorable terms, we may not be able to pay interest and principal on your exchange notes. BECAUSE OUR CREDIT FACILITY BEARS INTEREST AT A VARIABLE RATE, AN INCREASE IN INTEREST RATES COULD ADVERSELY AFFECT OUR ABILITY TO PAY PRINCIPAL AND INTEREST ON YOUR EXCHANGE NOTES. Our credit facility bears interest at a variable rate that will not be capped at a maximum interest rate. As a result, if interest rates increase, the required payments under our credit facility will also increase. As our credit facility payments increase, the amount of funds we have available for other purposes, including payment of principal and interest on your exchange notes, decreases. A significant and prolonged increase in interest rates could adversely affect our ability to pay principal and interest on your exchange notes. In 21 26 addition, we cannot assure you that any interest rate hedging agreements we enter into will adequately protect against this interest rate risk. THE MARKET PRICE FOR THE EXCHANGE NOTES MAY BE VOLATILE. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the price of securities similar to the exchange notes. The market for the exchange notes, if any, may be subject to similar disruptions. Any such disruption could adversely affect the value of your exchange notes. FEDERAL AND STATE LAWS PERMIT A COURT TO VOID THE SUBSIDIARY GUARANTEES UNDER CERTAIN CIRCUMSTANCES. The guarantee of the exchange notes by our subsidiaries may be subject to review under federal or state fraudulent transfer laws. While the relevant laws may vary from state to state, under such laws, a subsidiary guarantee will be a fraudulent conveyance if (1) any of our subsidiaries guaranteed the notes with the intent of hindering, delaying or defrauding creditors, or (2) any of the subsidiary guarantors received less than reasonably equivalent value or fair consideration in return for its guarantee, and in the case of (2) only, one of the following is also true: - any of the subsidiary guarantors was insolvent, or became insolvent, when they guaranteed the exchange notes; - the guarantee left the applicable subsidiary guarantor with an unreasonably small amount of capital; or - the applicable subsidiary guarantor intended to, or believed that it would, be unable to pay its debts as they matured. If any guarantee of the exchange notes were to be deemed a fraudulent conveyance, a court could, among other things, void the relevant subsidiary guarantor's obligations under its guarantee and require the repayment of any amounts paid thereunder. Generally, an entity will be considered insolvent if: - the sum of its debts is greater than the value of its property; - the present fair value of its assets is less than the amount that it will be required to pay on its existing debts as they become due; or - it cannot pay its debts as they become due. We cannot be sure as to whether a court would determine that immediately after our subsidiaries guaranteed the exchange notes, each of the subsidiary guarantors would be solvent, would have sufficient capital to carry on its business and would be able to pay its debts as they mature or what standard a court would apply in making these determinations. RISK FACTORS RELATED TO THE EXCHANGE OFFER IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER OLD NOTES WILL BE ADVERSELY AFFECTED. We will only issue exchange notes in exchange for old notes that are timely received by the exchange agent together with all required documents, including a properly completed and signed letter of transmittal. Therefore, you should allow sufficient time to ensure timely delivery of the old notes and you should carefully follow the instructions on how to tender your old notes. Neither we nor the exchange agent are required to tell you of any defects or irregularities with respect to your tender of the old notes. If you do not tender your old notes or if we do not accept your old notes because you did not tender your old notes properly, then, after we consummate the exchange offer, you may continue to hold old notes that are subject to the existing transfer restrictions. In addition, if you tender your old notes for the purpose of 22 27 participating in a distribution of the exchange notes, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the exchange notes. If you are a broker-dealer that receives exchange notes for your own account in exchange for old notes that you acquired as a result of market-making activities or any other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale of such exchange notes. After the exchange offer is consummated, if you continue to hold any old notes, you may have difficulty selling them because there will be less old notes outstanding. In addition, if a large amount of old notes are not tendered or are tendered improperly, the limited amount of exchange notes that would be issued and outstanding after we consummate the exchange offer could lower the market price of such exchange notes. YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE NOTES. The exchange notes are a new issue of securities with no established trading market and will not be listed on any securities exchange. The liquidity of the trading market in the exchange notes, and the market price quoted for the exchange notes, may be adversely affected by changes in the overall market for high-yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for the exchange notes. 23 28 THE EXCHANGE OFFER PURPOSE AND EFFECT Together with the sale by us of the old notes on June 7, 2001, we entered into a registration rights agreement, dated June 4, 2001, with the placement agents, which requires that we file a registration statement under the Securities Act with respect to the exchange notes and, upon the effectiveness of that registration statement, offer to the holders of the old notes the opportunity to exchange their old notes for a like principal amount of exchange notes. The exchange notes will be issued without a restrictive legend and generally may be reoffered and resold without registration under the Securities Act. The registration rights agreement further provides that we must use reasonable best efforts to begin the exchange offer within 60 days after the registration statement, of which this prospectus forms a part, becomes effective and to consummate the exchange offer by December 7, 2001. Except as described below, upon the completion of the exchange offer, our obligations with respect to the registration of the old notes and the exchange notes will terminate. A copy of the registration rights agreement has been filed as an exhibit to the registration statement of which this prospectus is a part, and this summary of the material provisions of the registration rights agreement does not purport to be complete and is qualified in its entirety by reference to the complete registration rights agreement. As a result of the timely consummation of the exchange offer, we will not have to pay certain additional interest on the old notes provided in the registration rights agreement. Following the completion of the exchange offer, holders of old notes not tendered will not have any further registration rights other than as set forth in the paragraphs below, and those old notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the old notes could be adversely affected upon consummation of the exchange offer. In order to participate in the exchange offer, a holder must represent to us, among other things, that: - the exchange notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the holder; - the holder is not engaging in and does not intend to engage in a distribution of the exchange notes; - the holder does not have an arrangement or understanding with any Person to participate in the distribution of the exchange notes; and - the holder is not an "affiliate," as defined under Rule 405 under the Securities Act, of ours. Under certain circumstances specified in the registration rights agreement, we may be required to file a "shelf" registration statement for a continuous offering in connection with the old notes pursuant to Rule 415 under the Securities Act. See "-- Procedures for Tendering." Based on an interpretation by the Commission's staff set forth in no-action letters issued to third parties unrelated to us, we believe that, with the exceptions set forth below, exchange notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by the holder of exchange notes without compliance with the registration and prospectus delivery requirements of the Securities Act, unless the holder: - is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act; - is a broker-dealer who purchased old notes directly from us for resale under Rule 144A or Regulation S or any other available exemption under the Securities Act; - acquired the exchange notes other than in the ordinary course of the holder's business; or - the holder has an arrangement with any Person to engage in the distribution of exchange notes. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the exchange notes cannot rely on this interpretation by the Commission's staff and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary 24 29 resale transaction. Each broker-dealer that receives exchange notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution." Broker-dealers who acquired old notes directly from us and not as a result of market making activities or other trading activities may not rely on the staff's interpretations discussed above or participate in the exchange offer and must comply with the prospectus delivery requirements of the Securities Act in order to sell the old notes. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 2001, or such date and time to which we extend the offer. We will issue $1,000 in principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding old notes accepted in the exchange offer. Holders may tender some or all of their old notes pursuant to the exchange offer. However, old notes may be tendered only in integral multiples of $1,000 in principal amount. The exchange notes will evidence the same debt as the old notes and will be issued under the terms of, and entitled to the benefits of, the indenture relating to the old notes. As of the date of this prospectus, old notes representing $175.0 million in aggregate principal amount were outstanding and there was one registered holder, a nominee of the Depository Trust Company. This prospectus, together with the letter of transmittal, is being sent to the registered holder and to others believed to have beneficial interests in the old notes. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission promulgated under the Exchange Act. We will be deemed to have accepted validly tendered old notes when, as, and if we have given oral or written notice thereof to Wilmington Trust Company, the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the exchange notes from us. If any tendered old notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth under the heading "Conditions to the Exchange Offer" or otherwise, certificates for any such unaccepted old notes will be returned, without expense, to the tendering holder of those old notes as promptly as practicable after the expiration date unless the exchange offer is extended. Holders who tender old notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of old notes in the exchange offer. We will pay all charges and expenses, other than certain applicable taxes, applicable to the exchange offer. See "Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The expiration date shall be 5:00 p.m., New York City time, on , 2001, unless we, in our sole discretion, extend the exchange offer, in which case the expiration date shall be the latest date and time to which the exchange offer is extended. In order to extend the exchange offer, we will notify the exchange agent and each registered holder of any extension by oral or written notice prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We reserve the right, in our sole discretion: (A) to delay accepting any old notes, to extend the exchange offer or, if any of the conditions set forth under "Conditions to Exchange Offer" shall not have been satisfied, to terminate the exchange offer, by giving oral or written notice of that delay, extension or termination to the exchange agent, or 25 30 (B) to amend the terms of the exchange offer in any manner. In the event that we make a fundamental change to the terms of the exchange offer, we will file a post-effective amendment to the registration statement. PROCEDURES FOR TENDERING Only a holder of old notes may tender the old notes in the exchange offer. Except as set forth under "Book Entry Transfer," to tender in the exchange offer a holder must complete, sign, and date the letter of transmittal, or a copy of the letter of transmittal, have the signatures on the letter of transmittal guaranteed if required by the letter of transmittal, and mail or otherwise deliver the letter of transmittal or copy to the exchange agent prior to the expiration date. In addition: - certificates for the old notes must be received by the exchange agent along with the letter of transmittal prior to the expiration date; - a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of the old notes, if that procedure is available, into the exchange agent's account at the Depository Trust Company (the "Book-Entry Transfer Facility") following the procedure for book-entry transfer described below, must be received by the exchange agent prior to the expiration date; or - you must comply with the guaranteed delivery procedures described below. To be tendered effectively, the letter of transmittal and other required documents must be received by the exchange agent at the address set forth under "Exchange Agent" prior to the expiration date. Your tender, if not withdrawn before the expiration date will constitute an agreement between you and us in accordance with the terms and subject to the conditions set forth herein and in the letter of transmittal. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT YOU USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US. YOU MAY REQUEST YOUR BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR YOU. Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company, or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. If the beneficial owner wishes to tender on the owner's own behalf, the owner must, prior to completing and executing the letter of transmittal and delivering the owner's old notes, either make appropriate arrangements to register ownership of the old notes in the beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless old notes tendered pursuant thereto are tendered: (A) by a registered holder who has not completed the box entitled "Special Registration Instruction" or "Special Delivery Instructions" on the letter of transmittal or (B) for the account of an Eligible Institution. If signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantee must be by any eligible guarantor institution that is a member of or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or an Eligible Institution. 26 31 If the letter of transmittal is signed by a Person other than the registered holder of any old notes listed in the letter of transmittal, the old notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as that registered holder's name appears on the old notes. If the letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to us of their authority to so act must be submitted with the letter of transmittal unless waived by us. All questions as to the validity, form, eligibility, including time of receipt, acceptance, and withdrawal of tendered old notes will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, neither we, the exchange agent, nor any other Person shall incur any liability for failure to give that notification. Tenders of old notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date, unless the exchange offer is extended. In addition, we reserve the right in its sole discretion to purchase or make offers for any old notes that remain outstanding after the expiration date or, as set forth under "Conditions to the Exchange Offer," to terminate the exchange offer and, to the extent permitted by applicable law, purchase old notes in the open market, in privately negotiated transactions, or otherwise. The terms of any such purchases or offers could differ from the terms of the exchange offer. By tendering, you will be representing to us that, among other things: - the exchange notes acquired in the exchange offer are being obtained in the ordinary course of business of the Person receiving such exchange notes, whether or not such Person is the registered holder; - you are not engaging in and do not intend to engage in a distribution of the exchange notes; - you do not have an arrangement or understanding with any Person to participate in the distribution of such exchange notes; and - you are not an "affiliate," as defined under Rule 405 of the Securities Act, of ours. In all cases, issuance of exchange notes for old notes that are accepted for exchange in the exchange offer will be made only after timely receipt by the exchange agent of certificates for such old notes or a timely Book-Entry Confirmation of such old notes into the exchange agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed letter of transmittal or, with respect to the Depository Trust Company and its participants, electronic instructions in which the tendering holder acknowledges its receipt of and agreement to be bound by the letter of transmittal, and all other required documents. If any tendered old notes are not accepted for any reason set forth in the terms and conditions of the exchange offer or if old notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged old notes will be returned without expense to the tendering holder or, in the case of old notes tendered by book-entry transfer into the exchange agent's account at the Book-Entry Transfer Facility according to the book-entry transfer procedures described below, those nonexchanged old notes will be credited to an account maintained with that Book-Entry 27 32 Transfer Facility, in each case, as promptly as practicable after the expiration or termination of the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for old notes, where those old notes were acquired by such broker-dealer as a result of market making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of those exchange notes. See "Plan of Distribution." BOOK-ENTRY TRANSFER The exchange agent will make a request to establish an account with respect to the old notes at the Book-Entry Transfer Facility for purposes of the exchange offer within two business days after the date of this prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of old notes being tendered by causing the Book-Entry Transfer Facility to transfer such old notes into the exchange agent's account at the Book-Entry Transfer Facility in accordance with that Book-Entry Transfer Facility's procedures for transfer. However, although delivery of old notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the letter of transmittal or copy of the letter of transmittal, with any required signature guarantees and any other required documents, must, in any case other than as set forth in the following paragraph, be transmitted to and received by the exchange agent at the address set forth under "Exchange Agent" on or prior to the expiration date or the guaranteed delivery procedures described below must be complied with. The Depository Trust Company's Automated Tender Offer Program ("ATOP") is the only method of processing exchange offers through the Depository Trust Company. To accept the exchange offer through ATOP, participants in the Depository Trust Company must send electronic instructions to the Depository Trust Company through the Depository Trust Company's communication system instead of sending a signed, hard copy letter of transmittal. The Depository Trust Company is obligated to communicate those electronic instructions to the exchange agent. To tender old notes through ATOP, the electronic instructions sent to the Depository Trust Company and transmitted by the Depository Trust Company to the exchange agent must contain the character by which the participant acknowledges its receipt of and agrees to be bound by the letter of transmittal. GUARANTEED DELIVERY PROCEDURES If a registered holder of the old notes desires to tender old notes and the old notes are not immediately available, or time will not permit that holder's old notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if: - the tender is made through an Eligible Institution; - prior to the expiration date, the exchange agent receives from that Eligible Institution a properly completed and duly executed letter of transmittal or a facsimile of duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by us, by telegram, telex, fax transmission, mail or hand delivery, setting forth the name and address of the holder of old notes and the amount of old notes tendered and stating that the tender is being made by guaranteed delivery and guaranteeing that within three New York Stock Exchange, Inc. ("NYSE") trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered old notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, will be deposited by the Eligible Institution with the exchange agent; and - the certificates for all physically tendered old notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, are received by the exchange agent within three NYSE trading days after the date of execution of the notice of guaranteed delivery. 28 33 WITHDRAWAL RIGHTS Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal of a tender of old notes to be effective, a written or, for the Depository Trust Company participants, electronic ATOP transmission notice of withdrawal, must be received by the exchange agent at its address set forth under "Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date. Any such notice of withdrawal must: - specify the name of the Person having deposited the old notes to be withdrawn (the "Depositor"); - identify the old notes to be withdrawn, including the certificate number or numbers and principal amount of such old notes; - be signed by the holder in the same manner as the original signature on the letter of transmittal by which such old notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee register the transfer of such old notes into the name of the Person withdrawing the tender; and - specify the name in which any such old notes are to be registered, if different from that of the Depositor. All questions as to the validity, form, eligibility and time of receipt of such notices will be determined by us, whose determination shall be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any old notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder of those old notes without cost to that holder as soon as practicable after withdrawal, rejection of tender, or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures under "Procedures for Tendering" at any time on or prior to the expiration date. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the exchange offer, we will not be required to accept for exchange, or to issue exchange notes in exchange for, any old notes and may terminate or amend the exchange offer if at any time before the acceptance of those old notes for exchange or the exchange of the exchange notes for those old notes, we determine that the exchange offer violates applicable law, any applicable interpretation of the staff of the Commission or any order of any governmental agency or court of competent jurisdiction. The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition or may be waived by us in whole or in part at any time and from time to time in our sole discretion. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any of those rights and each of those rights shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, we will not accept for exchange any old notes tendered, and no exchange notes will be issued in exchange for those old notes, if at such time any stop order shall be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939. In any of those events we are required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time. EXCHANGE AGENT All executed letters of transmittal should be directed to the exchange agent. Wilmington Trust Company has been appointed as exchange agent for the exchange offer. Questions, requests for assistance 29 34 and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows: WILMINGTON TRUST COMPANY, EXCHANGE AGENT By Overnight Delivery or Registered or Certified Mail: By Hand in New York: By Hand in Delaware: Wilmington Trust Company Wilmington Trust Company Wilmington Trust Company Rodney Square North c/o Computershare Trust 1105 Rodney Square North 1100 Rodney Square North Company of New York Wilmington, DE Wilmington, DE 19890 Wall Street Plaza Attn: Corporate Trust, 1st Attn: Corporate Trust 88 Pine Street, 19th Floor Floor New York, NY 10005 Facsimile Transmission Number: (For Eligible Institutions Only) (302) 651-1079 Confirm Receipt of Facsimile by Telephone: (302) 651-8869
Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight delivery service. FEES AND EXPENSES We will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. The principal solicitation is being made by mail; however, additional solicitations may be made in Person or by telephone by our officers and employees. The estimated cash expenses to be incurred in connection with the exchange offer will be paid by us and will include accounting, legal, printing, and related fees and expenses. TRANSFER TAXES Holders who tender their old notes for exchange will not be obligated to pay any transfer taxes in connection with that tender or exchange, except that holders who instruct us to register exchange notes in the name of, or request that old notes not tendered or not accepted in the exchange offer be returned to, a Person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax on those old notes. 30 35 USE OF PROCEEDS This exchange offer is intended to satisfy our obligations under the registration rights agreement dated as of June 4, 2001 by and among PSF Group Holdings, Premium Standard Farms, The Lundy Packing Company, Lundy International, Inc., Premium Standard Farms of North Carolina, Inc., and Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc., as placement agents. We will not receive any cash proceeds from the issuance of the exchange notes. We will only receive old notes with a total principal amount equal to the total principal amount of the exchange notes issued in the exchange offer. We used a portion of the net proceeds from the sale of the old notes, which were approximately $169.1 million, to redeem all $137.9 million principal amount of our 11% Senior Secured Notes (Partial Pay-In-Kind) due on September 17, 2003 and to repay $25.0 million principal amount of our bank term loan. The 11% Senior Secured Notes were redeemed at 101% of their principal amount plus accrued interest to the date of redemption. We will use the balance of the net proceeds to reduce amounts owed under our revolving credit facility and for working capital and general corporate purposes. For a description of our bank term loan and our revolving credit facility, see "Description of the Credit Agreement" beginning on page 72. 31 36 CAPITALIZATION The following table sets forth our consolidated capitalization as of March 31, 2001, on a historical basis and on a pro forma basis after giving effect to the issuance of the old notes and the application of the proceeds therefrom as if they had occurred on March 31, 2001. This table should be read in conjunction with the information contained in "Use of Proceeds," "Unaudited Pro Forma Consolidated Statement of Operations" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as the Financial Statements and the notes thereto included in the back of this prospectus.
AS OF MARCH 31, 2001 ----------------------- ACTUAL PRO FORMA -------- --------- (IN THOUSANDS EXCEPT FOR SHARE INFORMATION) Debt: Credit facility Revolving credit facility.............................. $ 10,000(1) $ 5,200 Term loan facility..................................... 112,500 87,500 Senior notes offered hereby............................... -- 175,000 11% Senior Secured Notes due 2003......................... 137,894 -- Other notes payable and capital leases.................... 6,822 6,822 -------- -------- Total debt........................................ $267,216 $274,522 -------- -------- Shareholders' Equity: Class A common stock, $1 par value, 250,000 shares authorized, 100,000 shares issued and outstanding...... $ 100 $ 100 Class B common stock, $1 par value, 300,000 shares authorized, 113,301 shares issued and outstanding...... 113 113 Preferred Stock, $1 par value, 10,000 shares authorized, no shares outstanding.................................. -- -- Additional paid-in capital................................ 373,442 373,442 Accumulated deficit....................................... (15,818) (15,818)(2) -------- -------- Total shareholders' equity........................ 357,837 357,837 -------- -------- Total capitalization.............................. $625,053 $632,359 ======== ========
- --------------- (1) $82.5 million total availability, net of $7.5 million in letters of credit outstanding, subject to certain conditions. (2) Does not reflect a $1.4 million prepayment premium on the 11% Senior Secured Notes. 32 37 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS The following Unaudited Pro Forma Consolidated Statement of Operations has been derived by the application of unaudited pro forma adjustments to the historical consolidated Statement of Operations of PSF Group Holdings for the year ended March 31, 2001. The Unaudited Pro Forma Consolidated Statement of Operations gives effect to (i) the offering of the old notes and the application of substantially all of the proceeds to redeem all outstanding 11% Senior Secured Notes due 2003 and to repay $25.0 million principal amount of our bank term loan, and (ii) our acquisitions of The Lundy Packing Company and Premium Standard Farms of North Carolina, Inc. (PSFNC), as if they had been consummated on March 26, 2000. The adjustments necessary to fairly present this unaudited pro forma consolidated financial information have been made based on available information and in the opinion of management are reasonable and are described in the accompanying notes. The unaudited pro forma consolidated financial information should not be considered indicative of actual results that would have been achieved had these transactions been consummated on the date indicated and does not purport to indicate results of operations for any future period. We cannot assure you that the assumptions used in the preparation of the unaudited pro forma consolidated financial information will prove to be correct. You should read the Unaudited Pro Forma Consolidated Statement of Operations together with "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the notes thereto, included in the back of this prospectus. 33 38 PSF GROUP HOLDINGS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 2001 (IN THOUSANDS)
PSF GROUP LUNDY PSFNC PURCHASE OFFERING HISTORICAL PRE-ACQUISITION(1) PRE-ACQUISITION(1) ADJUSTMENTS ADJUSTMENTS PRO FORMA ---------- ------------------ ------------------ ----------- ----------- --------- Net sales...................... $540,576 $111,236 $28,264 $ -- $ -- $680,076 Cost of goods sold............. 456,184 112,566 22,314 2,131(2) -- 593,195 -------- -------- ------- ------- ------- -------- Gross profit (loss)............ 84,392 (1,330) 5,950 (2,131) -- 86,881 Selling, general and administrative expenses...... 19,413 1,151 369 -- -- 20,933 Amortization expense........... 3,180 -- -- 310(3) -- 3,490 Other expense.................. 1,210 1,357 81 -- -- 2,648 -------- -------- ------- ------- ------- -------- Operating income (loss)........ 60,589 (3,838) 5,500 (2,441) -- 59,810 Interest expense, net.......... 23,208 2,184 -- -- 1,627(4) 27,019 -------- -------- ------- ------- ------- -------- Income (loss) before tax....... 37,381 (6,022) 5,500 (2,441) (1,627) 32,791 Income tax expense (benefit)... 15,367 (2,409) 2,200 (976)(5) (651)(5) 13,531 -------- -------- ------- ------- ------- -------- Net income (loss).............. $ 22,014 $ (3,613) $ 3,300 $(1,465) $ (976) $ 19,260 ======== ======== ======= ======= ======= ======== OTHER FINANCIAL DATA: EBITDA(6)...................... $112,292 $ (625) $ 6,993 $ 2,441 $121,101
- --------------- (1) Represents historical results of operations from Lundy and PSFNC from March 26, 2000 through the respective acquisition dates of August 25 and September 22, 2000. (2) The adjustment to cost of goods sold represents the incremental depreciation on the stepped-up assets under purchase accounting for both the Lundy acquisition and the PSFNC acquisition. The adjustment includes approximately $2.0 million and $155,000 in incremental depreciation related to Lundy and PSFNC, respectively. (3) The adjustment to amortization expense relates to the increase in goodwill associated with the purchase accounting treatment of the Lundy and PSFNC acquisitions. Goodwill increased by $14.5 million and $6.5 million for the Lundy and PSFNC acquisitions, respectively. Goodwill is being amortized over 30 years. (4) The adjustment to interest expense reflects the following:
YEAR ENDED MARCH 31, 2001 -------------- (IN THOUSANDS) Interest expense on previously existing indebtedness to be repaid with the proceeds from this offering............... $(18,036) Interest expense on the notes............................... 16,188 Interest expense on debt issued to finance the Lundy and PSFNC acquisitions (at an assumed rate of 9.625%)......... 3,475 -------- Total adjustment............................................ $ 1,627 ========
The adjustment does not reflect a prepayment premium of $1.4 million on the 11% Senior Secured Notes which will be repaid with the proceeds of this offering. (5) The adjustments to income tax benefit reflects the tax effect of the purchase and offering adjustments at 40% of income before tax. (6) EBITDA represents earnings before interest, taxes, depreciation, amortization and impairment. EBITDA is presented because we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, other companies in our industry may calculate EBITDA differently than we do. Therefore, EBITDA is not necessarily comparable to similarly titled measures of these companies. EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. 34 39 SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION The following table sets forth selected historical consolidated financial information for PSF Group Holdings from inception (May 13, 1998, the date of the ContiGroup acquisition) through the period ended March 27, 1999 and for the fiscal years ended March 25, 2000 and March 31, 2001, which was derived from our consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants, which are included in the back of this prospectus. The financial information presented for the years ending March 29, 1997, March 28, 1998, and the period from March 29, 1998 to May 12, 1998 are for ContiGroup's North Missouri Farms division, our predecessor company which was derived from the unaudited financial statements of that company. The financial information presented for the year ending March 31, 2001 reflects our acquisition of The Lundy Packing Company on August 25, 2000 and our acquisition of Premium Standard Farms of North Carolina, Inc. on September 22, 2000, both of which were accounted for in accordance with the purchase method of accounting. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the notes thereto included in the back of this prospectus. 35 40 PSF GROUP HOLDINGS, INC. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
PREDECESSOR PSF GROUP HOLDINGS --------------------------------------- --------------------------------------- FISCAL YEARS ENDED FOR THE PERIOD FOR THE PERIOD FISCAL YEARS ENDED --------------------- --------------- --------------- --------------------- MARCH 29, MARCH 28, MARCH 29, 1998 MAY 13, 1998 TO MARCH 25, MARCH 31, 1997 1998 TO MAY 12, 1998 MARCH 27, 1999 2000 2001 --------- --------- --------------- --------------- --------- --------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net Sales.............................. $ 37,405 $48,148 $ 4,638 $237,090 $306,266 $ 540,576 Cost of goods sold..................... 29,622 43,335 5,935 249,757 265,929 456,184 Selling, general and administrative expenses............................. 784 1,029 118 20,027 18,830 19,413 Impairment of fixed assets(1).......... -- -- -- -- 5,000 -- Amortization expense................... -- -- -- 1,945 2,320 3,180 Other expense (income)................. -- -- -- 682 (47) 1,210 Operating income (loss)................ 6,999 3,784 (1,415) (35,321) 14,234 60,589 Interest expense, net.................. 1,385 1,670 296 17,601 21,220 23,208 Income tax expense (benefit)........... 2,246 846 (684) (20,377) (1,699) 15,367 Net income (loss)...................... 3,368 1,268 (1,027) (32,545) (5,287) 22,014 OTHER FINANCIAL DATA: GAAP cash flow: Operating activities................. $ 5,164 $ 8,321 $ (756) $ (7,620) $ 55,522 $ 61,679 Investing activities................. (23,961) (1,641) (2,654) (17,322) (15,242) (145,992) Financing activities................. 20,407 (7,934) 3,673 (227) (42,677) 91,219 EBITDA(2).............................. 11,176 9,193 (714) 2,330 62,527 112,292 EBITDA margin(3)....................... 29.88% 19.09% (15.39)% 0.98% 20.42% 20.77% Capital expenditures................... $ 23,961 $ 1,641 $ 2,654 $ 22,126 $ 23,669 $ 43,224 Debt to EBITDA(4)...................... -- -- -- 90.72x 2.81x 2.38x Depreciation, amortization and impairment........................... $ 4,177 $ 5,409 $ 701 $ 37,651 $ 48,293 $ 51,703 EBITDA to interest expense(5).......... 8.07x 5.50x (2.41)x 0.13x 2.94x 4.65x Ratio of earnings to fixed charges(6)........................... -- -- -- -- -- 2.10x Pounds of pork sales (millions)(7)..... -- -- -- 296.79 345.84 603.88 Total hogs processed (millions)(7)..... -- -- -- 1.61 1.92 3.02 BALANCE SHEET DATA (AT PERIOD END): Working capital........................ $ 13,998 $11,600 $12,312 $ 70,010 $ 51,698 $ 119,764 Property, plant equipment and breedstock........................... 59,132 55,364 57,317 456,961 427,662 496,882 Goodwill............................... -- -- -- 59,438 57,398 75,998 Total assets........................... 74,945 68,413 70,211 617,455 584,498 773,440 Total long-term debt and capital leases (including current portion).......... -- -- -- 211,384 175,997 267,216 Shareholders' equity................... 73,839 67,173 69,836 324,955 319,668 357,837
- --------------- (1) During fiscal 2000, certain assets under construction, which were originally being constructed for an expansion in Texas, were determined to be unrecoverable due to a change in expansion plans. A non-cash impairment loss was taken during the year. (2) EBITDA represents earnings before interest, taxes, depreciation, amortization and impairment. EBITDA and the related ratios are presented because we believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, other companies in our industry may calculate EBITDA differently than we do. Therefore, EBITDA is not necessarily comparable to similarly titled measures of these companies. EBITDA is not a measurement of financial performance under generally accepted 36 41 accounting principles and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See the Statements of Cash Flow included in our consolidated financial statements. (3) Represents EBITDA as a percentage of net sales. (4) Represents debt divided by EBITDA. (5) Represents EBITDA divided by gross interest expense. (6) The ratio of earnings to fixed charges, is computed by dividing earnings by fixed charges. For this purpose, "earnings" include net income (loss) before taxes and fixed charges. "Fixed charges" include interest, amortization of debt expense and the portion of rental expense that is representative of the interest factor in these rentals. For the period ended March 27, 1999 and the fiscal year ended 2000 our earnings were insufficient to cover our fixed charges by $52.9 million and $7.0 million, respectively. (7) Our predecessor company did not process hogs or sell fresh pork. 37 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements, including the notes thereto, and the other financial information appearing elsewhere in this prospectus. OVERVIEW As a vertically integrated provider of pork products, we operate in both pork industry segments: hog production and pork processing. In fiscal 2001, we made two strategic acquisitions to strengthen our position in the food production industry. On August 25, 2000, we acquired The Lundy Packing Company and its affiliated companies, which owned a processing plant in North Carolina capable of processing 1.8 million hogs per year and owned approximately 41,000 sows. On September 22, 2000, we acquired, from ContiGroup, Premium Standard Farms of North Carolina, which owned approximately 24,000 sows. As a result of these acquisitions, we are the second largest owner of sows in North America, with over 200,000 sows producing approximately 3.9 million hogs per year. We are also the eighth largest pork processor in the United States, with two plants capable of processing over 3.7 million hogs per year. Our fiscal year is the 52 or 53-week period, which ends on the last Saturday in March. Our financial statements include activity from the fiscal years ended March 31, 2001 (53 weeks) and March 25, 2000 (52 weeks), and the period from May 13, 1998, through March 27, 1999 (45.5 weeks). NET SALES Our net sales are generated from the sale of pork products to retailers, food service suppliers, further processors, export buyers, and to a lesser extent the sale of market hogs to other pork processors. In fiscal 2001, sales of pork products accounted for approximately 88% of our net sales, with the remaining 12% coming from sales of market hogs. Pork product sales are of primal cuts, such as hams, loins, bellies, butts, picnics and ribs, and to a lesser extent of other by-products. Primal products are also converted further into boneless items or, in our North Carolina operations, further processed into items such as smoked hams, cured hams, and sliced bacon. Our processing revenues are primarily driven by the operating rate of our facilities and the value that we extract from the hogs that we process. For our fiscal years ended March 31, 2001 and March 25, 2000, and for the period between May 13, 1998 and March 27, 1999, we processed 3.0 million, 1.9 million and 1.6 million hogs respectively. Our Missouri processing plant is currently capable of processing 7,100 hogs per day and our Clinton, North Carolina processing plant is currently capable of processing 6,500 hogs per day. We are currently implementing improvements to our Clinton, North Carolina processing facility, which are expected to be completed by the end of the fourth quarter in fiscal 2002, to increase its capacity to 8,000 hogs per day, with additional capacity to process up to 10,000 hogs per day on a ten-hour shift on a seasonal basis. The value that we extract from hogs processed is primarily driven by pork prices, processing yields and to a lesser extent, by product mix, as premium products and boneless and further processed products generate higher prices and operating margins. Wholesale pork prices fluctuate seasonally and cyclically due to changes in supply and demand for pork. The annual average USDA #2 cutout price has ranged from a low of $53.02 per hundred weight to a high of $76.87 per hundred weight during the period from 1990 to 2000. The USDA #2 cutout price is a standard measure of the price of primal cuts produced by pork processing operations that is published daily by the U.S. Department of Agriculture. We expect that pork product prices may decrease slightly in 2001. We believe, however, that our vertical integration allows us to obtain higher prices for our products than our more commodity-driven competitors. See "Market Risk." Revenue from the sale of market hogs is driven by the number of hogs sold (in excess of what our processing facilities require), the average weight, and the current market price (including any quality premiums). We are currently expanding our Texas hog production facilities to add 10,000 new sows, which we expect will produce approximately 200,000 new hogs per year beginning in fiscal year 2003. We intend 38 43 to sell most of these new hogs to third party processors rather than process them at our own facilities and have entered into a long-term supply contract with a processor who has agreed to acquire the majority of these new hogs. When justified by market conditions, customer relationships and other circumstances, we intend to add a processing plant in Texas that will create a third fully integrated pod. Historically, live hog prices have experienced cyclical and seasonal supply and demand fluctuations. Overproduction of hogs caused a severely depressed hog market during late calendar year 1998 and much of 1999. Hog prices reached twenty-year lows in calendar years 1998 and 1999 with average prices of $31.91 and $31.49 per hundred weight for those years. As a result, many smaller producers were forced to liquidate their sow herds and exit production, and the remaining producers have remained reluctant to expand despite an improving market environment. This constrained supply combined with an overall increase in consumer demand for pork products has resulted in improving hog prices. Average Iowa/ Southern Minnesota live hog prices, a commonly-used USDA-quoted market price, increased from $31.49 per hundred weight in calendar year 1999 to $43.02 per hundred weight in calendar year 2000. Although there was some sow herd liquidation, there have been improvements in the remaining sow herd's productivity, which have mitigated the impact on market hog inventories. Currently, the demand for pork coupled with more stable production numbers has proven to be sufficient to create favorable market conditions. We expect these conditions to continue until late calendar year 2001 when slightly higher forecasts for hog production are expected to exert modest downward pressure on live hog prices in late calendar year 2001 and into calendar year 2002. COST OF GOODS SOLD Our cost of goods sold is driven primarily by several key factors. For our pork processing operations, the main costs (excluding market hogs) are labor, packaging, utilities, and facility expenses. Given the high fixed costs required to build, maintain and operate a processing plant, unit costs are impacted somewhat by processing volumes. For fiscal 2001, the costs associated with our North Carolina pork processing facility reflected the fact that approximately 39% of the hogs processed at that facility were purchased at market price from independent local farmers under supply contracts. For our hog production operations, the main costs are feed, labor, utilities, and facility expenses which include maintenance, depreciation and contract grower fees. The costs associated with feed generally represent 50% to 60% of the total cost to raise a market hog depending on the price of corn and soybean meal. We are proactive in recognizing opportunities to improve our cost structure and have been very effective in managing our costs to become one of the lowest cost producers in the industry. The cost of corn and soybean meal fluctuates constantly. The annual average price of corn has ranged from a low of $1.72 per bushel to a high of $3.70 per bushel during the period from 1980 to 2000. The annual average price of soybean meal has ranged from a low of $131.53 per ton to a high of $250.28 per ton in the same period. See "Risk Factors." Increases in the price of these commodities result in increases in our feed costs, while decreases reduce our feed costs. The relative impact of price changes in these commodities varies based on the percentage that each makes up in our feed composition. See "Market Risk." SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Sales and marketing expenses consist primarily of salaries for company-employed sales people as well as trade promotions, advertising, commissions and other marketing costs. General and administrative costs consist primarily of general management, accounting, tax and legal. SEASONALITY Our quarterly operating results are influenced by seasonal fluctuations in the price of our primary feed components, corn and soybean meal, and by seasonal fluctuations in wholesale pork prices. The prices we 39 44 pay for our feed components are generally lowest in August, September and October, which corresponds with the corn and soybean harvests. Generally, the prices for these commodities will increase over the following months leading up to the next harvest due to the increased storage costs. As a result, our costs in the production side of our business tend to increase during this period. Live hog and wholesale pork prices are similarly affected by seasonal factors. It generally takes approximately 11 months from conception for a hog to reach market weight, and because sows are generally less productive in summer months as a result of seasonal conditions, there are generally fewer hogs available in the months of April, May and June. This decrease in supply of live hogs generally causes live hog and wholesale pork prices to be higher on average during these months, and our revenues tend to increase accordingly. Conversely, there are generally more hogs available in the months of October, November and December, which generally causes live hog and wholesale pork prices to be lower on average during these months and adversely affects our revenues. The unaudited financial information contained in the following table illustrates the net impact of these seasonal factors on our net sales, operating income (loss), EBITDA and EBITDA margins in each of the last eight fiscal quarters.
FOR THE FISCAL QUARTERS ENDED ----------------------------------------------------------------------------------------- FY 2000 FY 2001 ------------------------------------------- ------------------------------------------- JUNE 26, SEPT. 25, DEC. 25, MARCH 25, JUNE 24, SEPT. 23, DEC. 23, MARCH 31, 1999 1999 1999 2000 2000 2000 2000 2001 -------- --------- -------- --------- -------- --------- -------- --------- (IN THOUSANDS, EXCEPT PERCENTAGES) Net Sales.................... $70,833 $71,906 $82,136 $81,391 $87,920 $111,912 $168,958 $171,786 Operating Income (Loss)...... 2,675 4,182 (4,264) 11,641 20,643 20,273 9,195 10,478 EBITDA....................... 13,470 15,034 6,564 22,459 31,659 32,245 23,297 25,038 EBITDA margin................ 19% 21% 8% 28% 36% 29% 14% 15%
RESULTS OF OPERATIONS The following table presents selected historical financial information for our production and processing segments for the period May 13, 1998 to March 27, 1999 and for each of the fiscal years 2000 and 2001. Results of operations for the period ended March 31, 2001 include information for The Lundy Packing Company from August 25, 2000 and information for Premium Standard Farms of North Carolina, Inc. from September 22, 2000, the respective dates of acquisition. Net sales, gross profit (loss) and operating income (loss) by segment are also presented as a percentage of their respective totals. The four columns under year-to-year change show the dollar and percentage change from the period May 13, 1998 to March 27, 1999 to the fiscal year 2000 and from the fiscal year 2000 to 2001. Intersegment sales are based on live hog prices. 40 45
FOR THE PERIOD FOR THE FISCAL YEARS ENDED YEAR-TO-YEAR CHANGE ------------------------ --------------------------------------- ----------------------------------- MAY 13, 1998 TO MARCH 25, MARCH 31, 1999 TO 2000 TO MARCH 27, 1999 % 2000 % 2001 % 2000 % 2001 % --------------- ------ --------- ------ --------- ------ ------- ------ ------- ----- (IN MILLIONS, EXCEPT PERCENTAGES) NET SALES Production............ $157.0 66.2% $ 220.9 72.1% $ 359.1 66.4% $ 63.9 40.7% $ 138.2 62.6% Processing............ 204.4 86.2 266.7 87.1 475.7 88.0 62.3 30.5 209.0 78.4 Intersegment.......... (124.3) (52.4) (181.3) (59.2) (294.2) (54.4) (57.0) 45.9 (112.9) 62.3 ------ ------ ------- ------ ------- ------ ------ ------- Net Sales............. $237.1 100.0% $ 306.3 100.0% $ 540.6 100.0% $ 69.2 29.2% $ 234.3 76.5% ====== ====== ======= ====== ======= ====== ====== ======= GROSS PROFIT (LOSS) Production............ $(46.3) 367.5% $ 11.1 27.5% $ 62.4 73.9% $ 57.4 (124.0)% $ 51.3 462.2% Processing............ 33.7 (267.5) 29.2 72.5 22.0 26.1 (4.5) (13.4) (7.2) (24.7) ------ ------ ------- ------ ------- ------ ------ ------- Total Gross Profit (Loss)............ $(12.6) 100.0% $ 40.3 100.0% $ 84.4 100.0% $ 52.9 (419.8)% $ 44.1 109.4% ====== ====== ======= ====== ======= ====== ====== ======= OPERATING INCOME (LOSS) Production............ $(46.7) 132.3% $ 6.1 43.0% $ 62.7 103.5% $ 52.8 (113.1)% $ 56.6 927.9% Processing............ 31.8 (90.1) 26.7 188.0 16.3 26.9 (5.1) (16.0) (10.4) (39.0) Corporate............. (20.4) 57.8 (18.6) (131.0) (18.4) (30.4) 1.8 0.0 0.2 0.0 ------ ------ ------- ------ ------- ------ ------ ------- Total Operating Income (Loss)..... $(35.3) 100.0% $ 14.2 100.0% $ 60.6 100.0% $ 49.5 (140.2)% $ 46.4 326.8% ====== ====== ======= ====== ======= ====== ====== =======
Year Ended March 31, 2001 Compared to the Year Ended March 25, 2000 Consolidated Net sales. Net sales increased by $234.3 million, or 76.5%, to $540.6 million in 2001 from $306.3 million in 2000. The acquisitions of The Lundy Packing Company and Premium Standard Farms of North Carolina accounted for $184.8 million of the increase in net sales, with the remaining $49.5 million the result of an increase in pork product sales attributable to improving pork prices and a slightly higher volume produced. Cost of Goods Sold. Cost of goods sold increased by $190.3 million, or 71.5%, to $456.2 million in 2001 from $265.9 million in 2000. The acquisitions of The Lundy Packing Company and Premium Standard Farms of North Carolina accounted for $177.0 million of the increase. Cost of goods sold as a percentage of net sales improved to 84.4% in 2001 from 86.8% in 2000. This improvement was the result of improving pork product prices, as mentioned above, offset partially by an increase in volume produced, higher costs of feed in our hog production segment and higher costs of outside purchases of market hogs in our pork processing segment. Gross Profit. Gross profit increased by $44.1 million, or 109.4%, to $84.4 million in 2001 from $40.3 million in 2000 and increased to 15.6% of net sales in 2001 from 13.2% in 2000, due to the factors mentioned above. Selling, General and Administrative Expenses. Selling, general and administrative expenses improved as a percentage of net sales to 3.6% in 2001 from 6.1% in 2000 due primarily to economies of scale. In dollar terms, selling, general and administrative expenses increased by $0.6 million, or 3.2%, to $19.4 million in 2001 from $18.8 million in 2000 due primarily to the acquisitions in 2001. Operating Income. Operating income increased by $46.4 million, or 326.8%, to $60.6 million in 2001 from $14.2 million in 2000. The increase is attributable to the factors mentioned above. Interest Expense, net. Interest expense, net, increased by $2.0 million, or 9.4%, to $23.2 million in 2001 from $21.2 million in 2000. The increase was primarily caused by the increase in borrowings to finance the acquisitions of The Lundy Packing Company and Premium Standard Farms of North Carolina. Income Tax Expense. Our effective tax rate was 41.1% in 2001 and 24.3% in 2000. The increase in effective rate was the result of the relative impact of permanent differences between book and tax income. 41 46 Segment Analysis Hog Production. Net sales increased by $138.2 million, or 62.6%, to $359.1 million in 2001 from $220.9 million in 2000. The acquisition of Premium Standard Farms of North Carolina accounted for $83.9 million of the increase in net sales, with the remaining $54.3 million the result of an average increase of 22.6% in market hog prices. Intersegment sales to our pork processing segment transferred at market prices are eliminated in the Consolidated Statements of Operations. Gross profit increased by $51.3 million, or 462.2%, to $62.4 million in 2001 from $11.1 million in 2000. The increase is primarily related to the increase in market hog prices, which was slightly offset by increases in feed costs in 2001 compared to 2000. Operating income increased by $56.6 million, or 927.9%, to $62.7 million in 2001 from $6.1 million in 2000. In 2000 there was a $5.0 million nonrecurring asset impairment charge with the remaining increase attributed to factors mentioned above. Pork Processing. Revenues increased by $209.0 million, or 78.4%, to $475.7 million in 2001 from $266.7 million in 2000. The acquisition of The Lundy Packing Company accounted for $169.0 million of the increase in net sales, with the remaining $40.0 million the result of increased pork product sales attributable to an increase in prices and a slight increase in volume processed. Gross profit decreased by $7.2 million, or 24.7%, to $22.0 million in 2001 from $29.2 million in 2000. The decrease was the result of lower margins on pork products due to higher market hog costs partially offset by the incremental gross profit generated from The Lundy Packing Company. Operating income decreased by $10.4 million, or 39.0%, to $16.3 million in 2001 from $26.7 million in 2000. The decrease was attributed to the factors mentioned above, as well as to an increase in selling, general and administrative expenses of $1.3 million as a result of the acquisition of The Lundy Packing Company, and a nonrecurring charge in fiscal 2001 of $2.0 million for certain benefit plan expenses. Year Ended March 25, 2000 Compared to the 45.5 week Period Ended March 27, 1999 Consolidated Net Sales. Net sales increased by $69.2 million, or 29.2%, to $306.3 million in 2000 from $237.1 million in 1999. The increase was in part due to 1999 only representing 45.5 weeks of operations subsequent to the purchase by ContiGroup. This represented $36.5 million of the increase. The remaining $32.7 million increase was the result of higher pork product prices coupled with a slight increase in the volume of pork products sold. Cost of Goods Sold. Cost of goods sold increased by $16.1 million, or 6.5%, to $265.9 million in 2000 from $249.8 million in 1999. Cost of goods sold as a percentage of net sales improved to 86.8% in 2000 from 105.3% in 1999. This improvement was the result of improving pork product prices, as mentioned above, as well as lower costs of feed in our hog production segment. Gross Profit (Loss). Gross profit increased by $52.9 million to $40.3 million in 2000 from a gross loss of $12.6 million in 1999 and increased to 13.2% of net sales in 2000 from (5.3)% in 1999, due to the factors mentioned above. Selling, General and Administrative Expenses. Selling, general and administrative expenses improved as a percentage of net sales to 6.2% in 2000 from 8.5% in 1999. In dollar terms, selling, general and administrative expenses decreased by $1.2 million, or 6.0%, to $18.8 million in 2000 from $20.0 million in 1999. Both the improvement as a percentage and the decrease in terms of dollars were primarily due to a decrease in litigation expenses in 2000 compared to 1999. Operating Income (Loss). Operating income increased by $49.5 million to $14.2 million in 2000 from an operating loss of $35.3 million in 1999. The increase is attributable to the factors mentioned above. 42 47 Interest Expense, net. Interest expense, net, increased by $3.6 million, or 20.5%, to $21.2 million in 2000 from $17.6 million in 1999. The increase was primarily caused by an increase in average debt outstanding under our revolving credit facility. Income Tax Expense. Our effective tax rate was 24.3% in 2000 and 38.5% in 1999. The decrease in effective rate was the result of the relative impact of permanent differences between book and tax income. Segment Analysis Hog Production. Net sales increased by $63.9 million, or 40.7%, to $220.9 million in 2000 from $157.0 million in 1999. The increase was due to a full year of operating results in 2000 coupled with an increase in market hog prices. Intersegment sales to the pork processing segment transferred at market prices are eliminated in the Consolidated Statements of Operations. Gross profit (loss) increased by $57.4 million to $11.1 million in 2000 from a gross loss of $46.3 million in 1999. The increase is primarily related to the increase in market hog prices, which was slightly offset by a full year of production costs. Operating income (loss) increased by $52.8 million to $6.1 million in 2000 from an operating loss of $46.7 million in 1999. In 2000 there was a $5.0 million nonrecurring asset impairment charge with the remaining increase attributed to factors mentioned above. Pork Processing. Net sales increased by $62.3 million, or 30.5%, to $266.7 million in 2000 from $204.4 million in 1999. The increase was due to a full year of operating results coupled with an increase in pork product sales due to an increase in prices and an increase in volume produced. Gross profit decreased by $4.5 million, or 13.4%, to $29.2 million in 2000 from $33.7 million in 1999. The decrease was the result of slightly lower margins on pork products due to higher market hog costs. Operating income decreased by $5.1 million, or 16.0%, to $26.7 million in 2000 from $31.8 million in 1999. The decrease is attributed to the factors mentioned above, as well as a $0.6 increase in selling, general and administrative expenses resulting from a full year of operation. LIQUIDITY AND CAPITAL RESOURCES Our primary source of financing has been cash flow from operations and bank borrowings. Our ongoing operations will require the availability of funds to service debt, fund working capital and make capital expenditures on our facilities. We expect to finance these activities through cash flow from operations and from amounts available under the revolving credit facility. Net cash flow provided by (used in) operating activities was $61.7 million, $55.5 million, and $(7.6) million in 2001, 2000 and 1999, respectively. The increase in net income in 2001 was offset primarily by increases in working capital requirements relating to inventory and margin calls on our risk management program compared to 2000. Non-cash charges helped minimize the working capital requirements. Non-cash charges increased in 2001 compared to 2000 due to incremental depreciation and amortization expense of acquired businesses as well as an increase in the deferred income tax provision. Net cash flow used in investing activities was $146.0 million, $15.2 million and $17.3 million in 2001, 2000 and 1999, respectively. In 2001, net cash used in investing activities consisted of $114.4 million for our acquisition of The Lundy Packing Company and Premium Standard Farms of North Carolina, as well as capital expenditures of $43.2 million for property, plant and equipment and breeding stock. In 2000, our net cash used in investing activities included capital expenditures of $23.7 million for property, plant and equipment and breeding stock. Net cash flow provided by (used in) financing activities was $91.2 million, $(42.7) million and $(0.2) million in 2001, 2000 and 1999, respectively. In 2001, we borrowed $125.0 million under a new term credit facility to finance the acquisitions of The Lundy Packing Company and Premium Standard Farms of North Carolina and paid approximately $33.8 million of existing debt. 43 48 As of March 31, 2001, our total debt was $267.2 million, including $137.9 million principal amount of our 11% Senior Secured Notes (Partial Pay-In-Kind) due on September 17, 2003, which will be redeemed with the proceeds of this offering, and our total cash was $8.6 million. We expect to incur an extraordinary charge of $1.4 million representing the premium paid to redeem our 11% Senior Secured Notes. As of March 31, 2001, we had $112.5 million outstanding under our term loan facility and we had $10.0 million in borrowings outstanding, and had issued $7.5 million in letters of credit under, our revolving credit facility. As a result, we would have been able to borrow an additional $82.5 million under our revolving credit facility as of March 31, 2001. All borrowings under the revolving credit facility mature on August 21, 2003 and all borrowings under the term credit facility mature on August 21, 2005. For a description of our credit facility, see "Description of the Credit Agreement." In fiscal 2002, we expect to spend approximately $88 million on capital expenditures, of which we expect to spend: - approximately $34 million in connection with the implementation of improvements to our Clinton, North Carolina pork processing facility; - approximately $24 million in connection with our expansion of our Texas hog production facilities; - approximately $8 million on investments and research to develop and implement new technologies for improved waste handling; and - the rest for continuing improvements of our facilities. Under our consent decree with the Attorney General of the State of Missouri we are required to spend $18.3 million on additional investments in research and development over the next three years. We believe that available borrowings under our credit facility, available cash and internally generated funds will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future. Our ability to generate cash, however, is subject to a certain extent to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. If we consummate any acquisitions, we may need to raise additional capital. In addition, it is our long-term plan to add a processing plant to our Texas operations when justified by market conditions, customer relationships and other circumstances. If we expand our Texas operations in this manner, we will need to seek additional sources of funding, which might potentially come from the issuance of additional equity or the pursuit of joint ventures to the extent that such options are available. MARKET RISK Our operating results are influenced by fluctuations in the price of our primary feed components, corn and soybean meal, and by fluctuations in wholesale pork prices. The cost and supply of feed components and wholesale pork prices are determined by constantly changing market forces of supply and demand, which are driven by matters over which we have no control, including weather, current and projected worldwide grain stocks and prices, grain export prices and supports, hog production and governmental agricultural policies. In our hog production segment we use forward contracts, as well as futures and options contracts, to establish adequate supplies of future grain requirements, to secure margins and to reduce the risk of market fluctuations. To secure margins and minimize earnings volatility in our pork processing segment, we utilize lean hog futures to hedge future pork product sales. While this may tend to limit our ability to participate in gains from favorable commodity price fluctuation, it also tends to minimize earnings volatility and secure future margins. As of March 31, 2001, we had deferred gains of $0.1 million compared to deferred losses on closed futures contracts of $0.1 million at March 25, 2000. As of March 31, 2001, we had unrealized losses on open futures contracts of $7.4 million compared to unrealized gains of $0.1 million at March 25, 2000. As of March 31, 2001 and March 25, 2000, we had deposits with brokers for outstanding futures contracts of $10.0 million and $0.6 million respectively, 44 49 included in prepaid expenses and other current assets. For open futures contracts, we use a sensitivity analysis technique to evaluate the effect that changes in the market value of commodities will have on these commodity derivative instruments. As of March 31, 2001, the potential change in fair value of open future contracts, assuming a 10% change in the underlying commodity price, was $10.8 million. We are exposed to changes in interest rates. Our term and revolving credit facilities have variable interest rates. Interest rate changes therefore generally do not affect the market value of such debt but do impact the amount of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant. Conversely, for fixed rate debt, interest rate changes do not impact future cash flows and earnings, but do impact the fair market value of such debt, assuming other factors are held constant. As of March 31, 2001, we had $122.5 million of variable rate debt outstanding. Holding other variables constant, including levels of indebtedness, a one percentage point increase in interest rates would impact pre-tax earnings by approximately $1.2 million. 45 50 BUSINESS OVERVIEW We are a leading vertically integrated provider of pork products to the wholesale and retail, food service and institutional markets in the United States. By combining modern, efficient production and processing facilities, sophisticated genetics, and strict control over the variables of health, diet and environment, we produce value-added premium pork products. We are the second largest owner of sows in North America, with over 200,000 sows producing approximately 3.9 million hogs per year in production operations located on over 100,000 acres in Missouri, Texas and North Carolina. We are also the eighth largest pork processor in the United States, with two plants capable of processing over 3.7 million hogs per year. COMPETITIVE STRENGTHS We believe the following competitive strengths position us to enhance our growth and profitability: - Vertically Integrated Production and Processing. We have achieved a substantial degree of vertical integration of our hog production and processing operations. We measure our level of vertical integration in terms of the percentage of hogs processed at our plants that are owned by us and raised according to our controlled programs. All of the hogs used by our Milan, Missouri processing plant are sourced from our Missouri and Texas hog production operations. In fiscal 2001, since our North Carolina acquisitions, approximately 61% of hogs used by our Clinton, North Carolina processing plant were supplied by our North Carolina hog production operations, with the remaining 39% supplied through contracts with independent producers. Vertical integration gives us strict control over our process, from a hog's initial genetic makeup to the pork product ultimately produced and shipped. This is in contrast to non-integrated or less integrated processors who acquire hogs from a large number of suppliers with varying production standards and therefore find it difficult to ensure a consistent and high quality product. This is a powerful advantage for competing effectively in the rapidly consolidating pork industry because it allows us to: - Produce Premium and Specialty Products. By regulating the variables of genetics, environment, health and diet we can produce a controlled supply of high quality, consistent pork products along with specialty products, such as antibiotic free pork and Premium 97 pork (certified as 97 percent fat-free by the American Heart Association), as well as KenKo-Ton healthy pork and Mugi Buta barley-fed pork for the Japanese market. Our products typically command higher prices than commodity pork products. - Target Premium Customers. We are able to tailor our production process to meet the exacting specifications of discriminating customers in our target market. These customers are willing to pay premium prices for higher quality products and for the assurance that their standards are met throughout a traceable production process. Vertical integration provides the product consistency necessary to satisfy these customers. - Reduce Our Production Costs and Maximize Value. Vertical integration allows us to significantly reduce our hog procurement costs and to streamline our logistics, transportation and production schedules, thus optimizing asset utilization and reducing our cost structure. We are also able to capture more of the value of our hogs through our own processing rather than passing this value on to other processors. - Reduce Earnings Volatility and Exposure to Market Fluctuations. Vertical integration provides us with an assured supply of hogs and strengthens our overall financial performance in periods of market price weakness by reducing our exposure to pricing volatility. We believe this results in more consistent earnings. - Strong Market Position with Large Scale Operations. We are the second largest hog producer and the eighth largest pork processor in the United States. We produce over 3.9 million hogs and 46 51 process over 3.7 million hogs annually. Our large-scale integrated operations, geographic dispersal and strong market position allow us to serve a broad range of customers in our target market, while maintaining economies of scale and marketing leverage. - Efficient, Modern Facilities and Operations. Our Milan, Missouri processing plant is one of the most modern and technically advanced facilities of its kind. When construction and renovation are completed on our recently acquired Clinton, North Carolina processing plant at the end of fiscal 2002, we believe the plant will be the most advanced facility of its kind in the United States. Our hog production operations, most of which were built in the past ten years, incorporate advanced breeding, farrowing and finishing methods resulting in industry-leading productivity statistics. According to data compiled by Agrimetrics Associates, Inc., our costs of production are in the lowest quartile of all pork producers surveyed. These data also show that we are consistently among the top processors in terms of return on hogs processed (which is a function of both price and yield). - Experienced Management Team. Most of our senior and operational management personnel have been involved in farm production and/or the fresh meat industry for most of their business careers. Senior and operational management members, on average, have over thirteen years of experience in those areas. BUSINESS STRATEGY We are pursuing a strategy designed to increase our revenues and cash flow. Key elements of our strategy include: - Further Develop Vertical Integration. We believe our integrated model will be the proven approach to competing effectively in the rapidly consolidating pork industry. We have achieved 100% integration of our Missouri hog production and processing operations and intend to increase integration in our North Carolina operations. In North Carolina, we are renovating our recently acquired processing plant, upgrading the genetics of our breed stock, rationalizing feed manufacturing and increasing supervision of contract growers in order to put in place a USDA Process Verified program similar to the program that is in place for our Missouri operations. Ultimately, we intend to have two fully-integrated geographically separated pods located in these states, allowing us to serve the U.S. and international markets cost effectively. When justified in the future by market conditions, customer relationships and other circumstances, we also intend to expand our Texas operations to add a processing plant that will create a third fully integrated pod modeled upon our Missouri operations. - Focus on High Quality and Value-Added Products. We intend to continue to focus on producing high quality and value-added products for discriminating customers in the retail, food service, export and further processing markets, and to further differentiate ourselves from commodity oriented competitors by developing new brands and additional products. As part of these efforts, and in conjunction with our modernization and renovation of the Clinton, North Carolina processing plant, we intend to improve our North Carolina operations to market premium products similar to those produced by our Milan, Missouri plant, as well as smoked and processed pork products. - Expand Production and Processing Capacity. We intend to further expand hog production at our Texas facilities by adding 10,000 new sows, which we expect will produce approximately 200,000 new hogs per year beginning in fiscal year 2003. We believe additional expansion opportunities exist in Texas. Our Texas production facilities are located on approximately 54,000 acres with adequate space and all environmental and land use permits required for further expansion in a manner that could replicate our Missouri hog production facilities. Due to the difficulty in obtaining such permits in the current regulatory environment, we believe our existing permits in Texas provide us a competitive advantage. We also intend, through modernization and efficiency efforts, to increase processing capacity at our Clinton, North Carolina plant from its current 6,500 hogs per day to 47 52 8,000 hogs per day on an eight-hour shift, with additional capacity to process up to 10,000 hogs per day on a ten-hour shift on a seasonal basis. - Maintain Position as a Low Cost Producer. We strive to produce high-quality pork products at low cost by combining state-of-the-art hog production with modern and efficient pork processing. We measure our production and processing activities continually in an effort to increase our hog production efficiencies, lower our break-even costs, improve our processing yields and develop new value-added products. - Continue Expansion into International Markets. We believe that international markets offer significant growth opportunities and intend to continue our efforts to develop sales outside the United States. Over the past five years, we have established relationships with trading partners in Japan, China, South Korea, Canada, Mexico, Russia and Taiwan, and have exported product over that time period to more than twenty countries. We also believe that our presence in these markets allows us to achieve higher prices for certain pork products than could be obtained domestically. In particular, we intend to increase our export volumes to Japan, as this market ascribes significant value to premium, process-controlled traceable products. We also intend to actively expand sales in the South Korean, Chinese and Taiwanese markets. - Manage Market Risks. We will continue to draw upon the strength of our risk management team, which collectively has over twenty years experience in the area. We will continue to monitor daily opportunities to lock in favorable margins by hedging both feed and energy costs as well as fresh meat sales. - Environmental Stewardship. We will continue to be a leader in the pork industry in researching, developing and implementing new waste handling and environmental technologies and solutions. Those technologies and solutions include source reduction, risk reduction, improved manure treatment, beneficial reuse of waste products (creating value-added products) and water reuse. INDUSTRY OVERVIEW Pork products are the third largest source of meat protein in the United States and the largest source globally. The market for pork products in the United States totaled 97.9 million hogs and 18.9 billion pounds of pork in a $33 billion industry in 2000. Demand for pork products in the United States has historically been relatively stable, with population growth as a primary driver for increased aggregate demand. However, between 1997 and 1999, per capita consumption increased from 45.8 pounds to 50.9 pounds per annum according to the National Pork Producers Council. U.S. exports of pork products have grown substantially in recent years. Between 1995 and 2000, U.S. exports increased at an 11.1% compound annual growth rate from 770.0 million pounds to 1.3 billion pounds. U.S. exports are projected by Sparks Companies, Inc. to increase an additional 16% in calendar year 2001. The pork products market is characterized by prices that change daily based on seasonal consumption patterns and overall supply and demand for pork and other meats in the United States and abroad. In general, domestic and worldwide consumer demand for pork products drive pork processors' long-term demand for hogs, which is filled by hog producers. In order to operate profitably, processors seek to acquire hogs at the lowest possible costs and to minimize processing costs by maximizing plant operating rates. As a result, pork processors' short-term demand for hogs is driven largely by their plants' processing needs. Pork processing is a competitive, but highly concentrated and consolidating industry, with the top ten processors representing approximately 87% of total federally inspected industry capacity in 2000. In contrast, hog production, while also rapidly consolidating, remains highly fragmented, with nearly 86,000 producers in 2000. As a result, the production capacity and supply of hogs has historically been driven by the production decisions of thousands of individual farmers, and has varied substantially. There have been periods of time in which hog supply has either exceeded or fallen short of processors' demand for hogs. Prices for live hogs have then fluctuated either up or down, often relatively independent of short-term changes in wholesale pork prices. Generally speaking, in periods of excess supply of hogs, the 48 53 profitability of hog producers is reduced while that of processors is increased due to the reduction in live hog prices. Conversely, in periods of insufficient supply of hogs, the profitability of hog producers generally increases while that of processors decreases. These variations in hog supply and price are often exacerbated by decisions made by hog producers due to their individual economic circumstances. For example, in periods of high hog prices, producers tend to expand their production capacity by adding sows to their herds, often by retaining marketable females, which further constrains short-term supply. In periods of low hog prices, producers with high production costs tend to liquidate or reduce their herds by selling their hogs, which further increases short-term supply. Supply tends to accumulate and results in larger and more severe supply and price imbalances in these situations because the lead times for changes in capacity to be reflected in hog production due to gestation and growing time are relatively long. Hog prices reached twenty-year lows in calendar years 1998 and 1999 with average prices of $31.91 and $31.49 per hundred weight for those years. As a result, producers have remained reluctant to expand despite an improving market environment. This may also be partially attributed to the increase in industry consolidation and the overall reduction in the total number of producers, as well as stricter environmental requirements hindering new and existing farm construction and expansion. Based on Sparks Companies, Inc. recent analysis of the USDA Hog and Pig Report released in March 2001, we estimate that live hog prices will average approximately $43 per hundred weight in 2001, and hog production is expected to be slightly higher for 2001 as compared to 2000. Pork product prices in 2001 are expected to decrease slightly, with the total amount of commercial processing in the U.S. estimated at 99.1 million hogs in 2001, an increase of approximately 1% compared to 97.9 million in 2000. We expect global consumer demand for pork to continue to increase. Consumer demand for various protein sources including pork, beef, chicken, fish and other meats is driven by consumer preferences and the relative prices and quality of the available products. For example, over the last 15 to 20 years chicken producers have enhanced the quality and consistency of their product, and as consumers have increasingly chosen healthier foods, chicken consumption has steadily increased. In the United States, we expect consumer demand for pork to continue to grow as a result of new lean pork products which are more attractive to diet conscious Americans, together with the industry's efforts to heighten public awareness of pork as an attractive protein source. In fact, according to the National Pork Producers' Council, as a result of genetic, feeding and management improvements by pork producers, certain cuts of pork are on average 31% lower in fat, 14% lower in calories and 10% lower in cholesterol than in 1983, and compare favorably with chicken on these measures. Export sales of U. S. pork have grown for many years, and are projected by Sparks Companies, Inc. to increase by 16% in calendar year 2001. The impact of foot-and-mouth disease in Great Britain and Europe may lead to additional increases in export sales, as customers in Japan and other Asian countries may reduce their purchases of pork products from those countries and purchase from U.S. producers instead. Export sales are also driven by high growth areas of the world, such as Asia and Latin America, where pork is already considered a highly favored meat. We believe that as hog production becomes more sophisticated and the overall quality, leanness, and consistency of pork increases, consumer demand for pork will be enhanced. Historically, the United States pork industry has been divided into two segments: pork processing and hog production. As a vertically integrated supplier of pork products, we operate in both industry segments. PORK PROCESSING The U.S. pork processing industry is highly concentrated, with the top ten processors representing approximately 87% of total federally inspected industry capacity, and the industry is highly competitive. Although customers in the retail, institutional, further processing and export markets have different product specifications and service requirements, processors generally compete on the basis of the price and quality of their product. As shown below, pork supply has increased historically. Overall pork processing operations have high fixed costs primarily related to the capital required to build a plant and by labor, energy and other operating costs, and large daily requirements for hogs to 49 54 process. In order to operate profitably, processors attempt to acquire hogs to process at the lowest possible costs and to minimize processing costs by maximizing plant operating rates. The processing industry is geographically concentrated in the hog producing regions of the U.S., particularly the Midwest and portions of the Southeast. Due to the high degree of fragmentation of the hog production industry, processing operations are extremely large relative to the producers that supply them. As a result, non-integrated processors, on a daily basis, must acquire each day's supply of hogs through large procurement operations, which include an extensive network of buyers and buying stations. Because many modern plants process in excess of 10,000 hogs per day, non-integrated processors must purchase hogs from a large number of suppliers, many of whom use varying genetics, feeding programs and growing environments. We believe that this dichotomy between the hog requirements of processors and the fragmentation and variation of hog production makes it relatively difficult for non-integrated pork processors to produce consistent, high quality products. HOG PRODUCTION The hog production industry, although consolidating, remains highly fragmented and can be characterized by large variations in cost of production and quality of hog produced. Although the number and size of large, sophisticated producers has increased, a substantial majority of U.S. producers had one-time inventory on hand of fewer than 1,000 hogs in 1999. In many smaller hog operations, the hogs are kept outdoors in open lots or in less sophisticated buildings, bred in an unscientific manner, increasing disease and death risk, and grown on low-cost feed. As a result, these operations generally are characterized by fewer hogs per sow per year, higher feed-to-gain conversion ratios, higher costs of production, lower quality and less consistent hogs brought to market. In addition, the effects of temperature and climate on breeding and farrowing encourage outdoor hog producers to breed hogs in the spring and fall. This results in seasonal production, which may result in lower prices when these producers bring their hogs to market. According to the U.S. Department of Agriculture, the number of U.S. hog producers has declined from approximately one million in 1968 to less than 86,000 at the end of 2000. We believe that as the hog production and pork processing industry moves to more sophisticated production techniques, the pressures on marginal producers will intensify. In the last several years a number of operations have emerged which are based on large-scale scientific and management-intensive production of hogs. These operations have grown rapidly. The fifty largest hog producers in the United States marketed approximately 50% of the total pounds of pork produced in 2000, with the largest single producer accounting for approximately 14%. We expect that the hog production industry, which is characterized by large variations in cost of production and quality of hog produced, will see continued consolidation and integration, especially coming out of 1998 and 1999, which were poor years for producers. According to a recent study by the National Pork Producers Council, 74.3% of the hogs marketed in January 2000 were sold under some type of contractual agreement with roughly 25.7% sold on a spot basis. This is an increase from 64% in 1999 and 57% in 1997. The low hog prices of 1999 and 1998 curbed herd expansion and accelerated consolidation. The U.S. pork industry is very competitive with other leading pork producing countries. U.S. exports of pork products have grown substantially in recent years. The Food and Agricultural Policy Research Institute projects that the U.S. share of world net exports of pork products will more than double during the period from 2000 to 2010. According to a 1999 study by the George Morris Centre, the cost of producing a market hog in the U.S. is approximately two-thirds of the cost in Denmark and the Netherlands. We believe this relative cost advantage, increasing global trade and the economic impact of foot-and-mouth disease in the United Kingdom creates a competitive advantage for U.S. producers including Premium Standard Farms. PRODUCTS, MARKETING AND CUSTOMERS We market our pork products to a variety of wholesale and retail customers in the U.S. and abroad, including select supermarket chains, meat distributors, further processors and food service companies. We 50 55 focus on discriminating customers in the retail, food service, export and further processing markets. We primarily market our products as chilled and frozen pork, sold: - To retailers, retail distributors and wholesalers in the form of chilled boxed bone-in and boneless loins, tenderloins, hams, picnics, butts, ribs, marinated and case-ready; - To further processors in the form of chilled bulk bone-in and boneless hams, picnics and butts, bellies, trimmings, variety meats and other products which are used by these customers to make processed pork products; - To institutional food customers in the form of chilled and frozen boxed bone-in and boneless loins, ribs, picnics and butts; and - To export customers in the form of chilled boneless loins, tenderloins, frozen hams, shoulders, bellies, as well as offal items. Our vertical integration and control also allows us to produce specialty products. These include our antibiotic free pork and Premium 97 pork (certified as 97 percent fat-free by the American Heart Association), as well as KenKo-Ton healthy pork and Mugi Buta barley-fed pork for the Japanese market. Our marketing strategy seeks to capitalize on the quality of the pork produced by our controlled supply of high-quality consistent hogs and modern processing operations allowing us to sell fresh and processed pork at prices that reflect a premium to those received by competitors selling lower quality products. Our pork processing facilities have been designed to enhance the realization of this quality by converting standard pork cuts to value-added products through boning, trimming and other further processing. Furthermore, we target specialty, export and ethnic markets, in which there is a higher demand for certain pork products. In order to take advantage of a differentiated product, we have been certified to use the USDA Process Verified seal in connection with our Missouri operations. We expect to be certified with respect to our recently acquired North Carolina operations once our renovations and improvements to those operations are complete. Our international marketing efforts are directed toward a number of countries, but are predominantly focused on Japan, which ascribes significant value to our premium, process-controlled products. In 2000, we renewed a three-year contract with our trading partner in the Japanese market. Through this arrangement, we enjoy relationships with Japan's second largest manufacturer of ham and Japan's sixth largest ham distributor. In fiscal 2001, our sales to Japanese customers represented about 6% of our total sales. We expect our sales to Japan to significantly increase once we receive Process Verified accreditation for our North Carolina operations. We are using our success in Japan to explore other opportunities in the export market in Asia, Europe, Mexico and Canada. Sales to international markets other than Japan accounted for approximately 2% of our total sales in fiscal 2001. Though our sales and marketing efforts are primarily focused on sales of pork products, we are to a lesser extent involved in the related markets for live hogs, processed meat products and pork by-products. The excess live hogs of our production facilities are sold to other pork processors. In this respect, we have a long-term contract with a major pork processor and further-processor, as well as other processors in the region, who purchase the vast majority of hogs produced at our Texas facilities. The remainder of our excess hog production is sold in privately negotiated transactions. With respect to processed meats, our Clinton, North Carolina plant includes further-processing facilities that produce products such as cured hams, bacon and sausage. Finally, all of our facilities sell the by-products of our processing activities to the variety meat, feed processing and pet food industries. PRODUCTION AND PROCESSING OPERATIONS OVERVIEW Our production and processing operations are organized as three separate pods located in Missouri, Texas and North Carolina. Our Missouri and North Carolina pods each combine hog production farms and processing plants. Our Texas pod currently has only hog production operations. We eventually plan to 51 56 add a pork processing plant in Texas to create a third fully-integrated pod modeled upon our Missouri operations. The geographic separation of our pods enhances biosecurity and puts us closer to our customers and feed grain suppliers, allowing us to minimize shipping costs. Shipping, usually via truck, is important in a number of aspects of hog production, particularly the delivery of feed to hog production units, the shipment of feeder pigs to finishing units, and the shipment of finished hogs to processing plants. To further reduce the risk of disease and maximize the scheduling and process coordination that our integrated approach provides, our pods incorporate transportation facilities served by our own truck fleet for hauling feed and hogs. HOG PRODUCTION Our production facilities house herds ranging from 1,100 to 3,300 sows per unit. On average, a staff of five people is required for 1,100 sows. A typical production unit consists of four connected buildings, each with a specialized function -- breeding, gestation, farrowing and nursery. The production process begins in the breeding barn, where sows are artificially inseminated. Artificial insemination maximizes breeding efficiency and productivity and allows us to utilize genetic stock that maximizes our overall productivity and quality. After four weeks, conception is verified using ultrasound technology. From the breeding barn, sows are moved to the gestation barn where they are vaccinated and placed on a special diet. The gestation period is 114-days. During this period, the sows must receive adequate nutrition and careful attention to health and disease control in order to maximize the size and health of their litters. In our gestation buildings, sows are carefully monitored and individually fed according to body weight. A few days prior to delivery, sows are moved to the farrowing barn where they give birth to a litter of over 10 offspring on average. Sows nurse their offspring for three weeks before they are returned to the breeding barn. At approximately 12 to 15 pounds, the offspring are moved to the nursery for a six-to-seven week period. This step requires high levels of nutrition, environmental control and minimization of disease and health risks. A growing portion of our operations use the wean-to-finish production method where nursery pigs are transported directly to a modified grow/finish site, skipping the traditional time spent in a nursery. In the next phase of production, offspring are transferred in our sanitized trailers to our grow/finish complexes or contract growers for growth from approximately 50 pounds to a target market weight of 260 pounds. Our grow/finish complexes are comprised of temperature-controlled barns, each housing 950 to 1,150 hogs. A manager in charge of the complex is responsible for monitoring hog welfare and health, as well as equipment. Efficiency in finishing operations is affected by the health and environment of the hogs and the formulation of the feed. These factors, as well as the genetics of the hog, can have a substantial impact on the feed-to-gain conversion ratio (the pounds of feed required to add a pound of weight) and the average daily gain. Specialized crews support the complex managers by assisting with loading and unloading hogs, health care, and sanitation. Hogs generally remain at the grow/finish complexes for 18 to 19 weeks, gaining an average of 1.7 pounds per day, until they reach market weight and are transported to a processing facility. Because diet is a critical factor in the efficient production of hogs and affects the quality of the final products, where possible we have established our own feed mills. Our Missouri and Texas pods are located in areas with access to substantial corn and other feed grain production in excess of local demand. As a result, we can typically access feed grains on a cost-effective basis and manufacture and deliver feed to our facilities at a lower cost than we can buy it from commercial feed mills. In North Carolina, where we rely to some extent on commercial feed mills, we have established toll milling arrangements with select mills. Due to excess milling capacity in North Carolina, we are generally able to purchase feed from these vendors on terms that help us remain a low cost producer. Our feed mills and toll milling arrangements allow us to optimize production of our customized diets to a greater degree than would typical arrangements with third-party feed mills, which operate on a cost plus basis and provide feeds for many types of customers and animals. We achieve this through "least cost" formulations based on available feed ingredients. For example, while corn is the primary ingredient in hog feed, a large number of other grains, proteins, fats and supplements may be added, and the content and mix of feed ingredients can be managed 52 57 to improve nutrition, feed-to-gain ratios and meat quality. We have five feed mills in operation aggregating approximately 1.4 million tons of annual capacity. BIOSECURITY We seek to reduce the risk of disease transmission through a number of methods, including geographic separation of, and restricted access to, production facilities, strict sanitation procedures, high health genetic stock and constant monitoring and response. All units are restricted access, "shower in/shower out" facilities. If it is necessary for a manager or worker to enter a unit other than their designated unit, a mandatory 24 to 96-hour layover period is required. Feed purity and truck cleanliness are inspected and monitored. Operating procedures within the facilities are designed to stop the spread and lessen the viability of infection agents during all phases of the production process. The impact of disease is also controlled through the selection of healthy, disease-resistant sows and through breeding procedures that help pass along antibodies to the sow's offspring. When disease is found, treatment is implemented to lessen its impact on the health-challenged hogs and to prevent its spread to other facilities. For additional information on the risks associated with disease, see "Risk Factors." PORK PROCESSING We maintain pork processing facilities in Missouri and North Carolina. All of the hogs used by our Milan, Missouri processing plant come from our Missouri and Texas hog production operations. During fiscal 2001, since our North Carolina acquisitions, approximately 61% of hogs used by our Clinton, North Carolina processing plant were supplied by our North Carolina hog production operations, with the remaining 39% supplied through contracts with independent producers. To ensure the safety and quality of our products, we use the USDA's Hazard Analysis of Critical Control Points methodology to identify food safety hazards in our operations. This approach uses a team of technically trained individuals who are familiar with the processes to be evaluated. Each separate point in the process is identified and any hazards associated with them are assessed. Methods for monitoring the quality and safety of products as they move through these points are then developed and implemented. The design of the quality management points provide the basis for our Process Verified Program. In November of 1998, we became the first company in the pork industry to receive approval for this program from the USDA-Agricultural Marketing Service. This approval gave accreditation to the only program which extends from live animal production through processing. While other pork companies have since received approval of their own Process Verified programs, we believe ours is the most comprehensive, encompassing live animal production through processing. Process Verified is based on ISO-9000 requirements that are adapted for the livestock industry, and is administered by the USDA Agricultural Marketing Service, Livestock and Seed Division. We have designated twelve process points throughout our process to represent our program. These process points are summarized as follows: - Every order is traceable to source farms - Every phase of production is managed using a food safety based control system, including a strict residue avoidance program where sulfa antibiotics are not used - Market hogs are fed a precise grain-based diet from process-controlled feed mills - Quality traits, processing hygiene and environmental systems are continuously evaluated and improved - Employee safety and training programs are emphasized and continuously improved 53 58 Our automated processing operations have been designed to achieve the benefits of vertical integration that are not available to non-integrated hog producing or pork processing competitors. Some of these benefits are as follows: - We capture more value from our hogs through processing rather than passing this value on to other processors - We streamline logistics, transportation and production schedules to enhance asset utilization and reduce our cost structure because of the proximity and integrated management of production and processing operations - We improve the realizable value of our hogs through our control over the key factors (genetics, nutrition and environment) that affect the leanness and meat quality of each hog - We believe we provide a higher level of quality and safety assurance to our customers because of our control of both production and processing We believe that by controlling our own high quality, consistent hog supply, we can be among the more efficient processors in the industry and produce a consistent high-quality product whose value will be recognized in the market. The design of our Milan, Missouri processing facility reflects four key objectives: - Modern equipment and proven technology has been used to build one of the highest quality facilities in the industry - The facility design emphasizes worker safety to ensure compliance with all regulations and to reduce worker injury and turnover - The facility is designed to produce a product that is appealing to further processors and consumers and will be brandable. It employs identification and tracking technology to ensure quality control for the final pork product - The facility is designed to reduce waste products and emissions and dispose of waste in accordance with applicable environmental standards We are renovating and modernizing our recently acquired North Carolina plant to meet these objectives, based on the Milan facility. If and when we add a processing plant to our Texas facilities, that plant will be based on the model of our Milan facility as well. MISSOURI Our Missouri pod has both production and processing operations. The Missouri production operation, based at Princeton, employs approximately 1,300 people. An 111,000-sow herd produces approximately 2.1 million market hogs per year. Eighty-two sow units, five nursery units and ninety-one finishing units are located on farms in Mercer, Putnam, Sullivan, Davies and Gentry counties. In fiscal 2002, we expect to contract finish approximately 78,000 hogs through agreements with local farmers. We also have certain grower relationships with ContiGroup. See "Related Party Transactions." The Missouri processing facility is located at Milan and employs over 900 people processing 7,100 hogs daily (on an eight hour shift) or about 1.9 million hogs per year. To ensure the safety and quality of our products, the processing facility incorporates several innovative systems, including a carbon dioxide anesthetizing system, which we believe was the first carbon dioxide system of its kind in use in the United States. This facility also has a large hog holding area that provides at least four hours of rest to hogs upon arrival. The result is a less stressful environment for the hogs, which results in better meat quality. NORTH CAROLINA Our North Carolina pod has both production and processing operations. The North Carolina production operation, based at Clinton, employs approximately 250 people. A 64,000-sow herd produces 54 59 approximately 1.4 million market hogs per year. Nine sow units, three nursery units and four finishing units are located on farms in various counties throughout the state. Most of the production operations in North Carolina are conducted on farms that are not owned by us. Instead, we have contract grower agreements with local farmers who provide the land, space and labor needed. The hogs themselves are owned by us, are raised according to our specifications using our genetics, feed and supplies, and are delivered to our Clinton facility. Since these arrangements allow us to control the process, from a hog's initial genetic makeup to the pork product ultimately produced and shipped, we consider them to be a part of our integrated operations notwithstanding the fact that we do not own the farms themselves. The North Carolina processing facility is located at Clinton and employs over 1,200 people processing 6,500 hogs daily (on an eight hour shift) or about 1.8 million hogs per year. When construction and renovation are completed at this recently acquired facility, we believe the plant will be the most advanced facility of its kind. To obtain the approximately 700,000 hogs annually used by the facility that are not supplied by our production operations, we have established supply arrangements with several external hog suppliers. We are currently renovating and modernizing the North Carolina facility and, as part of these efforts, we intend to improve our North Carolina operations in a manner that will allow us to produce and market premium products from that facility similar to those produced by our Milan, Missouri plant. TEXAS Our Texas pod currently only has production operations. These operations are headquartered at Dalhart, Texas and employ approximately 280 people. A 24,000-sow herd produces approximately 392,000 market hogs per year. Twenty-three sow units, six nursery units and eight finishing units are located on farms in Dallam and Hartley counties. No contract finishing is used in the Texas pod's production. A small portion of the hogs produced in Texas are transported to our Milan, Missouri processing facility. The vast majority are sold under a long-term contract we have with a major processor and further processor, along with other processors, in the area. We intend to further expand hog production at our Texas facilities. The expansion now underway consists of the addition of a new 10,000 sow farrow-to-finish operation that we expect will produce approximately 200,000 new hogs per year beginning in fiscal year 2003. We believe additional expansion opportunities exist in Texas as well. Our Texas production facilities are located on approximately 54,000 acres with adequate space and all environmental and land use permits required for further expansion in a manner that will replicate our Missouri hog production facilities. RESEARCH AND DEVELOPMENT We use an applied research strategy which allows rapid and early implementation of technologies in production, nutrition and processing. This effort is driven by our technical team, many of whom have advanced degrees in nutrition, meat science, reproductive physiology and health assurance. This group also uses an extensive network of outside scientists and other contacts to enable us to use the latest technology. We constantly seek to improve the genetics of our production herds and to produce hogs that are the highest quality commercially available. Our female breeding stock is purchased from the world's largest hog genetics firm, which employs extensive research efforts in molecular genetics, biosecurity, food safety and meat quality. We also have an internal "multiplier" herd, which is continually improved through the purchase of enhanced genetics and provides an internal source of a majority of our sows at a substantially reduced cost, and with greater control. In addition, we have an agreement for the exclusive use in the United States of selected male genetic lines of a leading European hog genetics firm. We routinely evaluate other genotypes to validate and compare them to existing products. In addition, we conduct intense research trials to further develop existing genotypes to meet economic and customer demands for composition and quality. These arrangements enhance the quality of our genetics and diversify our genetic sources. We also incorporate careful computer-based monitoring of the breeding performance of all our breedstock to improve breeding 55 60 patterns and remove sub-optimal parents from the herd. These operations are conducted at our Missouri, Texas and North Carolina genetic improvement facilities. We also have been a leader in the implementation of new technologies at our processing facilities. For example, we believe that we were the first U.S. company to introduce the use of European-designed carbon dioxide anesthesia systems in pork processing to reduce livestock agitation and increase meat quality. Specially designed trucks and holding areas also enhance the welfare and handling of our hogs. In addition, we use extreme chilling technologies to improve product quality traits like color and texture. We also are in the second year of a five-year, $25 million, research program to develop improved waste processing methods and technologies. See "Litigation." COMPETITION The pork industry is highly competitive and we compete with many other pork processors and hog producers of varying sizes. Our products also compete with a large number of other protein sources, including beef, chicken, turkey and seafood. However, our principal competition comes from other large pork processors. We believe that the principal areas of competition in the pork industry are price, quality, product distribution and brand loyalty. Some of our competitors are larger, have correspondingly greater financial and other resources and enjoy wider recognition for their branded products. INTELLECTUAL PROPERTY We hold several trademark and other intellectual property rights. For example, we have registered the names "Premium Standard Farms," "Premium Standard Certified," "Fresh from the Farm Taste," "Carolinian," "Lundy's," "Tomahawk Farms" and "Gold Banner" with the United States Patent and Trademark Office. We have also registered "Premium Standard Farms" in some of the foreign countries to which we sell our products. In addition to trademark protection, we attempt to protect our unregistered marks and other proprietary information under trade secret laws, employee and third-party non-disclosure agreements and other laws and methods of protection. We have also applied with the United States Patent and Trademark Office for a patent with respect to an animal waste management system designed for some of our production facilities. That application is pending. EMPLOYEES We have approximately 4,000 employees, of which approximately 2,000 are in processing, approximately 1,800 are in production and approximately 200 are in administration. None of our employees are subject to collective bargaining arrangements, although there can be no assurance that employees will not enter into such agreements in the future. See "Risk Factors." We generally consider our employee relations to be good. 56 61 PROPERTIES We conduct our hog production operations in Missouri, North Carolina and Texas and our hog processing operations in Missouri and North Carolina. We believe our facilities are in good condition and adequate to meet our present needs. Substantially all of our properties are pledged as security for our obligations under our Credit Agreement. Our principal facilities are located as follows:
NUMBER LOCATION AND FUNCTION SIZE OR OUTPUT OF FACILITIES - ------------------------------------------------------------ -------------------- ------------- Missouri: Sow Units................................................. 1,100 head units 74 2,500 head units 8 Nursery Units............................................. 16,640 head units 2 11,800 head units 1 9,000 head units 1 20,800 head units 1 Finishing Units........................................... 9,200 head units 87 4,200 head units 2 7,700 head units 1 6,900 head units 1 Processing Facility (Milan)............................... 260,000 square feet 1 Genetic Improvement....................................... 780 head units 1 Maintenance Support Facilities............................ 100,000 square feet Truck Maintenance (Milan)................................. 22,000 square feet Truck Maintenance (Coffey)................................ 8,700 square feet Truck Maintenance (Princeton)............................. 42,000 square feet Feed Mill (Princeton)..................................... 180,000 tons/year Feed Mill (Coffey)........................................ 180,000 tons/year Feed Mill (Lucerne)....................................... 600,000 tons/year Training Facility......................................... 28,500 square feet Headquarters Office....................................... 12,400 square feet Gallatin Office........................................... 4,000 square feet Missouri Production Office (Princeton).................... 38,120 square feet Developed Land............................................ 45,000 acres* North Carolina: Sow Units................................................. 3,400 head units 2 2,400 head units 2 2,000 head unit 1 1,700 head unit 1 1,200 head units 2 Nursery Units............................................. 10,400 head unit** 1 2,940 head unit 1 Finishing Units........................................... 7,920 head unit 1 12,960 head unit** 1 4,320 head unit 1 Feed Mill................................................. 224,000 tons/year 1 Rail Unloading............................................ 200,000 tons/year 1 Production Office and Med Storage (Clinton)............... 11,000 square feet
57 62
NUMBER LOCATION AND FUNCTION SIZE OR OUTPUT OF FACILITIES - ------------------------------------------------------------ -------------------- ------------- Truck Maintenance (Tarboro)............................... 10,615 square feet Developed Land (production)............................... 295 acres Developed Land (processing)............................... 105 acres Undeveloped Land.......................................... 873 acres Lundy Packing Plant....................................... 601,000 square feet Lundy construction-in-progress............................ 113,300 square feet 1 Boneless Ham Plant........................................ 32,000 square feet 1 Tomahawk Farms Plant...................................... 47,000 square feet 1 Georgia Sow Units................................................. 600 head unit 1 Nursery Units............................................. 2,450 head unit 1 Finishing Units........................................... 3,200 head unit 1 Developed Land............................................ 138 acres Texas: Sow Units................................................. 1,375 head units 12 2,000 head unit 1 1,100 head units 9 3,300 head unit 1 Nursery Units............................................. 14,000 head units 4 1,500 head unit 1 10,500 head unit 1 Finishing Units........................................... 20,400 head units 5 13,600 head unit 1 4,500 head unit 1 23,800 head unit 1 Wean to Finish Units (under construction)................. 2,088 head units 52 Genetic Improvement....................................... 350 head unit 1 Feed Mill................................................. 180,000 tons/year Office.................................................... 5,000 square feet Maintenance Shop (Perico)................................. 8,000 square feet Maintenance Shop (HP)....................................... 11,400 square feet LRM Shop.................................................... 12,000 square feet Transportation Shop......................................... 10,000 square feet Warehouse (HP, 7 Barns)..................................... 92,600 square feet Developed Land.............................................. 14,000 acres Partially Developed Land.................................... 40,000 acres
- --------------- * Of these 45,000 acres, approximately 7,200 acres are owned by ContiGroup but the facilities located thereon are owned by us. See "Related Party Transactions." ** Capital lease facilities. REGULATION Various federal, state and local laws and regulations apply to our operations, particularly in the health and environmental areas administered by the Occupational Safety and Health Administration (OSHA), the United States Department of Agriculture (USDA), the Food and Drug Administration (FDA), the federal Environmental Protection Agency (EPA) and corresponding state agencies such as the Missouri Department of Natural Resources (MDNR), the Texas Natural Resource Conservation Commission and 58 63 the North Carolina Department of Environment and Natural Resources. We anticipate increased regulation by these agencies, including the USDA concerning food safety and the FDA regarding the use of medication in feed. Current environmental regulations impose standards and limitations on, among other things, our waste treatment lagoons, water treatment facilities and new construction projects. Animal waste from our hog production facilities is anaerobically digested and the resulting fluids are then applied to surrounding farm land. This process uses lagoons in Missouri and North Carolina and solid separators and aeration tanks in Texas. In North Carolina, the use of waste treatment lagoons and spray fields for the disposal of swine waste has recently become highly controversial. Certain areas of that state are prone to flooding, as well as exposed to hurricanes from time to time. Due in part to damage caused to waste lagoons by recent hurricanes, the state has issued a moratorium on construction of new hog lagoons and spray fields. It is anticipated that this moratorium will be extended until such time as more effective technologies are developed to protect the environment. On September 29, 2000, we voluntarily entered into an agreement with the Attorney General of North Carolina. Under this agreement, we committed to implement "Environmentally Superior Technologies" for the management of swine waste at our farms within three years after an independent panel has determined that such technologies are both effective and economically feasible to construct and operate. "Environmentally Superior Technologies" are generally identified as waste treatment technologies that meet certain performance standards with respect to release of materials into the environment. In addition, under the agreement, we were required to pay $2.5 million to a fund for the development of such technologies, for environmental enhancement activities and for the defrayal of costs incurred by the state related thereto. We have met all of our commitments to date under this agreement and continue to work closely with the state's designated representative at North Carolina State University in the development of "Environmentally Superior Technologies." See also "Litigation." Our North Carolina processing plant has been under scrutiny from the USDA. During the due diligence process for the acquisition of that plant, we noted that the plant had a high number of USDA-FSIS Non-Compliance Reports. Since the acquisition, we have outsourced plant sanitation and pest control functions to recognized professional service companies. We have also begun the process of physically renovating the plant to address food safety issues, as well as to make the plant an efficient modern facility. We believe we have established a proactive relationship with local USDA personnel to provide an opportunity to identify and improve plant facility issues which had previously been the primary source of Non-Compliance Reports. In addition, we have reviewed and revised all regulatory programs in place for those facilities. As a result, there has already been a significant reduction in Non-Compliance Reports at the plant since the acquisition. Based on information currently available, we believe that the cost of achieving and maintaining compliance with these health and environmental laws and regulations will not have a material adverse effect on our business or financial position. However, future events, such as changes in existing laws and regulations or enforcement policies, could give rise to additional compliance costs which could have a material adverse effect on our financial condition. Several states have enacted "corporate farming laws" that restrict the ability of corporations to engage in farming activities. Missouri is among these states, but Texas and North Carolina currently are not. Missouri's corporate farming law in many cases bars corporations from owning agricultural land and engaging in farming activities. Our operations have been structured to comply with the Missouri corporate farming law and its existing exemptions. The Missouri laws, however, could be subject to challenge or amendment by Missouri governmental bodies in the future. Further, even with the exemptions, the corporate farming laws restrict our ability to expand beyond the counties in which we currently operate. At the time of ContiGroup's acquisition of its interest in us in 1998, ContiGroup submitted the proposed ownership structure to the Office of the Attorney General of the State of Missouri for its review. 59 64 At that time, the Office of the Attorney General indicated that it had no objection to our current structure under the corporate farming laws. There can be no assurance, however, that this position will be maintained in the future as our operations continue and develop. LITIGATION We are a defendant in a citizen's action suit seeking to enforce alleged violations of the Clean Air Act, Clean Water Act and CERCLA. The same plaintiff has filed a parallel action against ContiGroup with respect to North Missouri farms. To the extent that ContiGroup incurs any liability in this suit, we have assumed that liability pursuant to the terms of our 1998 ContiGroup transaction. The plaintiffs are seeking injunctive relief, civil penalties and attorneys' fees. The federal Environmental Protection Agency has also intervened in the case. We believe we have meritorious defenses, and are defending the action. We have settled a suit filed by the Attorney General of the State of Missouri against our company and ContiGroup. We assumed ContiGroup's liability in this action in connection with the 1998 ContiGroup transaction. The settlement required us and ContiGroup to enter into a consent judgement pursuant to which we are obligated to spend $25 million over the course of five years for researching, installing and operating improved technology to control wastewater, air and odor emissions from our Missouri farms. We are currently nearing the end of the second year of that five year period and have spent $6.7 million to satisfy the settlement. In addition, pursuant to the consent judgment our company and ContiGroup were issued a $1 million civil penalty. Of this, $650,000 has been paid and $350,000 is suspended pending certain conditions. We were a successor to a nuisance suit brought by neighbors of our northern Missouri pork operations in which ContiGroup was the defendant. On April 30, 1999, based upon allegations that odors from our operations interfered with the plaintiffs' use and enjoyment of their properties, the jury returned a verdict in favor of 52 of the 109 plaintiffs in the amount of $100,000 each for a total of $5.2 million. ContiGroup appealed the verdict and on May 3, 2001, we satisfied the judgment. At March 31, 2001, we had accrued a liability for the verdict and interest. In addition, on November 30, 2000 certain of the neighbors who were plaintiffs in the nuisance suit filed notice that they intend to sue us for property damage and personal injuries stemming from alleged groundwater and air contamination associated with our operations. We believe their allegations are without merit, and we intend to vigorously defend any claims that these plaintiffs may bring. We have received notices of violation from the federal Environmental Protection Agency alleging violations of permitting and reporting requirements under the Clean Air Act that are separate from the agency's intervention in the citizen's suit discussed above. In addition, separate from the suit discussed above, we have received notices of violations from the Attorney General of the State of Missouri alleging releases of wastewater. We have responded to these notices in an effort to resolve these matters. If we do not successfully resolve these matters we may be required to obtain additional permits and expend capital resources to comply with those permits and we may also be subject to fines. We may receive similar notices in the future. In addition, we are involved from time to time in routine litigation incidental to our business. Although no assurance can be given as to the outcome or expense associated with any of these routine proceedings, we believe that none of such proceedings currently pending should, individually or in the aggregate, have a material adverse effect on our financial statements. 60 65 MANAGEMENT BOARD OF DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning the directors and officers of Premium Standard Farms and PSF Group Holdings:
NAME AGE POSITION(S) - ---- --- ----------- John M. Meyer.................. 39 Chief Executive Officer and Director of Premium Standard Farms, PSF Group Holdings, The Lundy Packing Company, Lundy International, Inc., and Premium Standard Farms of North Carolina, Inc. Robert W. Manly................ 48 President of Premium Standard Farms and PSF Group Holdings, President and Director of The Lundy Packing Company, Lundy International, Inc., and Premium Standard Farms of North Carolina, Inc. Stephen A. Lightstone.......... 55 Executive Vice President, Chief Financial Officer and Treasurer of Premium Standard Farms and PSF Group Holdings; Executive Vice President, Chief Financial Officer and Treasurer and Director of The Lundy Packing Company, Lundy International, Inc., and Premium Standard Farms of North Carolina, Inc. J. Michael Townsley............ 41 Senior Vice President, Sales and Marketing of Premium Standard Farms, The Lundy Packing Company, Lundy International, Inc., and Premium Standard Farms of North Carolina, Inc. David H. James................. 46 Vice President, Production Operations of Premium Standard Farms, The Lundy Packing Company, Lundy International, Inc., and Premium Standard Farms of North Carolina, Inc. Gerard J. Schulte.............. 51 General Counsel and Secretary of Premium Standard Farms, PSF Group Holdings, The Lundy Packing Company, Lundy International, Inc., and Premium Standard Farms of North Carolina, Inc. Dennis D. Rippe................ 47 Vice President, Controller and Assistant Secretary of Premium Standard Farms, PSF Group Holdings, The Lundy Packing Company, Lundy International, Inc. and Premium Standard Farms of North Carolina, Inc. Michael J. Zimmerman........... 50 Chairman of the Board and Director of Premium Standard Farms and PSF Group Holdings Ronald E. Justice.............. 56 Director of Premium Standard Farms and PSF Group Holdings Dean Mefford................... 60 Director of Premium Standard Farms and PSF Group Holdings Mark R. Baker.................. 46 Director of Premium Standard Farms and PSF Group Holdings Maurice L. McGill.............. 64 Director of Premium Standard Farms and PSF Group Holdings Michael A. Petrick............. 39 Director of Premium Standard Farms and PSF Group Holdings Paul J. Fribourg............... 47 Director of Premium Standard Farms and PSF Group Holdings Vart K. Adjemian............... 58 Director of Premium Standard Farms and PSF Group Holdings John Rakestraw................. 40 Director of Premium Standard Farms Annabelle Lundy Fetterman...... 80 Director of Premium Standard Farms
61 66 John M. Meyer has been a Director and the Chief Executive Officer of Premium Standard Farms and PSF Group Holdings since May 1998 and a Director and Chief Executive Officer of The Lundy Packing Company, Lundy International, Inc. and Premium Standard Farms of North Carolina, Inc., since 2000. Prior to May 1998, he spent 15 years with ContiGroup Companies, most recently as Vice President and General Manager of ContiGroup's pork division. While with ContiGroup, Mr. Meyer served in the sales, credit and financial services functions. Robert W. Manly has been President of Premium Standard Farms since October 1996. He has been President of PSF Group Holdings since May 1998 and President and a Director of The Lundy Packing Company, Lundy International, Inc. and Premium Standard Farms of North Carolina, Inc., since 2000. From April 1986 to October 1996, Mr. Manly served as Executive Vice President of Smithfield Foods, Inc. He also served as President and Chief Operating Officer of the Smithfield Packing Company subsidiary from June 1994 to June 1995. Mr. Manly held the position of Assistant to the President of IBP, Inc. from January 1981 to April 1986. Stephen A. Lightstone has been Executive Vice President, Chief Financial Officer and Treasurer of Premium Standard Farms and PSF Group Holdings since August 1998 and Vice President, Chief Financial Officer and Treasurer and a Director of The Lundy Packing Company, Lundy International, Inc. and Premium Standard Farms of North Carolina, Inc., since 2000. From 1983 to 1998, Mr. Lightstone was with Payless Cashways, Inc., a building materials retailer, most recently serving as Senior Vice President, Chief Financial Officer and Treasurer. Mr. Lightstone was an officer of Payless Cashways, Inc. when it filed for Chapter 11 bankruptcy in 1997. From 1978 to 1983, Mr. Lightstone was Vice President -- Finance and Treasurer with Butler Manufacturing Company, a manufacturer of engineered buildings and construction materials. J. Michael Townsley has been Senior Vice President, Sales and Marketing of Premium Standard Farms since April 1997. He has held these same positions at The Lundy Packing Company, Lundy International, Inc. and Premium Standard Farms of North Carolina, Inc. since 2000. From 1994 to 1997, Mr. Townsley served as Vice President Sales and Marketing, Fresh Meat with Smithfield Packing Company, Inc. Prior to that time, Mr. Townsley spent 11 years with IBP, Inc. in various sales positions and concluded his career with IBP as Director of Merchandising, Pork Division. David H. James is Vice President of Operations of Premium Standard Farms, The Lundy Packing Company, Lundy International, Inc. and Premium Standard Farms of North Carolina, Inc., having served in this capacity for Missouri since April 1999, adding North Carolina in August 2000, and adding Texas in March 2001. He is responsible for all of Premium Standard Farms' hog production. From June 1992 to July 1998, Mr. James served as Regional Manager for the 25,000-sow North Carolina operation for ContiGroup Companies at which time he joined our Missouri hog production operations team. Gerard J. Schulte has been General Counsel and Secretary of Premium Standard Farms and PSF Group Holdings since July 1998 and of The Lundy Packing Company, Lundy International, Inc. and Premium Standard Farms of North Carolina, Inc. since 2000. Mr. Schulte has been Vice President and General Counsel of ContiIndustries, an operating group of ContiGroup Companies, since 1990. Dennis D. Rippe has been Vice President, Controller and Assistant Secretary of Premium Standard Farms since January 1999 and of The Lundy Packing Company, Lundy International, Inc. and Premium Standard Farms of North Carolina, Inc. since 2000. Prior to that date, Mr. Rippe had been Vice President Finance and Administration-Operations (Missouri) of Premium Standard Farms since February 1997. From May 1995 to February 1997, Mr. Rippe was Vice President and Controller of Premium Standard Farms and was an officer of the company when it filed for Chapter 11 bankruptcy in 1996. Michael J. Zimmerman has been Chairman of the Board of Directors of Premium Standard Farms and PSF Group Holdings since May 1998. Mr. Zimmerman has been Executive Vice President and Chief Financial Officer of ContiGroup Companies since 1999. From 1996 to 1999, he served as Senior Vice President -- Investments and Strategy of ContiGroup Companies and President of its ContiInvestments subsidiary. Prior to joining ContiGroup in 1996, he was a Managing Director of Salomon Brothers. 62 67 Ronald E. Justice has been a Director of Premium Standard Farms since September 1996. He has been a Director of PSF Group Holdings since May 1998. Prior to his retirement in April 2000, Mr. Justice served as Executive Vice President of Operations of Consolidated Container Company since September 1998. Mr. Justice was the Senior Vice President of Operations of Scotts Co. from July 1995 to September 1998 and from August 1992 to July 1995, Mr. Justice was the Corporate Vice President of Operations at Continental Baking. Dean Mefford has been a Director of Premium Standard Farms since September 1996. He has been a Director of PSF Group Holdings since May 1998. From January 1999 to February 2001, he served as Chairman of the Board of Doubletime Corporation and from October 1999 to May 2000 he served as the Interim President of Ocean Spray Corp. Mr. Mefford served as President and Chief Executive Officer of Viskase Corporation, a manufacturer of flexible packaging and meat casings, from 1994 to 1998, and as Corporate Vice President, President, and Chief Operating Officer of Ralston Purina International from 1988 to 1993. Mark R. Baker has been a Director of Premium Standard Farms and PSF Group Holdings since May 1998. Mr. Baker has been Executive Vice President, Chief Legal Officer and Secretary of ContiGroup Companies since 1999, and from 1998 to 1999, he served as Corporate Senior Vice President, Chief Legal Officer and Secretary. Prior to joining ContiGroup, Mr. Baker was a partner in the New York law firm of Dewey Ballantine LLP. Maurice L. McGill has been a Director of Premium Standard Farms since September 1996. He has been a Director of PSF Group Holdings since May 1998. Mr. McGill has served as the President of Wirmac Corp. since 1986 and as a general partner of McGill Partners since 1989. Mr. McGill has also served as a director of Bluebonnet Savings Bank since 1990 and Sitek, Inc., now Prodeo Technologies, Inc., since 1998. Michael A. Petrick has been a Director of Premium Standard Farms and PSF Group Holdings since May 1998. He is a Managing Director of Morgan Stanley & Co. Incorporated, and has been with Morgan Stanley since 1989. Mr. Petrick also serves as a Director of CHI Energy, Inc., Marvel Enterprises, Inc., TVN Entertainment Corporation and EarthWatch Incorporated. Paul J. Fribourg has been a Director of Premium Standard Farms and PSF Group Holdings since May 1998. He has served as Chairman, President and Chief Executive Officer of ContiGroup Companies since 1999. From 1997 to 1999, he served as Chairman, President and Chief Executive Officer of Continental Grain and, from 1996 to 1997, he served as Chief Operating Officer of Continental Grain. Vart K. Adjemian has been a Director of Premium Standard Farms and PSF Group Holdings since September 1999. Mr. Adjemian has been Executive Vice President and Chief Operating Officer of ContiGroup Companies since February 2001. From 1999 to February 2001 he served as Executive Vice President of ContiGroup and as Chief Executive Officer of the ContiIndustries, an operating group of ContiGroup Companies. From 1998 to 1999, he was Senior Vice President of ContiGroup Companies, and from 1996 to 1998, he was President of the Commodity Marketing Group of ContiGroup Companies. John Rakestraw has been a Director of Premium Standard Farms since February 2001. He had previously served as director of Premium Standard Farms and PSF Group Holdings between May 1998 and October 1999. Mr. Rakestraw has been President and Chief Executive Officer of ContiBeef, LLC since 2000 and served as Vice President and General Manager of the Cattle Feeding Division of ContiGroup Companies from 1995 to 2000. Annabelle Lundy Fetterman has been a Director of Premium Standard Farms since August 2000. From 1985 to August 2000, she served as Chairman of the Board and Chief Executive Officer of The Lundy Packing Company and was employed by that company from its inception in 1950. 63 68 COMPENSATION OF DIRECTORS Premium Standard Farms has agreed to pay each person who is a member of the Board of Directors $1,000 per meeting, plus reimbursement of reasonable out-of-pocket expenses incurred in connection with the performance of duties as a Director. In addition, each director who is not affiliated with ContiGroup Companies or Morgan Stanley receives $20,000 per year in exchange for his or her services. Members of the Audit and Compensation Committees of Premium Standard Farms receive an additional $1,000 per meeting. Directors of PSF Group Holdings receive no separate compensation for service on that company's Board of Directors. PSF Group Holdings has adopted an Equity Incentive Plan that permits options, stock appreciation rights, restricted stock, performance units and performance shares to be granted to the employees, non-employee directors and consultants of PSF Group Holdings and its affiliates (including Premium Standard Farms). As of the date of this prospectus, there have been no grants to non-employee directors of Premium Standard Farms or PSF Group Holdings under the Equity Incentive Plan. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors of PSF Group Holdings has not established any committees. The Board of Directors of Premium Standard Farms has established two committees: a Compensation Committee and an Audit Committee. Each such committee has two or more members, who serve at the pleasure of the Board of Directors. The Compensation Committee is responsible for reviewing and making recommendations to the Board of Directors with respect to compensation of executive officers, other compensation matters and awards under the Equity Incentive Plan. Currently, Messrs. Zimmerman, Fribourg and Mefford serve on the Compensation Committee. The Audit Committee is responsible for reviewing our financial statements, audit reports, internal financial controls and the services performed by Premium Standard Farms' independent public accountants, and for making recommendations with respect to those matters to the Board of Directors. Currently, Messrs. Baker, Adjemian and McGill serve on the Audit Committee. TERMS OF DIRECTORS AND OFFICERS Directors of Premium Standard Farms are elected annually by PSF Group Holdings, as sole stockholder, to hold office for one-year terms and until their successors are duly elected and qualified. Officers of Premium Standard Farms are appointed by the Board of Directors and serve at the pleasure of the Board. Directors of PSF Group Holdings are nominated and placed for election at the annual meeting of members to hold office for a one-year term and until their successors are duly elected and qualified. There are two classes of Directors. Four Class A Directors are elected by holders of Class A Common Stock voting as a separate class. Messrs. Justice, McGill, Mefford and Petrick are the current Class A Directors. Five Class B Directors are elected by holders of Class B Common Stock voting as a separate class. Messrs. Baker, Fribourg, Meyer, Adjemian and Zimmerman are the current Class B Directors. Officers of PSF Group Holdings are appointed by, and serve at the pleasure of, the Board of Directors of PSF Group Holdings. EXECUTIVE COMPENSATION The following summary compensation table summarizes compensation information with respect to the Chief Executive Officer and the four other most highly compensated executive officers of both PSF Group Holdings and Premium Standard Farms for its fiscal year 2001 ended March 31, 2001. 64 69 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------- ANNUAL NUMBER OF COMPENSATION SECURITIES LONG-TERM FISCAL ---------------------- UNDERLYING INCENTIVE ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(1) PAYOUTS($) COMPENSATION($) - ----------------------------- ------ ---------- --------- ---------- ---------- --------------- John M. Meyer................ 2001 $283,269 $340,600 2,142.86 $471,260 $7,565(2) Chief Executive Officer Robert W. Manly.............. 2001 265,385 311,000 1,714.29 428,130 7,517(3) President Stephen A. Lightstone........ 2001 245,769 259,000 1,571.43 373,090 7,464(4) Executive Vice President, Chief Financial Officer and Treasurer J. Michael Townsley.......... 2001 166,916 123,010 571.43 204,820 7,251(5) Senior Vice President, Sales and Marketing David H. James............... 2001 165,289 130,020 571.43 209,820 7,246(6) Vice President, Production Operations
- --------------- (1) Options to acquire shares of Class B Common Stock of PSF Group Holdings. (2) Consists of employer contributions to the 401(k) plan for calendar year 2000 of $6,800 and premiums for group-term life and accidental death and dismemberment insurance for fiscal year 2001 of $765. (3) Consists of employer contributions to the 401(k) plan for calendar year 2000 of $6,800 and premiums for group-term life and accidental death and dismemberment insurance for fiscal year 2001 of $717. (4) Consists of employer contributions to the 401(k) plan for calendar year 2000 of $6,800 and premiums for group-term life and accidental death and dismemberment insurance for fiscal year 2001 of $664. (5) Consists of employer contributions to the 401(k) plan for calendar year 2000 of $6,800 and premium for group-term life and accidental death and dismemberment insurance for fiscal year 2001 of $451. (6) Consists of employer contributions to the 401(k) plan for calendar year 2000 of $6,800 and premiums for group-term life and accidental death and dismemberment insurance for fiscal year 2001 of $446. The following table sets forth certain information with respect to options to acquire PSF Group Holdings Class B Common Stock granted to each of the above named executives during fiscal year 2001: OPTION GRANTS DURING FISCAL YEAR 2001
POTENTIAL REALIZABLE PERCENT OF VALUE AT ASSUMED NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM OPTIONS IN FISCAL EXPIRATION PRICE ----------------------- NAME GRANTED YEAR(2) DATE ($/SH)(3) 5%($) 10%($) - ----------------------- ---------- ------------- ---------- --------- ---------- ---------- John M. Meyer.......... 2,142.86(1) 27.78% 12/31/05 $1,666.48 $1,118,969 $2,347,182 Robert W. Manly........ 1,714.29(1) 22.22 12/31/05 1,666.48 895,168 1,877,748 Stephen A. Lightstone........... 1,571.43(1) 20.37 12/31/05 1,666.48 820,569 1,721,266 J. Michael Townsley.... 571.43(1) 7.41 12/31/05 1,666.48 298,389 625,916 David H. James......... 428.57(1) 5.56 12/31/05 1,666.48 223,791 469,434 142.86(4) 1.85 12/31/07 1,666.48 96,920 230,150
- --------------- (1) Option grant was made on June 2, 2000, and 33% of the shares were vested at grant, 33% of the shares vested on December 31, 2000, and the remaining shares will vest on December 31, 2001. (2) A total of 7,714.29 options were granted in fiscal year 2001. 65 70 (3) The exercise price is the value of the stock on the date of grant. (4) Option grant was made on January 2, 2001, and 33% of the shares will vest on December 31, 2001, an additional 33% of the shares will vest on December 31, 2002, and the remaining shares will vest on December 31, 2003. None of the named executive officers exercised any options during fiscal year 2001. The following table sets forth information regarding exercisable and unexercisable options held as of March 31, 2001, by each of the named executive officers: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT MARCH 31, 2001(1) ---------------------------- NAME EXERCISABLE UNEXERCISABLE - ------------------------------------------------------------ ----------- ------------- John M. Meyer............................................... 1,414.29 728.57 Robert W. Manly............................................. 1,131.43 582.86 Stephen A. Lightstone....................................... 1,037.14 534.29 J. Michael Townsley......................................... 377.14 194.29 David H. James.............................................. 285.71 285.72
- --------------- (1) All options are options to acquire shares of Class B Common Stock of PSF Group Holdings. EQUITY INCENTIVE PLAN PSF Group Holdings adopted its 1999 Equity Incentive Plan in April 2000. The plan was established to attract, motivate and retain employees of that company and its affiliates, including Premium Standard Farms, and to further the growth and financial success of that company and its affiliates by aligning the interests of participants with the interests of the company's stockholders. The plan is administered by a committee of non-employee directors appointed by the Board. The plan provides for awards in the form of stock options, stock appreciation rights, restricted stock, performance units and performance shares, as determined by the committee. All employees and non-employee directors, as well as certain non-employee advisors and consultants, are eligible to receive awards under the plan. A total of 15,000 shares of PSF Group Holdings Class A or Class B Common Stock may be issued pursuant to the plan. Awards vest upon a change in control of PSF Group Holdings, as defined in the plan. Options granted under the 1999 Equity Incentive Plan may be either incentive stock options or nonqualified stock options, as determined by the committee. No participant can be granted options with respect to more than 3,000 shares in any fiscal year. The terms of any option will be determined by the committee, but no stock option may be exercised later than 10 years after the date of grant. The award agreement may provide that PSF Group Holdings has the right to repurchase the stock if the grantee terminates employment. The committee may also grant stock appreciation rights, restricted stock, performance units, or performance shares to eligible individuals, from time to time, in amounts as it may determine. Each stock appreciation right or performance share relates to one share of PSF Group Holdings Class A or Class B Common Stock. No participant can be granted stock appreciation rights covering more than 3,000 shares in any fiscal year, and no participant can be awarded more than 3,000 performance shares or restricted shares, or performance units with an initial value of more than $500,000 in any fiscal year. The value of a performance unit will be at the discretion of the committee. 66 71 LONG-TERM INCENTIVE PLAN During our three fiscal years ended March 31, 2001, a long-term incentive plan was in place for key executives selected by the Compensation Committee. Those generally eligible for the plan were senior managers with responsibility for leadership and accountability for long term growth and earnings as determined by the Compensation Committee. The plan included both a formula-based incentive pool and a discretionary awards pool. Incentive pool awards were determined at the plan's inception, and discretionary pool awards were determined at the end of the performance period. Awards were made in cash. Participants had the option to defer awards into the Deferred Compensation Plan discussed below. The plan was administered by the Compensation Committee. For the four year period commencing April 1, 2001, we intend to put in place a second long-term incentive plan. Those generally eligible for the plan will be senior managers with responsibility for leadership and accountability for long-term growth and earnings as determined by the Compensation Committee. The plan will establish both a formula-based incentive pool and a discretionary awards pool. Incentive pool awards will be determined at the plan's inception, and discretionary pool awards will be determined at the end of the performance period. Awards will be made in cash. Participants will have the option to defer awards into the Deferred Compensation Plan discussed below. The plan will be administered by the Compensation Committee. DEFERRED COMPENSATION PLAN The Deferred Compensation Plan for executives was adopted by our Board of Directors in January 2001. Participation in the plan is restricted to a select group of management and highly paid employees. Under this plan, participating executives are allowed to defer payment of compensation awarded as long-term incentive plan compensation until a date elected by the executive in accordance with the plan. The plan generally allows payment in the form of a single lump sum or ten substantially equal annual installments following the date of payment. A.G. Edwards Trust Company acts as trustee for the plan, which is administered by the Compensation Committee. 401(K) PLAN Our 401(k) Plan is a qualified defined contribution plan. Employees may elect to have contributed to their 401(k) Plan account up to 20% of their salaries as of the first of the calendar month following 60 days of employment with Premium Standard Farms. Premium Standard Farms makes matching contributions of up to 4% of an employee's base pay. Employees may direct the investment of their Premium Standard Farms' contributions among a group of investment options selected by Premium Standard Farms. SEVERANCE PLANS In addition, we have established an Executive Level Severance Pay Plan covering our executive employees, which can be terminated by our Board at any time. The purposes of the Plan is to provide eligible employees with base severance pay, supplemental severance pay and supplemental severance benefits for a specified period of time in the event that their employment is involuntarily terminated other than for good reason. Under the Plan dated December 1, 1999, those persons serving as Chief Executive Officer, President and Chief Financial Officer are entitled to receive the following benefits upon termination of the employment: - Base severance pay equal to two weeks pay - Supplemental severance pay equal to fifty weeks of pay - Continuation of health benefits coverage for fifty-two weeks following termination. Severance pay under the Plan is generally payable in a lump sum following the date of termination. Supplemental severance pay and continuation of health benefits, however, are conditioned upon the 67 72 employee's execution of a general waiver and release agreement, and supplemental severance pay will be paid only after execution of that agreement. SPECIAL EXECUTIVE RETIREMENT PLAN We have adopted a nonqualified, unfunded special executive retirement plan. The following table shows the approximate annual retirement benefits that Mr. Townsley and Mr. James are expected to receive based on their pay and years of credited service. Mr. Meyer, Mr. Manly and Mr. Lightstone are expected to receive approximately twice the annual retirement benefits shown below based on their pay and years of credited service. SPECIAL EXECUTIVE RETIREMENT PLAN TABLE
YEARS OF SERVICE ---------------------------------------------------- REMUNERATION 15 20 25 30 35 - ------------ -------- -------- -------- -------- -------- $125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500 150,000 45,000 60,000 75,000 90,000 105,000 175,000 52,500 70,000 87,500 105,000 122,500 200,000 60,000 80,000 100,000 120,000 140,000 225,000 67,500 90,000 112,500 135,000 157,500 250,000 75,000 100,000 125,000 150,000 175,000 300,000 90,000 120,000 150,000 180,000 210,000 400,000 120,000 160,000 200,000 240,000 280,000
The benefits in the above table are annual amounts payable in monthly installments as single life annuities starting at age 62, the plan's normal retirement age. Benefits are payable as an annuity or a lump sum. Benefits are based on the executive's final three calendar years' base salary, including amounts deferred to the 401(k) plan or cafeteria plan. An executive must complete five years of service after January 1, 2000, to be entitled to a benefit. Benefits vest upon a change in control of Premium Standard Farms. Benefits shown above are offset by one-half of the Social Security benefits paid or payable at age 62 attributable to years of service with us and by any retirement benefits paid or payable under any ContiGroup qualified defined benefit pension plan. Credited service for benefit determination purposes as of March 31, 2001, is shown below for each of the executive officers named in the summary compensation table above:
YEARS OF NAME SERVICE - ------------------------------------------------------------ -------- John M. Meyer............................................... 2 Robert W. Manly............................................. 4 Stephen A. Lightstone....................................... 2 J. Michael Townsley......................................... 3 David H. James.............................................. 2
68 73 PRINCIPAL STOCKHOLDERS All of the issued and outstanding capital stock of Premium Standard Farms is owned by PSF Group Holdings. We own all of the issued and outstanding capital stock of The Lundy Packing Company, Lundy International, Inc., and Premium Standard Farms of North Carolina, Inc. The following table sets forth certain information regarding ownership of the common stock of PSF Group Holdings as of the date of this prospectus by (i) each person who is known by us to own beneficially more than 5% of the outstanding shares of each class of stock, (ii) each director of Premium Standard Farms and PSF Group Holdings, (iii) each of the executive officers set forth in the Summary Compensation table above and (iv) all directors and named executive officers of Premium Standard Farms and PSF Group Holdings as a group.
SHARES BENEFICIALLY OWNED(3) ----------------------------------- PERCENT PERCENT TITLE OF CLASS(1) NAME AND ADDRESS OF BENEFICIAL OWNER(2) NUMBER OF CLASS OF TOTAL - ----------------- --------------------------------------- ----------- -------- -------- Class B Common ContiGroup Companies, Inc. ............ 113,300.64 100.0 53.1 277 Park Avenue New York, NY 10172 Class A Common Putnam Funds........................... 37,663.89(4) 37.7 17.7 14 Wall Street, Fourth Floor New York, NY 10005 Class A Common Morgan Stanley Dean Witter & Co. ...... 39,562.4861(5) 34.1 17.2 1221 Avenue of the Americas New York, NY 10020 Class A Common Oaktree Capital Management, LLC........ 16,387.49(6) 16.4 7.7 550 South Hope Street, 22nd Floor Los Angeles, CA 90071 Class A Common Prudential Funds....................... 10,795.39(7) 10.8 5.1 c/o State Street Bank & Trust 1 Heritage Drive Quincy, MA 02171 Class A Common Continental Assurance Company Pension Investment Fund........................ 7,422.47 7.4 3.5 CNA Plaza, 235 Chicago, IL 60685 Class B Common John M. Meyer.......................... 1,414.29(8) 1.2 * Class B Common Robert W. Manly........................ 1,131.43(8) * * Class B Common Stephen A. Lightstone.................. 1,037.14(8) * * Class B Common J. Michael Townsley.................... 377.14(8) * * Class B Common David H. James......................... 285.71(8) * * Michael J. Zimmerman................... 0 * * Ronald E. Justice...................... 0 * * Dean Mefford........................... 0 * * Mark R. Baker.......................... 0 * * Maurice L. McGill...................... 0 * * Michael A. Petrick..................... 0 * * Paul J. Fribourg....................... 0(9) * * Vart K. Adjemian....................... 0 * * John Rakestraw......................... 0 * * Annabelle Lundy Fetterman.............. 0 * * All directors and executive officers as a group (17 persons)................... 4,245.71(9) 3.6 1.9
- --------------- * Signifies less than 1%. 69 74 (1) PSF Group Holdings is authorized by its certificate of incorporation to issue 250,000 shares of Class A Common Stock, 300,000 shares of Class B Common Stock and 10,000 shares of preferred stock. Each class of stock has a par value of $1 per share. As of the date of this prospectus, PSF Group Holdings has issued 100,000 shares of Class A Common Stock, 113,300.64 shares of Class B Common Stock and no shares of preferred stock. Holders of Class A Common Stock and Class B Common Stock participate equally in all distributions. With the exception of electing Directors, holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters presented for a stockholder vote. The holders of Class A Common Stock vote as a separate class to elect four of the nine members of the Board of Directors of PSF Group Holdings. The holders of Class B Common Stock vote as a separate class to elect five of the nine members of the Board of Directors. PSF Group Holdings cannot take a number of actions without the approval of a "supermajority" of the Board. A "supermajority" is defined as a majority that includes at least one Director elected by holders of Class A Common Stock and one Director elected by holders of Class B Common Stock. (2) Unless otherwise indicated, the business address of the persons named in the above table is care of Premium Standard Farms, Inc., 423 West 8th Street, Suite 200, Kansas City, Missouri 64105. (3) Unless otherwise indicated, each person has sole investment and voting power with respect to the shares listed in the table, subject to applicable community property laws. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares which such person has the right to acquire within 60 days. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above, any security which such person or group of persons has the right to acquire within 60 days is deemed to be outstanding for the purpose of computing the percentage ownership for such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. As a result, the denominator used in calculating the beneficial ownership among our shareholders may differ. (4) Consists of Class A Common Stock held: (a) by the following Putnam funds: Asset Allocation Funds -- Balanced Portfolio (128.85), Asset Allocation Funds -- Growth Portfolio (33.05), Asset Allocation Funds -- Conservative Portfolio (41.86), Diversified Income Portfolio/Smith Barney/ Travelers Series Fund (22.03), Capital Management Trust -- PCM Diversified Income Fund (528.10), Equity Income Fund (11.01), High Yield Advantage Fund (7,071.86), Global Governmental Income Trust (113.27), Premier Income Trust (2,502.48), Convertible Opportunities and Income Trust (220.25), High Income Convertible and Bond Fund (334.30), Master Intermediate Income Trust (715.33), Managed High Yield Trust (575.79), Diversified Income Trust (9,799.68), Master Income Trust (1,003.86), Capital Management Trust -- PCM High Yield Fund (1,578.53), High Yield Trust (11,857.08), Income Fund (440.51), Balanced Retirement Fund (110.13) and High Yield Managed Trust (354.29), (b) by The George Fund of Boston (220.25) and (c) by Bost & Co., Nominee for Ameritech Pension Trust (1.38). (5) Consists of 23,481.9661 shares of Class A Common Stock and 16,080.52 shares of Class A Common Stock issuable upon exercise of presently exercisable warrants but does not include 749.16 shares of Class A Common Stock that Morgan Stanley Dean Witter & Co. and its affiliates are in the process of registering in the stock ledger of PSF Group Holdings. The shares of Class A Common Stock are held by: Morgan Stanley Dean Witter & Co. (21,126.64), the Morgan Stanley Leveraged Equity Fund II, L.P. (1,056.8054), Morgan Stanley Capital Investors, L.P. (44.4981), Morgan Stanley Capital Partners III, L.P. (1,113.1667), MSCP III 892 Investors, L.P. (140.8559). The warrants are held by Morgan Stanley Leveraged Equity Funds and Morgan Stanley Capital III Partners. (6) Consists of shares of Class A Common Stock held by OCM Opportunities Fund, L.P. (11,210.87), Hare & Co. (4,709.52) and Columbia/HCA Master Retirement Trust (467.10). (7) Consists of shares of Class A Common Stock held by Gimlet & Co. (9,517.17), Deerway & Co. (279.24), Greatwhale & Co. (778.73) and IFTCO (220.25). (8) Consists of shares of Class B Common Stock issuable upon exercise of presently exercisable options. (9) Excludes shares owned by ContiGroup Companies, Inc. 70 75 RELATED PARTY TRANSACTIONS In 2000, we agreed to pay ContiGroup $5.0 million in consulting fees for work done in reaching our settlement with the Attorney General of Missouri over environmental matters. This amount was payable in annual installments of $1 million a year for five years. The first two annual installments were paid in our fiscal years 2000 and 2001. On September 22, 2000, we acquired the Carolina Farms hog production operations of ContiGroup Companies through the purchase of all of the outstanding stock of Premium Standard Farms of North Carolina. The purchase price for the stock was $32.3 million, of which half was payable in cash and half was payable in Class B Common Stock of PSF Group Holdings. This transaction increased ContiGroup's ownership of PSF Group Holdings from approximately 51 percent to approximately 53.1 percent. We received an opinion of an investment banking firm stating that the purchase price was fair to us from a financial point of view. In connection with our acquisition of The Lundy Packing Company, we entered into consulting agreements with Annabelle Lundy Fetterman, who is one of our directors, and members of her family on August 25, 2000. Pursuant to those agreements, Mrs. Fetterman and her family were entitled to receive a total of $1.2 million, payable in weekly installments commencing on the date of agreement, with the last payments due on August 25, 2001. In addition, we lease farm land and hog production buildings from Goshen Ridge Farms, LLC, a company owned by Mrs. Fetterman and members of her family, under a capital lease agreement that existed prior to our acquisition of The Lundy Packing Company. The capital lease obligation as of March 31, 2001 was $2.5 million. We have entered into a contract grower agreement with ContiGroup related to approximately 7,200 acres of farms used in our Missouri operations. Under that agreement, ContiGroup owns the real property at the farms. ContiGroup serves as an independent contractor in breeding and growing our hogs to market weight. In exchange, we pay to ContiGroup a fee for labor and services incurred by ContiGroup in performing its obligations under the agreement. For fiscal year 2001, the amount paid for obligations under this agreement was approximately $3.7 million; for fiscal year 2000, the amount paid was approximately $3.7 million; and for fiscal year 1999, the amount paid was approximately $3.2 million. The agreement will generally continue in effect so long as ContiGroup continues to own an equity interest in our company. Upon termination of the agreement, we have an option to acquire the real property at the farms from ContiGroup, which can be assigned to third parties. We receive the services of Mr. Schulte and other personnel through an agreement with ContiGroup. Mr. Schulte, as well as other personnel, are employees of ContiGroup but provide services to us as well as other affiliates of ContiGroup. Other services from ContiGroup include the assistance of purchasing and risk management staff, environmental consulting, treasury and strategic planning. We pay ContiGroup a monthly fee for these services. We negotiate the fee annually. In addition, we reimburse ContiGroup for a portion of Mr. Schulte's annual bonus and long-term incentive payment. For fiscal year 2001, the total amount paid for all services was $2.8 million; for fiscal year 2000, the total amount paid for all services was $7.4 million; and for fiscal year 1999, the total amount paid for all services was $12.1 million. We also provide Mr. Schulte with the use of a rental car, and since in July 2000, we provide him with an annual allowance of $15,000 for travel and housing. We make certain services available to ContiGroup in connection with ContiGroup's pork operations, including management, human resources, hog and feed production and environmental consulting services. ContiGroup pays us a fee for these services based on the weight of hogs marketed. For fiscal year 2001, the fee was $568,000. Morgan Stanley & Co. Incorporated acted as placement agent for the old notes. Morgan Stanley Dean Witter & Co. and certain of its affiliates beneficially own 23,481.9661 shares of Class A Common Stock of PSF Group Holdings. See "Principal Stockholders." Morgan Stanley Leveraged Equity Funds and Morgan Stanley Capital III Partners currently hold 1,608,052 warrants to purchase 16,080.52 additional shares of Class A Common Stock of PSF Group Holdings. In addition, Michael A. Petrick, one 71 76 of the directors of Premium Standard Farms and PSF Group Holdings is a Managing Director of Morgan Stanley. DESCRIPTION OF THE CREDIT AGREEMENT We and our direct and indirect wholly owned subsidiaries (collectively, the "Borrower") have entered into an amended Credit Agreement (the "Credit Agreement") with U.S. Bancorp Ag Credit, Inc., as Agent, and certain other financial institutions (the "Lenders"). A copy of the Credit Agreement may be obtained from Premium Standard Farms. The Credit Agreement provides for up to a $100.0 million revolving credit facility (with the actual credit limit determined monthly by reference to a borrowing base formula) and a $125.0 million term loan facility. Letters of credit may be issued under the revolving credit facility up to a sublimit of $10.0 million. INTEREST AND FEES In addition to customary fees payable under credit facilities of this type, amounts borrowed under the Credit Agreement bear interest, payable monthly in arrears, at one of two rates selected by us. The available rates are: - a "Base Rate" calculated as the greater of (x) the reference rate determined by U.S. Bank National Association or (y) the Federal Funds Rate plus one half of one percent, plus in either case an "Applicable Margin;" or - a "Eurodollar Rate" calculated as the London interbank offered rate determined by U.S. Bank, plus an "Applicable Margin." The "Applicable Margin" is determined by reference to the Borrower's "Leverage Ratio," which is, for any period of determination, the ratio of interest bearing debt outstanding at the end of the period over EBITDA (as defined) for the prior four fiscal quarters. The "Applicable Margin" ranges from zero to 1.125% for Base Rate Loans, and from 1.50% to 2.625% for Eurodollar Rate Loans. A non-use fee is likewise assessed for unused credit under the revolving credit facility. As of March 31, 2001, the outstanding principal amount under the revolving credit facility was $10.0 million, the outstanding principal amount under the term loan facility was $112.5 million and letters of credit in the amount of $7.5 million were outstanding. The unused availability under the revolving credit facility and interest rate as of that date were $82.5 million and 8.25%, respectively. GUARANTEES AND COLLATERAL PSF Group Holdings unconditionally guarantees the Borrower's obligations under the Credit Agreement. The obligations are secured by first priority perfected liens on substantially all of the Borrower's assets. AMORTIZATION AND PREPAYMENT During the term of the Credit Agreement, the Borrower is required to make quarterly payments of principal under the term loan facility in the amount of $6.25 million. Principal payments under the revolving credit facility are not required during the term of the Credit Agreement unless the Borrowing Base (as defined) or the $100.0 million limit is exceeded, in which case the excess must be repaid within 3 business days. All loans under the Credit Agreement mature on the earlier of (i) August 21, 2003 (in the case of the revolving credit facility) or August 21, 2005 (in the case of the term loan facility); or (ii) the date of termination of the loan commitments, or acceleration, by the Lenders as a consequence of default. Upon notice, the Borrower may prepay any loan at any time in whole or in part without premium or penalty, subject to payment of any funding losses incurred by the Lenders upon prepayment of Eurodollar 72 77 Rate loans. The Borrower also may terminate the commitments in whole, but not in part, subject to payment of an early termination fee if the commitments are terminated prior to February 21, 2002. REPRESENTATIONS AND WARRANTIES AND COVENANTS The Credit Agreement contains customary representations, warranties and covenants. The covenants are subject to certain exceptions set forth in the Credit Agreement, and the Borrower's compliance may be waived by approval of Lenders having at least 51% of the aggregate amount of the Lenders' "Pro Rata Percentages" (as defined). Among other things, the covenants require the Borrower to maintain consolidated Tangible Net Worth (as defined) at certain levels; minimum levels of consolidated Working Capital (as defined); minimum levels of rolling four quarter EBITDA; a maximum Leverage Ratio; and a minimum Cash Interest Coverage Ratio (as defined). The covenants also include provisions restricting the Borrower's ability to encumber or dispose of its assets; merge or consolidate with, or acquire substantially all of the assets of, other entities; incur additional indebtedness; exceed certain levels of capital investment; pay subordinated debt; and construct new hog production facilities. EVENTS OF DEFAULT Events of default under the Credit Agreement include, but are not limited to: (i) the Borrower's failure to pay principal, interest or other amounts owed to the Agent or Lenders; (ii) covenant defaults; (iii) a change of control of Premium Standard Farms; (iv) the inaccuracy of any representation or warranty; (v) monetary judgment defaults; (vi) events of bankruptcy; and (vii) cross-defaults to other indebtedness. 73 78 DESCRIPTION OF THE NOTES The old notes were, and the exchange notes will be, issued under an Indenture between PSF Group Holdings, Inc., Premium Standard Farms, Inc., The Lundy Packing Company, Lundy International, Inc., Premium Standard Farms of North Carolina, Inc., and Wilmington Trust Company. The terms of the exchange notes are identical in all material respects to the old notes, except that upon completion of the exchange offer, the exchange notes will be: - registered under the Securities Act; and - free of any covenants regarding exchange registration rights. You can find the definitions of certain capitalized terms used in this summary under the subheading "-- Definitions." We urge you to read the Indenture because it, and not this summary, defines your rights as a holder of the notes. For purposes of this "Description of the Notes," the term "Premium Standard Farms" means Premium Standard Farms, Inc. and its successors under the Indenture, in each case excluding its subsidiaries. We use the term "notes" in this section to refer to the exchange notes and the old notes, in each case outstanding at any given time and issued under the Indenture. GENERAL The notes will be unsecured unsubordinated obligations of Premium Standard Farms, initially limited to $175.0 million aggregate principal amount. The notes will mature on June 15, 2011. Subject to the covenants described below under "-- Covenants" and applicable law, Premium Standard Farms may issue additional notes ("Additional Notes") under the Indenture. The old notes, the exchange notes and any Additional Notes would be treated as a single class for all purposes under the Indenture. Each note will initially bear interest at the rate per annum shown on the cover page of this prospectus from June 7, 2001 or from the most recent interest payment date to which interest has been paid. Interest on the notes will be payable semiannually on June 15 and December 15 of each year, commencing December 15, 2001. Interest will be paid to Holders of record at the close of business on the June 1 or December 1 immediately preceding the Interest Payment Date. Interest is computed on the basis of a 360-day year of twelve 30-day months on a U.S. corporate bond basis. If by December 7, 2001, Premium Standard Farms has not consummated a registered exchange offer for the old notes or caused a shelf registration statement with respect to resales of the old notes to be declared effective, the annual interest rate on the old notes will increase by .5% until the earlier of (a) the consummation of a registered exchange offer or the effectiveness of a shelf registration statement and (b) the expiration of the period set forth in Rule 144(k) under the Securities Act of 1933 with respect to such old notes. The notes may be exchanged or transferred at the office or agency of Premium Standard Farms in The Borough of Manhattan, The City of New York. Initially, Computershare Trust Company of New York, Wall Street Plaza, 88 Pine Street, New York, New York 10005 will serve as such office. If you give Premium Standard Farms wire transfer instructions, Premium Standard Farms will pay all principal, premium and interest on your notes in accordance with your instructions. If you do not give Premium Standard Farms wire transfer instructions, payments of principal, premium and interest will be made at the office or agency of the paying agent which will initially be the Trustee, unless Premium Standard Farms elects to make interest payments by check mailed to the Holders. The notes will be issued only in fully registered form, without coupons, in denominations of $1,000 of principal amount and multiples of $1,000. See "-- Book-Entry; Delivery and Form." No service charge will be made for any registration of transfer or exchange of notes, but Premium Standard Farms may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. 74 79 OPTIONAL REDEMPTION Premium Standard Farms may redeem the notes at any time on or after June 15, 2006. The redemption price for the notes (expressed as a percentage of principal amount), will be as follows, plus accrued interest to the redemption date:
REDEMPTION IF REDEEMED DURING THE 12-MONTH PERIOD COMMENCING PRICE - ------------------------------------------------- ---------- June 15, 2006............................................... 104.625% June 15, 2007............................................... 103.083% June 15, 2008............................................... 101.542% June 15, 2009 and thereafter................................ 100.000%
In addition, at any time prior to June 15, 2004, Premium Standard Farms may redeem up to 35% of the principal amount of the notes with the Net Cash Proceeds received by Premium Standard Farms from one or more sales of its Capital Stock (other than Disqualified Stock) or a capital contribution to Premium Standard Farms' common equity at a redemption price (expressed as a percentage of principal amount) of 109.250%, plus accrued interest to the redemption date; provided that at least 65% of the aggregate principal amount of notes originally issued on June 7, 2001 remains outstanding after each such redemption and notice of any such redemption is mailed within 60 days of each such sale of Capital Stock or capital contribution. Premium Standard Farms will give not less than 30 days' nor more than 60 days' notice of any redemption. If less than all of the Notes are to be redeemed, selection of the notes for redemption will be made by the Trustee: - in compliance with the requirements of the principal national securities exchange, if any, on which the notes are listed, or, - if the notes are not listed on a national securities exchange, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. However, no note of $1,000 in principal amount or less shall be redeemed in part. If any note is to be redeemed in part only, the notice of redemption relating to such note will state the portion of the principal amount to be redeemed. A new note in principal amount equal to the unredeemed portion will be issued upon cancellation of the original note. GUARANTEES Payment of the principal of, premium, if any, and interest on the notes will be Guaranteed, jointly and severally, on an unsecured unsubordinated basis by the Initial Subsidiary Guarantors which are the only Restricted Subsidiaries existing on June 7, 2001, and by PSF Group Holdings. In addition, each future Restricted Subsidiary, other than a Foreign Subsidiary, will Guarantee the payment of the principal of, premium if any and interest on the notes. On June 7, 2001, all Subsidiaries of Premium Standard Farms other than L&S Farms were Restricted Subsidiaries. The obligations of each Guarantor under its Note Guarantee will be limited so as not to constitute a fraudulent conveyance under applicable Federal or state laws. Each Guarantor that makes a payment or distribution under its Note Guarantee will be entitled to contribution from any other Guarantor. The Note Guarantee of any Subsidiary Guarantor may be released as provided under the "Limitation on Issuances of Guarantees by Restricted Subsidiaries" covenant. RANKING The notes will be equal in right of payment with all existing and future unsubordinated indebtedness of Premium Standard Farms and senior in right of payment to all future subordinated indebtedness of Premium Standard Farms. The Note Guarantees will be equal in right of payment with all unsubordinated 75 80 indebtedness of the Guarantors and senior in right of payment to all future subordinated indebtedness of the Guarantors. Assuming the offering and the application of the proceeds therefrom had been completed as of March 31, 2001, Premium Standard Farms would have had $274.5 million of consolidated indebtedness outstanding, $92.7 million of which would have been outstanding under the Credit Agreement. The Credit Agreement is secured by substantially all of the assets of Premium Standard Farms and its subsidiaries. The notes will be effectively subordinated to such indebtedness to the extent of such security interests. Assuming the offering and the application of the proceeds therefrom had been completed as of March 31, 2001, the Guarantors would have $4.7 million of indebtedness, all of which was secured, outstanding other than their Guarantee of the notes and their obligations under the Credit Agreement. SINKING FUND There will be no sinking fund payments for the notes. COVENANTS OVERVIEW In the Indenture, Premium Standard Farms has agreed to covenants that limit its and its Restricted Subsidiaries' ability, among other things, to: - incur additional debt; - pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments; - place limitations on distributions from Restricted Subsidiaries; - issue or sell capital stock of Restricted Subsidiaries; - issue guarantees; - sell or exchange assets; - enter into transactions with shareholders and affiliates; - create liens; and - effect mergers. In addition, if a Change of Control occurs, each Holder of notes will have the right to require Premium Standard Farms to repurchase all or a part of the Holder's notes at a price equal to 101% of their principal amount, plus any accrued interest to the date of repurchase. LIMITATION ON INDEBTEDNESS (a) Premium Standard Farms will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the notes, the Note Guarantees and other Indebtedness existing on June 7, 2001); provided that Premium Standard Farms or any Subsidiary Guarantor may Incur Indebtedness, and any Restricted Subsidiary may Incur Acquired Indebtedness, if, after giving effect to such Incurrence and the receipt and application of the proceeds therefrom, the Interest Coverage Ratio would be greater than 2:1. Notwithstanding the foregoing, Premium Standard Farms and any Restricted Subsidiary (except as specified below) may Incur each and all of the following: (1) Indebtedness of Premium Standard Farms or any Subsidiary Guarantor outstanding at any time in an aggregate principal amount (together with refinancings thereof) not to exceed the greater of (A) $225 million, less any amount of such Indebtedness permanently repaid as provided under the 76 81 "Limitation on Asset Sales" covenant and (B) the sum of (x) 85% of the consolidated book value of the accounts receivable of Premium Standard Farms and its Restricted Subsidiaries (other than any Foreign Subsidiaries) plus (y) 80% of the consolidated book value of the inventory of Premium Standard Farms and its Restricted Subsidiaries (other than any Foreign Subsidiaries), in each case determined in accordance with GAAP as of the most recent fiscal quarter for which reports have been filed with the SEC or provided to the Trustee; (2) Indebtedness owed (A) to Premium Standard Farms or any Subsidiary Guarantor or (B) to any other Restricted Subsidiary; provided that (x) any subsequent event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to Premium Standard Farms or another Restricted Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause (2) and (y) if Premium Standard Farms or any Subsidiary Guarantor is the obligor on such Indebtedness and the payee is a Restricted Subsidiary that is not a Subsidiary Guarantor, such Indebtedness must be expressly subordinated in right of payment to the notes, in the case of Premium Standard Farms, or the Note Guarantee, in the case of a Subsidiary Guarantor; (3) Indebtedness issued in exchange for, or the net proceeds of which are used to redeem, defease, refinance or refund, then outstanding Indebtedness (other than Indebtedness outstanding under clause (2) or (5)) and any extensions, renewals and refinancings thereof in an amount not to exceed the amount so redeemed, defeased, refinanced or refunded (plus premiums, accrued interest, fees, costs and expenses incurred in connection with any such exchange, refinancing, redemption, defeasance or refunding); provided that (a) Indebtedness the proceeds of which are used to redeem, defease, refinance or refund the notes or Indebtedness that is pari passu with, or subordinated in right of payment to, the notes or a Note Guarantee shall only be permitted under this clause (3) if (x) in case the notes are redeemed, defeased or refinanced in part or the Indebtedness to be redeemed, defeased or refinanced is pari passu with the notes or a Note Guarantee, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining notes or a Note Guarantee, or (y) in case the Indebtedness to be refinanced is subordinated in right of payment to the notes or a Note Guarantee, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the notes or a Note Guarantee at least to the extent that the Indebtedness to be redeemed, defeased or refinanced is subordinated to the notes or a Note Guarantee, (b) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be redeemed, defeased, refinanced or refunded (or, if earlier the Stated Maturity of the notes), and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded (or, if less, the remaining Average Life of the notes) and (c) such new Indebtedness is Incurred by Premium Standard Farms or a Subsidiary Guarantor or by the Restricted Subsidiary who is the obligor on the Indebtedness to be refinanced or refunded; (4) Indebtedness of Premium Standard Farms, to the extent the net proceeds thereof are promptly (A) used to purchase notes tendered in an Offer to Purchase made as a result of a Change in Control in accordance with the Indenture or (B) deposited to defease the notes as described under "Defeasance"; (5) Guarantees of the notes and Guarantees of Indebtedness of Premium Standard Farms or any Subsidiary Guarantor by any Restricted Subsidiary provided the Guarantee of such Indebtedness is permitted by and made in accordance with the "Limitation on Issuance of Guarantees by Restricted Subsidiaries" covenant; (6) Indebtedness of Premium Standard Farms or any Subsidiary Guarantor with respect to industrial revenue bonds, pollution control bonds and other tax favored or tax exempt bonds, and 77 82 documents or instruments delivered in connection therewith in an aggregate principal amount outstanding at any time (together with refinancings thereof) not to exceed $25.0 million; (7) Indebtedness of Foreign Subsidiaries outstanding at any time in an aggregate principal amount (together with refinancings thereof) not to exceed the sum of (x) 85% of the consolidated book value of the accounts receivable of the Foreign Subsidiaries of Premium Standard Farms plus (y) 80% of the consolidated book value of the inventory of the Foreign Subsidiaries of Premium Standard Farms, in each case determined in accordance with GAAP as of the most recent fiscal quarter for which reports have been filed with the SEC or provided to the Trustee; and (8) Indebtedness of Premium Standard Farms, or any Restricted Subsidiary (in addition to Indebtedness permitted under clauses (1) through (7) above) in an aggregate principal amount outstanding at any time (together with refinancings thereof) not to exceed $75.0 million, less any amount of such Indebtedness permanently repaid as provided under the "Limitation on Asset Sales" covenant; provided, however, that the aggregate principal amount of Indebtedness that may be incurred under this clause (8) by Restricted Subsidiaries that are not Subsidiary Guarantors shall not exceed $10.0 million; (b) Notwithstanding any other provision of this "Limitation on Indebtedness" covenant, the maximum amount of Indebtedness that may be Incurred pursuant to this "Limitation on Indebtedness" covenant will not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in the exchange rates of currencies. (c) For purposes of determining any particular amount of Indebtedness under this "Limitation on Indebtedness" covenant, (x) Indebtedness Incurred under the Credit Agreement on or prior to June 7, 2001 shall be treated as Incurred pursuant to clause (1) of the second paragraph of clause (a) of this "Limitation on Indebtedness" covenant, (y) Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included and (z) any Liens granted pursuant to the equal and ratable provisions referred to in the "Limitation on Liens" covenant shall not be treated as Indebtedness. For purposes of determining compliance with this "Limitation on Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above (other than Indebtedness referred to in clause (x) of the preceding sentence), including under the first paragraph of part (a), Premium Standard Farms, in its sole discretion, shall classify, and from time to time may reclassify, such item of Indebtedness and only be required to include the amount of such Indebtedness in one of such classes. (d) Premium Standard Farms will not Incur any Indebtedness if such Indebtedness is subordinate in right of payment to any other Indebtedness unless such Indebtedness is also subordinate in right of payment to the notes to the same extent, provided that the foregoing shall not apply to distinctions between categories of Indebtedness that exist solely by reason of Liens or Guarantees. LIMITATION ON RESTRICTED PAYMENTS Premium Standard Farms will not, and will not permit any Restricted Subsidiary to, directly or indirectly, (1) declare or pay any dividend or make any distribution on or with respect to its Capital Stock (other than (x) dividends or distributions payable solely in shares of its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to acquire shares of such Capital Stock and (y) pro rata dividends or distributions on Common Stock of Restricted Subsidiaries (other than Subsidiary Guarantors) held by minority stockholders) held by Persons other than Premium Standard Farms or any of its Restricted Subsidiaries, (2) purchase, call for redemption or redeem, retire or otherwise acquire for value any shares of Capital Stock of (A) Premium Standard Farms, any Subsidiary Guarantor or any direct or indirect parent of Premium Standard Farms (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person or (B) a Restricted Subsidiary other than a Subsidiary Guarantor (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Affiliate of Premium Standard Farms or any direct or indirect parent of Premium Standard 78 83 Farms (other than a Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of the Capital Stock of Premium Standard Farms or any direct or indirect parent of Premium Standard Farms, (3) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of Premium Standard Farms that is subordinated in right of payment to the notes or any Indebtedness of a Subsidiary Guarantor that is subordinated in right of payment to a Note Guarantee or (4) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (1) through (4) above being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing, (B) Premium Standard Farms could not Incur at least $1.00 of additional Indebtedness under the first paragraph of part (a) of the "Limitation on Indebtedness" covenant or (C) the aggregate amount of all Restricted Payments made after June 7, 2001 shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the amount of such loss) accrued on a cumulative basis during the period (taken as one accounting period) beginning on the first day of the fiscal quarter immediately following June 7, 2001 and ending on the last day of the last fiscal quarter preceding the Transaction Date for which reports have been filed with the SEC or provided to the Trustee plus (2) the aggregate Net Cash Proceeds received by Premium Standard Farms after June 7, 2001 as a capital contribution or from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of Premium Standard Farms, including an issuance or sale permitted by the Indenture of Indebtedness of Premium Standard Farms for cash subsequent to June 7, 2001 upon the conversion of such Indebtedness into Capital Stock (other than Disqualified Stock) of Premium Standard Farms, or from the issuance to a Person who is not a Subsidiary of Premium Standard Farms of any options, warrants or other rights to acquire Capital Stock of Premium Standard Farms (in each case, exclusive of any Disqualified Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the notes) plus (3) an amount equal to the net reduction in Investments (other than Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to Premium Standard Farms or any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Adjusted Consolidated Net Income), from the release of any Guarantee or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed, in each case, the amount of Investments previously made by Premium Standard Farms or any Restricted Subsidiary in such Person or Unrestricted Subsidiary. The foregoing provision shall not be violated by reason of: (1) the payment of any dividend, distribution or redemption of any Capital Stock within 60 days after the related date of declaration or call for redemption if, at said date of declaration or call for redemption, such payment or redemption would comply with the preceding paragraph; (2) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the notes or any Note Guarantee including premium, if any, and accrued interest, fees, costs and expenses with the proceeds of, or 79 84 in exchange for, Indebtedness Incurred under clause (3) of the second paragraph of part (a) of the "Limitation on Indebtedness" covenant; (3) the repurchase, redemption or other acquisition of Capital Stock of Premium Standard Farms, a Subsidiary Guarantor or any direct or indirect parent of Premium Standard Farms (or options, warrants or other rights to acquire such Capital Stock) in exchange for, or out of the proceeds of a capital contribution or a substantially concurrent offering of, shares of Capital Stock (other than Disqualified Stock) of Premium Standard Farms (or options, warrants or other rights to acquire such Capital Stock); provided that such options, warrants or other rights are not redeemable at the option of the holder, or required to be redeemed, prior to the Stated Maturity of the notes; (4) the making of any principal payment or the repurchase, redemption, retirement, defeasance or other acquisition for value of Indebtedness which is subordinated in right of payment to the notes or any Note Guarantee in exchange for, or out of the proceeds of a capital contribution or a substantially concurrent offering of, shares of the Capital Stock (other than Disqualified Stock) of Premium Standard Farms (or options, warrants or other rights to acquire such Capital Stock); provided that such options, warrants or other rights are not redeemable at the option of the holder, or required to be redeemed, prior to the Stated Maturity of the notes; (5) payments or distributions, to dissenting stockholders pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets of (i) Premium Standard Farms, that complies with the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of Premium Standard Farms and (ii) any Subsidiary Guarantor, that complies with the provisions of the Indenture applicable to mergers and consolidations of such Subsidiary Guarantor; provided, in the case of this clause (ii), that immediately after giving effect to such merger or consolidation, on a pro forma basis, such Subsidiary Guarantor or the surviving person, as the case may be, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately prior to such merger or consolidation, without giving effect to any capital contributions by Premium Standard Farms or any Restricted Subsidiary made in anticipation of such merger or consolidation to satisfy this clause (ii); (6) Investments acquired as a capital contribution to, or in exchange for, or out of, or the payment of any dividend from, the proceeds of a substantially concurrent offering of, Capital Stock (other than Disqualified Stock) of, Premium Standard Farms; (7) the repurchase of Capital Stock deemed to occur upon the exercise of options or warrants if such Capital Stock represents all or a portion of the exercise price thereof; (8) payment of dividends, other distribution or other amounts by Premium Standard Farms to PSF Group Holdings in amounts required for PSF Group Holdings to pay fees required to maintain its existence and provide for all other operating costs of PSF Group Holdings, including, without limitation, in respect of director fees and expenses, administrative, legal and accounting services provided by third parties and other costs and expenses of being a public company, including all costs and expenses with respect to filings with the SEC of up to $500,000 per fiscal year; (9) the payment of dividends or other distributions by Premium Standard Farms to PSF Group Holdings in amounts required to pay the tax obligations of PSF Group Holdings attributable to Premium Standard Farms and its Subsidiaries determined as if Premium Standard Farms and its Subsidiaries had filed a separate consolidated, combined or unitary return for the relevant taxing jurisdiction; provided that (x) the amount of dividends paid pursuant to this clause (9) to enable PSF Group Holdings to pay federal and state income taxes (and franchise taxes based on income) at any time shall not exceed the amount of such federal and state income taxes (and franchise taxes based on income) actually owing by PSF Group Holdings at 80 85 such time to the respective tax authorities for the respective period and (y) any refunds received by PSF Group Holdings or any of its Subsidiaries shall promptly be returned by PSF Group Holdings to Premium Standard Farms through a capital contribution or purchase of Capital Stock (other than Disqualified Stock) of Premium Standard Farms; (10) the purchase, repurchase, acquisition, cancellation or other retirement for value by Premium Standard Farms or any Restricted Subsidiary of, or dividends, distributions or advances to PSF Group Holdings to allow PSF Group Holdings to purchase, repurchase, acquire, cancel or otherwise retire for value Capital Stock (including options, warrants or other rights to acquire such Capital Stock) of PSF Group Holdings or Premium Standard Farms from employees of PSF Group Holdings, Premium Standard Farms or any Restricted Subsidiary upon the death, disability, retirement or termination of employment of such employees or to the extent required pursuant to employee benefit plans, employment agreements or other arrangements with employees in an aggregate amount not to exceed (a) $3.0 million in any calendar year (with up to two years in unused amounts being carried over to any succeeding year) or (b) $15.0 million in the aggregate; or (11) Restricted Payments in an aggregate amount not to exceed $10.0 million; provided that, except in the case of clauses (1) and (3), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to the preceding paragraph (other than the Restricted Payment referred to in clause (2), (9) or (10) thereof, an exchange of Capital Stock for Capital Stock or Indebtedness referred to in clause (3) or (4) thereof and an Investment acquired as a capital contribution or in exchange for Capital Stock referred to in clause (6) thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred to in clauses (3), (4) or (6), shall be included in calculating whether the conditions of clause (C) of the first paragraph of this "Limitation on Restricted Payments" covenant have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of Premium Standard Farms are used for the redemption, repurchase or other acquisition of the notes, or Indebtedness that is pari passu with the notes or any Note Guarantee, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this "Limitation on Restricted Payments" covenant only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of Indebtedness. For purposes of determining compliance with this "Limitation on Restricted Payments" covenant, (x) the amount, if other than in cash, of any Restricted Payment shall be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution and (y) in the event that a Restricted Payment meets the criteria of more than one of the types of Restricted Payments described in the above clauses, including the first paragraph of this "Limitation on Restricted Payments" covenant, Premium Standard Farms, in its sole discretion, may order and classify, and from time to time may reclassify, such Restricted Payment if it would have been permitted at the time such Restricted Payment was made and at the time of such reclassification. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES Premium Standard Farms will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (1) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by Premium Standard Farms or any other Restricted Subsidiary, (2) pay any Indebtedness owed to Premium Standard Farms or any other Restricted Subsidiary, (3) make loans or advances to Premium Standard Farms or any other Restricted Subsidiary or (4) transfer any of its property or assets to Premium Standard Farms or any other Restricted Subsidiary. 81 86 The foregoing provisions shall not restrict any encumbrances or restrictions: (1) existing on June 7, 2001 under the Credit Agreement, the Indenture, the notes or any other agreements in effect on June 7, 2001, and any amendments, extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such amendments, extensions, refinancings, renewals or replacements taken as a whole are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being amended, extended, refinanced, renewed or replaced; (2) existing under or by reason of applicable law; (3) existing with respect to any Person or the property or assets of such Person acquired by Premium Standard Farms or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired and any amendments, extensions, refinancings, renewals or replacements of thereof; provided that the encumbrances and restrictions in any such amendments, extensions, refinancings, renewals or replacements taken as a whole are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being amended, extended, refinanced, renewed or replaced; (4) in the case of clause (4) of the first paragraph of this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant: (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of Premium Standard Farms or any Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of Premium Standard Farms or any Restricted Subsidiary in any manner material to Premium Standard Farms or any Restricted Subsidiary; (5) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary; (6) customary provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; or (7) with respect to a Foreign Subsidiary and imposed pursuant to any agreement or instrument governing Indebtedness (whether or not outstanding) of such Foreign Subsidiary permitted to be Incurred under the "Limitation on Indebtedness" covenant so long as (1) such encumbrance or restriction is not applicable to any Person or the property or assets of any Person other than such Foreign Subsidiary or the property or assets of such Foreign Subsidiary and its Foreign Subsidiaries and (2) not more than 20% of such Foreign Subsidiary's assets are located in the United States. Nothing contained in this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent Premium Standard Farms or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2) restricting the sale or other disposition of property or assets of Premium Standard Farms or any of its Restricted Subsidiaries that secure Indebtedness of Premium Standard Farms or any of its Restricted Subsidiaries. 82 87 LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES Premium Standard Farms will not sell, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) except: (1) to Premium Standard Farms or a Wholly Owned Restricted Subsidiary; (2) issuances of director's qualifying shares or sales to foreign nationals of shares of Capital Stock of Foreign Subsidiaries, to the extent required by applicable law; (3) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under the "Limitation on Restricted Payments" covenant if made on the date of such issuance or sale; or (4) sales of Common Stock (including options, warrants or other rights to purchase shares of such Common Stock) of a Restricted Subsidiary by Premium Standard Farms or a Restricted Subsidiary, provided that Premium Standard Farms or such Restricted Subsidiary applies the Net Cash Proceeds of any such sale in accordance with clause (A) or (B) of the "Limitation on Asset Sales" covenant. LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES Premium Standard Farms will cause each Restricted Subsidiary other than a Foreign Subsidiary to execute and deliver a supplemental indenture to the Indenture providing for an unsubordinated Guarantee (a "Subsidiary Guarantee") of payment of the notes by such Restricted Subsidiary. Premium Standard Farms will not permit any Foreign Subsidiary, directly or indirectly, to Guarantee any Indebtedness ("Guaranteed Indebtedness") of Premium Standard Farms or any Subsidiary Guarantor, unless (a) such Foreign Subsidiary simultaneously executes and delivers a Subsidiary Guarantee and (b) such Foreign Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against Premium Standard Farms or any other Restricted Subsidiary as a result of any payment by such Foreign Subsidiary under its Subsidiary Guarantee until the notes have been paid in full. If the Guaranteed Indebtedness is (A) pari passu in right of payment with the notes or any Subsidiary Guarantee, then the Guarantee of such Guaranteed Indebtedness shall be pari passu in right of payment with, or subordinated to, the Subsidiary Guarantee or (B) subordinated in right of payment to the notes or any Subsidiary Guarantee, then the Guarantee of such Guaranteed Indebtedness shall be subordinated in right of payment to the Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is subordinated to the notes or any Subsidiary Guarantee. Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted Subsidiary may provide by its terms that it shall be automatically and unconditionally released and discharged upon (1) any sale, exchange or transfer (including by way of merger or consolidation), to any Person not an Affiliate of Premium Standard Farms, of all of Premium Standard Farms' and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture) or upon the designation of such Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the terms of the Indenture; or (2) solely in the case of a Subsidiary Guarantee by a Foreign Subsidiary issued in connection with the immediately preceding paragraph, the release or discharge of the Guarantee which resulted in the creation of such Subsidiary Guarantee, except a discharge or release by or as a result of payment under such Guarantee. LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES Premium Standard Farms will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, 83 88 lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of Premium Standard Farms or PSF Group Holdings or with any Affiliate of Premium Standard Farms or any Restricted Subsidiary, except upon fair and reasonable terms no less favorable to Premium Standard Farms or such Restricted Subsidiary than could be obtained, at the time of such transaction or, if such transaction is pursuant to a written agreement, at the time of the execution of the agreement providing therefor, in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate. The foregoing limitation does not limit, and shall not apply to: (1) transactions (A) approved by a majority of the disinterested members of the Board of Directors of Premium Standard Farms or (B) for which Premium Standard Farms or a Restricted Subsidiary delivers to the Trustee a written opinion of an investment banking, accounting, valuation or appraisal firm of recognized standing stating that the transaction is fair to Premium Standard Farms or such Restricted Subsidiary from a financial point of view; (2) any transaction solely between (a) Premium Standard Farms and any of its Wholly Owned Restricted Subsidiaries or solely among Wholly Owned Restricted Subsidiaries and (b) Premium Standard Farms and any of its other Restricted Subsidiaries or solely among other Restricted Subsidiaries in the ordinary course of business; provided that solely for the purposes of this clause (b) no Affiliate of Premium Standard Farms (other than its Restricted Subsidiaries) owns any Capital Stock of any such Restricted Subsidiary; (3) the payment of reasonable and customary compensation to directors of Premium Standard Farms who are not employees of Premium Standard Farms and reasonable indemnification arrangements entered into by Premium Standard Farms; (4) any payments or other transactions pursuant to any tax-sharing agreement between Premium Standard Farms and any other Person with which Premium Standard Farms files a consolidated tax return or with which Premium Standard Farms is part of a consolidated group for tax purposes; (5) any sale of shares of Capital Stock (other than Disqualified Stock) of Premium Standard Farms; (6) any Restricted Payments not prohibited by the "Limitation on Restricted Payments" covenant; (7) the payment of fees to Morgan Stanley & Co. Incorporated or its Affiliates for financial, advisory, consulting, commercial banking or investment banking services and related expenses that the Board of Directors deems advisable or appropriate (including, without limitation, the payment of any underwriting discounts or commissions or placement agency fees in connection with the issuance and sale of securities); (8) the payment of reasonable fees to ContiGroup for legal, hedging and other services in an aggregate amount not to exceed $1.0 million in any fiscal year; (9) the payment to ContiGroup for consulting fees for work done in reaching a settlement of certain environmental matters in an aggregate amount not to exceed $3.5 million; or (10) the reimbursement for reasonable expenses incurred by ContiGroup in connection with contract grower services provided in accordance with past practice. Notwithstanding the foregoing, any transaction or series of related transactions covered by the first paragraph of this "Limitation on Transactions with Shareholders and Affiliates" covenant and not covered by clauses (2) through (10) of this paragraph, (a) the aggregate amount of which exceeds $2.0 million in value, must be approved or determined to be fair in the manner provided for in clause (1)(A) or (B) above and (b) the aggregate amount of which exceeds $10.0 million in value, must be determined to be fair in the manner provided for in clause (1)(B) above. 84 89 LIMITATION ON LIENS Premium Standard Farms will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on any of its assets or properties of any character, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all of the notes and all other amounts due under the Indenture to be directly secured equally and ratably with (or, if the obligation or liability to be secured by such Lien is subordinated in right of payment to the notes, prior to) the obligation or liability secured by such Lien. The foregoing limitation does not apply to: (1) Liens existing on June 7, 2001, including Liens securing obligations under the Credit Agreement; (2) Liens granted after June 7, 2001 on any assets or Capital Stock of Premium Standard Farms or its Restricted Subsidiaries created in favor of the Trustee for its benefit and for the benefit of the Holders; (3) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to Premium Standard Farms or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to Premium Standard Farms or such other Restricted Subsidiary; (4) Liens securing Indebtedness which is Incurred to refinance secured Indebtedness which is permitted to be Incurred under clause (3) of the second paragraph of the "Limitation on Indebtedness" covenant; provided that such Liens do not extend to or cover any property or assets of Premium Standard Farms or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; or (5) Liens to secure Indebtedness (including Indebtedness under the Credit Agreement) Incurred under clause (1) or (8) of the second paragraph of the "Limitation on Indebtedness" covenant; (6) Liens (including extensions and renewals thereof) upon real or personal property (including Capital Stock) acquired or constructed after June 7, 2001; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred, in accordance with the "Limitation on Indebtedness" covenant, to finance or refinance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost (including transaction costs relating to such purchase, construction or improvement) and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; (7) Liens on cash set aside at the time of the Incurrence of any Indebtedness, or government securities purchased with such cash, in either case to the extent that such cash or government securities pre-fund the payment of interest on such Indebtedness and are held in a collateral or escrow account or similar arrangement to be applied for such purpose; or (8) Permitted Liens. LIMITATION ON SALE-LEASEBACK TRANSACTIONS Premium Standard Farms will not, and will not permit any Restricted Subsidiary to, enter into any sale-leaseback transaction involving any of its assets or properties, whether now owned or hereafter acquired, whereby Premium Standard Farms or a Restricted Subsidiary sells or transfers such assets or properties more than six months after acquiring or completion of construction of such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties 85 90 which Premium Standard Farms or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the assets or properties sold or transferred. The foregoing restriction does not apply to any sale-leaseback transaction if: (1) the lease is for a period, including renewal rights, of not in excess of three years; (2) the lease secures or relates to industrial revenue bonds, pollution control bonds or other tax favored or tax exempt bonds; (3) the transaction is solely between Premium Standard Farms and any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted Subsidiaries; (4) Premium Standard Farms or such Restricted Subsidiary, within 12 months after the sale or transfer of any assets or properties is completed, applies an amount not less than the net proceeds received from such sale in accordance with clause (A) or (B) of the second paragraph of the "Limitation on Asset Sales" covenant; or (5) the lease secures or relates to any vehicle; provided that the aggregate fair market value of such vehicles subject to such lease does not exceed $15.0 million. LIMITATION ON ASSET SALES Premium Standard Farms will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless (1) the consideration received by Premium Standard Farms or such Restricted Subsidiary is at least equal to the fair market value of the assets sold or disposed of and (2) at least 75% of the consideration received consists of (a) cash or Temporary Cash Investments, (b) the assumption of unsubordinated Indebtedness of Premium Standard Farms or any Subsidiary Guarantor or Indebtedness of any other Restricted Subsidiary (in each case, other than Indebtedness owed to Premium Standard Farms or any Affiliate of Premium Standard Farms), provided that Premium Standard Farms, such Subsidiary Guarantor or such other Restricted Subsidiary is irrevocably and unconditionally released from all liability under such Indebtedness, (c) Replacement Assets. For the purposes of this covenant only, cash shall include any securities, notes or other obligations received by Premium Standard Farms or any such Restricted Subsidiary that are converted, sold or exchanged by Premium Standard Farms or any such Restricted Subsidiary into cash within 90 days of the related Asset Sale to the extent of the cash received in that conversion. In the event and to the extent that the Net Cash Proceeds received by Premium Standard Farms or any of its Restricted Subsidiaries from one or more Asset Sales occurring on or after June 7, 2001 in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the date closest to the commencement of such 12-month period for which a consolidated balance sheet of Premium Standard Farms and its Subsidiaries has been filed with the SEC or provided to the Trustee), then Premium Standard Farms shall or shall cause the relevant Restricted Subsidiary to: (1) within twelve months after the date Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets, (A) apply an amount equal to such excess Net Cash Proceeds to permanently repay unsubordinated Indebtedness of Premium Standard Farms or any Subsidiary Guarantor or Indebtedness of any other Restricted Subsidiary, in each case owing to a Person other than Premium Standard Farms or any Affiliate of Premium Standard Farms, or (B) invest an equal amount, or the amount not so applied pursuant to clause (A) (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in Replacement Assets, and (2) apply (no later than the end of the 12-month period referred to in clause (1)) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (1) as extended in accordance with 86 91 any definitive agreement referred to in subclause (B)) as provided in the following paragraphs of this "Limitation on Asset Sales" covenant. The amount of such excess Net Cash Proceeds required to be applied (or to be committed to be applied) during such 12-month period as set forth in clause (1) of the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds." If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this "Limitation on Asset Sales" covenant totals at least $10.0 million, Premium Standard Farms must commence, not later than the fifteenth Business Day of such month, and consummate an Offer to Purchase from the Holders (and if required by the terms of any Indebtedness that is pari passu with the notes ("Pari Passu Indebtedness"), from the holders of such Pari Passu Indebtedness) on a pro rata basis an aggregate principal amount of notes (and Pari Passu Indebtedness) equal to the Excess Proceeds on such date, at a purchase price equal to 100% of their principal amount, plus, in each case, accrued interest (if any) to the Payment Date. If any Excess Proceeds remain after consummation of an Offer to Purchase, Premium Standard Farms or any Restricted Subsidiary may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL Premium Standard Farms must commence, within 30 days after the occurrence of a Change of Control, and consummate an Offer to Purchase for all notes then outstanding, at a purchase price equal to 101% of their principal amount, plus accrued interest (if any) to the Payment Date. There can be no assurance that Premium Standard Farms will have sufficient funds available at the time of any Change of Control to make any debt payment (including repurchases of notes) required by the foregoing covenant (as well as may be contained in other securities or Indebtedness of Premium Standard Farms which might be outstanding at the time). The above covenant requiring Premium Standard Farms to repurchase the notes will, unless consents are obtained, require Premium Standard Farms to repay all indebtedness then outstanding which by its terms would prohibit such note repurchase, either prior to or concurrently with such note repurchase. Premium Standard Farms will not be required to make an Offer to Purchase upon the occurrence of a Change of Control, if a third party makes an offer to purchase the notes in the manner, at the times and price and otherwise in compliance with the requirements of the Indenture applicable to an Offer to Purchase for a Change of Control and purchases all notes validly tendered and not withdrawn in such offer to purchase. SEC REPORTS AND REPORTS TO HOLDERS At all times from and after the earlier of (1) the date of the commencement of an Exchange Offer or the effectiveness of the Shelf Registration Statement (the "Registration") and (2) the date that is six months after June 7, 2001, in either case, whether or not Premium Standard Farms is then required to file reports with the SEC, Premium Standard Farms shall file with the SEC all such reports and other information as it would be required to file with the SEC by Section 13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject thereto. Premium Standard Farms shall supply to the Trustee and to each Holder who so requests or shall supply to the Trustee for forwarding to each such Holder, without cost to such Holder, copies of such reports and other information. In addition, at all times prior to the earlier of the date of the Registration and December 7, 2001, Premium Standard Farms shall, at its cost, deliver to the Trustee and each Holder who so requests quarterly and annual reports substantially equivalent to those which would be required by the Exchange Act. In addition, at all times prior to the Registration, upon the request of any Holder or any prospective purchaser of the notes designated by a Holder, Premium Standard Farms shall supply to such Holder or such prospective purchaser the information required under Rule 144A under the Securities Act. 87 92 Notwithstanding the foregoing so long as PSF Group Holdings guarantees the notes, the reports, information and other documents required to be filed and provided as described above shall be those of PSF Group Holdings, rather than Premium Standard Farms, so long as such filings would satisfy the SEC's requirements. EVENTS OF DEFAULT The following events will be defined as "Events of Default" in the Indenture: (a) default in the payment of principal of (or premium, if any, on) any note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any note when the same becomes due and payable, and such default continues for a period of 30 days; (c) (i) default in the performance or breach of the provisions of the Indenture applicable to (A) mergers, consolidations and transfers of all or substantially all of the assets of Premium Standard Farms or PSF Group Holdings or (B) mergers or consolidations of any Subsidiary Guarantor or (ii) the failure by Premium Standard Farms to make or consummate an Offer to Purchase in accordance with the "Limitation on Asset Sales" or "Repurchase of Notes upon a Change of Control" covenant; (d) Premium Standard Farms, any Subsidiary Guarantor or PSF Group Holdings defaults in the performance of or breaches any other covenant or agreement in the Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the notes; (e) there occurs with respect to any issue or issues of Indebtedness of Premium Standard Farms, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary having an outstanding principal amount of $7.5 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (A) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration and/or (B) the failure to make a principal payment at the final (but not any interim) fixed maturity and such defaulted payment shall not have been made, waived or extended within 30 days of such payment default; (f) final judgments or orders (not covered by insurance) for the payment of money in excess of $7.5 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against Premium Standard Farms, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $7.5 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of Premium Standard Farms, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of Premium Standard Farms, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or for all or substantially all of the property and assets of Premium Standard Farms, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or (C) the winding up or liquidation of the affairs of Premium Standard Farms, any 88 93 Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (h) Premium Standard Farms, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of Premium Standard Farms, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or for all or substantially all of the property and assets of Premium Standard Farms, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; or (i) any Guarantor repudiates its obligations under its Note Guarantee or, except as permitted by the Indenture, any Note Guarantee is determined to be unenforceable or invalid or shall for any reason cease to be in full force and effect. If an Event of Default (other than an Event of Default specified in clause (g) or (h) above that occurs with respect to Premium Standard Farms) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the notes, then outstanding, by written notice to Premium Standard Farms (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued interest on the notes to be immediately due and payable. Upon a declaration of acceleration, such principal of, premium, if any, and accrued interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (e) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (e) shall be remedied or cured by Premium Standard Farms, PSF Group Holdings, any Subsidiary Guarantor or the relevant Significant Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (g) or (h) above occurs with respect to Premium Standard Farms or any Guarantor, the principal of, premium, if any, and accrued interest on the notes then outstanding shall automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of at least a majority in principal amount of the outstanding notes by written notice to Premium Standard Farms and to the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if (x) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the notes that have become due solely by such declaration of acceleration, have been cured or waived and (y) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. For information as to the waiver of defaults, see "-- Modification and Waiver." The Holders of at least a majority in aggregate principal amount of the outstanding notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of notes. A Holder may not pursue any remedy with respect to the Indenture or the notes unless: (1) the Holder gives the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in aggregate principal amount of outstanding notes make a written request to the Trustee to pursue the remedy; 89 94 (3) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding notes do not give the Trustee a direction that is inconsistent with the request. However, such limitations do not apply to the right of any Holder of a note to receive payment of the principal of, premium, if any, or interest on, such note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the notes, which right shall not be impaired or affected without the consent of the Holder. Officers of Premium Standard Farms must certify, on or before a date not more than 90 days after the end of each fiscal year, that a review has been conducted of the activities of Premium Standard Farms and its Restricted Subsidiaries and Premium Standard Farms' and its Restricted Subsidiaries' performance under the Indenture and that Premium Standard Farms has fulfilled all obligations thereunder, or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. Premium Standard Farms will also be obligated to notify the Trustee of any default or defaults in the performance of any covenants or agreements under the Indenture. CONSOLIDATION, MERGER AND SALE OF ASSETS Neither Premium Standard Farms nor PSF Group Holdings will consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into it unless: (1) it shall be the continuing Person, or the Person (if other than it) formed by such consolidation or into which it is merged or that acquired or leased such property and assets of (the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of Premium Standard Farms' or PSF Group Holdings' obligations, as the case may be, under the Indenture and the notes; (2) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (3) if such transaction involves Premium Standard Farms, immediately after giving effect to such transaction on a pro forma basis, Premium Standard Farms or the Surviving Person, as the case may be, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of Premium Standard Farms immediately prior to such transaction; (4) if such transaction involves Premium Standard Farms, immediately after giving effect to such transaction on a pro forma basis Premium Standard Farms, or the Surviving Person, as the case may be, could Incur at least $1.00 of Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant; provided that this clause (4) shall not apply to a consolidation, merger or sale of all (but not less than all) of the assets of Premium Standard Farms if all Liens and Indebtedness of Premium Standard Farms or the Surviving Person, as the case may be, and its Restricted Subsidiaries outstanding immediately after such transaction would have been permitted (and all such Liens and Indebtedness, other than Liens and Indebtedness of Premium Standard Farms and its Restricted Subsidiaries outstanding immediately prior to the transaction, shall be deemed to have been Incurred) for all purposes of the Indenture; (5) it delivers to the Trustee an Officers' Certificate (if such transaction involves Premium Standard Farms, attaching the arithmetic computations to demonstrate compliance with clauses (3) and (4)) and Opinion of Counsel, in each case stating that such consolidation, merger or transfer 90 95 and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; and (6) each Guarantor, unless such Guarantor is the Person entering into such transaction under this "Consolidation, Merger and Sale of Assets", shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall apply to the obligations of Premium Standard Farms or the Surviving Person in accordance with the notes and the Indenture; provided, however, that clauses (3) and (4) above do not apply (i) if in the good faith determination of the Board of Directors of Premium Standard Farms, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of Premium Standard Farms and any such transaction shall not have as one of its purposes the evasion of the foregoing limitations, or (ii) to any transaction solely between Premium Standard Farms and any Wholly Owned Restricted Subsidiary. Each Guarantor (other than any Subsidiary Guarantor whose Note Guarantee is to be released in accordance with the terms of the Indenture) will not, and Premium Standard Farms will not cause or permit any Subsidiary Guarantor to, consolidate with or merge with or into any Person other than Premium Standard Farms or any other Subsidiary Guarantor unless: (1) the entity formed by or surviving any such consolidated or merger (if other than the Subsidiary Guarantor) is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (2) such entity assumes by supplemental indenture all of the obligations of the Subsidiary Guarantor on its Note Guarantee; (3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (4) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, Premium Standard Farms could satisfy the provisions of clause (4) of the first paragraph of this covenant. DEFEASANCE Defeasance and Discharge. The Indenture will provide that Premium Standard Farms will be deemed to have paid and will be discharged from any and all obligations in respect of the notes on the 123rd day after the deposit referred to below, and the provisions of the Indenture will no longer be in effect with respect to the notes (except for, among other matters, certain obligations to register the transfer or exchange of the notes, to replace stolen, lost or mutilated notes, to maintain paying agencies and to hold monies for payment in trust) if, among other things: (A) Premium Standard Farms has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the notes, (B) Premium Standard Farms has delivered to the Trustee (1) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of Premium Standard Farms' exercise of its option under this "Defeasance" provision and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after June 7, 2001 such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned 91 96 Opinion of Counsel and (2) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which Premium Standard Farms or any of its Subsidiaries is a party or by which Premium Standard Farms or any of its Subsidiaries is bound and (D) if at such time the notes are listed on a national securities exchange, Premium Standard Farms has delivered to the Trustee an Opinion of Counsel to the effect that the notes will not be delisted as a result of such deposit, defeasance and discharge. Defeasance of Certain Covenants and Certain Events of Default. The Indenture further will provide that the provisions of the Indenture will no longer be in effect with respect to clauses (3) and (4) under "Consolidation, Merger and Sale of Assets" and all the covenants described herein under "Covenants," clause (c) under "Events of Default" with respect to such clauses (3) and (4) under "Consolidation, Merger and Sale of Assets," clause (d) under "Events of Default" with respect to such other covenants and clauses (e) and (f) under "Events of Default" shall be deemed not to be Events of Default upon, among other things, the deposit with the Trustee, in trust, of money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the notes, the satisfaction of the provisions described in clauses (B)(2), (C) and (D) of the preceding paragraph and the delivery by Premium Standard Farms to the Trustee of an Opinion of Counsel to the effect that, among other things, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. Defeasance and Certain Other Events of Default. In the event Premium Standard Farms exercises its option to omit compliance with certain covenants and provisions of the Indenture with respect to the notes as described in the immediately preceding paragraph and the notes are declared due and payable because of the occurrence of an Event of Default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on the notes at the time of their Stated Maturity but may not be sufficient to pay amounts due on the notes at the time of the acceleration resulting from such Event of Default. However, Premium Standard Farms will remain liable for such payments and each Note Guarantee with respect to such payments will remain in effect. MODIFICATION AND WAIVER The Indenture may be amended, without the consent of any Holder, to: (1) cure any ambiguity, defect or inconsistency in the Indenture; (2) comply with the provisions described under "Consolidation, Merger and Sale of Assets" or "Limitation on Issuances of Guarantees by Restricted Subsidiaries"; (3) comply with any requirements of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act; (4) evidence and provide for the acceptance of appointment by a successor Trustee; or 92 97 (5) make any change that, in the good faith opinion of the Board of Directors, does not materially and adversely affect the rights of any Holder. Modifications and amendments of the Indenture may be made by Premium Standard Farms and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding notes; provided, however, that no such modification or amendment may, without the consent of each Holder affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest on, any note, (2) reduce the principal amount of, or premium, if any, or interest on, any note, (3) change the optional redemption dates or optional redemption prices of the notes from that stated under the caption "Optional Redemption," (4) change the place or currency of payment of principal of, or premium, if any, or interest on, any note, (5) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the Redemption Date) of any note, (6) waive a default in the payment of principal of, premium, if any, or interest on the notes, (7) release any Guarantor from its Note Guarantee, except as provided in the Indenture, or (8) reduce the percentage or aggregate principal amount of outstanding notes the consent of whose Holders is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults. NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR EMPLOYEES No recourse for the payment of the principal of, premium, if any, or interest on any of the notes or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of Premium Standard Farms or PSF Group Holdings in the Indenture, or in any of the notes or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator, stockholder, officer, director, employee or controlling person of Premium Standard Farms or PSF Group Holdings or of any successor Person thereof. Each Holder, by accepting the notes, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the notes. Such waiver may not be effective to waive liabilities under the federal securities laws. CONCERNING THE TRUSTEE Except during the continuance of a Default, the Trustee will not be liable, except for the performance of such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will use the same degree of care and skill in its exercise of the rights and powers vested in it under the Indenture as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of Premium Standard Farms, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest, it must eliminate such conflict or resign. BOOK-ENTRY; DELIVERY AND FORM The certificates representing the notes will be issued in fully registered form without interest coupons. Notes sold in offshore transactions in reliance on Regulation S under the Securities Act will initially be 93 98 represented by one or more temporary global notes in definitive, fully registered form without interest coupons (each a "Temporary Regulation S Global Note") and will be deposited with the Trustee as custodian for, and registered in the name of a nominee of, The Depository Trust Company ("DTC") for the accounts of Euroclear and Clearstream. The Temporary Regulation S Global Note will be exchangeable for one or more permanent global notes (each a "Permanent Regulation S Global Note"; and together with the Temporary Regulation S Global Notes, the "Regulation S Global Note") on or after July 17, 2001 upon certification that the beneficial interests in such global note are owned by non-U.S. persons. Prior to July 17, 2001, beneficial interests in the Temporary Regulation S Global Notes may only be held through Euroclear or Clearstream, and any resale or transfer of such interests to U.S. persons shall not be permitted during such period unless such resale or transfer is made pursuant to Rule 144A or Regulation S. Notes sold in reliance on Rule 144A will be represented by one or more permanent global notes in definitive, fully registered form without interest coupons (each a "Restricted Global Note"; and together with the Regulation S Global Notes, the "Global Notes") and will be deposited with the Trustee as custodian for, and registered in the name of a nominee of, DTC. Notes transferred to institutional "accredited investors" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional Accredited Investor") who are not qualified institutional buyers ("Non-Global Purchasers") will be in registered form without interest coupons ("Certificated Notes"). Upon the transfer of Certificated Notes initially issued to a Non-Global Purchaser to a qualified institutional buyer or in accordance with Regulation S, such Certificated Notes will, unless the relevant Global Note has previously been exchanged in whole for Certificated Notes, be exchanged for an interest in a Global Note. Ownership of beneficial interests in a Global Note will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Ownership of beneficial interests in a Global Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Qualified institutional buyers may hold their interests in a Restricted Global Note directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. Investors may hold their interests in a Regulation S Global Note directly through Euroclear or Clearstream, if they are participants in such systems, or indirectly through organizations that are participants in such system. On or after July 17, 2001, investors may also hold such interests through organizations other than Euroclear or Clearstream that are participants in the DTC system. Euroclear and Clearstream will hold interests in the Regulation S Global Notes on behalf of their participants through DTC. So long as DTC, or its nominee, is the registered owner or holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by such Global Note for all purposes under the Indenture and the notes. No beneficial owner of an interest in a Global Note will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Indenture and, if applicable, those of Euroclear and Clearstream. Payments of the principal of, and interest on, a Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. Neither Premium Standard Farms, PSF Group Holdings, the Trustee nor any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Premium Standard Farms expects that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown 94 99 on the records of DTC or its nominee. Premium Standard Farms also expects that payments by participants to owners of beneficial interests in such Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds. Transfers between participants in Euroclear and Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures. Premium Standard Farms expects that DTC will take any action permitted to be taken by a holder of notes (including the presentation of notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in a Global Note is credited and only in respect of such portion of the aggregate principal amount of notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the notes, DTC will exchange the applicable Global Note for Certificated Notes, which it will distribute to its participants and which may be legended as set forth under the heading "Transfer Restrictions." Premium Standard Farms understands that: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies and certain other organizations that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC, Euroclear and Clearstream are expected to follow the foregoing procedures in order to facilitate transfers of interests in a Global Note among participants of DTC, Euroclear and Clearstream, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither Premium Standard Farms nor the Trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. If DTC is at any time unwilling or unable to continue as a depositary for the Global Notes and a successor depositary is not appointed by Premium Standard Farms within 90 days, Premium Standard Farms will issue Certificated Notes, which may bear the legend referred to under "Transfer Restrictions," in exchange for the Global Notes. Holders of an interest in a Global Note may receive Certificated Notes, which may bear the legend referred to under "Transfer Restrictions," in accordance with the DTC's rules and procedures in addition to those provided for under the Indenture. DEFINITIONS Set forth below are defined terms used in the covenants and other provisions of the Indenture. Reference is made to the Indenture for other capitalized terms used in this "Description of the Notes" for which no definition is provided. "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or Indebtedness of a Restricted Subsidiary assumed in connection with an Asset Acquisition by such Restricted Subsidiary; provided such Indebtedness was not Incurred in connection with or in contemplation of such Person becoming a Restricted Subsidiary or such Asset Acquisition. "Adjusted Consolidated Net Income" means, for any period, the aggregate net income (or loss) of Premium Standard Farms and its Restricted Subsidiaries for such period determined in conformity with 95 100 GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (1) the net income (or loss) of any Person that is not a Restricted Subsidiary, except to the extent of the amount of dividends or other distributions actually paid to Premium Standard Farms or any of its Restricted Subsidiaries; (2) the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with Premium Standard Farms or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by Premium Standard Farms or any of its Restricted Subsidiaries; (3) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary; (4) any gains or losses (on an after-tax basis) attributable to sales of assets outside the ordinary course of business of Premium Standard Farms and its Restricted Subsidiaries; (5) solely for purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of the first paragraph of the "Limitation on Restricted Payments" covenant, any amount paid or accrued as dividends on Preferred Stock of Premium Standard Farms owned by Persons other than Premium Standard Farms and any of its Restricted Subsidiaries; and (6) all extraordinary gains and, solely for purposes of calculating the Interest Coverage Ratio, extraordinary losses. "Adjusted Consolidated Net Tangible Assets" means the total amount of assets of Premium Standard Farms and its Restricted Subsidiaries (less applicable depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups of capital assets (excluding write-ups in connection with accounting for acquisitions in conformity with GAAP), after deducting therefrom (1) all current liabilities of Premium Standard Farms and its Restricted Subsidiaries (excluding intercompany items) and (2) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recent quarterly or annual consolidated balance sheet of Premium Standard Farms and its Restricted Subsidiaries, prepared in conformity with GAAP and filed with the SEC or provided to the Trustee. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Acquisition" means (1) an investment by Premium Standard Farms or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged into or consolidated with Premium Standard Farms or any of its Restricted Subsidiaries; provided that such Person's primary business is, in the judgment of the Board of Directors of Premium Standard Farms, related, ancillary or complementary to the businesses of Premium Standard Farms and its Restricted Subsidiaries on the date of such investment or (2) an acquisition by Premium Standard Farms or any of its Restricted Subsidiaries of the property and assets of any Person other than Premium Standard Farms or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person; provided that the property and assets acquired are, in the judgment of the Board of Directors of Premium Standard Farms, related, ancillary or complementary to the businesses of Premium Standard Farms and its Restricted Subsidiaries on the date of such acquisition. 96 101 "Asset Disposition" means the sale or other disposition by Premium Standard Farms or any of its Restricted Subsidiaries (other than to Premium Standard Farms or another Restricted Subsidiary) of (1) all or substantially all of the Capital Stock of any Restricted Subsidiary or (2) all or substantially all of the assets that constitute a division or line of business of Premium Standard Farms or any of its Restricted Subsidiaries. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transaction) in one transaction or a series of related transactions by Premium Standard Farms or any of its Restricted Subsidiaries to any Person other than Premium Standard Farms or any of its Restricted Subsidiaries of: (1) all or any of the Capital Stock of any Restricted Subsidiary, (2) all or substantially all of the property and assets of an operating unit or business of Premium Standard Farms or any of its Restricted Subsidiaries, or (3) any other property and assets (other than the Capital Stock or other Investment in an Unrestricted Subsidiary) of Premium Standard Farms or any of its Restricted Subsidiaries outside the ordinary course of business of Premium Standard Farms or such Restricted Subsidiary, and, in each case, that is not governed by the provisions of the Indenture applicable to mergers, consolidations and sales of assets of Premium Standard Farms; provided that "Asset Sale" shall not include: (a) sales or other dispositions of inventory, receivables and other current assets, (b) sales, transfers or other dispositions of assets constituting a Permitted Investment or Restricted Payment permitted to be made under the "Limitation on Restricted Payments" covenant, (c) sales, transfers or other dispositions of assets with a fair market value not in excess of $1.0 million in any transaction or series of related transactions, or (d) any sale, transfer, assignment or other disposition of any property equipment that has become damaged, worn out, obsolete or otherwise unsuitable for use in connection with the business of Premium Standard Farms or its Restricted Subsidiaries. "Average Life" means, at any date of determination with respect to any debt security, the quotient obtained by dividing (1) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security and (b) the amount of such principal payment by (2) the sum of all such principal payments. "Board of Directors" means, with respect to any Person, the Board of Directors of such Person or any duly authorized committee of such Board of Directors. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether outstanding on June 7, 2001 or issued thereafter, including, without limitation, all Common Stock and Preferred Stock. "Capitalized Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person. "Capitalized Lease Obligations" means the discounted present value of the rental obligations under a Capitalized Lease. "Change of Control" means such time as: (1) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) other than the Existing Stockholders and their Affiliates becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the Voting Stock of Premium Standard Farms, on a fully diluted basis; or 97 102 (2) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) other than the Existing Stockholders and their Affiliates becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the Voting Stock of PSF Group Holdings, on a fully diluted basis; or (3) individuals who on June 7, 2001 constitute the Board of Directors of Premium Standard Farms or PSF Group Holdings (together with any new directors whose election by the Board of Directors of Premium Standard Farms or PSF Group Holdings, as the case may be, or whose nomination by the Board of Directors of Premium Standard Farms or PSF Group Holdings, as the case may be, for election by Premium Standard Farms' or PSF Group Holdings' stockholders, as the case may be, was approved by a vote of at least a majority of the members of the Board of Directors of Premium Standard Farms or PSF Group Holdings, as the case may be, then in office who either were members of the Board of Directors of Premium Standard Farms or PSF Group Holdings, as the case may be, on June 7, 2001 or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors of Premium Standard Farms or PSF Group Holdings, as the case may be, then in office. "Commodity Agreement" means any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement. "Consolidated EBITDA" means, for any period, Adjusted Consolidated Net Income for such period plus, to the extent such amount was deducted in calculating such Adjusted Consolidated Net Income: (1) Consolidated Interest Expense, (2) income taxes, (3) depreciation expense, (4) amortization expense, (5) non-recurring fees and expenses incurred in connection with the consummation of any acquisition in an aggregate amount not to exceed 5% of the total consideration of such acquisition and (6) all other non-cash items reducing Adjusted Consolidated Net Income (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made), less all non-cash items increasing Adjusted Consolidated Net Income, all as determined on a consolidated basis for Premium Standard Farms and its Restricted Subsidiaries in conformity with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net Income attributable to such Restricted Subsidiary multiplied by (B) the percentage ownership interest in the income of such Restricted Subsidiary not owned on the last day of such period by Premium Standard Farms or any of its Restricted Subsidiaries. "Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of Indebtedness (including, without limitation, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements (provided that if Interest Rate Agreements result in net benefits rather than costs, such benefits shall be credited in determining Consolidated Interest Expense unless, pursuant to GAAP, such net benefits are otherwise reflected in Consolidated Net Income); and Indebtedness that is Guaranteed or secured by Premium Standard Farms or any of its Restricted Subsidiaries) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by Premium Standard Farms and its Restricted Subsidiaries during such period; excluding, however, 98 103 (1) any amount of such interest of any Restricted Subsidiary if the net income of such Restricted Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income pursuant to clause (3) of the definition thereof (but only in the same proportion as the net income of such Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income pursuant to clause (3) of the definition thereof) and (2) any premiums, fees and expenses (and any amortization thereof) payable in connection with the offering of the Notes, all as determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in conformity with GAAP. "Consolidated Net Worth" means with respect to any Person, at any date of determination, stockholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of such Person and its Restricted Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation, and which shall not take into account Unrestricted Subsidiaries), plus, to the extent not included, any Preferred Stock of such Person, less any amounts attributable to Disqualified Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of the Capital Stock of such Person or any of its Restricted Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "ContiGroup" means ContiGroup Companies, Inc., a Delaware corporation. "Credit Agreement" means the Credit Agreement between the Company, the lenders party thereto and U.S. Bancorp AG Credit, Inc. (formerly FBS Credit, Inc.), as Agent, dated August 27, 1997, together with all agreements, instruments and documents executed or delivered pursuant thereto and in connection therewith, in each case as amended, supplemented, extended, renewed, replaced (by one or more credit facilities or debt instruments supplemental thereto) or otherwise modified from time to time including, without limitation, any agreement increasing the amount of, extending the maturity of, refinancing (in whole or in part) or otherwise restructuring (including, but not limited to, by the inclusion of additional or different lenders thereunder, additional borrowers or guarantors thereof or by the addition of collateral or other credit enhancement to support the obligations thereunder) all or any portion of the Indebtedness under such agreement or any successor agreement or agreements (regardless of when incurred). "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is (1) required to be redeemed prior to the Stated Maturity of the Notes, (2) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Notes or (3) convertible into or exchangeable for Capital Stock referred to in clause (1) or (2) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to Premium Standard Farms' repurchase of such notes as are required to be repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants. 99 104 "Existing Stockholders" means (1) PSF Group Holdings, (2) ContiGroup, (3) Mary Ann Fribourg, (4) each of the five children of Michel Fribourg and (5) any lineal descendants of any of the five children of Michel Fribourg; provided that any such descendant shall only be deemed to be an "Existing Stockholder" to the extent such descendant acquired beneficial ownership of stock of Premium Standard Farms or PSF Group Holdings directly or indirectly from Mary Ann Fribourg or any of the five children of Michel Fribourg. "fair market value" means the price that would be paid in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the Board of Directors, whose determination shall be conclusive if evidenced by a Board Resolution. "Foreign Subsidiary" means any Restricted Subsidiary of Premium Standard Farms that is an entity which is a controlled foreign corporation under Section 957 of the Internal Revenue Code. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of June 7, 2001, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations contained or referred to in the Indenture shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of the Indenture shall be made without giving effect to (1) the amortization of any expenses incurred in connection with the offering of the notes and (2) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services (unless such purchase arrangements are on arm's-length terms and are entered into in the ordinary course of business), to take-or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor" means collectively, PSF Group Holdings and each Subsidiary Guarantor. "Incur" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness; provided that (1) any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary will be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary and (2) neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication): (1) all indebtedness of such Person for borrowed money; (2) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (other than, in the case of Premium Standard Farms and the Subsidiary Guarantors, any non-negotiable bonds, debentures or notes or similar instruments of Premium Standard Farms or any Subsidiary Guarantor issued to its insurance carriers in lieu of maintenance of policy reserves in 100 105 connection with workers' compensation and liability insurance programs of Premium Standard Farms or any Subsidiary Guarantor); (3) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto, but excluding obligations with respect to letters of credit (including trade letters of credit) securing obligations (other than obligations described in (1) or (2) above or (5), (6) or (7) below) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement); (4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables; (5) all Capitalized Lease Obligations; (6) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness; (7) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person; and (8) to the extent not otherwise included in this definition, obligations under Commodity Agreements, Currency Agreements and Interest Rate Agreements (other than Commodity Agreements, Currency Agreements and Interest Rate Agreements designed solely to protect Premium Standard Farms or its Restricted Subsidiaries against fluctuations in commodity prices, foreign currency exchange rates or interest rates and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in commodity prices, foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, assuming such contingency had occurred on such date provided (A) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, (B) that money borrowed and set aside at the time of the Incurrence of any Indebtedness in order to pre-fund the payment of the interest on such Indebtedness shall not be deemed to be "Indebtedness" so long as such money is held to secure the payment of such interest; provided that the release of such money to make such interest payments shall not constitute an Incurrence of Indebtedness and (C) that Indebtedness shall not include: (x) any liability for federal, state, local or other taxes, (y) performance, surety or appeal bonds provided in the ordinary course of business or (z) agreements providing for indemnification, adjustment of purchase price or similar obligations, or Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of Premium Standard Farms or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or 101 106 Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), so long as the principal amount does not exceed the gross proceeds actually received by Premium Standard Farms or any Restricted Subsidiary in connection with such disposition. "Initial Subsidiary Guarantors" means The Lundy Packing Company, Premium Standard Farms of North Carolina, Inc. and Lundy International, Inc. "Interest Coverage Ratio" means, on any Transaction Date, the ratio of (1) the aggregate amount of Consolidated EBITDA for the then most recent four fiscal quarters prior to such Transaction Date for which reports have been filed with the SEC or provided to the Trustee (the "Four Quarter Period") to (2) the aggregate Consolidated Interest Expense during such Four Quarter Period. In making the foregoing calculation: (A) pro forma effect shall be given to any Indebtedness Incurred or repaid during the period (the "Reference Period") commencing on the first day of the Four Quarter Period and ending on the Transaction Date (other than Indebtedness Incurred or repaid under a revolving credit or similar arrangement to the extent of the commitment thereunder (or under any predecessor revolving credit or similar arrangement) in effect on the last day of such Four Quarter Period unless any portion of such Indebtedness is projected, in the reasonable judgment of the senior management of Premium Standard Farms, to remain outstanding for a period in excess of 12 months from the date of the Incurrence thereof), in each case as if such Indebtedness had been Incurred or repaid on the first day of such Reference Period; (B) Consolidated Interest Expense attributable to interest on any Indebtedness (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the Transaction Date (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months or, if shorter, at least equal to the remaining term of such Indebtedness) had been the applicable rate for the entire period; (C) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur during such Reference Period as if they had occurred and such proceeds had been applied on the first day of such Reference Period; and (D) pro forma effect shall be given to asset dispositions and asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Restricted Subsidiary or has been merged with or into Premium Standard Farms or any Restricted Subsidiary during such Reference Period and that would have constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such Reference Period; provided that to the extent that clause (C) or (D) of this sentence requires that pro forma effect be given to an Asset Acquisition or Asset Disposition, such pro forma calculation shall be based upon the four full fiscal quarters immediately preceding the Transaction Date of the Person, or division or line of business of the Person, that is acquired or disposed for which financial information is available. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement. "Investment" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to 102 107 customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on the balance sheet of Premium Standard Farms or its Restricted Subsidiaries and endorsements for collection or deposit arising in the ordinary course of business) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person and shall include (1) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and (2) the retention of the Capital Stock (or any other Investment) by Premium Standard Farms or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a Restricted Subsidiary, including without limitation, by reason of any transaction permitted by clause (3) or (4) of the "Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant. For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant, (a) the amount of or a reduction in an Investment shall be equal to the fair market value thereof at the time such Investment is made or reduced and (b) in the event Premium Standard Farms or a Restricted Subsidiary makes an Investment by transferring assets to any Person and as part of such transaction receives Net Cash Proceeds, the amount of such Investment shall be the fair market value of the assets less the amount of Net Cash Proceeds so received, provided the Net Cash Proceeds are applied in accordance with clause (A) or (B) of the "Limitation on Asset Sales" covenant. "L&H Farms" means L&H Farms, LLC, a North Carolina limited liability company. "L&S Farms" means L&S Farms, a North Carolina general partnership. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to give any security interest). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means: (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (1) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale; (2) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of Premium Standard Farms and its Restricted Subsidiaries, taken as a whole; (3) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (x) is secured by a Lien on the property or assets sold or (y) is required to be paid as a result of such sale; (4) all distributions and other payments required to be made to minority interest holders in any Restricted Subsidiary as a result of such Asset Sale, provided that such distributions and payments are made to such holders on a pro rata basis based on such holder's interest in such Restricted Subsidiary; and (5) appropriate amounts to be provided by Premium Standard Farms or any Restricted Subsidiary as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP; and 103 108 (b) with respect to a capital contribution or any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Note Guarantee" means any Guarantee of the obligations of Premium Standard Farms under the Indenture and the notes by any Guarantor. "Offer to Purchase" means an offer to purchase notes by Premium Standard Farms from the Holders commenced by mailing a notice to the Trustee and each Holder stating: (1) the covenant pursuant to which the offer is being made and that all notes validly tendered will be accepted for payment on a pro rata basis; (2) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (3) that any note not tendered will continue to accrue interest pursuant to its terms; (4) that, unless Premium Standard Farms defaults in the payment of the purchase price, any note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (5) that Holders electing to have a note purchased pursuant to the Offer to Purchase will be required to surrender the note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of notes delivered for purchase and a statement that such Holder is withdrawing his election to have such notes purchased; and (7) that Holders whose notes are being purchased only in part will be issued new notes equal in principal amount to the unpurchased portion of the notes surrendered; provided that each note purchased and each new note issued shall be in a principal amount of $1,000 or integral multiples of $1,000. On the Payment Date, Premium Standard Farms shall (a) accept for payment on a pro rata basis notes or portions thereof tendered pursuant to an Offer to Purchase; (b) deposit with the Paying Agent money sufficient to pay the purchase price of all notes or portions thereof so accepted; and (c) deliver, or cause to be delivered, to the Trustee all notes or portions thereof so accepted together with an Officers' Certificate specifying the notes or portions thereof accepted for payment by Premium Standard Farms. The Paying Agent shall promptly mail to the Holders of notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new note equal in principal amount to any unpurchased portion of the note surrendered; provided that each note purchased and each new note issued shall be in a principal amount of $1,000 or integral multiples of $1,000. Premium Standard Farms will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. Premium Standard Farms will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that Premium Standard Farms is required to repurchase notes pursuant to an Offer to Purchase. 104 109 "Permitted Investment" means: (1) an Investment in Premium Standard Farms or a Subsidiary Guarantor or a Person which will, upon the making of such Investment, become a Subsidiary Guarantor or be merged or consolidated with or into or transfer or convey all or substantially all its assets to, Premium Standard Farms or a Subsidiary Guarantor; provided that such person's primary business is related, ancillary or complementary to the businesses of Premium Standard Farms and its Restricted Subsidiaries on the date of such Investment; (2) Temporary Cash Investments; (3) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; (4) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to Premium Standard Farms or any Restricted Subsidiary pursuant to a work-out or similar arrangement or proceeding or in satisfaction of judgments or pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of a debtor; (5) an Investment in an Unrestricted Subsidiary consisting solely of an Investment in another Unrestricted Subsidiary; (6) Commodity Agreements, Interest Rate Agreements and Currency Agreements designed solely to protect Premium Standard Farms or its Restricted Subsidiaries against fluctuations in commodity prices, interest rates or foreign currency exchange rates; (7) loans and advances to employees and officers of Premium Standard Farms and its Restricted Subsidiaries in an amount not to exceed $2.0 million outstanding at any time; (8) Investments existing on June 7, 2001; and (9) Investments having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), in an aggregate amount not to exceed 5% of Adjusted Consolidated Net Tangible Assets (determined as of the date of the last fiscal quarter for which a consolidated balance sheet of Premium Standard Farms and its Subsidiaries has been filed with the SEC or provided to the Trustee) at any time outstanding plus the net reduction in Investments made pursuant to this clause (9) resulting from distributions on or repayments of such Investments or from the Net Cash Proceeds from the sale or other disposition of any such Investment (except in each case to the extent of any gain on such sale or disposition that would be included in the calculation of Adjusted Consolidated Net Income for purposes of clause (C)(1) of the "Limitation on Restricted Payments" covenant) or from such Person becoming a Restricted Subsidiary (valued in each case as provided in the definition of "Investments") or the release of any guarantee; provided that the net reduction in any Investment shall not exceed the amount of such Investment. "Permitted Liens" means: (1) Liens for taxes, assessments, governmental charges or claims that are not yet delinquent or are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (2) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen, agisters or other similar Liens arising in the ordinary course of business (including construction of facilities) and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; 105 110 (3) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security and other similar legislation; (4) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds, warranty obligations and other obligations of a similar nature incurred in the ordinary course of business (including to facilitate the purchase, shipment or storage of inventory or goods but exclusive of obligations for the payment of borrowed money); (5) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of Premium Standard Farms or any of its Restricted Subsidiaries; (6) leases or subleases granted to others that do not materially interfere with the ordinary course of business of Premium Standard Farms and its Restricted Subsidiaries, taken as a whole; (7) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of Premium Standard Farms or its Restricted Subsidiaries relating to such property or assets; (8) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (9) Liens arising from filing Uniform Commercial Code financing statements regarding leases or consignments; (10) Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of Premium Standard Farms or any Restricted Subsidiary other than the property or assets acquired; (11) Liens in favor of Premium Standard Farms or any Restricted Subsidiary; (12) Liens arising from the rendering of a final judgment or order against Premium Standard Farms or any Restricted Subsidiary that does not give rise to an Event of Default; (13) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (14) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (15) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Commodity Agreements, Interest Rate Agreements and Currency Agreements designed solely to protect Premium Standard Farms or any of its Restricted Subsidiaries from fluctuations in interest rates, currencies or the price of commodities; (16) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by Premium Standard Farms or any of its Restricted Subsidiaries in the ordinary course of business; (17) Liens on shares of Capital Stock of any Unrestricted Subsidiary to secure Indebtedness of such Unrestricted Subsidiary; (18) Liens on or sales of receivables and the proceeds thereof; (19) Liens securing obligations to a trustee pursuant to the compensation and indemnity provisions of any indenture and Liens securing compensation and indemnity obligations to a trustee or 106 111 agent with respect to any security interest granted in connection with any Indebtedness permitted under the terms of the Indenture; and (20) Liens on property or assets used to defease Indebtedness that was not incurred in violation of the Indenture. "PSF Group Holdings" means PSF Group Holdings Inc., a Delaware corporation and its successors. "Replacement Assets" means, on any date, property or assets (other than current assets) of a nature or type or that are used in a business (or an Investment in a company having property or assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, Premium Standard Farms and its Restricted Subsidiaries existing on such date. "Restricted Subsidiary" means any Subsidiary of Premium Standard Farms other than an Unrestricted Subsidiary. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, and its successors. "Significant Subsidiary" means, at any date of determination, any Restricted Subsidiary that, together with its Subsidiaries, (1) for the most recent fiscal year of Premium Standard Farms, accounted for more than 10% of the consolidated revenues of Premium Standard Farms and its Restricted Subsidiaries or (2) as of the end of such fiscal year, was the owner of more than 10% of the consolidated assets of Premium Standard Farms and its Restricted Subsidiaries, all as set forth on the most recently available consolidated financial statements of Premium Standard Farms for such fiscal year. "Stated Maturity" means, (1) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (2) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the voting power of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "Subsidiary Guarantor" means any Initial Subsidiary Guarantor and any other Restricted Subsidiary which Guarantees Premium Standard Farms' obligations under the Indenture. "Temporary Cash Investment" means any of the following: (1) direct obligations of the United States of America or any agency thereof or obligations fully and unconditionally guaranteed by the United States of America or any agency thereof; (2) time deposit accounts, certificates of deposit and money market deposits maturing within one year of the date of acquisition thereof or demand deposits issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $100 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money market fund sponsored by a registered broker dealer or mutual fund distributor; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank or trust company meeting the qualifications described in clause (2) above; (4) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of Premium Standard Farms) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the 107 112 United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P; (5) securities with maturities of one year or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or Moody's; (6) any mutual fund that has at least 95% of its assets continuously invested in investments of the types described in clauses (1) through (5) above; and (7) in the case of Foreign Subsidiaries, in short term investments comparable to the foregoing. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. "Transaction Date" means, with respect to the Incurrence of any Indebtedness, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Unrestricted Subsidiary" means (1) L&S Farms, (2) any other Subsidiary of Premium Standard Farms that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below, and (3) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary (including any newly acquired or newly formed Subsidiary of Premium Standard Farms) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, Premium Standard Farms or any Restricted Subsidiary; provided that (A) any Guarantee by Premium Standard Farms or any Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by Premium Standard Farms or such Restricted Subsidiary (or both, if applicable) at the time of such designation; (B) either (I) the Subsidiary to be so designated has total assets of $1,000 or less or (II) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the "Limitation on Restricted Payments" covenant; and (C) if applicable, the Incurrence of Indebtedness and the Investment referred to in clause (A) of this proviso would be permitted under the "Limitation on Indebtedness" and "Limitation on Restricted Payments" covenants. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (a) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such designation and (b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately after such designation would, if Incurred at such time, have been permitted to be Incurred (and shall be deemed to have been Incurred) for all purposes of the Indenture. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means securities that are (1) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the notes, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific 108 113 payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Voting Stock" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Wholly Owned" means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock of such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) by such Person or one or more Wholly Owned Subsidiaries of such Person. IMPORTANT UNITED STATES FEDERAL TAX CONSEQUENCES The following discussion is a summary of the material United States federal income tax consequences relevant to the purchase, ownership and disposition of the notes, but does not purport to be a complete analysis of all potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), United States Treasury Regulations issued thereunder, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which are subject to change at any time. Any such change may be applied retroactively in a manner that could adversely affect a holder of the notes. This discussion does not address all of the United States federal income tax consequences that may be relevant to a holder in light of such holder's particular circumstances or to holders subject to special rules, such as certain financial institutions, U.S. expatriates, insurance companies, dealers in securities or currencies, traders in securities, holders whose functional currency is not the U.S. dollar, tax-exempt organizations and persons holding the notes as part of a "straddle," "hedge," "conversion transaction" or other integrated transaction. In addition, this discussion is limited to persons purchasing the notes for cash at original issue and at their "issue price" within the meaning of Section 1273 of the Code (i.e., the first price at which a substantial amount of notes are sold to the public for cash). Moreover, the effect of any applicable state, local or foreign tax laws is not discussed. The discussion deals only with notes held as "capital assets" within the meaning of Section 1221 of the Code. As used herein, "United States Holder" means a beneficial owner of the notes who or that is: - An individual that is a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the "substantial presence" test under Section 7701(b) of the Code; - A corporation or other entity taxable as a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia; - An estate, the income of which is subject to United States federal income tax regardless of its source; or - A trust, if a United States court can exercise primary supervision over the administration of the trust and one or more United States persons can control all substantial trust decisions, or, if the trust was in existence on August 20, 1996, has elected to continue to be treated as United States person. We have not sought and will not seek any rulings from the Internal Revenue Service (the "IRS") with respect to the matters discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the notes or that any such position would not be sustained. If a partnership or other entity taxable as a partnership holds the notes, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. 109 114 PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE TAX CONSEQUENCES DISCUSSED BELOW TO THEIR PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS. UNITED STATES HOLDERS INTEREST Payments of stated interest on the notes generally will be taxable to a United States Holder as ordinary income at the time that such payments are received or accrued, in accordance with such United States Holder's method of accounting for United States federal income tax purposes. SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES A United States Holder will recognize gain or loss on the sale, redemption, retirement or other taxable disposition of a note equal to the difference between the amount realized upon the disposition (less a portion allocable to any accrued and unpaid interest, which will be taxable as ordinary income) and the United States Holder's adjusted tax basis in the note. A United States Holder's adjusted basis in a note generally will be the United States Holder's cost therefor, less any principal payments received by such holder. This gain or loss generally will be a capital gain or loss, and will be a long-term capital gain or loss if the United States Holder has held the note for more than one year. Otherwise, such gain or loss will be a short-term capital gain or loss. EXCHANGE OFFER AND LIQUIDATED DAMAGES The exchange of the old notes for the exchange notes will not constitute a taxable exchange. As a result, (1) a United States Holder will not recognize a taxable gain or loss as a result of exchanging such holder's old notes; (2) the holding period of the exchange notes received will include the holding period of the old notes exchanged therefor; and (3) the adjusted tax basis of the exchange notes received will be the same as the adjusted tax basis of the old notes exchanged therefore immediately before such exchange. BACKUP WITHHOLDING A United States Holder may be subject to a 31% backup withholding tax when such holder receives interest and principal payments on the notes held or upon the proceeds received upon the sale or other disposition of such notes. Certain holders (including, among others, corporations and certain tax-exempt organizations) are generally not subject to backup withholding. A United States Holder will be subject to this backup withholding tax if such holder is not otherwise exempt and such holder: - fails to furnish its taxpayer identification number ("TIN"), which, for an individual, is ordinarily his or her social security number; - furnishes an incorrect TIN; - is notified by the IRS that it has failed to properly report payments of interest or dividends; or - fails to certify, under penalties of perjury, that it has furnished a correct TIN and that the IRS has not notified the United States Holder that it is subject to backup withholding. United States Holders should consult their personal tax advisor regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable. The backup withholding tax is not an additional tax and taxpayers may use amounts withheld as a credit against their United States federal income tax liability, which may entitle them to a refund, as long as they timely provide certain information to the IRS. 110 115 NON-UNITED STATES HOLDERS DEFINITION OF NON-UNITED STATES HOLDERS; INTEREST PAYMENTS AND GAINS FROM DISPOSITIONS A non-United States Holder is a beneficial owner of the notes who is not a United States Holder. Interest paid to a non-United States Holder will not be subject to United States federal withholding tax of 30% (or, if applicable, a lower treaty rate) provided that: - such holder does not directly or indirectly, actually or constructively own 10% or more of the total combined voting power of all of our classes of stock; - such holder is not a controlled foreign corporation that is related to us through stock ownership and is not a bank that received such notes on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business; and - either (1) the non-United States Holder certifies in a statement provided to us or our paying agent, under penalties of perjury, that it is not a "United States person" within the meaning of the Code and provides its name or address, or (2) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business and holds the notes on behalf of the non-United States Holder certifies to us or our paying agent under penalties of perjury that it, or the financial institution between it and the non-United States Holder, has received from the non-United States Holder a statement, under penalties of perjury, that such holder is not a "United States person" and provides us or our paying agent with a copy of such statement. The certification requirement described above may require a non-United States Holder that provides an IRS form, or that claims the benefit of an income tax treaty, to also provide its United States taxpayer identification number. The applicable regulations generally also require, in the case of a note held by a foreign partnership, that - the certification described above be provided by the partners; and - the partnership provide certain information. Further, a look-through rule will apply in the case of tiered partnerships. Special rules are applicable to intermediaries. Prospective investors should consult their tax advisors regarding the certification requirements for non-United States persons. A non-United States Holder will generally not be subject to United States federal income tax or withholding tax on gain recognized on the sale, exchange, redemption, retirement or other disposition of a note. However, a non-United States Holder may be subject to tax on such gain if such holder is an individual who was present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met, in which case such holder may have to pay a United States federal income tax of 30% (or, if applicable, a lower treaty rate) on such gain. If interest or gain from a disposition of the notes is effectively connected with a non-United States Holder's conduct of a United States trade or business, and if an income tax treaty applies and the non-United States Holder maintains a United States "permanent establishment" to which the interest or gain is generally attributable, the non-United States Holder may be subject to United States federal income tax on the interest or gain on a net basis in the same manner as if it were a United States Holder. If interest income received with respect to the notes is taxable on a net basis, the 30% withholding tax described above will not apply (assuming an appropriate certification is provided). A foreign corporation that is a holder of a note also may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, subject to certain adjustments, unless it qualifies for a lower rate under an applicable income tax treaty. For this purpose, interest on a note or gain recognized on the disposition of a note will be included in earnings and profits if the interest or gain is effectively connected with the conduct by the foreign corporation of a trade or business in the United States. 111 116 BACKUP WITHHOLDING AND INFORMATION REPORTING Backup withholding and information reporting will not apply to payments made by us or our paying agents, in their capacities as such, to a non-United States Holder of a note if the holder has provided the required certification that it is not a United States person as described above, provided that neither we nor our paying agent has actual knowledge, or reason to know, that the holder is a United States person. Payments of the proceeds from a disposition by a non-United States Holder of a note made to or through a foreign office of a broker will not be subject to information reporting or backup withholding, except that information reporting (but generally not backup withholding) may apply to those payments if the broker is: - A United States person; - A controlled foreign corporation for United States federal income tax purposes; - A foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period; or - A foreign partnership, if at any time during its tax year, one or more of its partners are United States persons, as defined in Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership or if, at any time during its tax year, the foreign partnership is engaged in a United States trade or business. Payment of the proceeds from a disposition by a non-United States Holder of a note made to or through the United States office of a broker is generally subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its taxpayer identification number or otherwise establishes an exemption from information reporting and backup withholding and the broker has no actual knowledge, or reason to know, that the holder or beneficial owner is not entitled to an exemption. Non-United States Holders should consult their own tax advisors regarding application of backup withholding in their particular circumstance and the availability of and procedure for obtaining an exemption from backup withholding under current Treasury regulations. Any amounts withheld under the backup withholding rules from a payment to a non-United States Holder will be allowed as a credit against the holder's United States federal income tax liability and may entitle the holder to a refund, provided the required information is furnished timely to the IRS. 112 117 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus together with any resale of those exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in the resales of exchange notes received in exchange for old notes where those old notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of up to 180 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer that requests it in the letter of transmittal for use in any such resale. We will not receive any proceeds from any sale of exchange notes by broker-dealers or any other persons. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that of those exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed to pay all expenses incident to our performance of, or compliance with, the registration rights agreement and will indemnify the holders of old notes including any broker-dealers, and certain parties related to such holders, against certain types of liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the securities offered hereby will be passed upon for us by Blackwell Sanders Peper Martin LLP, Kansas City, Missouri. INDEPENDENT AUDITORS The consolidated financial statements for PSF Group Holdings from inception (May 13, 1998, the date of the ContiGroup acquisition) through March 31, 2001 included in this prospectus have been audited by Arthur Andersen LLP, independent public accountants, as stated in their report appearing herein. The consolidated financial statements of The Lundy Packing Company as of and for each of the three years in the period ended July 1, 2000 included in this prospectus have been audited by KPMG LLP, independent public accountants, as stated in their report appearing herein. 113 118 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES Report of Independent Public Accountants.................. F-2 Consolidated Balance Sheets as of March 31, 2001 and March 25, 2000............................................... F-3 Consolidated Statements of Operations for the years ended March 31, 2001 and March 25, 2000 and the period from May 13, 1998 through March 27, 1999.................... F-4 Consolidated Statements of Shareholders' Equity for the years ended March 31, 2001 and March 25, 2000 and the period from May 13, 1998 through March 27, 1999........ F-5 Consolidated Statements of Cash Flows for the years ended March 31, 2001 and March 25, 2000 and the period from May 13, 1998 through March 27, 1999.................... F-6 Notes to the Consolidated Financial Statements............ F-7 THE LUNDY PACKING COMPANY AND SUBSIDIARIES Independent Auditors' Report.............................. F-20 Consolidated Balance Sheets as of July 1, 2000 and July 3, 1999................................................... F-21 Consolidated Statements of Operations for the years ended July 1, 2000, July 3, 1999 and June 27, 1998........... F-23 Consolidated Statements of Stockholders' Equity for the years ended July 1, 2000, July 3, 1999 and June 27, 1998................................................... F-24 Consolidated Statements of Cash Flows for the years ended July 1, 2000, July 3, 1999 and June 27, 1998........... F-25 Notes to the Consolidated Financial Statements............ F-27
F-1 119 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of PSF Group Holdings, Inc. We have audited the accompanying consolidated balance sheets of PSF Group Holdings, Inc. (a Delaware corporation) and Subsidiaries (the Company), as of March 31, 2001 and March 25, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended March 31, 2001 and March 25, 2000, and the period from May 13, 1998 through March 27, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the financial position of PSF Group Holdings, Inc. and Subsidiaries, as of March 31, 2001 and March 25, 2000, and the results of their operations and their cash flows for the years then ended and the period from May 13, 1998 through March 27, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Kansas City, Missouri May 11, 2001 F-2 120 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2001 AND MARCH 25, 2000 (IN THOUSANDS, EXCEPT SHARE INFORMATION)
2001 2000 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 8,560 $ 1,654 Accounts receivable, less allowance of $664 and $183 in 2001 and 2000, respectively............................. 25,749 12,453 Inventories............................................... 127,827 67,598 Federal income tax receivable............................. 2,954 -- Deferred income taxes..................................... 14,448 15,404 Prepaid expenses and other................................ 12,753 959 -------- -------- Total current assets............................... 192,291 98,068 PROPERTY, PLANT, EQUIPMENT AND BREEDING STOCK, at cost: Land and improvements..................................... 89,364 82,969 Buildings................................................. 255,196 214,089 Machinery and equipment................................... 215,598 179,139 Breeding stock............................................ 34,542 20,156 Construction in progress.................................. 23,437 10,271 -------- -------- 618,137 506,624 Less--Accumulated depreciation............................ 121,255 78,962 -------- -------- Total property, plant, equipment and breeding stock............................................. 496,882 427,662 GOODWILL, net of accumulated amortization of $6,242 and $3,805 in 2001 and 2000, respectively..................... 75,998 57,398 OTHER LONG-TERM ASSETS: Federal income tax receivable............................. 1,192 476 Other..................................................... 7,077 894 -------- -------- Total other long-term assets....................... 8,269 1,370 -------- -------- Total assets....................................... $773,440 $584,498 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 8,243 $ 4,012 Accrued expenses.......................................... 32,313 17,714 Due to related party...................................... 2,063 828 Accrued interest.......................................... 3,865 1,456 Current maturities of long-term debt and capital leases... 26,043 22,360 -------- -------- Total current liabilities.......................... 72,527 46,370 LONG-TERM LIABILITIES: Long-term debt and capital leases, less current maturities.............................................. 241,173 153,637 Other long-term liabilities............................... 13,296 5,100 Due to related party...................................... 1,769 2,549 Deferred income taxes..................................... 86,838 57,174 -------- -------- Total long-term liabilities........................ 343,076 218,460 -------- -------- Total liabilities.................................. 415,603 264,830 SHAREHOLDERS' EQUITY: Preferred stock, $1 par value, 10,000 shares authorized, no shares issued or outstanding......................... -- -- Class A common stock, $1 par value; 250,000 shares authorized, 100,000 shares issued and outstanding....... 100 100 Class B common stock, $1 par value; 300,000 shares authorized, 113,301 and 104,082 shares issued and outstanding, respectively............................... 113 104 Additional paid-in capital................................ 373,442 357,296 Accumulated deficit....................................... (15,818) (37,832) -------- -------- Total shareholders' equity......................... 357,837 319,668 -------- -------- Total liabilities and shareholders' equity......... $773,440 $584,498 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 121 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 2001 AND MARCH 25, 2000, AND THE PERIOD FROM MAY 13, 1998 THROUGH MARCH 27, 1999 (IN THOUSANDS)
2001 2000 1999 -------- -------- -------- NET SALES.................................................. $540,576 $306,266 $237,090 COST OF GOODS SOLD......................................... 456,184 265,929 249,757 -------- -------- -------- Gross profit (loss).............................. 84,392 40,337 (12,667) OPERATING EXPENSES: Selling, general and administrative expenses............. 19,413 18,830 20,027 Impairment of fixed assets............................... -- 5,000 -- Amortization expense..................................... 3,180 2,320 1,945 Other expense (income)................................... 1,210 (47) 682 -------- -------- -------- Total operating expenses......................... 23,803 26,103 22,654 -------- -------- -------- Operating income (loss).......................... 60,589 14,234 (35,321) INTEREST (EXPENSE) INCOME: Interest expense......................................... (24,141) (21,265) (17,883) Interest income.......................................... 933 45 282 -------- -------- -------- Interest expense, net............................ (23,208) (21,220) (17,601) -------- -------- -------- Earnings (losses) before income taxes............ 37,381 (6,986) (52,922) INCOME TAX BENEFIT (EXPENSE): Current tax provision.................................... 1,458 (175) -- Deferred tax provision................................... (16,825) 1,874 20,377 -------- -------- -------- Income tax (expense) benefit..................... (15,367) 1,699 20,377 -------- -------- -------- Net income (loss)................................ $ 22,014 $ (5,287) $(32,545) ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 122 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE FISCAL YEARS ENDED MARCH 31, 2001 AND MARCH 25, 2000, AND THE PERIOD FROM MAY 13, 1998 THROUGH MARCH 27, 1999 (IN THOUSANDS)
ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL ------ ---------- ----------- -------- BALANCE, May 13, 1998..................... $204 $357,296 $ -- $357,500 Net loss................................ -- -- (32,545) (32,545) ---- -------- -------- -------- BALANCE, March 27, 1999................... 204 357,296 (32,545) 324,955 Net loss................................ -- -- (5,287) (5,287) ---- -------- -------- -------- BALANCE, March 25, 2000................... 204 357,296 (37,832) 319,668 Issuance of common stock................ 9 16,146 -- 16,155 Net income.............................. -- -- 22,014 22,014 ---- -------- -------- -------- BALANCE, March 31, 2001................... $213 $373,442 $(15,818) $357,837 ==== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 123 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED MARCH 31, 2001 AND MARCH 25, 2000, AND THE PERIOD FROM MAY 13, 1998 THROUGH MARCH 27, 1999 (IN THOUSANDS)
2001 2000 1999 --------- -------- -------- OPERATING ACTIVITIES: Net income (loss)....................................... $ 22,014 $ (5,287) $(32,545) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization........................ 51,703 43,293 37,651 Deferred income taxes................................ 16,825 (1,874) (20,377) Impairment of fixed assets........................... -- 5,000 -- (Gain) loss on sale of fixed assets.................. (3,763) (1,433) 2,787 Senior note interest paid-in-kind.................... -- 7,189 6,814 Changes in operating assets and liabilities, net- Accounts receivable................................ (2,084) (3,392) 2,357 Inventories........................................ (6,463) 3,569 9,385 Prepaid expenses and other assets.................. (15,978) 7,623 3,446 Accounts payable, accrued expenses and other liabilities..................................... (575) 834 (17,138) --------- -------- -------- Net cash provided by (used in) operating activities.................................... 61,679 55,522 (7,620) INVESTING ACTIVITIES: Acquisition of Lundy, net of cash acquired.............. (98,206) -- -- Acquisition of PSFNC, net of cash acquired.............. (16,239) -- -- Purchases of property, plant, equipment and breeding stock................................................ (43,224) (23,669) (22,126) Proceeds from disposal of fixed assets.................. 11,677 8,427 4,804 --------- -------- -------- Net cash used in investing activities........... (145,992) (15,242) (17,322) FINANCING ACTIVITIES: Proceeds from long-term debt............................ 125,000 795 11,056 Repayments on long-term debt............................ (33,781) (43,472) (11,283) --------- -------- -------- Net cash provided by (used in) financing activities.................................... 91,219 (42,677) (227) --------- -------- -------- Net increase (decrease) in cash and cash equivalents................................... 6,906 (2,397) (25,169) CASH AND CASH EQUIVALENTS, beginning of period............ 1,654 4,051 29,220 --------- -------- -------- CASH AND CASH EQUIVALENTS, end of period.................. $ 8,560 $ 1,654 $ 4,051 ========= ======== ======== SUPPLEMENTAL DISCLOSURES: Interest paid........................................... $ 21,980 $ 12,610 $ 12,598 Income tax (paid) received.............................. (716) 7,499 3,590 Noncash financing activity--Increase to senior note principal for interest paid-in-kind.................. -- 7,189 6,814
The accompanying notes are an integral part of these consolidated financial statements. F-6 124 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001, MARCH 25, 2000 AND MARCH 27, 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: NATURE OF OPERATIONS PSF Group Holdings, Inc. (Group) is incorporated in the state of Delaware. Group has a wholly owned subsidiary, Premium Standard Farms, Inc. (PSF, Inc.). PSF, Inc., and its subsidiaries are an integrated business engaged principally in the business of hog production and pork processing and sell to domestic and international markets. Group and PSF, Inc., are collectively referred to as the Company which succeeded the Continental Grain Company North Missouri Pork Operations and PSF Holdings L.L.C. (Holdings) on May 13, 1998, pursuant to the stock purchase transaction described in Note 2. FISCAL YEAR-END The Company's fiscal year is the 52 or 53-week period, which ends on the last Saturday in March. The accompanying consolidated statements of operations, cash flows and changes in shareholders' equity include activity from the period of March 26, 2000, through March 31, 2001 (53 weeks), the period March 28, 1999, through March 25, 2000 (52 weeks), and the period from May 13, 1998, through March 27, 1999 (45.5 weeks). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Group and its majority-owned subsidiaries. Entities in which the Company has ownership of 20 percent to 50 percent are accounted for using the equity method. All significant intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION Revenues from product sales are recorded when title of the goods are transferred to the customer, generally upon shipment. Net sales reflect units shipped at selling prices reduced by certain sales allowances. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The carrying value of cash equivalents approximates market value. INVENTORIES Inventories are valued at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market. F-7 125 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Inventories consist of the following at March 31 and March 25 (in thousands):
2001 2000 -------- ------- Hogs.................................................... $112,998 $61,976 Processed pork and pork products........................ 9,420 2,699 Packaging and supplies.................................. 2,131 621 Grain, feed additives and other......................... 3,278 2,302 -------- ------- $127,827 $67,598 ======== =======
PROPERTY, PLANT, EQUIPMENT AND BREEDING STOCK Depreciation of property, plant, equipment and breeding stock is computed using the straight-line method over the estimated useful lives of the assets as follows:
YEARS -------- Land improvements.......................................... 15 to 20 Buildings.................................................. 20 to 40 Machinery and equipment.................................... 3 to 10 Breeding stock............................................. 3
Property, plant and equipment leases have been capitalized and included in the property, plant and equipment accounts. Maintenance, repairs and minor renewals are charged to operations while major renewals and improvements are capitalized. Depreciation expense relating to the Company's fixed assets and breedstock amounted to $48,523,000, $40,975,000 and $35,775,000 for the periods ended March 31, 2001, March 25, 2000 and March 27, 1999, respectively. IMPAIRMENT OF FIXED ASSETS Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying value or fair value less costs to sell. During fiscal 2000, certain assets under construction which were originally being constructed for an expansion in Texas were determined to be unrecoverable due to a change in expansion plans. An impairment loss of $5,000,000 was recorded in the consolidated statements of operations. PRICE-RISK MANAGEMENT INSTRUMENTS The Company uses price-risk management techniques to enhance sales and reduce the effect of adverse price changes on the Company's profitability. The Company's price-risk management and hedging activities currently are utilized in the areas of forward sales and hog production margin management. Gains and losses on these instruments designated as hedges, which qualify when there is high correlation between changes in the value of the instrument and changes in the value of the hedged commodity, are deferred and recorded in revenue or cost of sales when the anticipated transactions are fulfilled. Commodity instruments that do not qualify as hedges for financial reporting purposes are marked to market and included in revenue or cost of sales in the consolidated statements of operations. F-8 126 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For the periods ended March 31, 2001, March 25, 2000 and March 27, 1999, realized gains (losses) on commodity contracts recognized in revenue and cost of sales were $1,720,000, ($2,150,000) and ($2,406,000) respectively. At March 31, 2001, and March 25, 2000, net deferred realized hedging gains (losses) on commodity contracts included in inventory on the consolidated balance sheets were $135,000 and ($58,000), respectively. At March 31, 2001 and March 25, 2000, the unrealized gains (losses) on outstanding commodity contracts were ($7,406,000) and $53,000, respectively. SELF-INSURANCE PROGRAMS The Company is self-insured for certain levels of general and vehicle liability, workers' compensation and health care coverage. The cost of these self-insurance programs is accrued based upon estimated settlements for known and anticipated claims incurred through the balance sheet date. Any resulting adjustments to previously recorded reserves are reflected in current operating results. INCOME TAXES The Company uses the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on the difference between financial reporting and income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income tax expenses or credits are based on changes in the asset or liability from period to period. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of long-term debt and capital leases is determined using valuation techniques that consider cash flows discounted at current market rates for debt with similar terms and maturities. At March 31, 2001 and March 25, 2000, the fair value of the Company's debt was $270,200,000 and $170,274,000, respectively, with a carrying value of $267,216,000 and $175,997,000, respectively. Accounts receivable, accounts payable and cash equivalents are carried at historical cost which approximates fair value. GOODWILL Costs in excess of net assets acquired are amortized on a straight-line basis over a period of 30 years. The carrying value of goodwill is reviewed at each balance sheet date to determine if facts and circumstances suggest that it may be impaired. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the business units' undiscounted cash flows over the remaining life of the goodwill in measuring whether goodwill is recoverable. RISK FACTORS There are certain risk factors that can materially impact the Company's business, financial condition and results of operations. These risks include sensitivity to pork and hog prices, sensitivity to grain commodity prices, environmental factors and legislation, changes in herd productivity and feed efficiency, impact of disease, international market risks, competition, restrictions under corporate farming laws, dependence on favorable labor relations, pork product contamination and product liability claims, distribution channels and consumer preferences. RECLASSIFICATIONS Certain reclassifications have been made to the 1999 and 2000 consolidated financial statements to conform to the 2001 presentation. F-9 127 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. BUSINESS ACQUISITIONS On May 13, 1998, ContiGroup Companies, Inc. (CGC or ContiGroup), formerly known as Continental Grain Company purchased 51 percent ownership in PSF, Inc. for $182,325,000. In exchange, PSF, Inc. purchased the North Missouri Farms hog production operations owned by ContiGroup for $75,000,000. The proceeds from the Agreement were distributed to the holders of the 10,000,000 outstanding units of Holdings. The Agreement also called for both CGC and Holdings to contribute their interests in PSF, Inc., to Group, which had been newly formed. Concurrent with the contributions from CGC and Holdings, Holdings was merged into Group. All Holdings operations were continued by the Company. This transaction was accounted for as a reverse acquisition in accordance with Accounting Principles Board (APB) Opinion No. 16. The former CGC North Missouri Pork Operations have been considered the acquirer (or predecessor) for accounting purposes, and as such, their assets have been transferred to the Company's opening balance sheet at their previous carrying value. The former Holdings' assets have been written up to their fair values under the purchase accounting method. Excess purchase price over the fair value of net assets acquired of $61,204,000 has been recorded as goodwill and is being amortized over 30 years. On August 25, 2000, the Company completed the stock acquisition of The Lundy Packing Company (Lundy) and its affiliated companies for $67,200,000 in cash and the assumption of approximately $31,000,000 in debt. Lundy is located in Clinton, North Carolina, and operates a 6,500 head per day processing plant and owns approximately 41,000 sows, the offspring of which are finished in a combination of company-owned, contract and joint venture facilities. On September 22, 2000, the Company completed the stock acquisition of Premium Standard Farms of North Carolina, Inc. (PSFNC) for total purchase price of $32,300,000, of which $16,150,000 was payable in cash and $16,150,000 was payable by delivery of 9,219 shares of Class B common stock. A fairness opinion was received from a third party related to the value of the transaction. PSFNC was formerly a division of CGC and owned approximately 25,000 sows, the offspring of which are finished in company-owned, contract and joint venture facilities. This stock issuance increased CGC's ownership in Group from 51 percent to 53.1 percent. Subsequent to the PSFNC acquisition, Lundy contributed its production operations to PSFNC. Both the Lundy and PSFNC transactions were accounted for under the purchase accounting method with the corresponding assets and liabilities written to fair value. Excess purchase price over the fair value of net assets acquired of $21,036,000 for the transactions have been recorded as goodwill and is being amortized over 30 years. PRO FORMA OPERATING RESULTS The following unaudited pro forma financial information assumes that both the Lundy and PSFNC acquisitions described above occurred at the beginning of each of the respective periods (in thousands):
UNAUDITED YEAR-END ---------------------- MARCH 31, MARCH 31, 2001 2000 --------- --------- Net sales........................................... $680,076 $616,911 Net income (loss)................................... 19,260 (19,124)
The pro forma results are not necessarily indicative of the actual results that would have been obtained had the acquisitions been made at the beginning of the respective periods or of results which may occur in the future. F-10 128 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. SHAREHOLDERS' EQUITY COMMON STOCK There are two classes of common stock, which Group can issue. Class A common stock was issued to the holders of the outstanding units of Holdings. Class B common stock was issued to CGC. Class A holders have the sole right to vote in the election or for removal, without cause, of four Class A directors. Class B holders have the sole right to vote in the election or for removal, without cause, of five Class B directors. All distributions, dividends and liquidation preferences are equal between the two classes of stock. COMMON REVERSE STOCK SPLIT On September 16, 1999, the shareholders of Group approved an amendment effecting a one-for-one hundred reverse stock split. The accompanying consolidated statements have been retroactively adjusted to reflect the reverse stock split. PREFERRED STOCK The Company has authorized 10,000 shares at $1 par value of preferred stock. No shares have been issued or are outstanding. Terms of the preferred stock including voting rights, dividend preference and other limitations or restrictions have yet to be assigned. STOCKHOLDER WARRANTS The Company has warrants outstanding entitling the holders to purchase 2,048,192 shares of common stock of Group. Subsequent to the reverse stock split, these warrants now entitle the holders to purchase 20,481.92 shares of Class A common stock at an exercise price of $2,205 per share. As of March 31, 2001, all warrants were exercisable and none have been exercised. All unexercised warrants expire on September 17, 2006. Warrant holders are entitled to certain registration rights associated with their ownership. STOCK-BASED COMPENSATION In fiscal year ended March 31, 2001, the Company's board of directors authorized an equity incentive plan whereby options have been granted to senior management for the purchase of 7,714 shares of class B common stock at an exercise price of $1,666.48 per share. The options granted have a three-year vesting period and expire 7 years from the beginning of the respective vesting periods (7,000 shares expire December 31, 2005, and 714 shares expire December 31, 2007). No options have been exercised as of March 31, 2001. The Company records stock compensation in accordance with Accounting Principles Board Opinion No. 25 (APB 25). The fair value of stock options granted was calculated using the minimum value method as defined in the Statement of Financial Accounting Standards No. 123 (SFAS 123). Under SFAS 123, the pro forma net income is disclosed as if it reflected the estimated fair value of options as compensation at the date of grant or issue. For the year ended March 31, 2001, our pro forma net income would have been decreased by approximately $2,683,000. F-11 129 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. ACCRUED EXPENSES Accrued expenses are comprised of the following at March 31 and March 25 (in thousands):
2001 2000 ------- ------- Salaries and benefits payable............................ $12,901 $10,216 Workers' compensation payable............................ 4,429 1,436 Grain and feed........................................... 2,068 1,269 Claims reserves.......................................... 1,738 1,898 Accrued payables and other............................... 11,177 2,895 ------- ------- $32,313 $17,714 ======= =======
5. LONG-TERM DEBT AND CAPITAL LEASES Long-term debt consists of the following at March 31 and March 25 (in thousands):
2001 2000 -------- -------- Senior secured notes, due on September 17, 2003, interest (partial pay-in-kind (PIK)) at 11%, payable semiannually......................................... $137,894 $137,894 Revolving loan, due August 21, 2003, interest at variable rate (8.25% at March 31, 2001).............. 10,000 17,205 Term loan, due in quarterly installments of $6,250,000, balance due on August 21, 2005, interest based on LIBOR rates plus 1.875% (ranging from 8.125% through 8.625% at March 31, 2001)............................ 112,500 19,250 Note payable, due December 31, 2002, interest at prime rate plus 1.5% per annum (9.5% at March 31, 2001).... 1,335 -- Capital leases......................................... 5,487 1,648 -------- -------- Total debt and capital leases................ 267,216 175,997 Less- Current portion.................................. 26,043 22,360 -------- -------- Long-term debt and capital leases............ $241,173 $153,637 ======== ========
Future maturities of long-term debt and capital leases are as follows (in thousands):
FISCAL YEAR ----------- 2002.................................................... $ 26,043 2003.................................................... 174,530 2004.................................................... 25,762 2005.................................................... 25,826 2006.................................................... 13,407 Thereafter.............................................. 1,648 -------- $267,216 ========
The Company has a credit agreement that includes a term loan and revolving loans. The revolving loans are not to exceed $100,000,000 of total borrowings. The credit agreement provides for up to $10,000,000 in letters of credit. Fees of 2 percent per annum are paid quarterly only on outstanding letter-of-credit amounts. At March 31, 2001 and March 25, 2000, the Company had $7,495,000 and $3,900,000 outstanding letters of credit, respectively. Interest rates on the revolving loan are based on a formula that either uses the U.S. bank's reference rate or a LIBOR rate, whichever results in the lower rate. F-12 130 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The bank credit agreement is secured by virtually all of the Company's assets. The amount available under the revolving loan facility is determined by a borrowing base formula determined from the sum of eligible accounts receivable and a formula value for inventory based on current book value. The Company amended the credit agreement in fiscal 2001. The borrowing base at March 31, 2001 and March 25, 2000, was approximately $100,000,000 and $80,709,000, respectively, and accordingly, unused available borrowing was $82,505,000 and $59,604,000, respectively (net of outstanding letters of credit and revolving loans). The agreement contains various restrictive covenants which, among others, substantially limit additional borrowings, prohibit payment of dividends and restrict capital additions and sale of assets. The amendment also contains covenants regarding earnings before interest, taxes, depreciation and amortization (EBITDA) and a fixed cash interest coverage ratio. Annual EBITDA, as defined in the bank credit agreement (calculated on a rolling four-quarter basis), cannot be less than $80,000,000 through March 31, 2001. As of March 31, 2001, the cash interest coverage ratio (calculated on a rolling 12-month basis) as of the end of each fiscal quarter cannot be less than a 2.5-to-1 ratio. As of March 31, 2001, the Company was in compliance with all restrictive debt covenants relating to the agreement. The 11 percent senior secured notes were issued at an initial amount of $117,500,000. The notes require certain prepayment premiums. The notes are secured by a secondary interest, subordinated to the bank credit agreement, in virtually all of the Company's assets. Pursuant to the new amendment to the Company's credit agreement, interest on the notes is payable through issuance of additional notes in principal amounts equal to the interest due. During the year ended March 25, 2000, $7,188,758 of accrued interest was paid in kind through the issuance of additional notes. During the year ended March 31, 2001, no accrued interest was paid in kind through the issuance of additional notes. The terms of these additional notes are identical to the senior secured notes. The note indenture contains covenants that either mirror or are less restrictive than those of the bank credit agreement. SUBSEQUENT DEBT OFFERING In fiscal year 2002, the Company plans to offer to sell $175,000,000 of senior unsecured notes maturing in 2011. The Company intends to use the funds of this offering to retire the 11 percent senior secured PIK notes and $25,000,000 principal amount of its bank term loan. A prepayment penalty of 1 percent will be assessed on the prepayment of the PIK notes prior to September 1, 2001. Morgan Stanley & Co. Incorporated and certain funds owned, controlled and managed by it and its affiliates, beneficially own approximately 17.2 percent of the outstanding common stock of Group and is represented on the board of directors. Morgan Stanley & Co. Incorporated is acting as a placement agent for this offering. In connection with PSF, Inc.'s offer to sell $175,000,000 of senior unsecured notes, its parent, Group, and PSF, Inc.'s wholly owned subsidiaries will fully and unconditionally guarantee PSF, Inc.'s obligation to pay principal and interest on these notes. Supplemental consolidating financial information is not presented as the parent company has no independent assets or operations and less than 3 percent of the total assets exist in non-guarantor subsidiaries. F-13 131 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. INCOME TAXES A reconciliation of statutory federal income tax and income tax expense is shown below (in thousands):
2001 2000 1999 -------- ------ ------- Amount based on federal statutory rate................ $(13,083) $2,445 $18,523 State income taxes, net of federal.................... (1,503) 211 2,485 Other................................................. (781) (957) (631) -------- ------ ------- Income tax (expense) benefit........................ $(15,367) $1,699 $20,377 ======== ====== =======
Components of the net deferred tax balances at March 31 and March 25, are as follows (in thousands):
2001 2000 --------- -------- Net current deferred tax assets-- Claims reserves..................................... $ 120 $ 549 Goodwill............................................ 1,537 -- Inventory........................................... 953 681 Other reserves...................................... 11,838 2,174 Net operating loss carryforwards.................... -- 12,000 --------- -------- Net current deferred tax assets.................. $ 14,448 $ 15,404 ========= ======== Net long-term deferred tax liabilities-- Fixed asset......................................... $(105,631) $(89,194) Net operating loss carryforwards.................... 11,026 18,901 Construction in progress............................ 9,160 5,560 Goodwill............................................ -- 1,900 Claims reserve...................................... -- 2,040 Other............................................... (1,393) 3,619 --------- -------- Net long-term deferred tax liability............. $ (86,838) $(57,174) ========= ========
At March 31, 2001, the Company's net operating loss carryforwards (gross) will expire as follows: $1,761,470 in 2018, $20,981,259 in 2019 and $4,821,083 in 2020. The Company believes that its future taxable income will be sufficient for full realization of the deferred tax assets. 7. INVESTMENTS IN PARTNERSHIPS The Company's wholly owned subsidiary, Lundy, has a 50 percent ownership interest in the L&H Farms partnership. The L&H Farms partnership is in the business of breeding and raising hogs. The Company accounts for the earnings and losses of the partnership using the equity method of accounting. As of March 31, 2001, the investment in the L&H Farms partnership was $1,251,000, included in other long-term assets in the consolidated balance sheets. The Company's share of the partnership's earnings was $340,000 from August 25, 2000 (date of Lundy acquisition) through March 31, 2001. These amounts are included in other operating expense in the consolidated statements of operations. In addition, Lundy has a 60 percent ownership in L&S Farms LLC, a limited liability company, in the business of breeding and raising hogs. The Company accounts for this partnership under the full consolidation method. Minority interest of $99,000 was charged to other income, net. The minority interest F-14 132 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) obligation of $281,000 is recorded in other long-term liabilities. Lundy has guaranteed $1,335,000 of bank borrowings of its L&S Farms subsidiary that bears interest at prime plus 1.5 percent (9.5 percent at March 31, 2001). Lundy has guaranteed a portion of the bank borrowings of a hog production operation owned by the partner in the L&S Farms partnership. The maximum amount guaranteed is $2,000,000 and expires on the earlier of July 15, 2002, or the date the bank borrowing has been reduced to $3,000,000 or less. 8. RELATED PARTIES The Company has contracted with ContiGroup to provide certain services pursuant to an amended and restated services agreement and a contract grower finish agreement. Under these agreements ContiGroup provides purchasing assistance, legal services, employee benefits, payroll, and grow finishing services to the Company. For periods ended March 31, 2001, March 25, 2000 and March 27, 1999, the total amount of these expenses and other related-party expenses with CGC were $6,523,000, $11,098,000 and $15,314,000, respectively. At March 31, 2001 and March 25, 2000, the Company recorded amounts due to related party for these purchases of $415,000 and $110,000, respectively, included in the consolidated balance sheets. The Company provides ContiGroup management and human resources services with respect to pork operations, hog and feed production services and environmental and other business consulting services. The total charges for the periods ended March 31, 2001, March 25, 2000 and March 27, 1999, amounted to $568,000, $977,000 and $782,000, respectively. At March 31, 2001 and at March 25, 2000, a receivable relating to the management fees from ContiGroup in the amount of $12,000 and $149,000, respectively, was recorded. During fiscal 2000, an agreement was entered into with CGC to pay $5,000,000, $1,000,000 annually for five years, in consulting fees to CGC for work done in the settlement agreement with the attorney general of Missouri (Note 11). The Company paid the first two of five annual installments in fiscal years 2000 and 2001, respectively. The Company discounted the liability at its current borrowing rate and as of March 31, 2001, has recorded a liability of $2,549,000, of which $780,000 is classified as current. Liabilities are reflected in the due to related party in the consolidated balance sheets. The amount due to related party in the March 31, 2001 consolidated balance sheet includes $868,000 payable to former owners of Lundy, one of which is currently a board member of PSF, Inc. In addition, the Company leases farmland and hog production buildings from this board member under a capital lease agreement that existed prior to the acquisition. The capital lease obligation as of March 31, 2001, was $2,529,000 and is included in long-term debt and capital leases in the consolidated balance sheet. 9. COMMITMENTS The Company enters into forward grain purchase contracts with market risk in the ordinary course of business. In the opinion of management, settlement of such commitments, which were open at March 31, 2001, March 25, 2000 and March 27, 1999, will have no adverse impact on the financial position or results of operations of the Company. The Company utilizes forward contracts, as well as futures and options contracts, to establish adequate supplies of future grain purchasing requirements and minimize the risk of market fluctuations. These contracts may result in off-balance-sheet market risk, which is dependent on fluctuations in the grain, hog and pork commodity markets. Market risk resulting from a position in a particular contract may be offset by other on or off-balance-sheet transactions. The Company continually monitors its overall F-15 133 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) market position. Gross contract or notional amounts of futures, options and forward contracts in place as of March 31 and March 25 are as follows (in thousands):
2001 2000 -------- ------- Forward contracts to purchase grain..................... $ 7,538 $ 2,860 Futures contracts-- corn.................................................. 34,929 8,266 soybean meal.......................................... 6,721 -- lean hogs............................................. 65,376 21,212 -------- ------- Total......................................... $114,564 $32,338 ======== =======
The Company leases rolling stock and certain equipment under noncancelable operating leases. Rental expense under operating leases was approximately $3,656,000, $2,650,000 and $2,030,000 in the periods ended March 31, 2001, March 25, 2000 and March 27, 1999, respectively. Future minimum rental commitments at March 31, 2001, are as follows (in thousands): 2002........................................................ $3,549 2003........................................................ 2,545 2004........................................................ 1,266 2005........................................................ 443 2006........................................................ 208 Thereafter.................................................. 143 ------ $8,154 ======
10. EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan covering substantially all employees meeting certain minimum service requirements. The plan allows all qualifying employees to contribute up to 20 percent of employee compensation limited to the tax deferred contribution allowable by the Internal Revenue Code. The Company matches 100 percent of the employee's contribution up to 3 percent of employee compensation and 50 percent of the employee's next 2 percent of employee compensation, for a maximum company match of 4 percent of employee compensation. Effective January 1, 2000, the Company amended its 401(k) plan from a three-year cliff-vesting period to a 100 percent immediate vesting. Employer contribution expense related to the plan was approximately $1,407,000, $873,000 and $407,000 for the periods ended March 31, 2001, March 25, 2000 and March 27, 1999, respectively. During the three fiscal years ended March 31, 2001, a long-term incentive plan with performance thresholds tied to EBITDA was in place for key executives selected by the compensation committee. As of March 31, 2001, the Company has recorded $3,106,000 in accrued expense toward the long-term incentive plan. The Company expensed $2,106,000 and $1,000,000 in the periods ended March 31, 2001 and March 25, 2000, respectively. Payment is expected in fiscal year 2002. The Company has adopted a nonqualified, unfunded special executive retirement plan as of January 1, 2000, for certain key executives. The Company expensed and accrued $354,000 in fiscal 2001 related to this plan. F-16 134 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. LITIGATION ENVIRONMENTAL MATTERS The Company is a defendant in a citizens' action suit seeking to enforce alleged violations of the Clean Air Act, Clean Water Act and CERCLA. The same plaintiff has filed a parallel action against CGC from which any liability is also an assumed liability of the Company pursuant to the May 13, 1998, transaction. The plaintiffs are seeking injunctive relief, civil penalties and attorneys' fees. The Environmental Protection Agency has also intervened in the case. The Company has accrued a liability for the anticipated settlement and legal fees associated therewith, which is included in accrued liabilities. The Company settled a suit filed by the attorney general of Missouri against the Company and CGC. Any liability of CGC from this action was an assumed liability of the Company pursuant to the May 13, 1998, transaction. The settlement required the Company and CGC to enter into a consent judgement pursuant to which the Company is required to spend $25 million over the course of five years for researching, installing and operating improved technology to control wastewater, air and odor emissions from its Missouri farms. As of March 31, 2001, the Company is nearing the end of the second year of the settlement period and has spent in total, approximately $6,700,000. The Company was a successor to a nuisance suit brought by neighbors of its northern Missouri pork operations in which CGC was the defendant. On April 30, 1999, the jury returned a verdict in favor of 52 of the 109 plaintiffs in the amount of $100,000 each for a total of $5,200,000. CGC appealed the verdict and on May 3, 2001, the Company satisfied the judgment. At March 31, 2001, the Company has accrued a liability for the verdict and interest. OTHER LEGAL MATTERS The Company is subject to various other legal proceedings related to the normal conduct of its business. In the opinion of management, none of these actions are expected to result in a judgment having a material adverse effect on the consolidated financial statements of the Company. 12. SEGMENT INFORMATION The Company operates a vertically integrated business with two operating segments, Pork Processing and Hog Production. The Pork Processing segment sells fresh and value-added pork products to food retailers, distributors, wholesalers, further processors, pharmaceutical and animal feed manufacturers in both domestic and international markets. The Hog Production segment supplies a majority of the live hogs used in the Pork Processing segment and sells the excess production to other hog processing operations. Intersegment live hog sales are based on market prices. The following tables present specific financial information about each segment as reviewed by the Company's management. The Corporate and Other classification in the following tables represent unallocated corporate expenses and assets, deferred taxes and income tax expense, Group's goodwill and goodwill amortization, interest expense and intersegment elimination (in thousands):
PORK HOG CORPORATE PROCESSING PRODUCTION AND OTHER TOTAL ---------- ---------- --------- -------- Fiscal 2001-- Net sales................................ $475,673 $359,149 $(294,246) $540,576 Intersegment sales....................... (1,857) (292,389) -- -- Operating income......................... 16,276 62,681 (18,368) 60,589 Asset.................................... 179,126 502,371 91,943 773,440 Depreciation and amortization............ 9,476 38,715 3,512 51,703 Capital expenditure...................... 12,213 30,343 668 43,224
F-17 135 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PORK HOG CORPORATE PROCESSING PRODUCTION AND OTHER TOTAL ---------- ---------- --------- -------- Fiscal 2000-- Net sales................................ 266,680 220,876 (181,290) 306,266 Intersegment sales....................... (2,293) (178,997) -- -- Operating income......................... 26,668 6,082 (18,516) 14,234 Assets................................... 89,489 419,414 75,595 584,498 Depreciation and amortization............ 6,694 33,842 2,757 43,293 Capital expenditures..................... 1,568 21,108 993 23,669 Fiscal 1999-- Net sales................................ 204,377 157,048 (124,335) 237,090 Intersegment sales....................... (1,699) (122,636) -- -- Operating income......................... 31,774 (46,717) (20,378) (35,321) Assets................................... 92,183 445,182 80,090 617,455 Depreciation and amortization............ 5,289 29,755 2,607 37,651 Capital expenditure...................... 4,878 12,741 4,507 22,126
GEOGRAPHIC INFORMATION No individual foreign country accounts for 10 percent or more of sales to external customers. The following table provides a geographic summary of the Company's net sales based on the location of product delivery (in thousands):
2001 2000 1999 -------- -------- -------- United States...................................... $496,461 $275,444 $219,172 Far East........................................... 33,815 28,405 15,750 Europe and Russia.................................. 1,758 276 337 Canada............................................. 7,056 1,199 457 Mexico and South America........................... 1,486 942 1,374 -------- -------- -------- Totals................................... $540,576 $306,266 $237,090 ======== ======== ========
All of the Company's assets are located within the United States. 13. NEW ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that the company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company has adopted SFAS 133, as amended, effective April 1, 2001. The Company believes that its current derivative instruments are economic hedges, however, as a result of the extensive record keeping requirements of SFAS 133, management has elected not to F-18 136 PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) designate and account for these derivatives as hedges. Accordingly, these instruments will be marked to market through earnings. Upon adoption on April 1, 2001, the company will record an unrealized loss of approximately $7,300,000 as a liability and a decrease to shareholders' equity of $4,380,000, net of $2,920,000 of deferred taxes. The $7,300,000 liability will be recorded into costs of goods sold as the related contracts expire. Changes in the fair value of the existing contracts and those contracts entered into subsequent to April 1, 2001 will be recorded in the period in which they occur. 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED IN THOUSANDS):
FIRST SECOND THIRD FOURTH ------- -------- -------- -------- 2001-- Net Sales...................................... $87,920 $111,912 $168,958 $171,786 Gross profit................................... 24,237 25,187 15,190 19,778 Net income.................................. 9,519 9,081 1,414 2,000 2000-- Net Sales...................................... 70,833 71,906 82,136 81,391 Gross profit................................... 6,666 8,711 9,061 15,899 Net income (loss)........................... (1,636) (1,414) (6,365) 4,128
F-19 137 INDEPENDENT AUDITORS' REPORT The Board of Directors The Lundy Packing Company: We have audited the accompanying consolidated balance sheets of The Lundy Packing Company and subsidiaries as of July 1, 2000 and July 3, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended July 1, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Lundy Packing Company and subsidiaries as of July 1, 2000 and July 3, 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended July 1, 2000 in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Raleigh, North Carolina August 11, 2000 F-20 138 THE LUNDY PACKING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JULY 1, 2000 AND JULY 3, 1999
2000 1999 ------------ ----------- ASSETS Current assets: Cash and cash equivalents (note 2)........................ $ 67,342 8,201,519 Accounts receivable....................................... 10,657,695 9,039,895 Investments............................................... 6,455 6,455 Inventories (notes 3, 8 and 11)........................... 38,387,673 20,565,494 Prepaid expenses.......................................... 642,702 99,636 Due from officers (note 4)................................ 4,658,331 -- Cash surrender value of life insurance.................... 926,746 -- Refundable income taxes................................... 1,536,917 609,997 Deferred income taxes (note 5)............................ 1,372,727 1,580,210 ------------ ----------- Total current assets.............................. 58,256,588 40,103,206 ------------ ----------- Property, plant and equipment, at cost (notes 7 and 8): Land...................................................... 3,828,755 3,828,755 Land improvements......................................... 2,168,245 2,155,595 Buildings................................................. 28,200,843 27,967,017 Machinery and equipment................................... 56,016,608 54,700,068 Trucks and trailers....................................... 8,548,042 9,258,334 Office furniture and equipment............................ 1,912,642 1,849,623 Breeding stock............................................ 9,033,474 8,178,666 Construction in progress.................................. 1,234,986 744,671 ------------ ----------- 110,943,595 108,682,729 Less accumulated depreciation............................. 63,591,709 59,051,234 ------------ ----------- Net property, plant and equipment.................... 47,351,886 49,631,495 ------------ ----------- Other assets: Note receivable from related party (note 9)............... 121,554 128,706 Due from officers (note 4)................................ -- 4,243,820 Cash surrender value of life insurance.................... -- 1,224,786 Investment in partnerships (note 9)....................... 1,086,290 478,613 Other..................................................... 78,913 96,162 ------------ ----------- Total other assets................................ 1,286,757 6,172,087 ------------ ----------- $106,895,231 95,906,788 ============ ===========
See accompanying notes to consolidated financial statements. F-21 139 THE LUNDY PACKING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--(CONTINUED)
2000 1999 ------------ ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 9,757,520 4,524,172 Current installments of notes payable and long-term debt (note 8)............................................... 12,312,114 13,811,117 Capital lease obligations--current (note 7)............... 514,713 471,690 Income taxes payable...................................... -- -- ------------ ---------- 22,584,347 18,806,979 Accrued liabilities: Salaries and wages..................................... 2,930,893 3,512,363 Other expenses......................................... 3,719,093 2,035,430 ------------ ---------- Total accrued liabilities......................... 6,649,986 5,547,793 ------------ ---------- Total current liabilities......................... 29,234,333 24,354,772 ------------ ---------- Deferred income taxes (note 5).............................. 3,070,652 3,120,135 Accrued employees' sick leave............................... 3,344,515 3,376,869 Notes payable and long-term debt (note 8)................... 19,483,613 9,398,519 Capital lease obligations--long-term (note 7)............... 4,542,908 5,065,540 Other long-term liabilities (note 10)....................... 2,635,091 2,171,730 ------------ ---------- Total liabilities................................. 62,311,112 47,487,565 ------------ ---------- Stockholders' equity: Common stock of $2 par value per share. Authorized 2,625,000 shares; issued 1,291,233 shares.............. 2,582,466 2,582,466 Additional paid-in capital................................ 2,571,480 2,571,480 Retained earnings......................................... 71,141,244 74,836,608 ------------ ---------- 76,295,190 79,990,554 Less cost of shares in treasury, 647,537, 645,893 and 636,143 shares in 2000, 1999 and 1998, respectively.... 31,711,071 31,571,331 ------------ ---------- Net stockholders' equity............................. 44,584,119 48,419,223 ------------ ---------- Commitments and contingencies (notes 7, 9 and 12) $106,895,231 95,906,788 ============ ==========
See accompanying notes to consolidated financial statements. F-22 140 THE LUNDY PACKING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JULY 1, 2000, JULY 3, 1999, AND JUNE 27, 1998
2000 1999 1998 ------------ ------------ ------------ Net sales........................................ $273,970,876 251,011,704 303,933,471 Cost of goods sold (note 11):.................... 210,284,187 183,248,564 241,587,744 ------------ ------------ ------------ Gross margin................................ 63,686,689 67,763,140 62,545,727 Operating expenses............................... 68,322,260 64,939,459 60,361,418 ------------ ------------ ------------ Operating income (loss)..................... (4,635,571) 2,823,681 2,184,309 Other income (expense), net (notes 6 and 9)...... (598,454) 254,474 2,082,120 ------------ ------------ ------------ Earnings (loss) before income taxes......... (5,234,025) 3,078,155 4,266,429 Income tax expense (benefit) (note 5)............ (1,829,000) 1,087,000 1,415,000 ------------ ------------ ------------ Net income (loss)........................... $ (3,405,025) 1,991,155 2,851,429 ============ ============ ============
See accompanying notes to consolidated financial statements. F-23 141 THE LUNDY PACKING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JULY 1, 2000, JULY 3, 1999, AND JUNE 27, 1998
2000 1999 1998 ------------ ----------- ----------- Common stock, no change during the three years..... $ 2,582,466 2,582,466 2,582,466 ------------ ----------- ----------- Additional paid-in capital, no change during the three years...................................... 2,571,480 2,571,480 2,571,480 ------------ ----------- ----------- Retained earnings: Amount at beginning of year...................... 74,836,608 73,233,021 70,679,995 Net income (loss)................................ (3,405,025) 1,991,155 2,851,429 Dividends ($.45, $.60 and $.45 per share in 2000, 1999 and 1998, respectively).................. (290,339) (387,568) (298,403) ------------ ----------- ----------- 71,141,244 74,836,608 73,233,021 ------------ ----------- ----------- Treasury stock, at cost: Amount at beginning of year (645,893, 636,143 and 625,869 shares in 2000, 1999 and 1998, respectively)................................. (31,571,331) (30,637,430) (29,762,432) Shares acquired, net (1,644, 9,750 and 10,274 shares in 2000, 1999 and 1998, respectively)................................. (139,740) (933,901) (874,998) ------------ ----------- ----------- Amount at end of year (647,537, 645,893 and 636,143 shares in 2000, 1999 and 1998, respectively)................................. (31,711,071) (31,571,331) (30,637,430) ------------ ----------- ----------- Net stockholders' equity...................... $ 44,584,119 48,419,223 47,749,537 ============ =========== ===========
See accompanying notes to consolidated financial statements. F-24 142 THE LUNDY PACKING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JULY 1, 2000, JULY 3, 1999, AND JUNE 27, 1998
2000 1999 1998 ------------ ----------- ----------- Cash flows from operating activities: Net income (loss).................................... $ (3,405,025) 1,991,155 2,851,429 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation...................................... 7,921,042 6,079,435 5,275,767 Amortization...................................... -- 10,531 15,221 Loss (gain) on property abandoned or sold......... 22,166 (260,299) 42,767 Gain from insurance recovery for property destroyed by fire......................................... -- -- (982,355) Decrease (increase) in cash surrender value of life insurance.................................. 298,040 (91,885) (3,775) Deferred income taxes............................. 158,000 (354,000) (1,131,000) Equity share of loss (income) of partnerships..... (607,677) 349,055 234,604 Changes in assets and liabilities: Decrease (increase) in accounts receivable...... (1,617,800) 2,300,955 2,240,149 Increase in inventories......................... (17,822,179) (1,213,571) (307,088) Decrease (increase) in prepaid expenses......... (543,066) (13,876) 9,743 Decrease (increase) in refundable income taxes........................................ (926,920) (609,997) 696,000 Increase (decrease) in accounts payable......... 5,233,348 (23,035) (387,182) Increase (decrease) in income taxes payable..... -- (1,235,717) 1,235,717 Increase (decrease) in accrued sick leave....... (32,354) 46,792 (36,857) Increase in accrued liabilities................. 1,102,193 763,152 1,292,255 Increase in other long-term liabilities......... 306,409 334,580 10,624 Decrease (increase) in other assets............. 17,249 (14,497) 20,403 ------------ ----------- ----------- Total adjustments............................ (6,491,549) 6,067,623 8,224,993 ------------ ----------- ----------- Net cash provided (used) by operating activities................................. (9,896,574) 8,058,778 11,076,422 ------------ ----------- ----------- Cash flows from investing activities: Proceeds from sale of assets......................... 3,150,348 893,286 1,381,520 Insurance recovery on property destroyed by fire..... -- -- 982,355 Purchases of property, plant and equipment........... (8,813,947) (15,550,753) (7,330,608) Capital investment in partnership.................... -- (70,000) -- Distributions from partnerships...................... -- -- 680,000 Repayment of note receivable from related party...... 7,152 14,415 31,424 Increase in due from officers........................ (414,511) (530,021) (530,022) Increase (decrease) in minority interest............. 156,952 (16,632) -- ------------ ----------- ----------- Net cash used by investing activities........ (5,914,006) (15,259,705) (4,785,331) ------------ ----------- ----------- See accompanying notes to consolidated financial statements.
F-25 143 THE LUNDY PACKING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
2000 1999 1998 ------------ ----------- ----------- Cash flows from financing activities: Purchase of treasury stock........................... $ (139,740) (933,901) (874,998) Payments of capital lease obligations................ (479,609) (288,977) (73,150) Repayment of notes payable and long-term debt........ (2,252,383) (23,710,291) (13,008,222) Proceeds from notes payable and long-term debt....... 10,838,474 32,466,696 14,921,707 Dividends paid....................................... (290,339) (387,568) (298,403) ------------ ----------- ----------- Net cash provided by financing activities.... 7,676,403 7,145,959 666,934 ------------ ----------- ----------- Net increase (decrease) in cash and cash equivalents................................ (8,134,177) (54,968) 6,958,025 Cash and cash equivalents at beginning of year......... 8,201,519 8,256,487 1,298,462 ------------ ----------- ----------- Cash and cash equivalents at end of year............... $ 67,342 8,201,519 8,256,487 ============ =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest.......................................... $ 2,608,224 1,180,714 901,460 ============ =========== =========== Income taxes...................................... $ 18,967 2,489,467 1,925,668 ============ =========== =========== Supplemental disclosures of investing activities: During 1999, the Company incurred a capital lease obligation of $3,849,357 for machinery and equipment. Assets and liabilities of L&S Farms prior to consolidation in 1999: Inventory......................................... $ -- 1,009,270 -- Property, plant and equipment, net................ -- 1,533,041 -- Accounts payable.................................. -- 448,836 -- Accrued liabilities............................... -- 120,228 -- Notes payable..................................... -- 1,988,275 -- At consolidation, the Company owed $10,419 to the minority interest in L&S Farms. During 1998, the Company incurred a capital lease obligation of $2,050,000 for swine farms facility.
See accompanying notes to consolidated financial statements. F-26 144 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 2000, JULY 3, 1999, AND JUNE 27, 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Lundy Packing Company is a vertically integrated packer and processor of pork products distributed along the eastern United States. The Company produces a variety of high quality products that are marketed to retail chains, distributors and food service operators. The Company's fiscal year ends on the Saturday closest to June 30. The fiscal year ended July 1, 2000, the fiscal year ended July 3, 1999, and the fiscal year ended June 27, 1998 each consisted of fifty-two weeks. The accounting principles that affect the more significant elements of the financial statements are summarized below. (a) Principles of Consolidation The consolidated financial statements include the accounts of The Lundy Packing Company and its wholly-owned subsidiaries, Tomahawk Farms, Inc., Boneless Hams, Inc., Gold Banner Meats, Inc., Dogwood Farms, Inc., Dogwood Farms II, LLC, and Lundy International, Inc. (collectively referred to as the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. During December 1998, Lundy International contributed additional capital in its partnership of L&S Farms. As a result of the additional capital contribution, Lundy International's ownership in L&S Farms increased from 50% to 60%. As a result of the increased ownership, L&S Farms has been consolidated into Lundy International. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of income and expenses for the periods presented. Actual results could differ from those estimates. (b) Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents and classifies such accounts as cash. (c) Depreciation The Company depreciates property, plant and equipment using declining balance and straight-line methods over the following estimated useful lives:
YEARS -------- Land improvements........................................... 12 to 15 Buildings................................................... 10 to 40 Machinery and equipment..................................... 5 to 12 Trucks and trailers......................................... 4 to 7 Office furniture and equipment.............................. 5 to 12 Breeding stock.............................................. 3
F-27 145 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (d) Inventories Inventories of supplies, livestock, and dressed hogs are valued at the lower of cost (first-in, first-out) or market. Meat products are stated at net selling price (see note 12). (e) Accounts Receivable The Company writes off receivables when amounts are determined to be uncollectible. In the opinion of management, all uncollectible amounts have been written off. (f) Investments Investments consist of silver coins valued at cost, which approximates market value. (g) Income Taxes The Company accounts for income taxes using the asset and liability method, whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. (h) Employee Benefits The Company sponsors The Lundy Packing Company Employee Stock Ownership and Savings Plan, a defined contribution plan established for the benefit of the eligible employees of The Lundy Packing Company. An employee who is at least age 21 and completes one year of service (12 consecutive months of employment with 1,000 hours of service during such 12-month period) is eligible to enter the Plan on January 1st or July 1st subsequent to completion of the service requirement. Effective April 1, 1997, the Plan was restated from an ESOP only plan to a plan that consists of two portions--an ESOP portion and a Savings portion. The ESOP primarily acquires shares of The Lundy Packing Company's common stock. Under the ESOP, the Company may make an annual contribution for the benefit of eligible employees. The amount of the contribution is at the discretion of the Board of Directors of the Company. No contributions were made to the ESOP portion in 2000, 1999, and 1998. The Savings portion of the Plan is pursuant to Section 401(k) of the Internal Revenue Code. The Company matches, at the discretion of the Board of Directors of the Company, a percentage of employee contributions to the Plan up to a certain percentage of the employee's annual base salary. For the Plan years ended June 30, 2000, 1999, and 1998 the Company matched 50% of the first 2% of the employee's annual base salary and 25% of the next 3%. The Company contributed approximately $164,000, $147,000, and $147,000 to the Savings portion of the Plan in 2000, 1999, and 1998 respectively. Upon retirement, disability or death, Plan members or their estates are entitled to receive the shares of stock and other income and contributions credited to their accounts during their years of service. Shares of stock distributed under the Plan may not be sold or transferred without first being offered to the Plan and the Company. The Company provides sick pay benefits for substantially all employees. The benefit is accrued at the rate of one week's salary each year for each employee who has completed at least one year of service prior to a fiscal year-end. Employees are fully vested in the amount accrued at the time the provisions are made. F-28 146 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On June 28, 1998, the Company adopted Statement of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers' Disclosures about Pension and Other Postretirement Benefits. SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. SFAS No. 132 does not change the method of accounting for such plans, but does impact the financial statement disclosures made pursuant to such plans. The Company sponsors a defined benefit health care and life insurance plan for retirees and employees. The Company measures the cost of its obligation based on its best estimate. The net periodic costs are recognized as employees render the necessary service to earn the postretirement benefits. (i) Deferred Compensation The Company has agreements with certain officers which provide that during each of the fifteen years after the termination of employment because of retirement, death or disability, each officer is to be paid deferred compensation. The deferred compensation is being accrued over the active term of employment of the officers. (j) Investments in Debt Securities Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities," requires segregation of the investment portfolio, with all debt securities classified as held to maturity, available for sale or held for trading purposes. Investment securities held to maturity are stated at cost adjusted for accretion of discount. Accreted discounts are included in interest income. All of the Company's investment securities are classified as held to maturity because the Company has the ability and the positive intent to hold its investment securities until maturity. As a result, the Company's investments in debt securities are stated at amortized cost. (k) Reclassifications Certain accounts in the 1999 and 1998 financial statements have been reclassified to conform to the 2000 presentation. These reclassifications have no effect on net income or stockholders' equity as previously reported. (2) INVESTMENTS IN DEBT SECURITIES The Company has invested in various government-guaranteed, interest-bearing obligations. Since the investments are held to maturity, the Company carries these investments at amortized cost. These investments have maturities of three months or less at the time of purchase and, therefore, are classified as cash equivalents. The Company's policy is to hold the investments until maturity. At July 1, 2000, the Company did not hold any investments in debt securities. The following presents the aggregate cost and fair value of these investments held at July 3, 1999:
JULY 3, 1999 ----------------------- COST MARKET ---------- --------- U.S. Treasury Bills......................................... $4,942,875 5,000,000 ========== =========
(3) INVENTORIES Inventories include: F-29 147 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2000 1999 ----------- ---------- Processed and in-process meat products..................... $ 3,486,077 2,902,460 Livestock.................................................. 33,079,645 15,006,250 Packaging and processing supplies.......................... 1,821,951 2,656,784 ----------- ---------- $38,387,673 20,565,494 =========== ==========
(4) DUE FROM OFFICERS At July 1, 2000 and July 3, 1999 non-interest bearing advances were due from certain officers of the Company in the amount of $4,658,331 and $4,243,820, respectively. These advances were used to purchase life insurance policies that insure the life of another officer. The officers who received the advances are the owners and beneficiaries of the policies, but the cash surrender value of the policies ($3,991,794 at July 1, 2000) has been assigned to the Company as collateral for the loans. The advances are due upon the termination of the policies. Subsequent to July 1, 2000, the policies were terminated by the officers and the outstanding due from officers amount at July 1, 2000 was paid in full. (5) INCOME TAXES Components of the provision (benefit) for income taxes are:
2000 1999 1998 ----------- --------- ---------- Current income tax expense (benefit): Federal...................................... $(2,005,000) 1,385,000 2,431,000 State........................................ 18,000 56,000 115,000 ----------- --------- ---------- (1,987,000) 1,441,000 2,546,000 ----------- --------- ---------- Deferred income tax expense (benefit): Federal...................................... 329,000 (372,000) (945,000) State........................................ (171,000) 18,000 (186,000) ----------- --------- ---------- 158,000 (354,000) (1,131,000) ----------- --------- ---------- $(1,829,000) 1,087,000 1,415,000 =========== ========= ==========
The principal items that result in gross deferred tax assets totaling approximately $3,273,000 at July 1, 2000 and $3,818,000 at July 3, 1999 are differences in capitalization of certain costs related to inventories for tax purposes, sick leave, deferred compensation and the obligation for postretirement benefits other than pensions which will be deducted for tax purposes when paid. The principal items that result in gross deferred tax liabilities totaling approximately $4,969,000 at July 1, 2000 and $5,357,000 at July 3, 1999 are differences in depreciation and inventory valuation for financial statement and tax purposes and deferred gains for tax purposes resulting from involuntary conversion of assets destroyed by fire. F-30 148 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The difference between the "expected" federal income tax expense (benefit) computed at the statutory rate of 34% and the actual income tax expense is as follows:
2000 1999 1998 -------------------- ------------------ ------------------ AMOUNT % AMOUNT % AMOUNT % ----------- ------ ---------- ----- ---------- ----- Federal income tax expense (benefit) at the statutory rate......................... $(1,780,000) (34.0)% $1,047,000 34.0% $1,451,000 34.0% State income tax expense (benefit) net of federal tax effect....................... (101,000) (1.9)% 49,000 1.6% (47,000) (1.1)% Other.......................... 52,000 1.0% (9,000) (0.3)% 11,000 0.3% ----------- ------ ---------- ----- ---------- ----- Actual income tax expense (benefit).................... $(1,829,000) (34.9)% $1,087,000 35.3% $1,415,000 33.2% =========== ====== ========== ===== ========== =====
As of July 1, 2000, the Company had aggregate state net economic loss carryforwards of approximately $13,638,000 available to offset future earnings of certain subsidiaries. The carryforwards expire in varying amounts from 2000 through 2005. The valuation allowance related to state income tax carryforwards at July 1, 2000 totaled approximately $471,000, an increase of $43,000 from the amount at July 3, 1999. (6) OTHER INCOME, NET OF OTHER DEDUCTIONS Other income, net of other deductions, includes interest income of $8,978, $988,631, and $357,092 in 2000, 1999, and 1998 respectively, and interest expense of $2,495,829, $1,979,107, and $1,028,237 in 2000, 1999 and 1998, respectively. (7) LEASES The Company has entered into capital lease obligations for certain machinery and equipment as well as certain farm land, finishing floors, lagoons and related physical facilities for periods up to 10 years. Assets held under capital lease obligations are included in property and equipment and amounted to $4,700,919, net of accumulated amortization of $1,198,438 at July 1, 2000 and $5,360,270, net of accumulated amortization of $539,087 at July 3, 1999. At July 1, 2000, the minimum annual lease payments under noncancellable leases are as follows:
FISCAL YEAR ENDING - ------------------ 2001........................................................ $ 995,311 2002........................................................ 995,311 2003........................................................ 995,311 2004........................................................ 995,311 2005........................................................ 995,311 Thereafter.................................................. 2,198,147 ----------- Total minimum lease payments................................ 7,174,702 Less amount representing interest........................... (2,117,081) ----------- Total obligations under capital lease....................... 5,057,621 Less current portion of capital lease obligation............ 514,713 ----------- Long-term obligation........................................ $ 4,542,908 ===========
F-31 149 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has entered into noncancelable operating leases for certain vehicles. Rent expense related to the operating leases for the years ended July 1, 2000, July 3, 1999 and June 27, 1998 was $1,024,688, $443,716 and $376,557, respectively. Future minimum annual lease payments are as follows:
FISCAL YEAR ENDING - ------------------ 2001........................................................ $1,065,262 2002........................................................ 1,065,262 2003........................................................ 677,555 2004........................................................ 321,212 ---------- $3,129,291 ==========
(8) NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt consist of the following:
2000 1999 ----------- ---------- Note payable under an unsecured line of credit to a Bank, advances available up to a maximum of $10,000,000, interest at LIBOR plus 2.5% (9.15% at July 1, 2000) interest payable monthly and principal payable on December 31, 2000........................................ $10,000,000 -- Note payable under an unsecured line of credit to a bank, advances available up to a maximum of $3,000,000, interest at prime (9.50% at July 1, 2000) interest payable monthly and principal payable on October 20, 2000..................................................... 838,474 -- Note payable to a bank, interest at prime, with an average cap of 9.00% for a five year period, principal and interest of $41,000, payable monthly until final payment on April 10, 2004, collateralized by inventory, property, plant and equipment of L&S Farms (net book value of approximately $2,920,500 at July 1, 2000)................ 1,556,517 1,876,305 Note payable under a secured line of credit to a bank, advances available up to a maximum of $11,000,000, interest at LIBOR plus 1.9% (8.55% at July 1, 2000) interest payable monthly and principal payable on November 30, 2001, secured by assets of Dogwood Farms, Inc. and Dogwood Farms II, LLC........................... 9,982,609 11,000,000 Note payable under a secured line of credit to a bank,advances up to a maximum of $7,000,000, interest at LIBOR plus 1.9% (8.55% at July 1, 2000), monthly principal payments of $61,275 until final payment on March 7, 2008, secured by assets of Dogwood Farms, Inc. and Dogwood Farms II, LLC................................ 5,718,127 6,333,328 Note payable under a secured line of credit to a bank, interest at LIBOR plus 1.9%, 59 monthly principal payments of $33,333 plus interest, with a final payment of all unpaid principal and accrued interest due on September 7, 2004, secured by assets of the Dogwood Farms, Inc. and Dogwood Farms, II........................ 3,700,000 4,000,000 ----------- ---------- 31,795,727 23,209,636 Less current installments.................................. 12,312,114 13,811,117 ----------- ---------- $19,483,613 9,398,519 =========== ==========
F-32 150 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Notes payable and long-term debt mature as follows:
FISCAL YEAR ENDING - ------------------ 2001........................................................ $12,312,114 2002........................................................ 1,512,792 2003........................................................ 11,958,594 2004........................................................ 1,135,300 2005........................................................ 1,135,300 Thereafter.................................................. 3,741,627 ----------- $31,795,727 ===========
The loan agreements contain certain covenants and restrictions of Dogwood Farms, Inc. and Dogwood Farms II, LLC relating to among other things, the inability to declare dividends and incur any new loans and the maintenance of certain financial ratios. At July 1, 2000, the Company was in compliance with all loan covenants. The carrying amounts of on-balance-sheet financial instruments, which are cash, trade and notes receivables, accounts payable, accrued expenses and short and long-term borrowings, approximate their fair values. (9) INVESTMENT IN PARTNERSHIPS The Company has a fifty percent ownership of two separate partnerships, L&H Farms, LLC and Quality Pork, Inc., which are in the business of breeding and raising hogs. The Company accounts for the earnings and losses of the partnerships using the equity method of accounting. The Company's share of the partnerships' earnings was $607,677 and $181,523 for the years ended July 1, 2000 and July 3, 1999, respectively. These amounts are included in other income, net of other deductions in the consolidated statements of operations. During 1998 the Company owned fifty percent of L&S Farms, a partnership, in the business of breeding and raising hogs. The Company accounted for the earnings and losses of the partnership using the equity method of accounting. The Company's share of the partnership's losses in 1998 was $248,989. In 1999, the Company made an additional $70,000 capital contribution to the partnership, increasing its ownership to sixty percent. Partnership losses prior to the capital contribution were accounted for using the equity method of accounting and amounted to $530,578. These earnings are included in other income, net of other deductions, in the consolidated statement of operations. Subsequent to the contribution, the Company accounted for earnings and losses under the full consolidation method. The Company has guaranteed $208,331 of the bank borrowings of one of its investee partnerships at July 1, 2000. The Company has a note receivable from a partner in one of the partnerships that bears interest at prime plus 1% (10.50% at July 1, 2000), and at July 1, 2000, July 3, 1999, and June 27,1998 the outstanding balances were $121,554, $128,706, and $143,121, respectively. (10) RETIREMENT BENEFITS The Company provides certain health care and life insurance benefits for retired employees. The Company's postretirement health care plan is not funded. F-33 151 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The status of the Plan at July 1, 2000 and July 3, 1999 was as follows:
2000 1999 ---------- --------- Postretirement benefit obligation........................... $ 958,661 1,302,952 Unrecognized prior service cost............................. (54,657) (61,489) Unrecognized net gain....................................... 470,592 198,461 ---------- --------- Accrued postretirement benefit cost......................... $1,374,596 1,439,924 ========== ========= Weighted-average assumption: Discount rate............................................. 7.75% 7.75%
For measurement purposes, a 9%, 7%, and 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000, 1999, and 1998, respectively, declining gradually to 5.5% per year by 2006 and remaining at that level thereafter. The components of net periodic expense for postretirement benefits in 2000, 1999, and 1998 were as follows:
2000 1999 1998 -------- ------- ------- Service cost......................................... $ 50,376 88,749 50,422 Interest cost........................................ 70,788 78,651 91,514 Amortization of transition obligation................ 6,832 6,832 6,832 Amortization of gain................................. (41,526) -- -- -------- ------- ------- Net periodic postretirement benefit cost............. $ 86,470 174,232 148,768 ======== ======= =======
Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1-PERCENTAGE- 1-PERCENTAGE- POINT POINT INCREASE DECREASE ------------- ------------- Effect on total of service and interest cost components.......................................... $ 7,519 (6,813) Effect on postretirement benefit obligation........... 53,745 (48,921)
(11) MARKET CONDITIONS The Company's costs to produce market swine, as well as the estimated costs to complete market swine in inventory may individually exceed market sales prices periodically during the year. Market prices of the total livestock inventory exceeded the estimated costs to produce total livestock inventory at July 1, 2000, but did not as of July 3, 1999 and June 27, 1998. Based on market prices and production costs at July 3, 1999 and June 27, 1998, the Company reduced the valuation of livestock by approximately $875,000 and 1,967,000, respectively, on a consolidated basis. (12) CONTINGENCY The Company is a party as plaintiff or defendant to various legal actions pending at July 1, 2000 which arose during the normal course of business. In the opinion of management and legal counsel, final disposition of these actions will not have a material effect on the Company's financial position or results of operations. F-34 152 THE LUNDY PACKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company utilizes third-party insurance subject to varying retention levels or self insurance. Such self insurance relates to losses and liabilities primarily associated with workers' compensation claims and general, health care and vehicle liability. Losses are accrued for as incurred based upon third-party estimates. During the year the Company incurred claims exceeding predetermined retention levels. The Company has appropriately accrued for these claims up to the stated retention levels. (13) SUBSEQUENT EVENTS On August 9, 2000, the shareholders of the Company approved an Acquisition Agreement as of July 12, 2000 with PSF Acquisition Corp., a wholly-owned subsidiary of Premium Standard Farms, Inc., whereby the Company will become a wholly-owned subsidiary of Premium Standard Farms, Inc. Under the Acquisition Agreement the aggregate consideration to be paid to the Company's shareholders is the difference of $68,000,000 less the amount of the Company's outstanding capital lease obligations and indebtedness in excess of $37,892,648 and certain expenses incurred by the Company in connection with the acquisition in excess of $1,500,000. F-35 153 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS PSF GROUP HOLDINGS, INC. PREMIUM STANDARD FARMS, INC. AND PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. As permitted by the Delaware General Corporation Law (DGCL), the certificate of incorporation and by-laws of each of PSF Group Holdings, Inc., Premium Standard Farms, Inc. and Premium Standard Farms of North Carolina, Inc. (collectively the "Delaware Registrants") grant directors and officers certain immunities from liability and rights to indemnification. Directors and officers are not personally liable to a Delaware Registrant or its stockholders for monetary damages for breach of fiduciary duty except to the extent that exculpation from liability is not permitted under the DGCL at the time liability is determined. In addition, the certificate of incorporation requires each Delaware Registrant to indemnify directors and officers to the maximum extent permitted under the DGCL for costs incurred and amounts paid in connection with legal proceedings related to service as an officer, director or agent of such Delaware Registrant or affiliated entities. Each Delaware Registrant must also advance funds to officers, directors and agents for their use in their defense in those proceedings. Finally, the by-laws of each of the Delaware Registrants provide that the corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of such corporation against certain liabilities incurred by such persons, whether or not the corporation is otherwise authorized under the DGCL to indemnify such party. Premium Standard Farms, Inc. currently maintains directors' and officers' insurance policies covering directors and officers of the Delaware Registrants. THE LUNDY PACKING COMPANY AND LUNDY INTERNATIONAL, INC. As permitted by the North Carolina Business Corporation Act (NCBCA), the articles of incorporation and by-laws of each of The Lundy Packing Company and Lundy International, Inc. (collectively, the "North Carolina Registrants") grant directors and officers certain immunities from liability and rights to indemnification. Pursuant to its articles of incorporation, directors and officers of The Lundy Packing Company are not personally liable to The Lundy Packing Company or its stockholders for monetary damages for breach of fiduciary duty except to the extent that exculpation from liability is not permitted under the NCBCA at the time liability is determined. In addition, the by-laws of each of the North Carolina Registrants generally require them to indemnify directors and officers to the maximum extent permitted under the NCBCA for costs incurred and amounts paid in connection with legal proceedings related to service as an officer, director or agent of the corporation or its affiliated entities. With respect to directors and officers serving prior to August 25, 2000, however, the North Carolina Registrants will indemnify any person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the corporation's Board of Directors. In addition, the North Carolina Registrants are not required to indemnify certain directors and officers who served prior to August 25, 2000 for specified third party claims relating to the activities of the North Carolina Registrants prior to August 25, 2000. Each of the North Carolina Registrants must also advance funds to officers, directors and agents for their use in their defense in proceedings for which indemnification is available. Finally, the by-laws of each of the North Carolina Registrants provide that the corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of such corporation against certain liabilities incurred by such persons, whether or not the corporation is otherwise authorized under the NCBCA to indemnify such party. Premium Standard Farms, II-1 154 Inc. currently maintains directors' and officers' insurance policies covering directors and officers of the North Carolina Registrants. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following exhibits are filed with this registration statement.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 1.1 Placement Agreement, dated June 4, 2001, among PSF Group Holdings, Premium Standard Farms, Inc., The Lundy Packing Company, Lundy International, Inc., Premium Standard Farms of North Carolina, Inc., Morgan Stanley & Co. Incorporated and J.P. Morgan Securities, Inc. 2.1 Articles of Merger of PSF Acquisition Corp. into The Lundy Packing Company, filed August 25, 2000. 2.2 Stock Purchase Agreement, dated September 22, 2000, by and among Premium Standard Farms, Inc., PSF Group Holdings, Inc. and ContiGroup Companies, Inc. (see Exhibit 10.10) 3.1(a) Certificate of Incorporation of PSF Group Holdings, Inc., filed May 8, 1998. 3.1(b) Certificate of Amendment of Certificate of Incorporation of PSF Group Holdings, Inc., filed September 16, 1994. 3.2(a) Certificate of Incorporation of Premium Standard Farms, Inc., filed August 16, 1996. 3.2(b) Certificate of Correction of Certificate of Incorporation of Premium Standard Farms, Inc., filed August 26, 1996 3.3 Articles of Incorporation of The Lundy Packing Company, filed August 25, 2000 (see Exhibit 2.1). 3.4 Articles of Incorporation of Lundy International, Inc., filed September 17, 1981. 3.5 Certificate of Incorporation of Premium Standard Farms of North Carolina, Inc., filed September 12, 2000. 3.6 Amended and Restated By-laws of PSF Group Holdings, Inc. 3.7 Amended and Restated By-laws of Premium Standard Farms, Inc. 3.8 Restated By-laws of The Lundy Packing Company. 3.9 Restated By-laws of Lundy International, Inc. 3.10 Restated By-laws of Premium Standard Farms of North Carolina, Inc. 4.1(a) Indenture, dated as of June 4, 2001, among Premium Standard Farms, Inc., PSF Group Holdings, Inc., The Lundy Packing Company, Lundy International, Inc., Premium Standard Farms of North Carolina, Inc., and Wilmington Trust Company. 4.1(b) Specimen certificate of 9 1/4% Senior Notes due 2011. 4.2 Registration Rights Agreement, dated June 4, 2001, among PSF Group Holdings, Inc., Premium Standard Farms, Inc., The Lundy Packing Company, Lundy International, Inc., Premium Standard Farms of North Carolina, Inc., Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc. 4.3(a) Credit Agreement, dated August 27, 1997, by and between Premium Standard Farms, Inc. and FBS Ag Credit, Inc., as Agent for Itself and Certain Other Lenders. 4.3(b) First Amendment to Credit Agreement dated May 13, 1998. 4.3(c) Second Amendment to Credit Agreement, dated February 26, 1999. 4.3(d) Third Amendment to Credit Agreement, dated August 1, 2000. 4.3(e) Fourth Amendment to Credit Agreement, dated August 21, 2000. 4.3(f) Fifth Amendment to Credit Agreement, dated September 22, 2000.
II-2 155
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 4.3(g) Guaranty Agreement, dated May 13, 1998, by and between PSF Group Holdings, Inc. and U.S. Bancorp Ag Credit, Inc. as Agent for Itself and Certain Other Lenders. 5.1 Opinion of Blackwell Sanders Peper Martin LLP 10.1 PSF Group Holdings, Inc. 1999 Equity Incentive Plan, dated December 1, 1999. 10.2 Premium Standard Farms, Inc. Long-Term Incentive Plan, effective April 1, 1998 through March 31, 2001. 10.3 Premium Standard Farms, Inc. Executive Level Severance Plan, dated December 1, 1999. 10.4 Premium Standard Farms, Inc. Vice President Level Severance Plan, dated December 1, 1999. 10.5 Premium Standard Farms, Inc. Special Executive Retirement Plan, dated January 1, 2000. 10.6(a) Premium Standard Farms, Inc. Deferred Compensation Plan, dated December 29, 2000. 10.6(b) Amendment Number One to the Premium Standard Farms Deferred Compensation Plan, dated June 8, 2001. 10.7 Consulting Agreement, dated August 25, 2000, by and between The Lundy Packing Company and Annabelle Lundy Fetterman. 10.8 Services Agreement, dated October, 1998, by and between Premium Standard Farms, Inc. and Continental Grain Company. 10.9 Consulting Agreement, dated December 9, 1999, by and between ContiGroup Companies, Inc. and Premium Standard Farms, Inc. 10.10 Stock Purchase Agreement, dated September 22, 2000, by and among Premium Standard Farms, Inc., PSF Group Holdings, Inc. and ContiGroup Companies, Inc. 10.11 Market Hog Contract Grower Agreement, dated May 13, 1998, by and between Continental Grain Company and CGC Asset Acquisition Corp. 12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges. 21.1 Subsidiaries of the Registrants. 23.1 Consent of Blackwell Sanders Peper Martin LLP (see Exhibit 5.1) 23.2 Consent of Arthur Andersen LLP 23.3 Consent of KPMG LLP 24.1 Power of Attorney (see signature pages) 25.1 Statement of Eligibility and Qualification on Form T-1 of Wilmington Trust Company (with respect to the 9 1/4% senior notes due 2011). 25.2 Statement of Eligibility and Qualification on Form T-1 of Wilmington Trust Company (with respect to the guarantees). 99.1 Form of Letter from Premium Standard Farms, Inc. to Registered Holders and Depository Trust Company Participants. 99.2 Form of Letter of Transmittal. 99.3 Form of Notice of Guaranteed Delivery. 99.4 Form of Instructions From Beneficial Owners to Registered Holders and Depository Trust Company Participants.
II-3 156
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 99.5 Form of Letter to Clients. 99.6 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(b) The following financial statement schedule is filed with this registration statement: SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS ITEM 22. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by final adjudication of such issue. (b) The undersigned co-registrants hereby undertake to respond to requests for information that is incorporated by reference into this prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This undertaking also includes documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned co-registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 157 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, each of the co-registrants has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Kansas City, State of Missouri, on June 29, 2001. PSF GROUP HOLDINGS, INC. By: /s/ JOHN M. MEYER ------------------------------------ John M. Meyer, Chief Executive Officer II-5 158 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, each of the co-registrants has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Kansas City, State of Missouri, on June 29, 2001. PREMIUM STANDARD FARMS, INC. By: /s/ JOHN M. MEYER ------------------------------------ John M. Meyer, Chief Executive Officer II-6 159 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, each of the co-registrants has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Kansas City, State of Missouri, on June 29, 2001. THE LUNDY PACKING COMPANY By: /s/ JOHN M. MEYER ------------------------------------ John M. Meyer, Chief Executive Officer II-7 160 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, each of the co-registrants has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Kansas City, State of Missouri, on June 29, 2001. LUNDY INTERNATIONAL, INC. By: /s/ JOHN M. MEYER ------------------------------------ John M. Meyer, Chief Executive Officer II-8 161 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, each of the co-registrants has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Kansas City, State of Missouri, on June 29, 2001. PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. By: /s/ JOHN M. MEYER ------------------------------------ John M. Meyer, Chief Executive Officer II-9 162 PSF GROUP HOLDINGS, INC. Each individual whose signature appears below hereby designates and appoints John M. Meyer, Robert W. Manly, Stephen A. Lightstone and Gerard J. Schulte, and each of them, any one of whom may act without the joinder of the others, as such person's true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and re-substitution, for such person an in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, which amendments may make changes in this Registration Statement as any Attorney-in-Fact deems appropriate, and registration statements relating to the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and requests to accelerate the effectiveness of such registration statements, and to file each such amendment with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or any of them, or their substitution or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN M. MEYER Chief Executive Officer and Director June 29, 2001 - --------------------------------------------- John M. Meyer /s/ STEPHEN A. LIGHTSTONE Chief Financial Officer June 29, 2001 - --------------------------------------------- Stephen A. Lightstone /s/ MICHAEL J. ZIMMERMAN Director June 29, 2001 - --------------------------------------------- Michael J. Zimmerman Director June , 2001 - --------------------------------------------- Ronald E. Justice Director June , 2001 - --------------------------------------------- Dean Mefford /s/ MARK R. BAKER Director June 29, 2001 - --------------------------------------------- Mark R. Baker /s/ MAURICE L. MCGILL Director June 29, 2001 - --------------------------------------------- Maurice L. McGill Director June , 2001 - --------------------------------------------- Michael A. Petrick /s/ PAUL J. FRIBOURG Director June 29, 2001 - --------------------------------------------- Paul J. Fribourg /s/ VART. K. ADJEMIAN Director June 29, 2001 - --------------------------------------------- Vart. K. Adjemian
II-10 163 PREMIUM STANDARD FARMS, INC. Each individual whose signature appears below hereby designates and appoints John M. Meyer, Robert W. Manly, Stephen A. Lightstone and Gerard J. Schulte, and each of them, any one of whom may act without the joinder of the others, as such person's true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and re-substitution, for such person an in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, which amendments may make changes in this Registration Statement as any Attorney-in-Fact deems appropriate, and registration statements relating to the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and requests to accelerate the effectiveness of such registration statements, and to file each such amendment with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or any of them, or their substitution or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN M. MEYER Chief Executive Officer and Director June 29, 2001 - --------------------------------------------- John M. Meyer /s/ STEPHEN A. LIGHTSTONE Chief Financial Officer June 29, 2001 - --------------------------------------------- Stephen A. Lightstone /s/ MICHAEL J. ZIMMERMAN Director June 29, 2001 - --------------------------------------------- Michael J. Zimmerman Director June , 2001 - --------------------------------------------- Ronald E. Justice /s/ DEAN MEFFORD Director June 29, 2001 - --------------------------------------------- Dean Mefford /s/ MARK R. BAKER Director June 29, 2001 - --------------------------------------------- Mark R. Baker /s/ MAURICE L. MCGILL Director June 26, 2001 - --------------------------------------------- Maurice L. McGill Director June , 2001 - --------------------------------------------- Michael A. Petrick /s/ PAUL J. FRIBOURG Director June 29, 2001 - --------------------------------------------- Paul J. Fribourg /s/ VART. K. ADJEMIAN Director June 29, 2001 - --------------------------------------------- Vart. K. Adjemian
II-11 164
SIGNATURE TITLE DATE --------- ----- ---- Director June , 2001 - --------------------------------------------- John Rakestraw /s/ ANNABELLE LUNDY FETTERMAN Director June 26, 2001 - --------------------------------------------- Annabelle Lundy Fetterman
II-12 165 THE LUNDY PACKING COMPANY Each individual whose signature appears below hereby designates and appoints John M. Meyer, Robert W. Manly, Stephen A. Lightstone and Gerard J. Schulte, and each of them, any one of whom may act without the joinder of the others, as such person's true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and re-substitution, for such person an in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, which amendments may make changes in this Registration Statement as any Attorney-in-Fact deems appropriate, and registration statements relating to the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and requests to accelerate the effectiveness of such registration statements, and to file each such amendment with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or any of them, or their substitution or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN M. MEYER Chief Executive Officer and Director June 29, 2001 - --------------------------------------------- John M. Meyer /s/ STEPHEN A. LIGHTSTONE Chief Financial Officer and Director June 29, 2001 - --------------------------------------------- Stephen A. Lightstone /s/ ROBERT W. MANLY Director June 29, 2001 - --------------------------------------------- Robert W. Manly
II-13 166 LUNDY INTERNATIONAL, INC. Each individual whose signature appears below hereby designates and appoints John M. Meyer, Robert W. Manly, Stephen A. Lightstone and Gerard J. Schulte, and each of them, any one of whom may act without the joinder of the others, as such person's true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and re-substitution, for such person an in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, which amendments may make changes in this Registration Statement as any Attorney-in-Fact deems appropriate, and registration statements relating to the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and requests to accelerate the effectiveness of such registration statements, and to file each such amendment with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or any of them, or their substitution or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN M. MEYER Chief Executive Officer and Director June 29, 2001 - --------------------------------------------- John M. Meyer /s/ STEPHEN A. LIGHTSTONE Chief Financial Officer and Director June 29, 2001 - --------------------------------------------- Stephen A. Lightstone /s/ ROBERT W. MANLY Director June 29, 2001 - --------------------------------------------- Robert W. Manly
II-14 167 PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. Each individual whose signature appears below hereby designates and appoints John M. Meyer, Robert W. Manly, Stephen A. Lightstone and Gerard J. Schulte, and each of them, any one of whom may act without the joinder of the others, as such person's true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and re-substitution, for such person an in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, which amendments may make changes in this Registration Statement as any Attorney-in-Fact deems appropriate, and registration statements relating to the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and requests to accelerate the effectiveness of such registration statements, and to file each such amendment with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or any of them, or their substitution or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN M. MEYER Chief Executive Officer and Director June 29, 2001 - --------------------------------------------- John M. Meyer /s/ STEPHEN A. LIGHTSTONE Chief Financial Officer and Director June 29, 2001 - --------------------------------------------- Stephen A. Lightstone /s/ ROBERT W. MANLY Director June 29, 2001 - --------------------------------------------- Robert W. Manly
II-15 168 FINANCIAL STATEMENT SCHEDULE INDEX
DESCRIPTION PAGE ----------- ----- Report of Independent Public Accountants.................... II-17 Schedule II -- Valuation and Qualifying Accounts............ II-18
II-16 169 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of PSF Group Holdings, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of PSF Group Holdings, Inc. (the Company) included in this registration statement and have issued our report thereon dated May 11, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of valuation and qualifying accounts is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated 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 consolidated financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Kansas City, Missouri May 11, 2001 II-17 170 VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
BALANCE AT CHARGED BALANCE AT BEGINNING TO LESS: END DESCRIPTION OF YEAR EARNINGS OTHER DEDUCTION OF YEAR - ----------- ---------- -------- ----- --------- ---------- Allowance for Losses on Accounts Receivable: 2001............................................ 183.5 180.2 416.9 117.0 663.6 2000............................................ 135.9 48.1 -- 0.5 183.5 1999............................................ 138.5 39.8 -- 42.4 135.9
II-18 EX-1.1 2 y50886ex1-1.txt PLACEMENT AGREEMENT 1 Exhibit 1.1 $175,000,000 PREMIUM STANDARD FARMS, INC. 9-1/4% SENIOR NOTES DUE 2011 PLACEMENT AGREEMENT June 4, 2001 2 June 4, 2001 Morgan Stanley & Co. Incorporated J.P. Morgan Securities Inc. c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Dear Sirs and Mesdames: Premium Standard Farms, Inc., a Delaware corporation (the "COMPANY"), proposes to issue and sell to the several purchasers named in Schedule I hereto (the "PLACEMENT AGENTS") $175,000,000 principal amount of its 9-1/4% Senior Notes due 2011 (the "SECURITIES") to be issued pursuant to the provisions of an Indenture to be dated as of June 7, 2001 (the "INDENTURE") among the Company, PSF Group Holdings, Inc. ("PSF HOLDINGS"), the subsidiaries of the Company listed in Schedule II hereto (the "SUBSIDIARY GUARANTORS", and together with PSF Holdings, the "GUARANTORS") and Wilmington Trust Company, as Trustee (the "TRUSTEE"). The obligations of the Company under the Securities and the Indenture will be unconditionally guaranteed on a senior unsecured basis by the Guarantors pursuant to the terms of the Indenture (the "GUARANTEES"). The Securities will be offered without being registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to qualified institutional buyers in compliance with the exemption from registration provided by Rule 144A under the Securities Act and in offshore transactions in reliance on Regulation S under the Securities Act ("REGULATION S"). The Placement Agents and their direct and indirect transferees will be entitled to the benefits of a Registration Rights Agreement dated the date hereof among the Company, the Guarantors and the Placement Agents (the "REGISTRATION RIGHTS AGREEMENT"). In connection with the sale of the Securities, the Company has prepared a preliminary offering memorandum (the "PRELIMINARY MEMORANDUM") and will prepare a final offering memorandum (the "FINAL MEMORANDUM" and, with the Preliminary Memorandum, each a "MEMORANDUM") including a description of the terms of the Securities and the Guarantees, the terms of the offering and a description of the Company and the Guarantors. 1. Representations and Warranties. The Company and the Guarantors, jointly and severally, represent and warrant to, and agree with, you that: (a) The Preliminary Memorandum does not contain and the Final Memorandum, in the form used by the Placement Agents to confirm sales and on the Closing Date (as defined in Section 4), will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set 3 forth in this paragraph do not apply to statements or omissions in either Memorandum based upon information relating to any Placement Agent furnished to the Company in writing by such Placement Agent through you expressly for use therein. (b) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in each Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (c) PSF Holdings has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in each Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on it; all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by PSF Holdings, free and clear of all liens, encumbrances, equities or claims, except for the lien and security interest (the "PIK NOTE LIEN") of the trustee under the Indenture dated September 17, 1996 among the Company, PSF Holdings and Fleet National Bank relating to the 11% Senior Secured Notes (Partial Pay-In-Kind), due September 17, 2003 (the "PIK NOTES"), as subsequently amended and supplemented (the "PIK NOTE INDENTURE"), and the security documents described therein (collectively the "PIK NOTE AGREEMENTS"). (d) Each subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in each Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; each subsidiary of the Company and the percentage of capital stock of each such subsidiary owned by the Company is set forth on Schedule III hereto and all of the issued shares of capital stock of each subsidiary of the Company owned by the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except for the PIK Note Lien with respect to the shares of capital stock of The Lundy Packing Company, Premium Standard Farms of North Carolina, Inc., and Lundy International, Inc. (e) This Agreement has been duly authorized, executed and delivered by the Company and the Guarantors. 2 4 (f) The Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Placement Agents in accordance with the terms of this Agreement, will be valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity, and will be entitled to the benefits of the Indenture and the Registration Rights Agreement. (g) The Guarantees have been duly authorized by each of the Guarantors and, upon execution and delivery of the Indenture by the Guarantors and the Company, will be valid and binding obligations of each Guarantor, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity. (h) The Indenture has been duly authorized and, when executed and delivered by the Company and each Guarantor, will be a valid and binding agreement of the Company and each Guarantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity. (i) The Registration Rights Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company and each Guarantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity and except as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law. (j) The execution and delivery by the Company and each Guarantor of, and the performance by the Company and each Guarantor of their respective obligations under, this Agreement, the Indenture, the Registration Rights Agreement, the Securities (in the case of the Company) and the Guarantees (in the case of the Guarantors) will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or any Guarantor or any agreement or other instrument binding upon the Company, any of its subsidiaries or any Guarantor that is material to the Company and its subsidiaries, taken as a whole, or PSF Holdings, other than the PIK Note Agreements, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company, any subsidiary or any Guarantor, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company or the Guarantors of their respective obligations under this Agreement, the Indenture, the Registration Rights Agreement, the Securities (in the case of the Company) and the Guarantees (in the case of the Guarantors), except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Securities and the Guarantees and by Federal and state securities laws with respect to the Company's and each Guarantor's obligations under the Registration Rights Agreement. 3 5 (k) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, or PSF Holdings from that set forth in the Final Memorandum. (l) There are no legal or governmental proceedings pending or threatened to which PSF Holdings, the Company or any of its subsidiaries is a party or to which any of the properties of PSF Holdings, the Company or any of its subsidiaries is subject other than proceedings accurately described in all material respects in each Memorandum and proceedings that would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, or PSF Holdings or on the power or ability of the Company or the Guarantors to perform their respective obligations under this Agreement, the Indenture, the Registration Rights Agreement, the Securities (in the case of the Company) or the Guarantees (in the case of the Guarantors) or to consummate the transactions contemplated by the Final Memorandum. (m) PSF Holdings, the Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except as are accurately described in all materials respects in the Final Memorandum and except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole or PSF Holdings. (n) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which are not accurately described in all material respects in the Final Memorandum or which would, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole or PSF Holdings. (o) Neither the Company nor any Guarantor is, nor after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Final Memorandum, will be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (p) None of the Company, any Guarantor or any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the Company or any Guarantor has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under 4 6 the Securities Act of the Securities or (ii) engaged in any form of general solicitation or general advertising in connection with the offering of the Securities (as those terms are used in Regulation D under the Securities Act), or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (q) None of the Company, any Guarantor, their Affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities and the Company, any Guarantor and their Affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. For the purposes of this paragraph and paragraph (p) above, the Company and the Guarantors make no representation or warranty in respect of the Placement Agents. (r) It is not necessary in connection with the offer, sale and delivery of the Securities to the Placement Agents in the manner contemplated by this Agreement to register the Securities or the Guarantees under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended. (s) The Securities and the Guarantees satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. (t) The Securities and the Guarantees conform in all material respects to the description thereof contained in the Final Memorandum under the heading "Description of the Notes." (u) Subsequent to the respective dates as of which information is given in the Final Memorandum, (i) none of the Company or any of its subsidiaries or PSF Holdings have incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business; (ii) neither the Company nor any of its subsidiaries nor PSF Holdings has purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than ordinary and customary dividends; and (iii) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company and its subsidiaries or PSF Holdings, except in each case as described in the Final Memorandum. (v) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except for the PIK Note Lien and such as are described in the Final Memorandum or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such 5 7 property and buildings by the Company and its subsidiaries, in each case except as described in the Final Memorandum. (w) The Company and its subsidiaries own or possess, or can acquire on reasonable terms, all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names currently employed by them in connection with the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company and its subsidiaries, taken as a whole, in each case except as accurately described in all material respects in the Final Memorandum. (x) No material labor dispute with the employees of the Company or any of its subsidiaries exists, or, to the knowledge of the Company, is imminent; and the executive officers of the Company are not aware of any existing, threatened or imminent labor disturbance by the employees of any of the Company's principal suppliers, manufacturers or contractors that could have a material adverse effect on the Company and its subsidiaries, taken as a whole, in each case except as described in the Final Memorandum. (y) The Company and its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; neither the Company nor any of its subsidiaries has been refused any insurance coverage sought or applied for; and neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, except as described in the Final Memorandum. (z) The Company and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective business, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company and its subsidiaries, taken as a whole, except as described the Final Memorandum. (aa) PSF Holdings and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the 6 8 recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Placement Agents, and each Placement Agent, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective principal amount of Securities set forth in Schedule I hereto opposite its name at a purchase price of 97.194% of the principal amount thereof (the "PURCHASE PRICE") plus accrued interest, if any, to the Closing Date. The Company and each of the Guarantors hereby agree that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Placement Agents, it will not, during the period beginning on the date hereof and continuing to and including the Closing Date, offer, sell, contract to sell or otherwise dispose of any debt of the Company or any of the Guarantors or warrants to purchase debt of the Company or any of the Guarantors substantially similar to the Securities and the Guarantees (other than the sale of the Securities and the Guarantees under this Agreement). 3. Terms of Offering. You have advised the Company and the Guarantors that the Placement Agents will make an offering of the Securities purchased by the Placement Agents hereunder on the terms to be set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into as in your judgment is advisable. 4. Payment and Delivery. Payment for the Securities shall be made to the Company at such bank and account as the Company shall designate in Federal or other funds immediately available in New York City against delivery of such Securities for the respective accounts of the several Placement Agents at 10:00 a.m., New York City time, on June 7, 2001, or at such other time on the same or such other date, not later than June 14, 2001, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "CLOSING DATE." Certificates for the Securities shall be in definitive form or global form, as specified by you, and registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date. The certificates evidencing the Securities shall be delivered to you on the Closing Date for the respective accounts of the several Placement Agents, with any transfer taxes payable in connection with the transfer of the Securities to the Placement Agents duly paid, against payment of the Purchase Price therefor plus accrued interest, if any, to the date of payment and delivery. 5. Conditions to the Placement Agents' Obligations. The several obligations of the Placement Agents to purchase and pay for the Securities on the Closing Date are subject to the following conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or 7 9 operations of the Company and its subsidiaries, taken as a whole, or PSF Holdings from that set forth in the Final Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Securities on the terms and in the manner contemplated in the Final Memorandum. (b) The Placement Agents shall have received on the Closing Date certificates, dated the Closing Date and signed by an executive officer of the Company and each Guarantor, to the effect set forth in Section 5(a) and to the effect that the representations and warranties of the Company and such Guarantor contained in this Agreement are true and correct as of the Closing Date and the Company and such Guarantor have complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened. (c) The Placement Agents shall have received on the Closing Date an opinion of Blackwell Sanders Peper Martin LLP, outside counsel for the Company and the Guarantors, dated the Closing Date, to the effect set forth in Exhibit A. Such opinion shall be rendered to the Placement Agents at the request of the Company and the Guarantors and shall so state therein. (d) The Placement Agents shall have received on the Closing Date an opinion of Gerard J. Schulte, general counsel for the Company and the Guarantors, dated the Closing Date, to the effect set forth in Exhibit B. (e) The Placement Agents shall have received on the Closing Date an opinion of Sidley Austin Brown & Wood; outside counsel for the Company and the Guarantors, dated the Closing Date, to the effect set forth in Exhibit C. Such opinion shall be rendered to the Placement Agents at the request of the Company and the Guarantors and shall so state therein. (f) The Placement Agents shall have received on the Closing Date an opinion of Ward and Smith, P.A., outside counsel for the Company and the Guarantors, dated as of the Closing Date, to the effect set forth in Exhibit D. Such opinion shall be rendered to the Placement Agents at the request of the Company and the Guarantors and shall so state therein. (g) The Placement Agents shall have received on the Closing Date an opinion of Shearman & Sterling, counsel for the Placement Agents, dated the Closing Date, in form and substance satisfactory to you. (h) The Placement Agents shall have received on each of the date hereof and the Closing Date letters, dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Placement Agents, from Arthur Anderson LLP, independent public accountants for the Company, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Final Memorandum; provided that the letters delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. 8 10 (i) The Placement Agents shall have received on the date hereof a letter, dated the date hereof, in form and substance satisfactory to the Placement Agents from KPMG LLP, independent accountants for The Lundy Packing Company, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information for The Lundy Packing Company contained in the Final Memorandum. (j) The Placement Agents shall have received such other documents and certificates as are reasonably requested by you or your counsel. (k) The Securities shall have been designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in the PORTAL Market. (l) The Company shall have received a consent, in form and substance satisfactory to you, pursuant to which the Company is granted consent to offer the Securities notwithstanding any provision to the contrary contained in the Credit Agreement among the Company, U.S. Bancorp, AG Credit, Inc. and the other Lenders named therein dated as of August 27, 1997, as amended, and such consent shall be in full force and effect on the Closing Date. (m) Arrangements satisfactory to you shall have been made for delivery, immediately upon confirmation of the purchase and sale of the Securities, of a notice of redemption, in form and substance satisfactory to you, to each holder of the PIK Notes for redemption of all such holder's PIK Notes on the date set forth in such notice (the "REDEMPTION DATE"). (n) The Company shall have directed the Placement Agents in writing to irrevocably deposit with a trustee, in trust on terms satisfactory to you, the proceeds of the Securities in an amount required to redeem the aggregate principal amount outstanding of PIK Notes and shall have made arrangements satisfactory to you for the transfer of said funds to the trustee for the holders of the PIK Notes on or before the Redemption Date. 6. Covenants of the Company and each Guarantor. In further consideration of the agreements of the Placement Agents contained in this Agreement, each of the Company and the Guarantors, jointly and severally covenants with each Placement Agent as follows: (a) To furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(c), as many copies of the Final Memorandum and any supplements and amendments thereto as you may reasonably request. (b) Before amending or supplementing either Memorandum, to furnish to you a copy of each such proposed amendment or supplement and not to use any such proposed amendment or supplement to which you reasonably object. 9 11 (c) If, during such period after the date hereof and prior to the date on which all of the Securities shall have been sold by the Placement Agents, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Final Memorandum in order to make the statements therein, in the light of the circumstances when the Final Memorandum is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Placement Agents, it is necessary to amend or supplement the Final Memorandum to comply with applicable law, forthwith to prepare and furnish, at its own expense, to the Placement Agents, either amendments or supplements to the Final Memorandum so that the statements in the Final Memorandum as so amended or supplemented will not, in the light of the circumstances when the Final Memorandum is delivered to a purchaser, be misleading or so that the Final Memorandum, as amended or supplemented, will comply with applicable law. (d) To endeavor to qualify the Securities and the Guarantees for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request. (e) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's and the Guarantors' counsel and the Company's and the Guarantors' accountants and KPMG LLP in connection with the issuance and sale of the Securities and all other fees or expenses in connection with the preparation of each Memorandum and all amendments and supplements thereto, including all printing costs associated therewith, and the delivering of copies thereof to the Placement Agents, in the quantities herein above specified, (ii) all costs and expenses related to the transfer and delivery of the Securities to the Placement Agents, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or legal investment memorandum in connection with the offer and sale of the Securities under state securities laws and all expenses in connection with the qualification of the Securities for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Placement Agents in connection with such qualification and in connection with the Blue Sky or legal investment memorandum, (iv) any fees charged by rating agencies for the rating of the Securities, (v) all document production charges and expenses of counsel to the Placement Agents (but not including their fees for professional services) in connection with the preparation of this Agreement, (vi) the fees and expenses, if any, incurred in connection with the admission of the Securities for trading in PORTAL or any appropriate market system, (vii) the costs and charges of the Trustee and any transfer agent, registrar or depositary, (viii) the cost of the preparation, issuance and delivery of the Securities, (ix) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Securities, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants (excluding the Placement Agents) engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company, the Guarantors and any such consultants (excluding the Placement Agents), and the cost of any aircraft chartered in connection with the road show, and (x) all other costs and expenses incident to the performance of the obligations of the Company and the 10 12 Guarantors hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 9, and the last paragraph of Section 11, the Placement Agents will pay all of their costs and expenses, including fees and disbursements of their counsel, transfer taxes payable on resale of any of the Securities by them and any advertising expenses connected with any offers they may make. (f) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which could be integrated with the sale of the Securities or the Guarantees in a manner which would require the registration under the Securities Act of the Securities or the Guarantees. (g) Not to solicit any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (h) While any of the Securities remain "restricted securities" within the meaning of the Securities Act, to make available, upon request, to any seller of the Securities the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). (i) To use its best efforts to permit the Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in the PORTAL Market. (j) None of the Company, the Guarantors, its or their Affiliates or any person acting on its or their behalf (other than the Placement Agents) will engage in any directed selling efforts (as that term is defined in Regulation S) with respect to the Securities, and the Company, the Guarantors and its or their Affiliates and each person acting on its or their behalf (other than the Placement Agents) will comply with the offering restrictions requirement of Regulation S. (k) During the period of two years after the Closing Date, the Company and the Guarantors will not, and will not permit any direct or indirect parent of the Company or the Guarantors, as the case may be, to resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them. (l) To redeem the PIK Notes in whole on the Redemption Date subject to the sale of the Securities to the Placement Agents. 7. Offering of Securities; Restrictions on Transfer. (a) Each Placement Agent, severally and not jointly, represents and warrants that such Placement Agent is a qualified institutional buyer as defined in Rule 144A under the Securities Act (a "QIB"). Each Placement Agent, severally and not jointly, agrees with the Company and the Guarantors that (i) it will not solicit offers for, or offer or sell, such Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (ii) it 11 13 will solicit offers for such Securities only from, and will offer such Securities only to, persons that it reasonably believes to be (A) in the case of offers inside the United States, QIBs and (B) in the case of offers outside the United States, to persons other than U.S. persons ("FOREIGN PURCHASERS," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)) in reliance upon Regulation S under the Securities Act that, in each case, in purchasing such Securities are deemed to have represented and agreed as provided in the Final Memorandum under the caption "Transfer Restrictions." (b) Each Placement Agent, severally and not jointly, represents, warrants, and agrees with respect to offers and sales outside the United States that: (i) such Placement Agent understands that no action has been or will be taken in any jurisdiction by the Company or any of the Guarantors that would permit a public offering of the Securities, or possession or distribution of either Memorandum or any other offering or publicity material relating to the Securities, in any country or jurisdiction where action for that purpose is required; (ii) such Placement Agent will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes either Memorandum or any such other material, in all cases at its own expense; (iii) neither the Securities nor the Guarantees have been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Rule 144A or Regulation S under the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act; (iv) such Placement Agent has offered the Securities and the Guarantees and will offer and sell the Securities and the Guarantees (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S or as otherwise permitted in Section 7(a); accordingly, neither such Placement Agent, its Affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities and the Guarantees, and any such Placement Agent, its Affiliates and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; (v) such Placement Agent has (A) not offered or sold and, prior to the date six months after the Closing Date, will not offer or sell any Securities or Guarantees to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of 12 14 the Public Offers of Securities Regulations 1995; (B) complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Securities or Guarantees in, from or otherwise involving the United Kingdom, and (C) only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities or Guarantees to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on; (vi) such Placement Agent understands that neither the Securities nor the Guarantees have been or will not be registered under the Securities and Exchange Law of Japan, and represents that it has not offered or sold, and agrees not to offer or sell, directly or indirectly, any Securities or Guarantees in Japan or for the account of any resident thereof except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law; and (vii) such Placement Agent agrees that, at or prior to confirmation of sales of the Securities and the Guarantees, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities and the Guarantees from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities and Guarantees covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them by Regulation S." Terms used in this Section 7(b) have the meanings given to them by Regulation S. 8. Market-Making. Each of the Company and the Guarantors, jointly and severally, for the sole benefit of Morgan Stanley & Co. Incorporated ("MORGAN STANLEY"), agrees that: (a) prior to the consummation of the Exchange Offer (as defined in the Registration Rights Agreement) or the effectiveness of a Shelf Registration Statement (as defined in the Registration Rights Agreement) if, in the reasonable judgment of Morgan Stanley, it or any of its affiliates (as such term is defined in the rules and regulations under the 1933 Act) is required to deliver an offering memorandum in connection with sales of, or market-making activities with respect to, the Securities and the Guarantees (i) to periodically amend or supplement the Final Memorandum so that the information contained in the Final Memorandum complies with the requirements of Rule 144A of the 1933 Act, (ii) to amend or supplement the 13 15 Final Memorandum when necessary to reflect any material changes in the information provided therein so that the Final Memorandum will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances existing as of the date the Final Memorandum is so delivered, not misleading and (iii) to provide Morgan Stanley with copies of each such amended or supplemented Final Memorandum, as Morgan Stanley may reasonably request; (b) following the consummation of the Exchange Offer or the effectiveness of a Shelf Registration Statement and for so long as the Securities or the Exchange Securities are outstanding, if, in the judgement of Morgan Stanley, it or any of its affiliates (as such term is defined in the rules and regulations under the 1933 Act) is required to deliver a prospectus in connection with sales of, or market-making activities with respect to, such securities, (i) to periodically amend the applicable registration statement so that the information contained therein complies with the requirements of Section 10(a) of the 1933 Act, (ii) if reasonably requested by Morgan Stanley, within 45 days following the end of the Company's most recent fiscal quarter (other than the Company's final fiscal quarter in each fiscal year), to file a supplement to the prospectus included in the applicable registration statement which sets forth the financial results of the Company and the Guarantors for the previous fiscal quarter, (iii) if reasonably requested by Morgan Stanley, within 90 days following the end of the Company's most recent fiscal year, to amend the applicable registration statement to set forth the financial results of the Company and the Guarantors for the previous fiscal year, (iv) to amend the applicable registration statement or supplement the related prospectus when necessary to reflect any material changes in the information provided therein so that the registration statement and the prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances existing as of the date the prospectus is so delivered, not misleading and (v) to provide Morgan Stanley with copies of each such amendment or supplement as Morgan Stanley may reasonably request; (c) notwithstanding clauses (a) and (b) above, (i) prior to amending the Final Memorandum or to filing any post-effective amendment to any registration statement or to supplementing any related prospectus, to furnish to Morgan Stanley and its counsel, copies of all such documents proposed to be amended, filed or supplemented, and (ii) neither the Company nor any Guarantor will issue any amendment to the Final Memorandum, any post-effective amendment to a registration statement or any supplement to a prospectus to which Morgan Stanley or its counsel shall reasonably object; (d) to notify Morgan Stanley and its counsel and (if requested by any such person) confirm such advice in writing, (i) when any amendment to the Final Memorandum has been issued, when any prospectus supplement or amendment or post-effective amendment has been filed, and, with respect to any post-effective amendment, when the same has become effective, (ii) of any request by the Securities and Exchange Commission (the "SEC") for any post-effective amendment or supplement to a registration statement, any supplement or amendment to a prospectus or for additional information, (iii) the issuance by the SEC of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt by it of any notification with respect to the 14 16 suspension of the qualification of the Securities or the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceedings for such purpose and (v) of the happening of any event which makes any statement made in the Final Memorandum, a registration statement, a prospectus or any amendment or supplement thereto untrue or which requires the making of any change in the Final Memorandum, a registration statement, a prospectus or any amendment or supplement thereto, in order to make the statements therein not misleading; (e) the Company and each Guarantor consents to the use of the Final Memorandum and any prospectus referred to in this Section 8 or any amendment or supplement thereto by Morgan Stanley and its affiliates in connection with the offering and sale of the Securities and the Guarantees or the Exchange Securities, as the case may be; provided that upon receipt of any notice from the Company of the happening of any event of the kind described in clause (d)(v) of this Section 8, Morgan Stanley and its affiliates will forthwith discontinue disposition of such Securities or Exchange Securities pursuant to any such Final Memorandum or prospectus until Morgan Stanley and its affiliates receive copies of a supplemented or amended Final Memorandum or prospectus referred to in this Section 8; any such suspensions may not exceed 60 days in any 365-day period; any notices to Morgan Stanley pursuant to this clause (e) shall be sent to Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, NY, 10036, Attention: High Yield New Issues Group, facsimile number: (212) 761-0587, with a copy to the Control Group, Manager, facsimile number (212) 761-9709, and shall be deemed to have been duly given or made only upon receipt. (f) in connection with any amendment or supplement to the Final Memorandum or the effectiveness of the Shelf Registration Statement or any amendment thereto or supplemental prospectus, in each case including any Form 10-K or Form 10-Q that is incorporated by reference in such Final Memorandum or Shelf Registration Statement required by this Section 8, the Company and the Guarantors will cause to be provided to Morgan Stanley an opinion of counsel (covering matters customarily covered in opinions delivered in underwritten offerings) and a "cold comfort" letter from the Company's independent public accountants (covering matters customarily covered in "cold comfort" letters delivered in underwritten offerings) and such documents and certificates as may be reasonably requested by Morgan Stanley. (g) the Company and the Guarantors will comply with the provisions of this Section 8 at their own expense and will reimburse Morgan Stanley for its expenses associated with this Section 8 (including reasonable fees of counsel); and (h) the Company and the Guarantors hereby expressly acknowledge that the indemnification and contribution provisions of Section 9 of this Agreement shall be specifically applicable and relate to each offering memorandum, registration statement, prospectus, amendment or supplement referred to in this Section 8 except with respect to losses, claims or liabilities resulting from the delivery of any offering memorandum or prospectus to the extent that it is established that such offering memorandum or prospectus was delivered by Morgan 15 17 Stanley after it received notice to discontinue using it in accordance with clause (e) of this Section 8. 9. Indemnity and Contribution. (a) Each of the Company and the Guarantors agrees, jointly and severally, to indemnify and hold harmless each Placement Agent and each person, if any, who controls any Placement Agent within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in either Memorandum (as amended or supplemented if the Company or any of the Guarantors shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Placement Agent furnished to the Company and the Guarantors in writing by such Placement Agent through you expressly for use therein. (b) Each Placement Agent agrees, severally and not jointly, to indemnify and hold harmless the Company, the Guarantors, their directors, their officers and each person, if any, who controls the Company and the Guarantors within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company and the Guarantors to such Placement Agent, but only with reference to information relating to such Placement Agent furnished to the Company and the Guarantors in writing by such Placement Agent through you expressly for use in either Memorandum or any amendments or supplements thereto. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 9(a) or 9(b), such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties 16 18 and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Morgan Stanley & Co. Incorporated, in the case of parties indemnified pursuant to Section 9(a), and by the Company, in the case of parties indemnified pursuant to Section 9(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) To the extent the indemnification provided for in Section 9(a) or 9(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors on the one hand and the Placement Agents on the other hand from the offering of the Securities or (ii) if the allocation provided by clause 9(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(d)(i) above but also the relative fault of the Company and the Guarantors on the one hand and of the Placement Agents on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors on the one hand and the Placement Agents on the other hand in connection with the offering of the Securities and the Guarantees shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Securities and the Guarantees (before deducting expenses) received by the Company and the total discounts and commissions received by the Placement Agents in respect thereof, bear to the aggregate offering price of the Securities and the Guarantors. The relative fault of the Company and the Guarantors on the one hand and of the Placement Agents on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantors or by the Placement Agents and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Placement Agents' respective obligations to contribute pursuant to this Section 9 are several in proportion to the respective principal amount of Securities and Guarantees they have purchased hereunder, and not joint. (e) The Company, the Guarantors and the Placement Agents agree that it would not be just or equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Placement Agents were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred 17 19 to in Section 9(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 9(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, no Placement Agent shall be required to contribute any amount in excess of the amount by which the total price at which the Securities resold by it in the initial placement of such Securities and Guarantees were offered to investors exceeds the amount of any damages that such Placement Agent has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (f) The indemnity and contribution provisions contained in this Section 9 and the representations, warranties and other statements of the Company and the Guarantors contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Placement Agent or any person controlling any Placement Agent or by or on behalf of the Company or the Guarantors, their respective, officers or directors or any person controlling the Company or the Guarantors and (iii) acceptance of and payment for any of the Securities and the Guarantees. 10. Termination. This Agreement shall be subject to termination by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange or the National Association of Securities Dealers, Inc., (ii) trading of any securities of the Company or the Guarantors shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly or together with any other such event, makes it, in your judgment, impracticable to market the Securities and the Guarantees on the terms and in the manner contemplated in the Final Memorandum. 11. Effectiveness; Defaulting Placement Agents. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date, any one or more of the Placement Agents shall fail or refuse to purchase Securities that it or they have agreed to purchase hereunder on such date, and the aggregate principal amount of Securities which such defaulting Placement Agent or Placement Agents agreed but failed or refused to purchase is not more than one tenth of the aggregate principal amount of Securities to be purchased on such date, the other Placement 18 20 Agents shall be obligated severally in the proportions that the principal amount of Securities set forth opposite their respective names in Schedule I bears to the aggregate principal amount of Securities set forth opposite the names of all such non-defaulting Placement Agents, or in such other proportions as you may specify, to purchase the Securities which such defaulting Placement Agent or Placement Agents agreed but failed or refused to purchase on such date; provided that in no event shall the principal amount of Securities that any Placement Agent has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such principal amount of Securities without the written consent of such Placement Agent. If, on the Closing Date any Placement Agent or Placement Agents shall fail or refuse to purchase Securities which it or they have agreed to purchase hereunder on such date and the aggregate principal amount of Securities with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Placement Agent or of the Company or the Guarantors, and the Company and the Guarantors shall have no liability whatsoever to reimburse any Placement Agent for any of its out-of-pocket expenses incurred by such Placement Agent in connection with this Agreement or the offering contemplated hereunder. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Final Memorandum or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Placement Agent from liability in respect of any default of such Placement Agent under this Agreement. If this Agreement shall be terminated by the Placement Agents, or any of them, because of any failure or refusal on the part of the Company or any Guarantor to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Placement Agents or such Placement Agents as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Placement Agents in connection with this Agreement or the offering contemplated hereunder. 12. Notices. All notices and other communications under this Agreement shall be in writing and mailed, delivered or sent by facsimile transmission to: if sent to the Placement Agents, Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, New York 10036, attention: High Yield New Issues Group, facsimile number (212) 761-0587 and if sent to the Company or any of the Guarantors, to Premium Standard Farms, Inc., 423 West 8th Street, Suite 200, Kansas City, MO 64105, attention: Controller, facsimile number (816) 472-5837. 13. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 19 21 14. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 15. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. 20 22 Very truly yours, PREMIUM STANDARD FARMS, INC. By: /s/ Stephen Lightstone ---------------------------- Name: Stephen Lightstone Title: Executive Vice President PSF GROUP HOLDINGS, INC. By: /s/ Stephen Lightstone ------------------------------- Name: Stephen Lightstone Title: Executive Vice President THE LUNDY PACKING COMPANY By: /s/ Stephen Lightstone --------------------------------- Name: Stephen Lightstone Title: Executive Vice President PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. By: /s/ Stephen Lightstone --------------------------------- Name: Stephen Lightstone Title: Executive Vice President LUNDY INTERNATIONAL, INC. By: /s/ Stephen Lightstone --------------------------------- Name: Stephen Lightstone Title: Executive Vice President 21 23 Accepted as of the date hereof MORGAN STANLEY & CO. INCORPORATED Acting severally on behalf of themselves and the several Placement Agents named in Schedule I hereto. By: Morgan Stanley & Co. Incorporated By: /s/ William Blais ----------------------------- Name: William Blais Title: Principal 22 24 SCHEDULE I
PLACEMENT AGENT PRINCIPAL AMOUNT OF SECURITIES TO BE PURCHASED - -------------------------------------------------------------------------------- Morgan Stanley & Co. Incorporated $140,000,000 - -------------------------------------------------------------------------------- J.P. Morgan Securities Inc. $35,000,000 - -------------------------------------------------------------------------------- Total: $175,000,000 ================================================================================
23 25 SCHEDULE II SUBSIDIARY GUARANTORS The Lundy Packing Company Premium Standard Farms of North Carolina, Inc. Lundy International, Inc. 24 26 SCHEDULE III SUBSIDIARIES
PERCENT OF CAPITAL STOCK OWNED BY NAME PREMIUM STANDARD FARMS - -------------------------------------------------- --------------------------------- The Lundy Packing Company 100% Premium Standard Farms of North Carolina, Inc. 100% Lundy International, Inc. 100% L&S Farms 60%
25 EX-2.1 3 y50886ex2-1.txt ARTICLES OF MERGER 1 Exhibit 2.1 ARTICLES OF MERGER OF PSF ACQUISITION CORP. INTO THE LUNDY PACKING COMPANY The Lundy Packing Company (the "Surviving Corporation"), a corporation organized under the laws of the State of North Carolina, hereby submits these Articles of Merger for the purpose of merging PSF Acquisition Corp. (the "Merging Corporation"), a corporation organized under the laws of the State of North Carolina, into the Surviving Corporation: I. The following Plan of Merger was duly approved in the manner prescribed by law: PLAN OF MERGER OF PSF ACQUISITION CORP. WITH AND INTO THE LUNDY PACKING COMPANY A. CORPORATIONS PARTICIPATING IN MERGER The names of the constituent corporations proposing to merge are The Lundy Packing Company ("Lundy") and PSF Acquisition Corp. ("PSF"), and the constituent corporation that shall be the surviving corporation after the merger becomes effective is The Lundy Packing Company (the "Surviving Corporation"). B. NAME OF SURVIVING CORPORATION The name which the Surviving Corporation shall have after the merger becomes effective is "The Lundy Packing Company." C. TERMS AND CONDITIONS OF PROPOSED MERGER Pursuant to the terms and conditions of this Plan, PSF shall be merged with and into Lundy. Upon the merger of PSF into Lundy, the corporate existence of PSF shall cease and the corporate existence of Lundy shall continue. D. CONVERSION AND EXCHANGE OF SHARES At the Effective Time (as hereinafter defined): 2 1. Shares of Lundy. Each share of stock of Lundy issued and outstanding immediately prior to the Effective Time (other than shares issued and held in the treasury of Lundy and other than shares with respect to which dissenters' rights are properly exercised) shall automatically be converted into and become a right to receive in cash an amount per share (the "Merger Consideration") equal to the quotient determined by dividing (i) the difference obtained by subtracting from (A) $68,000,000 both (B) the sum of the amount of capitalized lease obligations and indebtedness for borrowed money incurred by Lundy and its subsidiaries on a consolidated basis, as determined on the day immediately preceding the Effective Time, in excess of $37,892,648 and used to fund operating cash flow losses (excluding indebtedness used for working capital, certain capital expenditures, and expenses related to the Merger) and (C) amounts paid by Lundy (x) as premiums for officers' and directors' liability insurance covering post-Merger each present and former director or officer of Lundy or any of its subsidiaries who is currently covered by Lundy's existing officers' and directors' liability insurance policies and (y) as fees for the services of brokers, attorneys, accountants, engineers, consultants and other like professionals in connection with the negotiation and consummation of the Merger (other than fees paid to an investment manager and fees related to title insurance and surveys obtained in connection with the Merger), in excess of $1,500,000, by (ii) the aggregate number of shares of stock of Lundy outstanding at the Effective Time. Each share of stock of Lundy issued and held in the treasury of Lundy immediately prior to the Effective Time shall automatically be canceled and no payment shall be made with respect thereto. Aggregate amounts of Merger Consideration payable to individual shareholders shall be rounded up to the nearest whole cent. 2. Shares of PSF. Each share of stock of PSF issued and outstanding immediately prior to the Effective Time shall automatically be converted into and become one (1) validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. 3. Closing of Lundy's Transfer Books. At the Effective Time, the stock transfer books of Lundy shall be closed with respect to shares of Lundy issued and outstanding immediately prior to the Effective Time and no further transfer of such shares shall thereafter be made on such stock transfer books. If, after the Effective Time, valid certificates previously representing such shares are presented to the Surviving Corporation or its designee, such certificates shall be exchanged as provided in Section 4 below. 4. Exchange of Certificates. After the Effective Time (as hereinafter defined), upon the surrender and exchange of a certificate theretofore representing shares of Lundy's stock to the Surviving Corporation or its designee, the holder shall be paid the aggregate Merger Consideration applicable to such shares, without interest thereon, and such certificate shall forthwith be canceled. Until so surrendered and exchanged, each such certificate shall represent solely the right to 2 3 receive, in cash, the Merger Consideration into which the shares of Lundy it theretofore represented shall have been converted pursuant to Section 1 above, without interest, and the Surviving Corporation or its designee shall not be required to pay the holder of such certificates any portion of the Merger Consideration to which such person otherwise would be entitled; provided, that customary and appropriate certifications and indemnities allowing for payment against lost or destroyed certificates shall be permitted. After the Effective Time (as hereinafter defined), upon the surrender and exchange of a certificate theretofore representing shares of PSF's stock to the Surviving Corporation or its designee, the holder shall receive a certificate representing one (a) share of the Surviving Corporation's stock for each share of PSF's stock represented by the surrendered certificate(s) and such surrendered certificate(s) shall forthwith be canceled. 5. Dissenting Shares. Notwithstanding any other provisions of this Plan, shares of Lundy's stock that are outstanding immediately prior to the Effective Time and which are held by a holder of shares of Lundy stock who shall have (a) duly given written notice to Lundy, prior to the taking of the vote by Lundy's shareholders on approval of this Plan, of such holder's intent to dissent from the merger contemplated by this Plan and demand payment of the "fair value" of such shares in accordance with Article 13 of the North Carolina Business Corporation Act (N.C. Gen. Stat. Section 55-1-01 et seq.) (the "Dissenters' Rights Provisions"), (b) not voted such shares in favor of this Plan, and (c) not withdrawn, waived or otherwise lost or forfeited such holder's dissenter's rights under the Dissenters' Rights Provisions prior to the Effective Time (collectively, the "Dissenting Shares"), shall not be converted into or represent the right to receive from the Surviving Corporation payment of the "fair value" thereof in accordance with the Dissenters' Rights Provisions, except that all Dissenting Shares held by holders who after the Effective Time shall have failed to perfect or who effectively shall have withdrawn, waived or otherwise lost or forfeited their dissenters' rights under the Dissenters' Rights Provisions shall thereupon be deemed to have been converted into and to become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the appropriate part of the Merger Consideration, upon surrender, in the manner provided in Section 4 above, of the certificate or certificates that formerly evidenced such shares of Lundy stock. E. ARTICLES OF INCORPORATION, BYLAWS, DIRECTORS AND OFFICERS At the Effective Time (as hereinafter defined): 1. The articles of incorporation of the Surviving Corporation shall be amended by deleting all of the enumerated provisions thereof and inserting in lieu thereof, the following: 3 4 "1. The name of the corporation is The Lundy Packing Company. 2. The corporation shall have authority to issue 100,000 shares of stock, all of one class. 3. The street address of the initial registered office of the corporation is 1001 College Court, New Bern, Craven County, North Carolina 28562; the mailing address of the initial registered office of the corporation is Post Office Box 867, New Bern, Craven County, North Carolina 28563; and the name of the initial registered agent at such address is Leigh Wilkinson. 4. The number of directors of the corporation may be fixed by the bylaws. The number of directors constituting the initial board of directors shall be nine, and the names and addresses of the persons who shall serve as directors until the first meeting of shareholders, or until successors shall be elected and qualified, are as follows: Name Address ---- ------- Mark Baker 277 Park Avenue New York, NY 10172 Paul Fribourg 277 Park Avenue New York, NY 10172 Vart Adjemian 277 Park Avenue New York, NY 10172 Michael Zimmerman 277 Park Avenue New York, NY 10172 John Meyer 423 West 8th Street Suite 200 Kansas City, MO 64105 Ronald Justice 423 West 8th Street Suite 200 Kansas City, MO 64105 Maurice McGill 423 West 8th Street Suite 200 Kansas City, MO 64105 4 5 Dean Mefford 423 West 8th Street Suite 200 Kansas City, MO 64105 Mitch Petrick 423 West 8th Street Suite 200 Kansas City, MO 64105 5. To the fullest extent permitted by the North Carolina Business Corporation Act as it exists or may hereafter be amended, no person who is serving or who has served as a director of the corporation shall be personally liable to the corporation or any of its shareholders for monetary damages for breach of duty as a director. No amendment or repeal of this article, nor the adoption of any provision to these Articles of Incorporation inconsistent with this article, shall eliminate or reduce the protection granted herein with respect to any matter that occurred prior to such amendment, repeal, or adoption. 6. Shareholders of the corporation shall have no preemptive right to acquire additional shares of the corporation. 2. The bylaws of PSF, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation. 3. The directors of PSF holding office immediately prior to the Effective Time shall be the directors of the Surviving Corporation immediately after the Effective Time. 4. The officers of PSF holding office immediately prior to the Effective Time shall be the officers of the Surviving Corporation immediately after the Effective Time. F. TAKING OF NECESSARY ACTION Lundy and PSF (collectively, the "Constituent Corporations") shall use all reasonable efforts to take all such action as may be necessary or appropriate in order to effectuate the merger contemplated by this Plan as promptly as possible. If, at any time after the Effective Time (as hereinafter defined), any further action is necessary or desirable to carry out the purposes of the merger contemplated by this Plan or to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, immunities and franchises of either or both of the Constituent Corporations, the officers and directors of the Surviving Corporation are fully authorized in the name of either or both of the Constituent Corporations, or otherwise, to take, and shall take, all such action. 5 6 G. EFFECTIVE DATE AND TIME The date and time at which the merger contemplated by this Plan shall become effective is 12:01 a.m. on the date of filing of the Articles of Merger by the North Carolina Secretary of State (the "Effective Time"). II. As to the Surviving Corporation and the Merging Corporation, shareholder approval was obtained as required by Chapter 55 of the North Carolina General Statutes. IN WITNESS WHEREOF, these Articles of Merger are signed by the President of the Surviving Corporation as of the 10 day of August, 2000. THE LUNDY PACKING COMPANY By: /s/ Lewis M Fetterman Jr ------------------------------- Lewis M. Fetterman, Jr., President Prepared by and return to: Leigh A. Wilkinson For the firm of Ward and Smith, P.A. 1001 College Court Post Office Box 867 New Bern, North Carolina 28563-0867 Telephone: (252) 672-5400 Facsimile: (252) 672-5477 6 EX-3.1.A 4 y50886ex3-1_a.txt CERTIFICATE OF INCORPORATION 1 Exhibit 3.1(a) CERTIFICATE OF INCORPORATION of PSF GROUP HOLDINGS, INC. The undersigned incorporator, in order to for a corporation under the General Corporation Law of the State of Delaware, certifies as follows: ARTICLE I NAME The name of the corporation is PSF Group Holdings, Inc. (the "Corporation"). ARTICLE II ADDRESS; AGENT The address of the Corporation's registered office is 9 East Loockerman Street, Kent County, Dover, Delaware 19901; and its registered agent at such address is National Corporate Research, Ltd. ARTICLE III NAME AND ADDRESS OF INCORPORATOR The name and mailing address of the incorporator are: Mary E. Reidy, 1285 Avenue of the Americas, New York, NY 10019. ARTICLE IV PURPOSES The purpose of the Corporation is to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. 1 2 ARTICLE V NUMBER OF SHARES The total number of shares of all classes of stock that the Corporation shall have authority to issue is 56,000,000, consisting of the following three classes of stock: (a) 25,000,000 shares of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"); (b) 30,000,000 shares of Class B Common Stock, par value $.01 per share (the "Class B Common Stock"); (c) 1,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). ARTICLE VI DESIGNATION OF CLASSES; RELATIVE RIGHTS The designation, relative rights, preferences and limitations of the shares of each class of stock are as follows: 6.1 Common Stock. 6.1.1 Voting. The holders of record of Class A Common Stock shall have the sole right to vote in the election or for the removal without cause of Class A Directors, and the holders of record of Class B Common Stock shall have the sole right to vote in the election or for the removal without cause of Class B Directors, in each case as defined in and subject to Article VII. Except as provided in and subject to Article VII and except as otherwise required by law, the holders of record of Common Stock, voting together as a single class, shall have full voting rights on all other matters submitted to a vote of Stockholders. Subject to the foregoing provisions, each share of Class A Common Stock and Class B Common Stock shall entitle the holder therof to one vote in person or by proxy on all matters submitted to a vote of the stockholders of the corporation. 6.1.2 Distributions. (a) Subject to Section 6.1.2(b), no Distribution shall be declared or paid on any class of Common Stock unless a per share Distribution of like kind and amount is concurrently declared and paid on all other classes of Common Stock. (b) No dividend shall be declared or paid on any class of Common Stock payable in any other class of Common Stock. No dividend payable in shares of a class of Common Stock shall be declared or paid on the same class of Common Stock, nor shall the 2 3 shares of any class of Common Stock be subdivided or combined into a different number of shares, unless concurrently therewith a dividend of equal proportionate amount is declared and paid on each other class of Common Stock in shares of such class, or the shares of each other class of Common Stock are similarly subdivided or combined, so that the proportion which the number of issued and outstanding shares of each class of Common Stock bears to the total number of issued and outstanding shares of Common Stock will not change as a result of such dividend, subdivision or combination. 6.2 Preferred Stock. The shares of Preferred Stock may be issued from time to time in one or more series with each such series being comprised of such number of shares and having such powers, preferences and rights and designations, all as shall hereafter be stated and expressed in the resolution or resolutions providing for the issue of such shares of Preferred Stock from time to time adopted by the Board of Directors pursuant to authority so to do which is hereby vested in the Board of Directors. Each series of shares of Preferred Stock: (a) may have such voting rights or powers, full or limited, or may be without voting rights or powers; (b) may be subject to redemption at such time or times and at such prices; (c) may be entitled to receive dividends (which may be cumulative or non-cumulative) at such rate or rates, on such conditions and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or series of stock; (d) may have such rights upon the voluntary or involuntary liquidation, winding up or dissolution of, or upon any distribution of the assets of, the Corporation; (e) may be made convertible into or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the Corporation at such price or prices or at such rates of exchange and with such adjustments; (f) may be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of such series in such amount or amounts; (g) may be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any Subsidiary, upon the issue of any additional shares (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any Subsidiary of, any outstanding shares of the Corporation; and (h) may have such other relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof; all as shall be stated in said resolution or resolutions providing for the issue of such shares of Preferred Stock. Shares of Preferred Stock of any series that have been redeemed (whether through the operation of a sinking fund or otherwise) or that if convertible or exchangeable, have been converted into or exchanged for shares of any other series or class or classes shall have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be reissued as a part of the series of which they were originally a part or as part of a new series of shares of Preferred Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of shares of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of shares of Preferred Stock. 6.3 Liquidation. In the event of any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, after payment shall have been made to the holders of shares of Preferred Stock of the full preferential amount to which they shall be entitled, if any, pursuant to the resolution or resolutions providing for the issue of such series of 3 4 shares of Preferred Stock, the holders of shares of Common Stock shall be entitled, subject to the rights, if any, of the holders of shares of any series of Preferred Stock to participate therein pursuant to the resolution or resolutions providing for the issuance of such Preferred Stock, to share, ratably according to the number of shares of Common Stock held by them, in all remaining assets of the Corporation available for distribution to its Stockholders. 6.4 Issues. Subject to the provisions of this Certificate of Incorporation and except as otherwise provided by law, the Common Stock of the Corporation, regardless of class, may be issued for such consideration and for such corporate purposes as the Board of Directors may from time to time determine. ARTICLE VII BOARD OF DIRECTORS 7.1 Number, Election, Terms of Office and Classes of the Board of Directors. Except to the extent otherwise provided in this Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, which shall consist of nine (9) directors. Election of directors need not be by written ballot unless the By-laws so provide. Subject to Section 7.5, the Board shall be divided into two classes as follows: (a) Four (4) Class A Directors (collectively, the "Class A Directors") who shall be elected by a plurality of the votes cast by the holders of the issued and outstanding shares of Class A Common Stock and who may be removed without cause by the affirmative vote of the holders of a majority of the issued and outstanding shares of Class A Common Stock; and (b) Five (5) Class B Directors (collectively, the "Class B Directors") who shall be elected by a plurality of the votes cast by the holders of the issued and outstanding shares of Class B Common Stock and who may be removed without cause by the affirmative vote of the holders of a majority of the issued and outstanding shares of Class B Common Stock. 7.1.1 Tenure. Each Director shall be elected to serve until the next annual meeting of Stockholders or until his or her successor is duly elected and qualified, subject to his earlier death, resignation or removal. 7.1.2 Vacancies. Vacancies in the Class A Directors may be filled by the affirmative vote of a majority of the remaining Class A Directors then in office or by the affirmative vote of a plurality of the votes cast by the holders of the issued and outstanding shares of Class A Common Stock. Vacancies in the Class B Directors may be filled by the affirmative vote of a majority of the remaining Class B Directors then in office or by the affirmative vote of a plurality of the votes cast by the holders of the issued and outstanding shares of Class B Common Stock. Directors so chosen shall hold office for a term expiring at the next annual meeting of Stockholders or until their respective successors are duly elected and qualified, subject to earlier death, resignation or removal. 4 5 7.2 Quorum and Acts of Directors. 7.2.1 Directors comprising at least a majority of the Board of Directors must be present, in person or by telephone, at every meeting of the Board of Directors to constitute a quorum. Subject to Section 7.2.2, the act of a majority of the directors present, voting as a single class, at a meeting at which a quorum is present shall be the act of the Board of Directors unless otherwise provided by law, this Certificate of Incorporation or the By-Laws. References in this Certificate of Incorporation to an action, request, approval or ratification of directors means either the affirmative vote of a majority of the directors present, voting as a single class, at a duly called and held meeting of the Board or the unanimous consent of the directors. 7.2.2 Notwithstanding that no vote may be required or that a lesser percentage vote may be specified by law, by the provisions of this Certificate of Incorporation or the By-Laws or otherwise, the Corporation shall not take, and shall not cause or permit PSF to take, any of the actions specified in clauses (a) through (n) (collectively, "Supermajority Actions"), in a single transaction or a series of related transactions, without the approval of a majority of the Board of Directors then in office, including at least one Class A Director and at least one Class B Director (herein, a "Supermajority Vote"), unless, to the extent permitted by law, such action is approved by a committee of the Board of Directors created pursuant to Section 141 of the General Corporation Law of the State of Delaware of which at least one Class A Director and one Class B Director are members and at least one Class A Director and one Class B Director have approved such Supermajority Action: (a) any Extraordinary Transaction other than an Extraordinary Transaction pursuant to Section 7.3 of the Certificate of Incorporation a Drag-Along Merger pursuant to Section 7.4 or a Cash-Out Option pursuant to Section 7.5 of the Certificate of Incorporation. (b) any engagement by a Restricted Company in any business other than any business or businesses then being conducted by the Restricted Companies, as such business(es) may from time to time develop, and any business related thereto; provided that such related business or development does not constitute a material change in the nature of the business(es) of the Restricted Companies being conducted immediately following the Effective Time; (c) the commencement by a Restricted Company of a voluntary proceeding under title 11 of the United States Code, 11 U.S.C. Sections 101 et seq. (the "Federal Bankruptcy Act") or any other similar federal or state law or of any other proceeding to be adjudicated a bankrupt or insolvent, or the consent (whether by action or inaction) by such Restricted Company to the entry of a decree or order for relief in respect of such Restricted Company in an involuntary proceeding under the Federal Bankruptcy Act or any other similar federal or state law or to the commencement of any bankruptcy or insolvency proceeding against such Restricted Company, or the filing by such Restricted Company of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by such Restricted Company to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of such Restricted Company or of any substantial part of the property of such Restricted Company, or the 5 6 making by such Restricted Company of an assignment for the benefit of creditors, or the admission by such Restricted Company in writing of its inability to pay its debts generally as they become due; (d) any transaction between a Restricted Company, on the one hand, and any Stockholder or any Affiliate of a Stockholder (other than the Corporation and any of its controlled Affiliates), on the other hand, except (i) an Extraordinary Transaction pursuant to Section 7.3 of the Certificate of Incorporation, a Drag-Along Merger pursuant to Section 7.4 of the Certificate of Incorporation or a Cash-Out Option pursuant to Section 7.5 of the Certificate of Incorporation; (ii) a transaction or arrangement on terms substantially no less favorable to such Restricted Company than those such Restricted Company could obtain in a comparable arm's-length transaction with a Person not an Affiliate of such Restricted Company; or (iii) the Grower Contract and all transactions contemplated thereby; (e) any declaration or payment of a dividend or distribution (in any form, including cash, shares or assets) to the holders of Common Stock; (f) any approval of any capital expenditure budget for a Restricted Company or any material capital expenditure not authorized therein; (g) any direct or indirect purchase or other acquisition by a Restricted Company of assets constituting a division or business unit of any Person (other than a wholly-owned Subsidiary of the Corporation), in each case except for an Extraordinary Transaction pursuant to Section 7.3 of the Certificate of Incorporation, Drag-Along Merger pursuant to Section 7.4 of the Certificate of Incorporation or a Cash-Out Option pursuant to Section 7.5 of the Certificate of Incorporation; (h) any sale, lease, exchange, transfer or other disposition (by merger, consolidation or otherwise) of any assets constituting a division or business unit of a Restricted Company, in each case except for an Extraordinary Transaction pursuant to Section 7.3 of the Certificate of Incorporation, provided that this limitation shall not apply to transfers between the Corporation and any of its controlled Affiliates or between or among any of the Corporation's controlled Affiliates; (i) any issuance or sale of any Equity Securities of a Restricted Company to any Person (other than a Restricted Company) for consideration below Fair Market Value except for Equity Securities issued to officers, directors or employees of the Corporation or any of its controlled Affiliates pursuant to a compensation or employee benefit plan or employment contract or arrangement approved by a majority of the Board of Directors voting together as a single class or a duly authorized committee thereof; (j) any amendment to this Certificate of Incorporation or the By-Laws of the Corporation in each case if such amendment would disproportionately and adversely affect the Class A Stockholders in relation to the Class B Stockholders; 6 7 (k) any repurchase by the Corporation of shares of Common Stock, other than (i) open market purchases, (ii) subject to Section 7.2.2(d) of the Certificate of Incorporation, purchases of shares of Common Stock from officers or directors of the Corporation, (iii) pursuant to arrangements otherwise agreed to by a Supermajority Vote or (iv) any repurchase of shares of Common Stock offered on the same terms and at the same price to all Class A Stockholders in proportion to their respective holdings; (l) any incurrence by a Restricted Company of indebtedness for borrowed money (or guarantee of such indebtedness) in excess of $382,500,000 in principal amount outstanding at any time; (m) the formation of any subsidiary, unless the certificate of incorporation, partnership agreement or other constituent document of such subsidiary provides for at least one director, member or similar position to be held by a designee of the Class A Directors and at least on director, member or similar position to be held by a designee of the Class B Directors and that no action that would require a Supermajority Vote pursuant to this Section 7.2.2 of the Certificate of Incorporation, if taken by the Company, could be taken by such Subsidiary without the approval of both such designees; or (n) the entry into any agreement or arrangement to any of the foregoing. 7.3 Extraordinary Transactions. Notwithstanding anything to the contrary contained herein, the provisions of Section 7.2.2 shall not apply to any Extraordinary Transaction if (a) the Board of Directors (i) by a majority vote of the entire board, voting together as a single class, approves the terms and conditions of such Extraordinary Transaction and (ii) receives a written opinion from a nationally recognized investment banking firm, substantially to the effect that the consideration to be received by the Stockholders (other than any Significant Stockholder) in the Extraordinary Transaction is fair to them from a financial point of view; and (b) the holders of a majority of the then outstanding shares of Class A Common Stock shall have approved or adopted such Extraordinary Transaction or the agreement relating thereto. 7.4 Drag-Along Merger. Notwithstanding anything to the contrary herein, the provisions of Section 7.2.2 shall not apply to any Drag-Along Merger and the Class A Stockholders shall not have the power to vote with respect to the approval or adoption of a Drag-Along Merger or the merger agreement providing therefor. 7.5 Cash-Out Option. Notwithstanding anything to the contrary herein, the provisions of Section 7.2.2 shall not apply to any Cash-Out Option and Class A Stockholders shall not have the power to vote with respect to the approval or adoption of a Cash-Out Option or the merger agreement providing therefor. ARTICLE VII CREDITORS; STOCKHOLDERS 7 8 Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its Stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or any creditor or Stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the Stockholders or class of Stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the Stockholders or class of Stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all Stockholders or class of Stockholders of this Corporation, as the case may be, and also on this Corporation. ARTICLE IX DIRECTOR LIABILITY No director of the Corporation shall be personally liable to the Corporation or its Stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its Stockholders, (b) for acts or omissions not in good faith or which involve fraud or intentional misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law or (d) for any transaction from which the director derived any improper personal benefits. If the Delaware General Corporation Law is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the Stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation in respect of any action or omission occurring prior to the time of such repeal or modification. ARTICLE X INDEMNIFICATION 10.1 Directors and Officers. To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed Proceeding, including, without limitation, an action by or in the right of 8 9 the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation, or any constituent corporation or limited liability company which was absorbed in a consolidation or merger by the Corporation, or while a director or officer of the Corporation is or was serving in any capacity at the request of the Corporation for any other Person, against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). 10.2 Reimbursement. The Corporation shall, from time to time, reimburse or advance to any current or former director or officer entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the General Corporation Law, such expenses incurred by or on behalf of any current director or officer may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such director or officer, to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such director or officer is not entitled to be indemnified for such expenses. 10.3 Other Indemnification Rights. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article X shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, this Certificate of Incorporation, the By-laws of the Corporation, any agreement, any vote of Stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 10.4 Coverage. The provisions of this Article X shall be a contract between the Corporation, on the one hand, and each director and officer who serves in such capacity at any time while this Article X is in effect, and any former director, officer or member of a corporation or a limited liability company which was absorbed by the corporation in a consolidation or merger, on the other hand, pursuant to which the Corporation and each such director or officer intend to be legally bound. No repeal or modification of this Article X shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article X shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. Any director or officer of the Corporation serving in any capacity (i) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (ii) any employee benefit plan of the Corporation or any corporation referred to in clause (i) shall be deemed to be doing so at the request of the Corporation 10.5 Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the 9 10 Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of any other Person, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article X, the By-laws or under Section 145 of the Delaware General Corporation Law or any other provision of law. 10.6 Enforcement. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article X shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its disinterested directors, its independent legal counsel and its Stockholders) to have made a determination that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its disinterested directors, its independent legal counsel and its Stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 10 11 10.7 Governing Law. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article X may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE XI RESTRICTIONS ON OWNERSHIP OF SHARES BY NO-U.S. CITIZENS; RESTRICTIONS ON TRANSFER 11.1 Restrictions on Ownership. No Person who acquires Shares after the Effective Time and whose ownership of Shares would cause the Corporation to become a Foreign Business shall at any time acquire or own, beneficially or of record, any Shares. Without limiting the foregoing, and as a protective measure intended to ensure that the Corporation does not become a Foreign Business, no Person who is (i) an Alien or (ii) a Foreign Business shall at any time directly or indirectly acquire or own in the aggregate more than 5% of the outstanding Shares without the prior written approval of the Corporation. 11.2 Restrictions on Shares. If any Person acquires or owns Shares in violation of Section 11.1, such Person shall forthwith dispose of such number of Shares as will reduce its ownership of Shares to 5% or less of the outstanding Shares or such lesser percentage as is required for the Corporation not to be a Foreign Business. Such disposition shall be consummated within thirty days (or such earlier date as the Corporation determines) of the date that the Corporation notifies such Person that it is in violation of Section 11.1. If such Shares are not disposed of within such period, (i) the Corporation shall not be required or permitted to pay any distribution with respect to such Shares held by such Person and (ii) such Person shall not be entitled to vote on any matter, or otherwise participate in the management of the Corporation, with respect to any Shares owned by it. In addition, the Corporation may, at any time and in its sole discretion, redeem such Shares at their Fair Market Value. To the extent permissible under the law, the redemption price for such Shares may be paid in cash, property or rights, including securities of the Corporation or other Person. 11.3 Tag-Along. (a) Subject to Section 7.4, if prior to the Drag-Along Expiration Date, a Class B Stockholder shall receive a bona fide offer from a Person that is not an Affiliate of such Class B Stockholder (a "Third Party Purchaser") (or shall have entered into a bona fide written agreement with such Person or Persons) to purchase shares of Class B Common Stock (the "Offered 11 12 Shares") that represent in excess of 50% of the shares of Class B Common Stock held by such Class B Stockholder, then, as a condition to effecting a sale of such Offered Shares to the Third Party Purchase, such Class B Stockholder shall send written notice (the "Tag-Along Notice") to the Corporation and to each holder of record of Class A Common Stock which shall state (i) the proposed purchase price (the "Third Party Price") to be paid by the Third Party Purchaser for the Offered Shares and the terms and conditions of such transaction, (ii) the name of the Third Party Purchaser, and (iii) that the Class B Stockholder shall sell the Offered Shares subject to the rights of each Class A Stockholder contained in this Section 11.3. (b) The Tag-Along Notice shall offer each Class A Stockholder the right to include in such Class B Stockholder's sale to the Third Party Purchaser a pro rata portion of the shares of Class A Common Stock held of record by such Class A Stockholder (based on the proportion that such shares of Class A Common Stock bears to the total number of issued and outstanding shares of Common Stock) for a pro rata portion of the Third Party Price described in the Tag-Along Notice and on the other terms and conditions described therein. (c) The rights of each Class A Stockholder under this Section 11.3 shall be exercisable by written notice to such Class B Stockholder with a copy to the Corporation given within 10 Business Days after delivery of the Tag-Along Notice. The failure of any Class A Stockholder to so respond within such period shall be deemed to be a waiver of its rights under this Section 11.3. 11.4 Restrictions on Transfer. Prior to the Transfer Restriction Expiration Date, no Stockholder may sell or otherwise transfer shares of common stock of the corporation, if after giving effect to such sale or other transfer, any class of Equity Securities of the Corporation which is subject to Section 12(g) or Section 15(d) of the Act is held of record by 300 or more Persons. Any such sale or transfer will be void ab initio and shall not be recognized by the Corporation. 11.5 Legend. In accordance with Section 202 of the Delaware General Corporation Law, the restrictions on ownership and transfer contained in this Article XI shall be noted conspicuously on each certificate representing a share of Common Stock. ARTICLE XII MEETING Meetings of Stockholders may be held at such place or places within or without the State of Delaware as the By-laws of the Corporation may provide. ARTICLE XIII BY-LAWS 12 13 In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is hereby authorized, subject to Section 7.2.2(j), to make, alter or repeal the By-laws of the Corporation. ARTICLE XIV AMENDMENTS Subject to Section 7.2.2(j), the Corporation reserves the right to amend, alter or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the Delaware General Corporation Law; provided that any such amendment, alteration or repeal is approved by the holders of a majority of the shares of issued and outstanding Common Stock voting together as a single class; provided, further, that any amendment to Section 7.2.2 shall have been approved by a Supermajority Vote of the Board of Directors. All rights at any time conferred upon the Stockholders of the Corporation by this Certificate of Incorporation are granted subject to the provisions of this Article XIV. ARTICLE XV MISCELLANEOUS 15.1 Opt-out of Provision Regarding Business Combination with Interested Stockholders. This Corporation elects not to be governed by Section 203 of the Delaware General Corporation Law. 15.2 Notices. All notices referred to herein shall be in writing, shall be delivered personally or by first class mail, postage prepaid, and shall be deemed to have been given when so delivered or mailed to this Corporation at its principal executive offices and to any Stockholder at such Stockholders's address as it appears in the stock records of this Corporation (unless otherwise specified in a written notice to this Corporation by such Stockholder). ARTICLE XVI DURATION The duration of the Corporation is to be perpetual. ARTICLE XVII DEFINITIONS 13 14 Capitalized terms used herein, but otherwise defined herein, shall have the following meanings: 17.1 "Affiliate" means, with respect to any Person, any other Person controlling, controlled by or under direct or indirect common control with such Person. For the purposes of this definition "control," when used with respect to any Person, shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" shall have means correlative to the foregoing; provided, however, that solely for purposes of Section 7.5 and 17.8 hereof, "Affiliate" shall not include any Person that would otherwise qualify as an Affiliate of CGC if, after giving effect to the consummation of a Cash-Out Option with such Person, CGC shall not have, directly or indirectly, materially greater control (in the aggregate) over the entity surviving such Cash-Out Option than it had over the Corporation immediately prior to the effective time of such Cash-Out Option. 17.2 "Alien" has the meaning ascribed thereto in Missouri Revised Statutes 442.560-442.591 and any regulations promulgated thereunder. 17.3 "Beneficial Ownership" has the meaning ascribed to such term in Rule 13d-3, as in effect at the Effective Time, promulgated under the Exchange Act; "beneficially owns" and "beneficially owned" and like terms shall have correlative meanings. 17.4 "Board of Directors" means the Board of Directors of the Corporation as constituted from time to time. 17.5 "Business Day" means any day other than a Saturday, Sunday, or a day when banks in New York City are authorized or required by law to be closed. 17.6 "By-Laws" means the by-laws of the Corporation, as amended from time to time. 17.7 "Certificate of Incorporation" means the certificate of incorporation of the Corporation, as amended from time to time. 17.8 "Cash-Out Option" means a merger of the Corporation with any Person (other than CGC or any of its Affiliates) following receipt of a written offer (a "Cash-Out Offer") at any time prior to November 9, 1998 from any Person (other than CGC and any of its Affiliates); provided, that pursuant to the terms of the agreement and plan of merger relating to such merger, each share of Class A Common Stock outstanding immediately prior to the effective time of such merger shall in such merger (subject to any appraisal rights under the General Corporation Law of the State of Delaware) be converted into the right to receive the Per Share Price. 17.9 "Class A Common Stock" has the meaning ascribed thereto in Article V. 17.10 "Class B Common Stock" has the meaning ascribed thereto in Article V. 14 15 17.11 "Class A Stockholder" means, at any time, a holder of record of any shares of Class A Common Stock at such time, as reflected in the Corporation's records. 17.12 "Class B Stockholder" means, at any time, a holder of record of any shares of Class B Common Stock at such time, as reflected in the Corporation's records. 17.13 "Common Stock" means the Class A Common Stock and the Class B Common Stock collectively. 17.14 "Distributions" means any dividend or distribution declared and paid on the Common Stock or any class thereof in cash or property other than shares of Common Stock. 17.15 "Drag-Along Expiration Date" means the earliest to occur of (i) the date upon which the shares of Class A Common Stock of the Corporation are authorized for listing or admitted for trading on a national securities exchange registered under the Exchange Act or are quoted on NMS or (ii) the second anniversary of the Effective Time. 17.16 "Drag-Along Merger" means a merger of the Corporation with any Person following receipt of a written offer to effect such a merger received by the Corporation prior to the Drag-Along Expiration Date; provided that each share of Common Stock outstanding immediately prior to the effective time of such merger converts into the right to receive case; and provided, further, that each share of Common Stock converts into the same price per share. 17.17 "Effective Time" has the meaning ascribed thereto in the Merger Agreement. 17.18 "Equity Securities" has the meaning ascribed to such term in Rule 405 promulgated under the Securities Act, and in any event including any security having the attendant right to vote for directors or similar representatives. 17.19 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 17.20 "Extraordinary Transaction" means (a) any merger (other than pursuant to Section 253 of the General Corporation Law of the State of Delaware), of a Restricted Company with or into any Person that is not a wholly-owned Subsidiary of the Corporation other than any merger in which such Restricted Company survives the merger and the Equity Securities of such Restricted Company, that were outstanding immediately prior to such merger remain outstanding after giving effect to such merger and no additional Equity Securities shall be issued and outstanding after giving effect to such merger, (b) any sale, lease or exchange of all or substantially all of the assets of a Restricted Company to a Person that is not a direct or indirect wholly-owned Subsidiary of the Corporation, (c) any liquidation of a Restricted Company into a Person that is not a direct or indirect wholly-owned Subsidiary of the Corporation or (d) any dissolution of a Restricted Company other than a dissolution effected under Section 275(c) of the General Corporation Law of the State of Delaware. 17.21 "Fair Market Value" means, with respect to any Equity Securities, (i) the average closing sale price during the 20 trading days immediately preceding the date in question of a 15 16 share of such stock on the principal national securities exchange registered under the Exchange Act on which such stock is listed or admitted to trading or, if such stock is not listed on any such exchange, the average closing sale price of a share of such Equity Securities during the 20 trading days immediately preceding the date in question on the NMS or if not quoted on NMS, the average of the bid and asked price per share on NASDAQ or, (ii) if no such quotations are available, the fair market value on the date in question of a share of such Equity Security as determined in good faith by a Supermajority Vote of the Board of Directors. 17.22 "Federal Bankruptcy Act" has the meaning ascribed thereto in Section 7.2.2(c). 17.23 "Foreign Business" means a foreign business as defined under Missouri Revised Statutes Sections 442.560-442.591 and any regulations thereunder. 17.24 "Grower Contract" means the Market Hog Contract Grower Agreement dated as of May 13, 1998 between Continental Grain Company and the Corporation. 17.25 "Holdings" means PSF Holdings, L.L.C., a Delaware limited liability company. 17.26 "Merger Agreement" means the Agreement and Plan of Merger dated as of May 13, 1998 between the Corporation and Holdings. 17.27 "NASDAQ" means the Nasdaq Stock Market. 17.28 "NMS" means the National Market System of the NASDAQ. 17.29 "Per Share Price" is the amount equal to the Total Price divided by the number of issued and outstanding shares of Class A Common Stock immediately prior to the effective time of the Cash-Out Option, rounded to the nearest whole cent. 17.30 "Person" means an individual, partnership, joint venture, association, corporation, trust, estate, limited liability company, limited partnership or any other legal entity. 17.31 "Preferred Stock" has the meaning ascribed thereto in Article V. 17.32 "Proceeding" means any and all action, suit or proceeding whether civil, criminal, administrative or investigative other than any such action, suit or proceeding against the Corporation or any of its Subsidiaries or Affiliates commenced by a Person otherwise entitled to indemnification pursuant to Article X (except an action, suit or proceeding brought to enforce such Persons rights pursuant to Section 10.6 hereof). 17.33 "PSF" means Premium Standard Farms, Inc., a Delaware corporation and a wholly-owned subsidiary of the Corporation. 17.34 "Restricted Company" means the Corporation or any of its Subsidiaries and "Restricted Companies" means the Corporation and its Subsidiaries, collectively. 16 17 17.35 "SEC" means the Securities and Exchange Commission. 17.36 "Securities Act" means the Securities Act of 1933, as amended. 17.37 "Shares" means (a) all classes of stock designated in the Certificate of Incorporation as the Common Stock, par value $.01 per share, or (b) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 17.38 "Significant Stockholder" means with respect to the Corporation at any time, a Stockholder that, together with its controlled Affiliates, beneficially owns more than 40% of the then issued and outstanding shares of Common Stock. 17.39 "Stockholder" means the holder of record of any Common Stock. 17.40 "Subsidiary" means any corporation or other business entity directly or indirectly controlled by the Corporation. 17.41 "Supermajority Actions" has the meaning ascribed thereto in Section 7.2.2. 17.42 "Supermajority Vote" has the meaning ascribed thereto in Section 7.2.2. 17.43 "Total Price" means an amount equal to the sum of $175,175,000 plus the product of $17,517,500 multiplied by a fraction, the numerator of which equals the number of days between the Effective Time and the effective time of the Cash-Out Option and the denominator of which is 365. 17.44 "Transfer Restriction Expiration Date" means the first Business Day following the Cash-Out Expiration Date, unless the Corporation shall have received a Cash-Out Offer on or prior to such date, but a Cash-Out Option shall not have been consummated on or prior to such date, in which case Transfer Restriction Expiration Date means the earliest of (i) the date upon which the Cash-Out Option is consummated, (ii) the date upon which a majority of the Class B Directors rejects such Cash-Out Offer or (iii) the date upon which the definitive agreement between the Corporation and the Person making the Cash-Out Offer with respect to the Cash-Out Option shall have terminated without a closing thereunder; provided that if none of the foregoing shall have theretofore occurred, the Transfer Restriction Expiration Date shall mean May 14, 1999. IN WITNESS WHEREOF, the undersigned incorporator has caused this certificate to be executed this 8th day of May, 1998. /s/ Mary E. Reidy ----------------- Mary E. Reidy Incorporator 17 EX-3.1.B 5 y50886ex3-1_b.txt CERTIFICATE OF AMENDMENT 1 Exhibit 3.1(b) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF PSF GROUP HOLDINGS, INC. THE UNDERSIGNED, being the Secretary of PSF Group Holdings, Inc., a Delaware corporation, does hereby certify as follows: FIRST: That a resolution was duly adopted by the Board of Directors of PSF Group Holdings, Inc. setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable, and recommending that the stockholders of the corporation adopt said amendments at the annual meeting of stockholders. The resolution setting forth the proposed amendment is as follows: RESOLVED, that Article V of the Certificate of Incorporation is hereby amended in its entirety to read as follows: ARTICLE V Number of Shares The total number of shares of all classes of stock that the Corporation shall have authority to issue is 560,000, consisting of the following three classes of stock: (a) 250,000 shares of Class A Common Stock, par value $0.01 per share (the "Class A Common Stock"); (b) 300,000 shares of Class B Common Stock, par value $0.01 per share (the "Class B Common Stock"); and (c) 10,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"). Upon the filing of this Amendment (the "Effective Date"), (i) each 100 shares of Class A Common Stock, par value $0.01 per share, then outstanding shall be combined into one share of Class A Common Stock, par value $0.01 per share, and (ii) each 100 shares of Class B Common Stock, par value $0.01 per share, then outstanding shall be combined into one share of Class B Common Stock, par value $0.01 per share. Fractional shares resulting therefrom shall be issued in accordance with Section 155 of the Delaware General Corporation Law. From and after the Effective Date, certificates representing shares of stock issued prior to the Effective Date shall be deemed to represent only the right to receive new shares pursuant to this Amendment. 2 SECOND: That thereafter, pursuant to a resolution of its Board of Directors, the amendment was considered at the annual meeting of stockholders of the corporation, which was duly called and held upon notice in accordance with Section 222 of the Delaware General Corporation Law, at which meeting the necessary number of shares required by statute were voted in favor of the amendment. THIRD: That such amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law. IN WITNESS WHEREOF, PSF Group Holdings, Inc. has caused this certificate to be signed by Gerard J. Schulte, Jr., its authorized officer, this 16th day of September, 1999. /s/ Gerard J. Schulte ---------------------- Gerard J. Schulte, Jr. Secretary 2 EX-3.2.A 6 y50886ex3-2_a.txt CERTIFICATE OF INCORPORATION 1 Exhibit 3.2(a) CERTIFICATE OF INCORPORATION OF PREMIUM STANDARD FARMS, INC. 1. The name of this corporation is Premium Standard Farms, Inc. 2. The registered office of this corporation in the State of Delaware is located at 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Corporation Service Company. 3. The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. 4. The total number of shares of stock that this corporation shall have authority to issue is one thousand (1000) shares of Common Stock, $0.01 par value per share. Each share of Common Stock shall be entitled to one vote. 5. The name and mailing address of the incorporator is: James A. Heeter, c/o Sonnenschein Nath & Rosenthal, Twentieth Century Tower II, 4520 Main Street, 11th Floor, Kansas City, MO 64111. 6. Except as otherwise provided in the provisions establishing a class of stock, the number of authorized shares of any class of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the corporation entitled to vote irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware. 7. This corporation is subject to the requirements of Section 1123(a)(6) of the United States Bankruptcy Code (11 U.S.C. 1123(a)(6)) and shall be prohibited from issuing any nonvoting equity securities. 8. The election of directors need not be by written ballot unless the by-laws shall so require. 9. In furtherance and not in limitation of the power conferred upon the board of directors by law, the board of directors shall have power to make, adopt, alter, amend and repeal from time to time by-laws of this corporation, subject to the right of the stockholders entitled to vote with respect thereto to alter and repeal by-laws made by the board of directors. 2 10. A director of this corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that exculpation from liability is not permitted under the General Corporation Law of the State of Delaware as in effect at the time such liability is determined. No amendment or repeal of this paragraph 10 shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 11. This corporation shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify and upon request advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was or has agreed to be a director or officer of this corporation or while a director or officer is or was serving at the request of this corporation as a director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorney's fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred (and not otherwise recovered) in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided, however, that the foregoing shall not require this corporation to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person. Such indemnification shall not be exclusive of other indemnification rights arising under any by-law, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. Any person seeking indemnification under this paragraph 10 shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. Any repeal or modification of the foregoing provisions of this paragraph 10 shall not adversely affect any right or protection of a director or officer of this corporation with respect to any acts or omissions of such director or officer occurring prior to such repeal or modification. 12. The books of this corporation may (subject to any statutory requirements) be kept outside the State of Delaware as may be designated by the board of directors or in the by-laws of this corporation. THE UNDERSIGNED, the sole incorporator named above, hereby certifies that the facts stated above are true as of this 15th day of August, 1996. /s/ James A. Heeter James A. Heeter 2 EX-3.2.B 7 y50886ex3-2_b.txt CERTIFICATE OF CORRECTION 1 Exhibit 3.2(b) CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE OF INCORPORATION OF PREMIUM STANDARD FARMS, INC. FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON AUGUST 16, 1996 Premium Standard Farms, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the corporation is Premium Standard Farms, Inc. 2. That a Certificate of Incorporation was filed by the Secretary of State of Delaware on August 16, 1996 and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said Certificate to be corrected is as follows: The Registered Agent was not listed correctly in the Certificate of Incorporation. 4. Article 2 of the Certificate is corrected to read as follows: 2. The registered office of this corporation in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. IN WITNESS WHEREOF, said Premium Standard Farms, Inc. has caused this Certificate to be signed by James A. Heeter, its Incorporator, this 26th day of August, 1996. PREMIUM STANDARD FARMS, INC. By /s/ James A. Heeter James A. Heeter, Incorporator EX-3.4 8 y50886ex3-4.txt ARTICLES OF INCORPORATION 1 Exhibit 3.4 ARTICLES OF INCORPORATION OF LUNDY INTERNATIONAL, INC. The undersigned natural persons of the age of eighteen (18) years or more, do hereby incorporate a business corporation under the laws of the State of North Carolina, as contained in Chapter 55 of the General Statutes of North Carolina, entitled "Business Corporation Act", and the several amendments thereto, and to that end do hereby set forth: 1. The name of the corporation is Lundy International, Inc. 2. The period of duration of the corporation shall be perpetual. 3. The purpose for which the corporation is organized is to engage in the export of agricultural products and in any other lawful act or activity for which corporations may be organized under Chapter 55 of the General Statutes of North Carolina. 4. The aggregate number of shares which the corporation shall have authority to issue is Ten Thousand (10,000) shares having a par value of Ten Dollars ($10.00) per share, and the minimum amount of consideration for its shares to be received by the corporation before it shall commence business is One Hundred Dollars ($100.00). 5. The address of the initial registered office of the corporation is Railroad Street, Clinton, Sampson County, North Carolina 28328; and the name of the initial registered agent at such address is Lewis M. Fetterman. 6. The number of directors of the corporation may be fixed by the By-laws. The number of directors constituting the initial Board of Directors shall be five (5), and the names and addresses of the persons who are to serve as directors until the first meeting of shareholders or until their successors are elected and qualified are: Name Address Lewis M. Fetterman 704 Raleigh Road Clinton, N.C. 28328 Annabelle L. Fetterman 704 Raleigh Road Clinton, N.C. 28328 Lewis M. Fetterman, Jr. 704 Raleigh Road Clinton, N.C. 28328 2 Mabel M. Fetterman 704 Raleigh Road Clinton, N.C. 28328 John T. Talton, Jr. 605 So. Fayetteville Street Clayton, N.C. 27520 7. The names and addresses of the incorporators are: Name Address N. A. Townsend, Jr. 615 Oberlin Road Raleigh, N.C. 27605 Lacy H. Reaves 615 Oberlin Road Raleigh, N.C. 27605 IN WITNESS WHEREOF, we have hereunto set our hands this 16th day of September, 1981 /s/ N. A. Townsend, Jr. N. A. Townsend, Jr. /s/ Lacy H. Reaves Lacy H. Reaves 2 3 STATE OF NORTH CAROLINA COUNTY OF WAKE THIS IS TO CERTIFY, that on the 17th day of September, 1981, before me, a Notary Public, personally appeared N. A. Townsend, Jr. and Lacy H. Reaves, who I am satisfied are the persons named in and who executed the foregoing Articles of Incorporation, and I having first made known to them the contents thereof, they did acknowledge that they signed and delivered the same as their voluntary act and deed for the uses and purposes therein expressed. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal, this 17th day of September, 1981. /s/ Winnie K. Haigh Notary Public [SEAL] My commission expires: - -------------------------------------- 3 EX-3.5 9 y50886ex3-5.txt CERTIFICATE OF INCORPORATION 1 Exhibit 3.5 CERTIFICATE OF INCORPORATION OF PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. ARTICLE I NAME The name of the Corporation is Premium Standard Farms of North Carolina, Inc. ARTICLE II REGISTERED OFFICE; REGISTERED AGENT The street address of the initial registered office of the Corporation is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name of its initial registered agent at that address is The Corporation Trust Company. ARTICLE III PURPOSES The Corporation is formed for the purpose of engaging in any lawful act or activity that may be taken by, and to exercise any powers permitted to, corporations organized under the General Corporation Law of Delaware. ARTICLE IV AUTHORIZED STOCK The aggregate number of shares which the Corporation may issue is 5000 shares of Common Stock with no par value. Each share of Common Stock issued shall be entitled to one vote. No additional Common Stock and no classes of Preferred Stock may be issued. 2 ARTICLE V BOARD OF DIRECTORS The number of directors constituting the initial Board of Directors is five (5). The number of directors may be changed as provided in the bylaws. The names and addresses of the persons who will serve as directors until the first annual meeting of stockholders or until their successor is elected and qualified are as follows:
NAME ADDRESS Paul J. Fribourg 277 Park Avenue New York, NY 10172 Vart K. Adjemian 277 Park Avenue New York, NY 10172 Mark R. Baker 277 Park Avenue New York, NY 10172 Teresa E. McCaslin 277 Park Avenue New York, NY 10172 Michael J. Zimmerman 277 Park Avenue New York, NY 10172
ARTICLE VI BYLAWS In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized and empowered to make, alter or repeal the Bylaws of the Corporation. ARTICLE VII LIMITATION ON DIRECTOR LIABILITY No Director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as Director; provided, however, that this limitation of liability of a Director shall not apply with respect to (i) any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any 2 3 liability arising under Section 174 of the General Corporation Law of the State of Delaware and (iv) any transaction from which the Director derives an improper personal benefit. ARTICLE VIII INCORPORATOR The name and mailing address of the incorporator of the Corporation is as follows: Spruillco, Ltd., 3600 Glenwood Avenue, Raleigh, North Carolina 27612. IN WITNESS WHEREOF, the undersigned, being the sole incorporator, does hereby make this certificate for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, and does hereby certify that the facts set forth herein are true and correct. Dated this 11th day of September, 2000. SPRUILLCO, LTD., Incorporator By: /s/ Samuel W. Johnson Name: Samuel W. Johnson Title: Vice President 3 EX-3.6 10 y50886ex3-6.txt AMENDED AND RESTATED BY-LAWS 1 Exhibit 3.6 AMENDED AND RESTATED BYLAWS OF PSF GROUP HOLDINGS, INC. A Delaware corporation ARTICLE 1 STOCKHOLDERS 1.1 Place of Meetings. Every meeting of Stockholders shall be held at the office of the Corporation or at such other place within or without the State of Delaware as shall be specified or fixed in the notice of such meeting or in the waiver of notice thereof. 1.2 Annual Meeting. A meeting of Stockholders shall be held annually for the election of Directors and the transaction of other business at such hour and on such Business Day as may be determined by the Board and designated in the notice of meeting. 1.3 Deferred Meeting for Election of Directors, Etc. If the annual meeting of Stockholders for the election of Directors and the transaction of other business is not held, the Board shall call a meeting of Stockholders for the election of Directors and the transaction of other business as soon thereafter as convenient. 1.4 Other Special Meetings. A special meeting of Stockholders (other than a special meeting for the election of Directors), unless otherwise prescribed by statute, may be called at any time by the Board, the Chairman, the Chief Executive Officer or the Secretary, or by the holders of a majority of all outstanding Shares entitled to vote at such meeting. At any special meeting of Stockholders only such business may be transacted as is related to the purpose or purposes of such meeting set forth in the notice thereof given pursuant to Section 1.6 hereof or in any waiver of notice thereof given pursuant to Section 1.7 hereof. 1.5 Fixing Record Date. For the purpose of (a) determining the Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders or any adjournment thereof, (ii) unless otherwise provided in the Certificate of Incorporation, to express consent to corporate action in writing without a meeting or (iii) to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock; or (b) any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date was adopted by the Board and which record date shall not be (x) in the case of clause (a)(i) above, more than sixty nor less than ten days before the date of such meeting, (y) in the case of clause (a)(ii) above, more than 10 days after the date upon which the resolution fixing the record date was adopted by the Board and (z) in the case of clause (a)(iii) or (b) above, more than sixty days prior to such action. If no such record date is fixed: 2 1.5.1 the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; 1.5.2 the record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting (unless otherwise provided in the Certificate of Incorporation), when no prior action by the Board is required under the General Corporation Law, shall be the first day on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of Stockholders are recorded; and when prior action by the Board is required under the General Corporation Law, the record date for determining Stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action; and 1.5.3 the record date for determining Stockholders for any purpose other than those specified in Sections 1.5.1 and 1.5.2 shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of Stockholders entitled to notice of or to vote at any meeting of Stockholders has been made as provided in this Section 1.5, such determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting. Delivery made to the Corporation's registered office in accordance with Section 1.5.2 shall be by hand or by certified or registered mail, return receipt requested. 1.6 Notice of Meetings of Stockholders. Except as otherwise provided in Sections 1.5 and 1.7 hereof, whenever under the provisions of any statute, the Certificate of Incorporation or these By-laws, Stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by any statute, the Certificate of Incorporation or these By-laws, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meeting, to each Stockholder entitled to notice of or to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, directed to the Stockholder at his or her address as it appears on the records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice required by this Section 1.6 has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting originally called. If, however, the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. 2 3 1.7 Waivers of Notice. Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in writing, signed by the Stockholder or Stockholders entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a Stockholder at a meeting shall constitute a waiver of notice of such meeting except when the Stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders need be specified in any written waiver of notice unless so required by statute, the Certificate of Incorporation or these By-laws. 1.8 List of Stockholders. The Secretary shall prepare and make, or cause to be prepared and made, at least ten business days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of Shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, the Stockholder's agent, or attorney, at the Stockholder's expense, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten business days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. The Corporation shall maintain the Stockholder list in written form or in another form capable of conversion into written form within a reasonable time. Upon the willful neglect or refusal of the Directors to produce such a list at any meeting for the election of Directors, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the stock ledger, the list of Stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of Stockholders. 1.9 Quorum of Stockholders; Adjournment. Except as otherwise provided by any statute, the Certificate of Incorporation or these By-laws, the holders of a majority of all outstanding Shares of stock entitled to vote at any meeting of Stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. When a quorum is once present to organize a meeting of Stockholders, it is not broken by the subsequent withdrawal of any Stockholders. The holders of a majority of the Shares present in person or represented by proxy at any meeting of Stockholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the Shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 3 4 1.10 Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation, and except as otherwise provided in Section 2.3 for the election of Directors, every Stockholder of record shall be entitled at every meeting of Stockholders to one vote for each full share and a fractional vote for each fractional share standing in his/her name on the record of Stockholders determined in accordance with Section 1.5 hereof. If the Certificate of Incorporation provides for more or less than one vote for any Share on any matter, each reference in the By-laws or the General Corporation Law to a majority or other proportion of Shares shall refer to such majority or other proportion of the votes of such Shares. The provisions of Sections 212 and 217 of the General Corporation Law shall apply in determining whether any Shares may be voted and the persons, if any, entitled to vote such Shares; but the Corporation shall be protected in assuming that the persons in whose names Shares stand on the stock ledger of the Corporation are entitled to vote such Shares. Holders of redeemable Shares are not entitled to vote after the notice of redemption is mailed to such holders and a sum sufficient to redeem the Shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares of stock. At any meeting of Stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by statute or by the Certificate of Incorporation or by these By-laws, shall be decided by a majority of all the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. Elections of Directors need not be by written ballot unless otherwise provided in the Certificate of Incorporation. In voting on any other question on which a vote by ballot is required by law or is demanded by any Stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the Stockholder voting or the Stockholder's proxy and shall state the number of shares voted. On all other questions, the voting may be viva voce. Each Stockholder entitled to vote at a meeting of Stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such Stockholder by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the General Corporation Law. A Stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary. 1.11 Voting Procedures and Inspectors of Election at Meetings of Stockholders. The Board, in advance of any meeting of Stockholders, may appoint one or more inspectors to act at the meeting and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed or is able to act at a meeting, the person presiding at the meeting may appoint, and on the request of any Stockholder entitled to vote thereat shall appoint, one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (a) ascertain the number of Shares outstanding and the voting power of each, (b) determine the Shares represented at the meeting and the validity of proxies and ballots, (c) count all votes and 4 5 ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of Shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. Unless otherwise provided by the Board, the date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be determined by the person presiding at the meeting and shall be announced at the meeting. No ballot, proxies or votes, or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a Stockholder shall determine otherwise. 1.12 Organization. At each meeting of Stockholders, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, the President, or in the absence of the President, a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present), shall act as chairman of the meeting. The Secretary, or in his or her absence, one of the Assistant Secretaries, shall act as Secretary of the meeting. In case none of the officers above designated to act as chairman or secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.13 Order of Business. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.14 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by the General Corporation Law to be taken at any annual or special meeting of Stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding Shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Shares entitled to vote thereon were present and voted and shall be delivered (by hand or by certified or registered mail, return receipt requested) to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of Stockholders are recorded. Every written consent shall bear the date of signature of each Stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section 1.14, written consents signed by a sufficient number of holders to take action are delivered to the Corporation as aforesaid. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those Stockholders who have not consented in writing. 5 6 ARTICLE 2 DIRECTORS 2.1 General Powers. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or these By-laws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred by these By-laws, the Board may exercise all powers and perform all acts that are not required, by these By-laws or the Certificate of Incorporation or by statute, to be exercised and performed by the Stockholders. 2.2 Number; Qualification; Term of Office. The Board shall consist of nine members, of which four members shall be Class A Directors (the "Class A Directors") and five members shall be Class B Directors (the "Class B Directors"). Directors need not be Stockholders. Each Director shall hold office until a successor is elected and qualified, or until the Director's death, resignation or removal 2.3 Election and Removal. 2.3.1 There shall be four Class A Directors. Such Class A Directors shall be elected by a plurality of the votes cast by the holders of the issued and outstanding shares of Class A Common Stock, and may be removed, with or without cause, by the affirmative vote of the holders of a majority of the issued and outstanding shares of Class A Common Stock. 2.3.2 There shall be five Class B Directors. Such Class B Directors shall be elected by a plurality of the votes cast by the holders of Class B Common Stock, and may be removed, with or without cause, by the affirmative vote of the holders of a majority of the issued and outstanding shares of Class B Common Stock. 2.4 Vacancies. Unless otherwise provided in the Certificate of Incorporation, vacancies occurring in the Board for any reason, including the removal of Directors without cause, may be filled by the affirmative vote of a majority of the remaining Directors of the same class as the Director to be elected, or may be elected by the affirmative vote of a plurality of the holders of the Shares entitled to vote in the election at a special meeting of Stockholders called for that purpose. A Director elected to fill a vacancy shall be elected to hold office until a successor is elected and qualified, or until the Director's death, resignation or removal. 2.5 Resignation. Any Director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified in such resignation, the acceptance of such resignation shall not be necessary to make it effective. 6 7 2.6 Compensation. Each Director, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at Directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in connection with the performance of his or her duties. Each Director who shall serve as a member of any committee of Directors in consideration of serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in the performance of his or her duties. Nothing contained in this Section 2.6 shall preclude any Director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 2.7 Times and Places of Meetings. The Board may hold meetings, both regular and special, either within or without the State of Delaware. The times and places for holding meetings of the Board may be fixed from time to time by resolution of the Board or (unless contrary to a resolution of the Board) in the notice of the meeting. 2.8 Annual Meetings. On the day when and at the place where the annual meeting of Stockholders for the election of Directors is held, and as soon as practicable thereafter, the Board may hold its annual meeting, without notice of such meeting, for the purpose of organization, the election of officers and the transaction of other business. The annual meeting of the Board may be held at any other time and place specified in a notice given as provided in Section 2.10 hereof for special meetings of the Board or in a waiver of notice thereof. 2.9 Regular Meetings. Regular meetings of the Board may be held without notice at such times and at such places as shall from time to time be determined by the Board. 2.10 Special Meetings. Special meetings of the Board may be called by the Chairman, the Chief Executive Officer or the Secretary or by any two or more Directors then serving on at least one day's notice to each Director given by one of the means specified in Section 2.13 hereof other than by mail, or on at least three days' notice if given by mail. Special meetings shall be called by the Chairman, the Chief Executive Officer or the Secretary in like manner and on like notice on the written request of any two or more of the Directors then serving. 2.11 Telephone Meetings. Directors or members of any committee designated by the Board may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.11 shall constitute presence in person at such meeting. 2.12 Adjourned Meetings. A majority of the Directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. At least one day's notice of any adjourned meeting of the Board shall be given to each Director, whether or not present at the time of the adjournment, if such notice 7 8 shall be given by one of the means specified in Section 2.13 hereof other than by mail, or at least three days' notice if by mail. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called. 2.13 Notice Procedure. Subject to Sections 2.10 and 2.16 hereof, whenever, under the provisions of any statute, the Certificate of Incorporation or these By-laws, notice is required to be given to any Director, such notice shall be deemed given effectively if given in person or by telephone, by mail addressed to such Director at such Director's address as it appears on the records of the Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or similar means addressed as aforesaid. 2.14 Waiver of Notice. Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in writing, signed by the person or persons entitled to said notice and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a person at a meeting shall constitute a waiver of notice of such meeting except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors or a committee of Directors need be specified in any written waiver of notice unless so required by statute, the Certificate of Incorporation or these By-laws. 2.15 Organization. At each meeting of the Board, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, a chairman chosen by a majority of the Directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 2.16 Quorum of Directors. The presence, in person or by telephone, of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board, but a majority of a smaller number may adjourn any such meeting to a later date. 2.17 Action by Majority Vote. Except as otherwise expressly required by statute, the Certificate of Incorporation or these By-laws, the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board. 2.18 Supermajority Actions. Notwithstanding that no vote may be required or that a lesser percentage vote may be specified by statute, the Certificate of Incorporation or these By-Laws, the Corporation shall not take any Supermajority Action, in a single transaction or a series of related 8 9 transactions, without the approval of a majority of the Board then in office, including at least one Class A Director and at least one Class B Director (herein, a "Supermajority Vote"). 2.19 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all Directors or members of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE 3 COMMITTEES OF THE BOARD 3.1 Appointment. The Board may, by resolution passed by a vote of a majority of the Entire Board, designate one or more committees, each committee to consist of two or more of the Directors of the Corporation. 3.2 Voting Procedure. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by a unanimous vote, appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. 3.3 Actions; Supermajority Actions. Any such committee, to the extent authorized by law and provided in the resolution of the Board passed as provided in Section 3.1 hereof, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be impressed on all papers that may require it, but no such committee shall have the power or authority of the Board in reference to amending the Certificate of Incorporation or the By-laws of the Corporation, adopting an agreement of merger or consolidation under section 251 or section 252 of the General Corporation Law, recommending to the Stockholders (a) the sale, lease or exchange of all or substantially all of the Corporation's property and assets, or (b) a dissolution of the Corporation or a revocation of a dissolution; and, unless the resolution designating it expressly so provides, no such committee shall have the power and authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law or to act on or to take any Supermajority Action. If the Board does authorize a committee to act on or to take any Supermajority Action, approval of such Supermajority Action shall require (a) the affirmative vote of a majority of such committee, including the affirmative vote of at least one Class A Director and at least one Class B Director or (b) the affirmative vote of a majority of the Class A Stockholders and the affirmative vote of a majority of the Class B Stockholders. 3.4 Quorum. Unless otherwise specified in the resolution of the Board designating a committee or in these By-laws, at all meetings of such committee a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of 9 10 a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. 3.5 Procedures. Each committee shall keep regular minutes of its meetings. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article 2 of these By-laws. ARTICLE 4 OFFICERS 4.1 Positions. The officers of the Corporation shall be a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers as the Board may appoint, including a Chairman, one or more Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Board may designate one or more Vice Presidents as Executive Vice Presidents and may use descriptive words or phrases to designate the standing, seniority or areas of special competence of the Vice Presidents elected or appointed by it. Any number of offices may be held by the same person unless the Certificate of Incorporation or these By-laws otherwise provide. 4.2 Appointment. The officers of the Corporation shall be chosen by the Board at its annual meeting or at such other time or times as the Board shall determine. 4.3 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that the officer also is a Director. 4.4 Term of Office. Each officer of the Corporation shall hold office for the term for which he or she is elected and until such officer's successor is chosen and qualifies or until such officer's earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. Any officer elected or appointed by the Board may be removed at any time, with or without cause, by vote of a majority of the entire Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board. The removal of an officer without cause shall be without prejudice to the officer's contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 4.5 Fidelity Bonds. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 10 11 4.6 Chairman. The Chairman of the Corporation, if one shall have been appointed, shall preside at all meetings of the Stockholders and at all meetings of the Board. The Chairman shall have general supervision over the business of the Corporation, subject to the control of the Board and of any duly authorized committee of Directors, and shall exercise such powers and perform such other duties as shall be determined from time to time by the Board. The Chairman may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chairman shall perform all duties incident to the office of the Chairman. 4.7 Chief Executive Officer. The Chief Executive Officer of the Corporation shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and any duly authorized committee of Directors. The Chief Executive Officer shall preside at all meetings of the Stockholders and at all meetings of the Board at which the Chairman (if there be one) is not present. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chief Executive Officer shall perform all duties incident to the office of Chief Executive Officer of a corporation and such other duties as may from time to time be assigned to the Chief Executive Officer by the Board. 4.8 President. At the request of the Chairman or at the request of the Board, the President shall perform all duties of the President and, in so performing, shall have the power of, and be subject to all restrictions upon, the President. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and, in general, the President shall perform all duties as from time to time may be assigned to the President by the Board or the Chief Executive Officer. 4.9 Vice Presidents. At the request of the President, or, in the President's absence, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board, or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the President and, in so performing, shall have all the powers of, and be subject to all restrictions upon, the President. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and each Vice President shall perform such other duties as from time to time may be assigned to such Vice President by the Board, the Chief Executive Officer or the President. 11 12 4.10 Secretary. The Secretary shall attend all meetings of the Board and of the Stockholders and shall record all the proceedings of the meetings of the Board and of the Stockholders in a book to be kept for that purpose, and shall perform like duties for committees of the Board, when required. The Secretary shall give, or cause to be given, notice of all special meetings of the Board and of the Stockholders and shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to impress the same on any instrument requiring it, and when so impressed the seal may be attested by the signature of the Secretary or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to impress the seal of the Corporation and to attest the same by such officer's signature. The Secretary or an Assistant Secretary may also attest all instruments signed by the Chief Executive Officer, the President or any Vice President. The Secretary shall have charge of all the books, records and papers of the Corporation relating to its organization and management, shall see that the reports, statements and other documents required by statute are properly kept and filed and, in general, shall perform all duties incident to the office of Secretary of a corporation and such other duties as may from time to time be assigned to the Secretary by the Board or the Chief Executive Officer. 4.11 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys and valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositories of the Corporation signed in such manner as shall be determined by the Board and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books or other records maintained for the purpose full and adequate account of all moneys received or paid for the account of the Corporation; have the right to require from time to time reports or statements giving such information as the Treasurer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the Chief Executive Officer or the Board, whenever the Chief Executive Officer or the Board shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all financial transactions of the Corporation; exhibit at all reasonable times the records and books of account to any of the Directors upon application at the office of the Corporation where such records and books are kept; disburse the funds of the Corporation as ordered by the Board; and, in general, perform all duties incident to the office of Treasurer of a corporation and such other duties as may from time to time be assigned to the Treasurer by the Board or the Chief Executive Officer. 4.12 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or the Chief Executive Officer. 12 13 ARTICLE 5 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 5.1 Execution of Contracts. The Board, except as otherwise provided in these By-laws, may prospectively or retroactively authorize any officer or officers, employee or employees or agent or agents, in the name and on behalf of the Corporation, to enter into any contract or execute and deliver any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. 5.2 Loans. The Board may prospectively or retroactively authorize the Chief Executive Officer or any other officer, employee or agent of the Corporation to effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances the person so authorized may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances, or otherwise limited. 5.3 Checks, Drafts, Etc. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 5.4 Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation with such banks, trust companies, investment banking firms, financial institutions or other depositories as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power to select may from time to time be delegated by the Board. ARTICLE 6 STOCK AND DIVIDENDS 6.1 Certificates Representing Shares. The Shares of the Corporation shall be represented by certificates in such form (consistent with the provisions of Section 158 of the General Corporation Law) as shall be approved by the Board. Such certificates shall be signed by the Chairman, the Chief Executive Officer, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles, if the certificate is countersigned by a transfer agent or registrar other than the corporation itself or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may, unless otherwise ordered by the 13 14 Board, be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 6.2 Transfer of Shares. Transfers of Shares of the Corporation shall be made only on the books of the Corporation by the holder thereof or by the holder's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates representing such Shares properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary or the transfer agentof the Corporation. A person in whose name Shares shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of Shares shall be valid as against the Corporation, its Stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 6.3 Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agents and registry offices or agents at such place or places as may be determined from time to time by the Board. 6.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any Shares of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such Shares, and the Corporation may issue a new certificate to replace the certificate alleged to have been lost, destroyed, stolen or mutilated. The Board may, in its discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed, stolen or mutilated certificate, or his or her legal representatives, to make proof satisfactory to the Board of such loss, destruction, theft or mutilation and to advertise such fact in such manner as the Board may require, and to give the Corporation and its transfer agents and registrars, or such of them as the Board may require, a bond in such form, in such sums and with such surety or sureties as the Board may direct, to indemnify the Corporation and its transfer agents and registrars against any claim that may be made against any of them on account of the continued existence of any such certificate so alleged to have been lost, destroyed, stolen or mutilated and against any expense in connection with such claim. 6.5 Rules and Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these By-laws or with the Certificate of Incorporation, concerning the issue, transfer and registration of certificates representing Shares. 6.6 Restriction on Transfer of Stock. A written restriction on the transfer or registration of transfer of Shares of the Corporation, if permitted by Section 202 of the General Corporation Law and noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted Shares or any successor or transferee of the holder, including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person 14 15 or estate of the holder. Unless noted conspicuously on the certificate representing such Shares, a restriction even though permitted by Section 202 of the General Corporation Law shall be ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer of Shares of the Corporation may be imposed either by the Certificate of Incorporation or by an agreement among any number of Stockholders or among such Stockholders and the Corporation. No restriction so imposed shall be binding with respect to Shares issued prior to the adoption of the restriction unless the holders of such Shares are parties to an agreement or voted in favor of the restriction. 6.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate of Incorporation and of law, the Board: 6.7.1 may declare and pay dividends on any class of Common Stock or make other distributions on the outstanding Shares, so long as a per share distribution of like kind and amount is concurrently declared and paid on all other classes of Common Stock, in such amounts and at such time or times as it, in its discretion, shall deem advisable giving due consideration to the condition and affairs of the Corporation; 6.7.2 may not declare or pay a dividend on any class of Common Stock which is payable in any other class of Common Stock; 6.7.3 may not declare or pay a dividend payable in Common Stock, nor subdivide or combine any class of Common Stock if such dividend, subdivision or combination results in a change in the proportion of issued and outstanding shares of any class of Common Stock to the total number of shares of Common Stock issued and outstanding; 6.7.4 may use and apply, in its discretion, any of the surplus of the Corporation in purchasing or acquiring any Shares of the Corporation, or purchase warrants therefor, in accordance with law, or any of its bonds, debentures, notes, scrip or other securities or evidences of indebtedness; and 6.7.5 may set aside from time to time out of such surplus or net profits such sum or sums as, in its discretion, it may think proper, as a reserve fund to meet contingencies, or for equalizing dividends or for the purpose of maintaining or increasing the property or business of the Corporation, or for any purpose it may think conducive to the best interests of the Corporation. ARTICLE 7 INDEMNIFICATION 7.1 Indemnity Undertaking. To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of 15 16 whom such person is the legal representative, is or was a Director or officer of the Corporation, or, at the request of the Corporation, is or was serving as a director or officer of any other corporation or in a capacity with comparable authority or responsibilities for any partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). Persons who are not Directors or officers of the Corporation (or otherwise entitled to indemnification pursuant to the preceding sentence) may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Article 7. 7.2 Reimbursement. The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the General Corporation Law, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses. 7.3 Other Indemnification Rights. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, the Certificate of Incorporation, these By-laws, any agreement, any vote of Stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 7.4 Continuation of Benefits. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 7.5 Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article 7, the Certificate of Incorporation or under the General Corporation Law or any other provision of law. 7.6 Coverage. The provisions of this Article 7 shall be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time 16 17 while this Article 7 is in effect, any former director, officer or member of a corporation or a limited liability company which was absorbed by the corporation in a consolidation or merger and any other person entitled to indemnification hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer or other person intend to be, and shall be legally bound. No repeal or modification of this Article 7 shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 7.7 Enforcement. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 7.8 Service Deemed at Corporation's Request. Any Director or officer of the Corporation serving in any capacity (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 7.9 Governing Law. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article 7 may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made by a notice in writing to the Corporation at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE 8 BOOKS AND RECORDS 17 18 8.1 Books and Records. There shall be kept at the principal office of the Corporation correct and complete records and books of account recording the financial transactions of the Corporation and minutes of the proceedings of the Stockholders, the Board and any committee of the Board. The Corporation shall keep at its principal office, or at the office of the transfer agent or registrar of the Corporation, a record containing the names and addresses of all Stockholders, the number and class of Shares held by each and the dates when they respectively became the owners of record thereof. 8.2 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of magnetic tape, punch cards, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 8.3 Inspection of Books and Records. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the Stockholders for inspection. ARTICLE 9 SEAL The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. ARTICLE 10 FISCAL YEAR The fiscal year of the Corporation shall be fixed, and may be changed, by resolution of the Board. ARTICLE 11 PROXIES AND CONSENTS 18 19 Unless otherwise directed by the Board, the Chairman, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer, or any one of them, may execute and deliver on behalf of the Corporation proxies respecting any and all shares or other ownership interests of any Other Entity owned by the Corporation appointing such person or persons as the officer executing the same shall deem proper to represent and vote the shares or other ownership interests so owned at any and all meetings of holders of shares or other ownership interests, whether general or special, and/or to execute and deliver consents respecting such shares or other ownership interests; or any of the aforesaid officers may attend any meeting of the holders of shares or other ownership interests of such Other Entity and thereat vote or exercise any or all other powers of the Corporation as the holder of such shares or other ownership interests. ARTICLE 12 EMERGENCY BY-LAWS Unless the Certificate of Incorporation provides otherwise, the following provisions of this Article 12 shall be effective during an emergency, which is defined as when a quorum of the Corporation's Directors cannot be readily assembled because of some catastrophic event. During such emergency: 12.1 Notice to Board Members. Any one member of the Board or any one of the following officers: Chairman, Chief Executive Officer, President, any Vice President, Secretary, or Treasurer, may call a meeting of the Board. Notice of such meeting need be given only to those Directors whom it is practicable to reach, and may be given in any practical manner, including by publication and radio. Such notice shall be given at least six hours prior to commencement of the meeting. 12.2 Temporary Directors and Quorum. One or more officers of the Corporation present at the emergency Board meeting, as is necessary to achieve a quorum, shall be considered to be Directors for the meeting, and shall so serve in order of rank, and within the same rank, in order of seniority. In the event that less than a quorum of the Directors are present (including any officers who are to serve as Directors for the meeting), those Directors present (including the officers serving as Directors) shall constitute a quorum. 12.3 Actions Permitted To Be Taken. The Board as constituted in Section 12.2, and after notice as set forth in Section 12.1 may: 12.3.1 prescribe emergency powers to any officer of the Corporation; 12.3.2 delegate to any officer or Director, any of the powers of the Board; 12.3.3 designate lines of succession of officers and agents, in the event that any of them are unable to discharge their duties; 12.3.4 relocate the principal place of business, or designate successive or simultaneous principal places of business; and 19 20 12.3.5 take any other convenient, helpful or necessary action to carry on the business of the Corporation. ARTICLE 13 AMENDMENTS These By-laws may be amended or repealed and new By-laws may be adopted by a vote of the holders of a majority of the Common Stock or by the Board; provided however, that nay amendment which would disproportionately and adversely affect the Class A Stockholders in relation to the Class B Stockholders will require the Supermajority Vote of the Board, or (b) the approval of a committee of the Board of which at least one Class A Director and one Class B Director are members and at least one Class A Director and one Class B Director have approved such Supermajority Action. Any By-laws adopted or amended by the Board may be amended or repealed by the Stockholders entitled to vote thereon. ARTICLE 14 DEFINITIONS As used in these By-laws, unless the context otherwise requires, the term: 14.1 "Affiliate" means, with respect to any Person, any other Person controlling, controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. 14.2 "Assistant Secretary" means an Assistant Secretary of the Corporation. 14.3 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 14.4 "Board" means the Board of Directors of the Corporation. 14.5 "Business Day" means any day other than a Saturday, Sunday, or a day when banks in New York City are authorized or required by law to be closed. 14.6 "By-laws" means the initial bylaws of the Corporation, as amended from time to time. 14.7 "Certificate of Incorporation" means the initial certificate of incorporation of the Corporation, as amended, supplemented or restated from time to time. 14.8 "Chairman" means the Chairman of the Board of the Corporation. 20 21 14.9 "Chief Executive Officer" means the Chief Executive Officer of the Corporation. 14.10 "Class A Common Stock" has the meaning ascribed thereto in Article V. 14.11 "Class B Common Stock" has the meaning ascribed thereto in Article V. 14.12 "Class A Director" has the meaning ascribed thereto in Section 2.2. 14.13 "Class B Director" has the meaning ascribed thereto in Section 2.2. 14.14 "Class A Stockholder" means, at any time, a holder of record of any shares of Class A Common Stock at such time, as reflected in the Corporation's records. 14.15 "Class B Stockholder" means, at any time, a holder of record of any shares of Class B Common Stock at such time, as reflected in the Corporation's records. 14.16 "Common Stock" means the Class A Common Stock and the Class B Common Stock collectively. 14.17 "Corporation" means PSF Group Holdings, Inc. 14.18 "Directors" means directors of the Corporation. 14.19 "Distributions" means any dividend or distribution declared and paid on the Common Stock or any class thereof in cash or property other than shares of Common Stock. 14.20 "Entire Board" means all Directors of the Corporation in office, whether or not present at a meeting of the Board, but disregarding vacancies. 14.21 "General Corporation Law" means the General Corporation Law of the State of Delaware, as amended from time to time. 14.22 "Office of the Corporation" means the executive office of the Corporation, anything in Section 131 of the General Corporation Law to the contrary notwithstanding. 14.23 "Other Entity" shall have the meaning ascribed thereto in Section 7.1. 14.24 "President" means the President of the Corporation. 14.25 "Proceeding" shall have the meaning ascribed thereto in Section 7.1. 14.26 "Secretary" means the Secretary of the Corporation. 21 22 14.27 "Shares" means (a) all classes of stock designated in the Certificate of Incorporation as the Common Stock, par value $.01 per share, or (b) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 14.28 "Stockholders" means all stockholders of the Corporation collectively, including both Class A Stockholders and Class B Stockholders. 14.29 "Supermajority Actions" has the meaning ascribed thereto in Section 7.2.2 of the Certificate of Incorporation. 14.30 "Supermajority Votes" has the meaning ascribed thereto in Section 2.18. 14.31 "Treasurer" means the Treasurer of the Corporation. 14.32 "Vice President" means a Vice President of the Corporation. 22 EX-3.7 11 y50886ex3-7.txt AMENDED AND RESTATED BY-LAWS 1 Exhibit 3.7 AMENDED AND RESTATED BYLAWS OF PREMIUM STANDARD FARMS, INC. A Delaware corporation ARTICLE 1 STOCKHOLDERS 1.1 Place of Meetings. Every meeting of Stockholders shall be held at the office of the Corporation or at such other place within or without the State of Delaware as shall be specified or fixed in the notice of such meeting or in the waiver of notice thereof. 1.2 Annual Meeting. A meeting of Stockholders shall be held annually for the election of Directors and the transaction of other business at such hour and on such Business Day as may be determined by the Board and designated in the notice of meeting. 1.3 Deferred Meeting for Election of Directors, Etc. If the annual meeting of Stockholders for the election of Directors and the transaction of other business is not held, the Board shall call a meeting of Stockholders for the election of Directors and the transaction of other business as soon thereafter as convenient. 1.4 Other Special Meetings. A special meeting of Stockholders (other than a special meeting for the election of Directors), unless otherwise prescribed by statute, may be called at any time by the Board, the Chairman, the Chief Executive Officer or the Secretary, or by the holders of a majority of all outstanding Shares entitled to vote at such meeting. At any special meeting of Stockholders only such business may be transacted as is related to the purpose or purposes of such meeting set forth in the notice thereof given pursuant to Section 1.6 hereof or in any waiver of notice thereof given pursuant to Section 1.7 hereof. 1.5 Fixing Record Date. For the purpose of (a) determining the Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders or any adjournment thereof, (ii) unless otherwise provided in the Certificate of Incorporation, to express consent to corporate action in writing without a meeting or (iii) to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock; or (b) any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date was adopted by the Board and which record date shall not be (x) in the case of clause (a)(i) above, more than sixty nor less than ten days before the date of such meeting, (y) in the case of clause (a)(ii) above, more than 10 days after the date upon which the resolution fixing the record date was adopted by the Board and (z) in the case of clause (a)(iii) or (b) above, more than sixty days prior to such action. If no such record date is fixed: 2 1.5.1 the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; 1.5.2 the record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting (unless otherwise provided in the Certificate of Incorporation), when no prior action by the Board is required under the General Corporation Law, shall be the first day on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of Stockholders are recorded; and when prior action by the Board is required under the General Corporation Law, the record date for determining Stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action; and 1.5.3 the record date for determining Stockholders for any purpose other than those specified in Sections 1.5.1 and 1.5.2 shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of Stockholders entitled to notice of or to vote at any meeting of Stockholders has been made as provided in this Section 1.5, such determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting. Delivery made to the Corporation's registered office in accordance with Section 1.5.2 shall be by hand or by certified or registered mail, return receipt requested. 1.6 Notice of Meetings of Stockholders. Except as otherwise provided in Sections 1.5 and 1.7 hereof, whenever under the provisions of any statute, the Certificate of Incorporation or these By-laws, Stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by any statute, the Certificate of Incorporation or these By-laws, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meeting, to each Stockholder entitled to notice of or to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, directed to the Stockholder at his or her address as it appears on the records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice required by this Section 1.6 has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting originally called. If, however, the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. 2 3 1.7 Waivers of Notice. Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in writing, signed by the Stockholder or Stockholders entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a Stockholder at a meeting shall constitute a waiver of notice of such meeting except when the Stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders need be specified in any written waiver of notice unless so required by statute, the Certificate of Incorporation or these By-laws. 1.8 List of Stockholders. The Secretary shall prepare and make, or cause to be prepared and made, at least ten business days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of Shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, the Stockholder's agent, or attorney, at the Stockholder's expense, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten business days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. The Corporation shall maintain the Stockholder list in written form or in another form capable of conversion into written form within a reasonable time. Upon the willful neglect or refusal of the Directors to produce such a list at any meeting for the election of Directors, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the stock ledger, the list of Stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of Stockholders. 1.9 Quorum of Stockholders; Adjournment. Except as otherwise provided by any statute, the Certificate of Incorporation or these By-laws, the holders of a majority of all outstanding Shares of stock entitled to vote at any meeting of Stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. When a quorum is once present to organize a meeting of Stockholders, it is not broken by the subsequent withdrawal of any Stockholders. The holders of a majority of the Shares present in person or represented by proxy at any meeting of Stockholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the Shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 3 4 1.10 Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation, every Stockholder of record shall be entitled at every meeting of Stockholders to one vote for each Share standing in his or her name on the record of Stockholders determined in accordance with Section 1.5 hereof. If the Certificate of Incorporation provides for more or less than one vote for any Share on any matter, each reference in the By-laws or the General Corporation Law to a majority or other proportion of Shares shall refer to such majority or other proportion of the votes of such Shares. The provisions of Sections 212 and 217 of the General Corporation Law shall apply in determining whether any Shares may be voted and the persons, if any, entitled to vote such Shares; but the Corporation shall be protected in assuming that the persons in whose names Shares stand on the stock ledger of the Corporation are entitled to vote such Shares. Holders of redeemable Shares are not entitled to vote after the notice of redemption is mailed to such holders and a sum sufficient to redeem the Shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares of stock. At any meeting of Stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by statute or by the Certificate of Incorporation or by these By-laws, shall be decided by a majority of all the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. Elections of Directors need not be by written ballot unless otherwise provided in the Certificate of Incorporation. In voting on any other question on which a vote by ballot is required by law or is demanded by any Stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the Stockholder voting or the Stockholder's proxy and shall state the number of shares voted. On all other questions, the voting may be viva voce. Each Stockholder entitled to vote at a meeting of Stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such Stockholder by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the General Corporation Law. A Stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary. 1.11 Voting Procedures and Inspectors of Election at Meetings of Stockholders. The Board, in advance of any meeting of Stockholders, may appoint one or more inspectors to act at the meeting and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed or is able to act at a meeting, the person presiding at the meeting may appoint, and on the request of any Stockholder entitled to vote thereat shall appoint, one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (a) ascertain the number of Shares outstanding and the voting power of each, (b) determine the Shares represented at the meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of Shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the 4 5 performance of their duties. Unless otherwise provided by the Board, the date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be determined by the person presiding at the meeting and shall be announced at the meeting. No ballot, proxies or votes, or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a Stockholder shall determine otherwise. 1.12 Organization. At each meeting of Stockholders, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, the President, or in the absence of the President, a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present), shall act as chairman of the meeting. The Secretary, or in his or her absence, one of the Assistant Secretaries, shall act as Secretary of the meeting. In case none of the officers above designated to act as chairman or secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.13 Order of Business. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.14 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by the General Corporation Law to be taken at any annual or special meeting of Stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding Shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Shares entitled to vote thereon were present and voted and shall be delivered (by hand or by certified or registered mail, return receipt requested) to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of Stockholders are recorded. Every written consent shall bear the date of signature of each Stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section 1.14, written consents signed by a sufficient number of holders to take action are delivered to the Corporation as aforesaid. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those Stockholders who have not consented in writing. 5 6 ARTICLE 2 DIRECTORS 2.1 General Powers. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or these By-laws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred by these By-laws, the Board may exercise all powers and perform all acts that are not required, by these By-laws or the Certificate of Incorporation or by statute, to be exercised and performed by the Stockholders. 2.2 Number; Qualification; Term of Office. The Board shall consist of one or more members. The number of directors shall be fixed initially by the incorporator and may thereafter be changed from time to time by action of the Stockholders or by action of the Board. Each Director shall hold office until a successor is elected and qualified, or until the Director's death, resignation or removal. 2.3 Election and Removal. The Directors shall be elected by a plurality of the votes cast by the holders of the issued and outstanding shares of Common Stock, and may be removed, with or without cause, by the affirmative vote of the holders of a majority of the issued and outstanding shares of Common Stock. 2.4 Vacancies. Unless otherwise provided in the Certificate of Incorporation, vacancies occurring in the Board for any reason, including the removal of Directors without cause, may be filled by the affirmative vote of a majority of the remaining Directors of the same class as the Director to be elected or may be elected by the affirmative vote of a plurality of the holders of the Shares entitled to vote in the election at a special meeting of Stockholders called for that purpose. A Director elected to fill a vacancy shall be elected to hold office until a successor is elected and qualified, or until the Director's death, resignation or removal. 2.5 Resignation. Any Director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified in such resignation, the acceptance of such resignation shall not be necessary to make it effective. 2.6 Compensation. Each Director, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at Directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in connection with the performance of his or her duties. Each Director who shall serve as a member of any committee of Directors in consideration of serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, 6 7 if any, incurred by such Director in the performance of his or her duties. Nothing contained in this Section 2.6 shall preclude any Director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 2.7 Times and Places of Meetings. The Board may hold meetings, both regular and special, either within or without the State of Delaware. The times and places for holding meetings of the Board may be fixed from time to time by resolution of the Board or (unless contrary to a resolution of the Board) in the notice of the meeting. 2.8 Annual Meetings. On the day when and at the place where the annual meeting of Stockholders for the election of Directors is held, and as soon as practicable thereafter, the Board may hold its annual meeting, without notice of such meeting, for the purpose of organization, the election of officers and the transaction of other business. The annual meeting of the Board may be held at any other time and place specified in a notice given as provided in Section 2.10 hereof for special meetings of the Board or in a waiver of notice thereof. 2.9 Regular Meetings. Regular meetings of the Board may be held without notice at such times and at such places as shall from time to time be determined by the Board. 2.10 Special Meetings. Special meetings of the Board may be called by the Chairman, the Chief Executive Officer or the Secretary or by any two or more Directors then serving on at least one day's notice to each Director given by one of the means specified in Section 2.13 hereof other than by mail, or on at least three days' notice if given by mail. Special meetings shall be called by the Chairman, the Chief Executive Officer or the Secretary in like manner and on like notice on the written request of any two or more of the Directors then serving. 2.11 Telephone Meetings. Directors or members of any committee designated by the Board may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.11 shall constitute presence in person at such meeting. 2.12 Adjourned Meetings. A majority of the Directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. At least one day's notice of any adjourned meeting of the Board shall be given to each Director, whether or not present at the time of the adjournment, if such notice shall be given by one of the means specified in Section 2.13 hereof other than by mail, or at least three days' notice if by mail. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called. 2.13 Notice Procedure. Subject to Sections 2.10 and 2.16 hereof, whenever, under the provisions of any statute, the Certificate of Incorporation or these By-laws, notice is required to be given to any Director, such notice shall be deemed given effectively if given in person or by telephone, by mail addressed to such Director at such Director's address as it appears on the records 7 8 of the Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or similar means addressed as aforesaid. 2.14 Waiver of Notice. Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in writing, signed by the person or persons entitled to said notice and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a person at a meeting shall constitute a waiver of notice of such meeting except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors or a committee of Directors need be specified in any written waiver of notice unless so required by statute, the Certificate of Incorporation or these By-laws. 2.15 Organization. At each meeting of the Board, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, a chairman chosen by a majority of the Directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 2.16 Quorum of Directors. The presence, in person or by telephone, of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board, but a majority of a smaller number may adjourn any such meeting to a later date. 2.17 Action by Majority Vote. Except as otherwise expressly required by statute, the Certificate of Incorporation or these By-laws, the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board. 2.18 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all Directors or members of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE 3 COMMITTEES OF THE BOARD 3.1 Appointment. The Board may, by resolution passed by a vote of a majority of the Entire Board, designate one or more committees, each committee to consist of two or more of the Directors of the Corporation. 8 9 3.2 Voting Procedure. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by a unanimous vote, appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. 3.3 Actions. Any such committee, to the extent authorized by law and provided in the resolution of the Board passed as provided in Section 3.1 hereof, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be impressed on all papers that may require it, but no such committee shall have the power or authority of the Board in reference to amending the Certificate of Incorporation or the By-laws of the Corporation, adopting an agreement of merger or consolidation under section 251 or section 252 of the General Corporation Law, recommending to the Stockholders (a) the sale, lease or exchange of all or substantially all of the Corporation's property and assets, or (b) a dissolution of the Corporation or a revocation of a dissolution; and, unless the resolution designating it expressly so provides, no such committee shall have the power and authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law. 3.4 Quorum. Unless otherwise specified in the resolution of the Board designating a committee or in these By-laws, at all meetings of such committee a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. 3.5 Procedures. Each committee shall keep regular minutes of its meetings. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article 2 of these By-laws. ARTICLE 4 OFFICERS 4.1 Positions. The officers of the Corporation shall be a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers as the Board may appoint, including a Chairman, one or more Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Board may designate one or more Vice Presidents as Executive Vice Presidents and may use descriptive words or phrases to designate the standing, seniority or areas of special competence of the Vice Presidents elected or appointed by it. Any number of offices may be held by the same person unless the Certificate of Incorporation or these By-laws otherwise provide. 9 10 4.2 Appointment. The officers of the Corporation shall be chosen by the Board at its annual meeting or at such other time or times as the Board shall determine. 4.3 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that the officer also is a Director. 4.4 Term of Office. Each officer of the Corporation shall hold office for the term for which he or she is elected and until such officer's successor is chosen and qualifies or until such officer's earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. Any officer elected or appointed by the Board may be removed at any time, with or without cause, by vote of a majority of the entire Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board. The removal of an officer without cause shall be without prejudice to the officer's contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 4.5 Fidelity Bonds. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 4.6 Chairman. The Chairman of the Corporation, if one shall have been appointed, shall preside at all meetings of the Stockholders and at all meetings of the Board. The Chairman shall have general supervision over the business of the Corporation, subject to the control of the Board and of any duly authorized committee of Directors, and shall exercise such powers and perform such other duties as shall be determined from time to time by the Board. The Chairman may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chairman shall perform all duties incident to the office of the Chairman. 4.7 Chief Executive Officer. The Chief Executive Officer of the Corporation shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and any duly authorized committee of Directors. The Chief Executive Officer shall preside at all meetings of the Stockholders and at all meetings of the Board at which the Chairman (if there be one) is not present. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chief Executive Officer shall perform all duties incident to the office 10 11 of Chief Executive Officer of a corporation and such other duties as may from time to time be assigned to the Chief Executive Officer by the Board. 4.8 President. At the request of the Chairman or at the request of the Board, the President shall perform all duties of the President and, in so performing, shall have the power of, and be subject to all restrictions upon, the President. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and, in general, the President shall perform all duties as from time to time may be assigned to the President by the Board or the Chief Executive Officer. 4.9 Vice Presidents. At the request of the President, or, in the President's absence, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board, or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the President and, in so performing, shall have all the powers of, and be subject to all restrictions upon, the President. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and each Vice President shall perform such other duties as from time to time may be assigned to such Vice President by the Board, the Chief Executive Officer or the President. 4.10 Secretary. The Secretary shall attend all meetings of the Board and of the Stockholders and shall record all the proceedings of the meetings of the Board and of the Stockholders in a book to be kept for that purpose, and shall perform like duties for committees of the Board, when required. The Secretary shall give, or cause to be given, notice of all special meetings of the Board and of the Stockholders and shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to impress the same on any instrument requiring it, and when so impressed the seal may be attested by the signature of the Secretary or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to impress the seal of the Corporation and to attest the same by such officer's signature. The Secretary or an Assistant Secretary may also attest all instruments signed by the Chief Executive Officer, the President or any Vice President. The Secretary shall have charge of all the books, records and papers of the Corporation relating to its organization and management, shall see that the reports, statements and other documents required by statute are properly kept and filed and, in general, shall perform all duties incident to the office of Secretary of a corporation and such other duties as may from time to time be assigned to the Secretary by the Board or the Chief Executive Officer. 4.11 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys and valuable 11 12 effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositories of the Corporation signed in such manner as shall be determined by the Board and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books or other records maintained for the purpose full and adequate account of all moneys received or paid for the account of the Corporation; have the right to require from time to time reports or statements giving such information as the Treasurer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the Chief Executive Officer or the Board, whenever the Chief Executive Officer or the Board shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all financial transactions of the Corporation; exhibit at all reasonable times the records and books of account to any of the Directors upon application at the office of the Corporation where such records and books are kept; disburse the funds of the Corporation as ordered by the Board; and, in general, perform all duties incident to the office of Treasurer of a corporation and such other duties as may from time to time be assigned to the Treasurer by the Board or the Chief Executive Officer. 4.12 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or the Chief Executive Officer. ARTICLE 5 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 5.1 Execution of Contracts. The Board, except as otherwise provided in these By-laws, may prospectively or retroactively authorize any officer or officers, employee or employees or agent or agents, in the name and on behalf of the Corporation, to enter into any contract or execute and deliver any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. 5.2 Loans. The Board may prospectively or retroactively authorize the Chief Executive Officer or any other officer, employee or agent of the Corporation to effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances the person so authorized may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances, or otherwise limited. 5.3 Checks, Drafts, Etc. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 12 13 5.4 Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation with such banks, trust companies, investment banking firms, financial institutions or other depositories as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power to select may from time to time be delegated by the Board. ARTICLE 6 STOCK AND DIVIDENDS 6.1 Certificates Representing Shares. The Shares of the Corporation shall be represented by certificates in such form (consistent with the provisions of Section 158 of the General Corporation Law) as shall be approved by the Board. Such certificates shall be signed by the Chairman, the Chief Executive Officer, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles, if the certificate is countersigned by a transfer agent or registrar other than the corporation itself or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may, unless otherwise ordered by the Board, be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 6.2 Transfer of Shares. Transfers of Shares of the Corporation shall be made only on the books of the Corporation by the holder thereof or by the holder's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates representing such Shares properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary or the transfer agent of the Corporation. A person in whose name Shares shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of Shares shall be valid as against the Corporation, its Stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 6.3 Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agents and registry offices or agents at such place or places as may be determined from time to time by the Board. 6.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any Shares of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such Shares, and the Corporation may issue a new certificate to replace the certificate alleged to have been lost, destroyed, stolen or mutilated. The Board may, in its 13 14 discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed, stolen or mutilated certificate, or his or her legal representatives, to make proof satisfactory to the Board of such loss, destruction, theft or mutilation and to advertise such fact in such manner as the Board may require, and to give the Corporation and its transfer agents and registrars, or such of them as the Board may require, a bond in such form, in such sums and with such surety or sureties as the Board may direct, to indemnify the Corporation and its transfer agents and registrars against any claim that may be made against any of them on account of the continued existence of any such certificate so alleged to have been lost, destroyed, stolen or mutilated and against any expense in connection with such claim. 6.5 Rules and Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these By-laws or with the Certificate of Incorporation, concerning the issue, transfer and registration of certificates representing Shares. 6.6 Restriction on Transfer of Stock. A written restriction on the transfer or registration of transfer of Shares of the Corporation, if permitted by Section 202 of the General Corporation Law and noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted Shares or any successor or transferee of the holder, including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing such Shares, a restriction even though permitted by Section 202 of the General Corporation Law shall be ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer of Shares of the Corporation may be imposed either by the Certificate of Incorporation or by an agreement among any number of Stockholders or among such Stockholders and the Corporation. No restriction so imposed shall be binding with respect to Shares issued prior to the adoption of the restriction unless the holders of such Shares are parties to an agreement or voted in favor of the restriction. 6.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate of Incorporation and of law, the Board: 6.7.1 may declare and pay dividends or make other distributions on the outstanding Shares in such amounts and at such time or times as it, in its discretion, shall deem advisable giving due consideration to the condition of the affairs of the Corporation; 6.7.2 may use and apply, in its discretion, any of the surplus of the Corporation in purchasing or acquiring any shares of the Corporation, or purchase warrants therefor, in accordance with law, or any of its bonds, debentures, notes, scrip or other securities or evidences of indebtedness; and 6.7.3 may set aside from time to time out of such surplus or net profits such sum or sums as, in its discretion, it may think proper, as a reserve fund to meet contingencies, or for equalizing dividends or for the purpose of maintaining or increasing the property or business of the Corporation, or for any purpose it may think conducive to the best interests of the Corporation. 14 15 ARTICLE 7 INDEMNIFICATION 7.1 Indemnity Undertaking. To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation, or, at the request of the Corporation, is or was serving as a director or officer of any other corporation or in a capacity with comparable authority or responsibilities for any partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). Persons who are not Directors or officers of the Corporation (or otherwise entitled to indemnification pursuant to the preceding sentence) may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Article 7. 7.2 Reimbursement. The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the General Corporation Law, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses. 7.3 Other Indemnification Rights. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, the Certificate of Incorporation, these By-laws, any agreement, any vote of Stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 7.4 Continuation of Benefits. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 15 16 7.5 Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article 7, the Certificate of Incorporation or under the General Corporation Law or any other provision of law. 7.6 Coverage. The provisions of this Article 7 shall be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time while this Article 7 is in effect, any former director, officer or member of a corporation or a limited liability company which was absorbed by the corporation in a consolidation or merger and any other person entitled to indemnification hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer or other person intend to be, and shall be legally bound. No repeal or modification of this Article 7 shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 7.7 Enforcement. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 7.8 Service Deemed at Corporation's Request. Any Director or officer of the Corporation serving in any capacity (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 7.9 Governing Law. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article 7 may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect 16 17 at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made by a notice in writing to the Corporation at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE 8 BOOKS AND RECORDS 8.1 Books and Records. There shall be kept at the principal office of the Corporation correct and complete records and books of account recording the financial transactions of the Corporation and minutes of the proceedings of the Stockholders, the Board and any committee of the Board. The Corporation shall keep at its principal office, or at the office of the transfer agent or registrar of the Corporation, a record containing the names and addresses of all Stockholders, the number and class of Shares held by each and the dates when they respectively became the owners of record thereof. 8.2 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of magnetic tape, punch cards, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 8.3 Inspection of Books and Records. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the Stockholders for inspection. ARTICLE 9 SEAL The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. ARTICLE 10 FISCAL YEAR The fiscal year of the Corporation shall be fixed, and may be changed, by resolution of the Board. 17 18 ARTICLE 11 PROXIES AND CONSENTS Unless otherwise directed by the Board, the Chairman, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer, or any one of them, may execute and deliver on behalf of the Corporation proxies respecting any and all shares or other ownership interests of any Other Entity owned by the Corporation appointing such person or persons as the officer executing the same shall deem proper to represent and vote the shares or other ownership interests so owned at any and all meetings of holders of shares or other ownership interests, whether general or special, and/or to execute and deliver consents respecting such shares or other ownership interests; or any of the aforesaid officers may attend any meeting of the holders of shares or other ownership interests of such Other Entity and thereat vote or exercise any or all other powers of the Corporation as the holder of such shares or other ownership interests. ARTICLE 12 EMERGENCY BY-LAWS Unless the Certificate of Incorporation provides otherwise, the following provisions of this Article 12 shall be effective during an emergency, which is defined as when a quorum of the Corporation's Directors cannot be readily assembled because of some catastrophic event. During such emergency: 12.1 Notice to Board Members. Any one member of the Board or any one of the following officers: Chairman, Chief Executive Officer, President, any Vice President, Secretary, or Treasurer, may call a meeting of the Board. Notice of such meeting need be given only to those Directors whom it is practicable to reach, and may be given in any practical manner, including by publication and radio. Such notice shall be given at least six hours prior to commencement of the meeting. 12.2 Temporary Directors and Quorum. One or more officers of the Corporation present at the emergency Board meeting, as is necessary to achieve a quorum, shall be considered to be Directors for the meeting, and shall so serve in order of rank, and within the same rank, in order of seniority. In the event that less than a quorum of the Directors are present (including any officers who are to serve as Directors for the meeting), those Directors present (including the officers serving as Directors) shall constitute a quorum. 12.3 Actions Permitted To Be Taken. The Board as constituted in Section 12.2, and after notice as set forth in Section 12.1 may: 12.3.1 prescribe emergency powers to any officer of the Corporation; 12.3.2 delegate to any officer or Director, any of the powers of the Board; 12.3.3 designate lines of succession of officers and agents, in the event that any of them are unable to discharge their duties; 18 19 12.3.4 relocate the principal place of business, or designate successive or simultaneous principal places of business; and 12.3.5 take any other convenient, helpful or necessary action to carry on the business of the Corporation. ARTICLE 13 AMENDMENTS These By-laws may be amended or repealed and new By-laws may be adopted by a vote of the holders of a majority of the Common Stock or by the Board. Any By-laws adopted or amended by the Board may be amended or repealed by the Stockholders entitled to vote thereon. ARTICLE 14 DEFINITIONS As used in these By-laws, unless the context otherwise requires, the term: 14.1 "Affiliate" means, with respect to any Person, any other Person controlling, controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. 14.2 "Assistant Secretary" means an Assistant Secretary of the Corporation. 14.3 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 14.4 "Board" means the Board of Directors of the Corporation. 14.5 "Business Day" means any day other than a Saturday, Sunday, or a day when banks in New York City are authorized or required by law to be closed. 14.6 "By-laws" means the initial bylaws of the Corporation, as amended from time to time. 14.7 "Certificate of Incorporation" means the initial certificate of incorporation of the Corporation, as amended, supplemented or restated from time to time. 14.8 "Chairman" means the Chairman of the Board of the Corporation. 14.9 "Chief Executive Officer" means the Chief Executive Officer of the Corporation. 19 20 14.10 "Common Stock" means all classes of stock designated in the Certificate of Incorporation as the common stock, par value $.01 per share. 14.11 "Corporation" means Premium Standard Farms, Inc. 14.12 "Directors" means directors of the Corporation. 14.13 "Distributions" means any dividend or distribution declared and paid on the Common Stock or any class thereof in cash or property other than shares of Common Stock. 14.14 "Entire Board" means all Directors of the Corporation in office, whether or not present at a meeting of the Board, but disregarding vacancies. 14.15 "General Corporation Law" means the General Corporation Law of the State of Delaware, as amended from time to time. 14.16 "Office of the Corporation" means the executive office of the Corporation, anything in Section 131 of the General Corporation Law to the contrary notwithstanding. 14.17 "Other Entity" shall have the meaning ascribed thereto in Section 7.1. 14.18 "President" means the President of the Corporation. 14.19 "Proceeding" shall have the meaning ascribed thereto in Section 7.1. 14.20 "Secretary" means the Secretary of the Corporation. 14.21 "Shares" means (a) all classes of stock designated in the Certificate of Incorporation as the Common Stock, or (b) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 14.22 "Stockholders" means all stockholders of the Corporation collectively. 14.23 "Treasurer" means the Treasurer of the Corporation. 14.24 "Vice President" means a Vice President of the Corporation. 20 EX-3.8 12 y50886ex3-8.txt RESTATED BY-LAWS 1 Exhibit 3.8 RESTATED BYLAWS OF THE LUNDY PACKING COMPANY A North Carolina corporation ARTICLE 1 STOCKHOLDERS 1.1 Place of Meetings. Every meeting of Stockholders shall be held at the Office of the Corporation or at such other place within or without the State of North Carolina as shall be specified or fixed in the notice of such meeting or in the waiver of notice thereof. 1.2 Annual Meeting. A meeting of Stockholders shall be held annually for the election of Directors and the transaction of other business at such hour and on such Business Day as may be determined by the Board and designated in the notice of meeting. 1.3 Substitute Annual Meeting. If the annual meeting of Stockholders for the election of Directors and the transaction of other business is not held within one hundred twenty (120) days following the Corporation's immediately preceding fiscal year end, the Board shall call a meeting of Stockholders for the election of Directors and the transaction of other business as soon thereafter as convenient. 1.4 Special Meetings. A special meeting of Stockholders (other than a special meeting for the election of Directors), unless otherwise prescribed by statute, may be called at any time by the Board, the Chairman, the Chief Executive Officer, the President or the Secretary, or by the holders of a majority of all outstanding Shares entitled to vote at such meeting, voting as a single class. At any special meeting of Stockholders only such business may be transacted as is related to the purpose or purposes of such meeting set forth in the notice thereof given pursuant to Section 1.6 hereof or in any waiver of notice thereof given pursuant to Section 1.7 hereof. 1.5 Fixing Record Date. For the purpose of (a) determining the Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders or any adjournment thereof, (ii) unless otherwise provided in the Articles of Incorporation, to express consent to corporate action in writing without a meeting or (iii) to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock; or (b) any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date was adopted by the Board and which record date shall not be more than seventy (70) days before the date of such meeting or such action requiring a determination of Stockholders. If no such record date is fixed: 1.5.1 the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on 2 which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; 1.5.2 the record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting (unless otherwise provided in the Articles of Incorporation), when no prior action by the Board is required under the Business Corporation Act, shall be the first day on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of North Carolina, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of Stockholders are recorded; and when prior action by the Board is required under the Business Corporation Act, the record date for determining Stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action; and 1.5.3 the record date for determining Stockholders for any purpose other than those specified in Sections 1.5.1 and 1.5.2 shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of Stockholders entitled to notice of or to vote at any meeting of Stockholders has been made as provided in this Section 1.5, such determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. Delivery made to the Corporation's registered office in accordance with Section 1.5.2 shall be by hand or by certified or registered mail, return receipt requested. 1.6 Notice of Meetings of Stockholders. Except as otherwise provided in Sections 1.5 and 1.7 hereof, whenever under the provisions of any statute, the Articles of Incorporation or these Bylaws, Stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless such a statement expressly is required by the provisions of the Business Corporation Act. Unless otherwise provided by any statute, the Articles of Incorporation or these Bylaws, a copy of the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each Stockholder entitled to notice of or to vote at such meeting. Said notice may be communicated in person; by telegraph, teletype, or other form of wire or wireless communication, or by facsimile transmission; or by mail or private carrier. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, addressed to the Stockholder at his or her address as it appears on the current records of the Corporation. An affidavit of the Secretary or an Assistant Secretary that the notice required by this Section 1.6 has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. If any meeting of Stockholders is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting. If a new record date for the adjourned 2 3 meeting is or must be fixed pursuant to North Carolina law, notice of the adjourned meeting must be given as provided in this Section to persons who are Stockholders as of the new record date. 1.7 Waivers of Notice. Any Stockholder may waive notice of any meeting before or after the meeting. The waiver must be in writing, signed by the Stockholder, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. A Stockholder's attendance, in person or by proxy, at a meeting (a) waives objection to lack of notice or defective notice of the meeting, unless the Stockholder or the Stockholder's proxy at the beginning of the meeting objects to holding the meeting or transacting business thereat, and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the Stockholder or the Stockholder's proxy objects to considering the matter before it is voted upon. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders need be specified in any written waiver of notice unless so required by statute, the Articles of Incorporation or these Bylaws. 1.8 List of Stockholders. The Secretary shall prepare and make, or cause to be prepared and made, at least ten (10) Business Days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of Shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, the Stockholder's agent, or attorney, at the Stockholder's expense, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) Business Days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. The Corporation shall maintain the Stockholder list in written form or in another form capable of conversion into written form within a reasonable time. Upon the willful neglect or refusal of the Directors to produce such a list at any meeting for the election of Directors, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the stock ledger, the list of Stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of Stockholders. 1.9 Quorum of Stockholders; Adjournment. Shares entitled to vote may take action on a matter at a meeting of Stockholders only if a quorum of those Shares is present at the meeting. Except as otherwise provided by any statute, the Articles of Incorporation or these Bylaws, the holders of a majority of all outstanding Shares of stock entitled to vote at any meeting of Stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. Once a Share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. In the absence of a quorum at the opening of any meeting of Stockholders, such meeting may be adjourned from time to time by a vote of the majority of the votes cast on the motion to adjourn; and at any adjourned meeting any business may be transacted which might have been transacted at the original meeting if a quorum exists with respect to the matter proposed. 3 4 Absent special circumstances, Shares of the Corporation are not entitled to vote and are not counted for quorum purposes if they are owned by the Corporation or, directly or indirectly, by another corporation in which the Corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided that this provision does not limit the power of the Corporation to vote its own Shares held by it in a fiduciary capacity. 1.10 Voting; Proxies. Unless otherwise provided in the Articles of Incorporation, every Stockholder of record shall be entitled at every meeting of Stockholders to one vote for each Share standing in his or her name on the record of Stockholders determined in accordance with Section 1.5 hereof. If the Articles of Incorporation provide for more or less than one vote for any Share on any matter, each reference in the Bylaws or the Business Corporation Act to a majority or other proportion of Shares shall refer to such majority or other proportion of the votes of such Shares. The provisions of Sections 55-7-21 - 55-7-23, inclusive, of the Business Corporation Act shall apply in determining whether any Shares may be voted and the persons, if any, entitled to vote such Shares; but the Corporation shall be protected in assuming that the persons in whose names Shares stand on the stock ledger of the Corporation are entitled to vote such Shares. Holders of redeemable Shares are not entitled to vote after the notice of redemption is mailed to such holders and a sum sufficient to redeem the Shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the Shares of stock. At any meeting of Stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by law, the Articles of Incorporation or these Bylaws, shall be decided by a majority of all the votes cast at such meeting by the holders of Shares, voting together as a single class, present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. Elections of Directors need not be by written ballot unless otherwise provided in the Articles of Incorporation. In voting on any other question on which a vote by ballot is required by law or is demanded by any Stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the Stockholder voting or the Stockholder's proxy and shall state the number of Shares voted. On all other questions, the voting may be viva voce. Each Stockholder entitled to vote at a meeting of Stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such Stockholder by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 55-7-22 of the Business Corporation Act. A Stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary. 1.11 Voting Procedures and Inspectors of Election at Meetings of Stockholders. The Board, in advance of any meeting of Stockholders, may appoint one or more inspectors to act at the meeting and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed or is able to act at a meeting, the person presiding at the meeting may appoint, and on the request of any Stockholder entitled to vote thereat shall appoint, one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best 4 5 of his or her ability. The inspectors shall (a) ascertain the number of Shares outstanding and the voting power of each, (b) determine the Shares represented at the meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of Shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. Unless otherwise provided by the Board, the date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be determined by the person presiding at the meeting and shall be announced at the meeting. No ballot, proxies or votes, or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless a court of competent jurisdiction in the State of North Carolina upon application by a Stockholder shall determine otherwise. 1.12 Organization. At each meeting of Stockholders, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, the President, or in the absence of the President, a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present), shall act as chairman of the meeting. The Secretary, or in his or her absence, one of the Assistant Secretaries, shall act as Secretary of the meeting. In case none of the officers above designated to act as chairman or secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.13 Order of Business. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.14 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Articles of Incorporation, any action which may be taken at any annual or special meeting of Stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by all of the persons who would be entitled to vote upon such action at a meeting and delivered to the Secretary of the Corporation for inclusion in the minutes or filing with the corporate records. If the Corporation is required by law to give notice to nonvoting Stockholders of action to be taken by unanimous written consent of the voting Stockholders, then the Corporation shall give the nonvoting Stockholders, if any, written notice of the proposed action at least ten (10) days before the action is taken. 5 6 ARTICLE 2 DIRECTORS 2.1 General Powers. Except as otherwise provided in the Articles of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Articles of Incorporation or these Bylaws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred by these Bylaws, the Board may exercise all powers and perform all acts that are not required, by these Bylaws or the Articles of Incorporation or by statute, to be exercised and performed by the Stockholders. 2.2 Number, Term and Qualifications. The number of directors constituting the Board of the Corporation shall be three. Each Director shall hold office until such Director's death, resignation, retirement, removal or disqualification, or until election and qualification of such Director's successor. The Stockholders or the Board from time to time may change the number of directors by amending these Bylaws, but the Board may not increase or decrease the number of Directors by more than thirty percent (30%) during any twelve-month period. Directors need not be residents of the State of North Carolina or Stockholders of the Corporation. 2.3 Election. Except as provided in Section 2.5, the Directors shall be elected at the annual meeting of the Stockholders; and those persons who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected. 2.4 Removal. Any Director may be removed from office at any time with or without cause by the affirmative vote of holders of a majority of the issued and outstanding Shares. If a Director is elected by a voting group of Stockholders, only the Stockholders of that voting group may participate in the vote to remove such Director. A Director may not be removed by the Stockholders at a meeting unless the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the Director. If any Directors are so removed, new Directors may be elected at the same meeting. 2.5 Vacancies. Unless otherwise provided in the Articles of Incorporation, vacancies occurring in the Board for any reason, including the removal of Directors without cause, may be filled by the affirmative vote of a majority of the remaining Directors or the sole remaining Director, as the case may be, or may be elected by the affirmative vote of a plurality of the holders of the Shares entitled to vote in the election at a special meeting of Stockholders called for that purpose. A Director elected to fill a vacancy shall be elected to hold office until a successor is elected and qualified, or until the Director's death, resignation or removal. 2.6 Resignation. Any Director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified in such resignation, the acceptance of such resignation shall not be necessary to make it effective. 6 7 2.7 Compensation. Each Director, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at Directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in connection with the performance of his or her duties. Each Director who shall serve as a member of any committee of Directors in consideration of serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in the performance of his or her duties. Nothing contained in this Section 2.7 shall preclude any Director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 2.8 Times and Places of Meetings. The Board may hold meetings, both regular and special, either within or without the State of North Carolina. The times and places for holding meetings of the Board may be fixed from time to time by resolution of the Board or (unless contrary to a resolution of the Board) in the notice of the meeting. 2.9 Annual Meetings. On the day when and at the place where the annual meeting of Stockholders for the election of Directors is held, and as soon as practicable thereafter, the Board shall hold its annual meeting, without notice of such meeting, for the purpose of the election of officers and the transaction of other business. 2.10 Regular Meetings. Regular meetings of the Board may be held without notice at such times and at such places as shall from time to time be determined by the Board. 2.11 Special Meetings. Special meetings of the Board may be called by or at the request of the Chairman, the Chief Executive Officer, the President or the Secretary or any two (2) or more Directors then serving on at least two (2) day's notice to each Director given by one of the means specified in Section 2.14 hereof. Special meetings shall be called by the Chairman, the Chief Executive Officer, the President or the Secretary in like manner and on like notice on the written request of any two (2) or more of the Directors then serving. Notice of a special meeting need not specify the purpose for which the meeting is called. 2.12 Telephone Meetings. Directors or members of any committee designated by the Board may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.12 shall constitute presence in person at such meeting. 2.13 Adjourned Meetings. A majority of the Directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. At least one (1) day's notice of any adjourned meeting of the Board shall be given to each Director, whether or not present at the time of the adjournment, by one of the means specified in Section 2.14 hereof. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called. 7 8 2.14 Notice Procedure. Whenever, under the provisions of any statute, the Articles of Incorporation or these Bylaws, notice is required to be given to any Director, such notice shall be deemed given effectively if given in person or by telephone, by mail addressed to such Director at such Director's address as it appears on the records of the Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or similar means addressed as aforesaid. 2.15 Waiver of Notice. Whenever the giving of any notice is required by statute, the Articles of Incorporation or these Bylaws, a waiver thereof, in writing, signed by the person or persons entitled to said notice and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. The attendance by a Director at, or the participation of a Director in, a meeting shall constitute a waiver of any required notice of such meeting, unless the Director, at the beginning of the meeting (or promptly upon the Director's arrival thereat), objects to holding the meeting or to transacting any business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors or a committee of Directors need be specified in any written waiver of notice unless so required by statute, the Articles of Incorporation or these Bylaws. 2.16 Organization. At each meeting of the Board, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, a chairman chosen by a majority of the Directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 2.17 Quorum of Directors. Unless the Corporation's Articles of Incorporation provide otherwise, the presence, in person or by telephone, of a majority of the Entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board, but a majority of a smaller number may adjourn any such meeting to a later date. 2.18 Action by Majority Vote. Except as otherwise expressly required by statute, the Articles of Incorporation or these Bylaws, the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board. 2.19 Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board or at a meeting of any committee of the Board at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) such Director objects at the beginning of the meeting (or promptly upon the Director's arrival thereat) to holding the meeting or to transacting any business at the meeting, or (b) such Director's contrary vote is recorded or such Director's dissent or abstention from the action taken otherwise is entered in the minutes of the meeting, or (c) such Director files written notice of dissent or abstention to such action with the person presiding at the meeting before the adjournment thereof or forwards such notice by registered 8 9 mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right of dissent or abstention is not available to a Director who voted in favor of the action taken. 2.20 Action Without Meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all Directors or members of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE 3 COMMITTEES OF THE BOARD 3.1 Appointment. The Board may, by resolution passed by a vote of a majority of the Entire Board, designate one or more committees, each committee to consist of two (2) or more of the Directors of the Corporation. The designation of any committee and the delegation thereto of authority shall not operate to relieve the Board, or any member thereof, of any responsibility or liability imposed upon the Board, or any member thereof, by law. 3.2 Voting Procedure. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by a unanimous vote, appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. 3.3 Actions. Any such committee, to the extent authorized by law and provided in the resolution of the Board passed as provided in Section 3.1 hereof, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be impressed on all papers that may require it, but no such committee shall have the power or authority of the Board in reference to amending the Articles of Incorporation or the Bylaws of the Corporation, adopting an agreement of merger or consolidation under the Business Corporation Act, recommending to the Stockholders (a) the sale, lease or exchange of all or substantially all of the Corporation's property and assets, or (b) a dissolution of the Corporation or a revocation of a dissolution; and, unless the resolution designating it expressly so provides, no such committee shall have the power and authority to declare a dividend, to authorize the issuance of stock, or to adopt a plan of merger pursuant to the Business Corporation Act. 3.4 Quorum. Unless otherwise specified in the resolution of the Board designating a committee or in these Bylaws, at all meetings of such committee a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. 3.5 Procedures. Each committee shall keep regular minutes of its meetings. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules 9 10 for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article 2 of these Bylaws. ARTICLE 4 OFFICERS 4.1 Positions. The officers of the Corporation shall be a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers as the Board may appoint, including a Chairman, one or more Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Board may designate one or more Vice Presidents as Executive Vice Presidents and may use descriptive words or phrases to designate the standing, seniority or areas of special competence of the Vice Presidents elected or appointed by it. Any two (2) or more offices may be held by the same person, except that no officer may act in more than one capacity where action of two (2) or more officers is required. 4.2 Election. The officers of the Corporation shall be elected by the Board at its annual meeting or at such other time or times as the Board shall determine. 4.3 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that the officer also is a Director. The election of an officer does not of itself create any contract rights. 4.4 Term of Office. Each officer of the Corporation shall hold office for the term for which he or she is elected and until such officer's successor is chosen and qualifies or until such officer's earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. Any officer elected or appointed by the Board may be removed at any time, with or without cause, by vote of a majority of the Entire Board but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any vacancy occurring in any Office of the Corporation shall be filled by the Board. The removal of an officer without cause shall be without prejudice to the officer's contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 4.5 Fidelity Bonds. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 4.6 Chairman. The Chairman of the Corporation, if one shall have been appointed, shall preside at all meetings of the Stockholders and at all meetings of the Board. The Chairman shall have general supervision over the business of the Corporation, subject to the control of the Board and of any duly authorized committee of Directors, and shall exercise such powers and perform such 10 11 other duties as shall be determined from time to time by the Board. The Chairman may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chairman shall perform all duties incident to the office of the Chairman. 4.7 Chief Executive Officer. The Chief Executive Officer of the Corporation shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and any duly authorized committee of Directors. The Chief Executive Officer shall preside at all meetings of the Stockholders and at all meetings of the Board at which the Chairman (if there be one) is not present. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chief Executive Officer shall perform all duties incident to the office of Chief Executive Officer of a corporation and such other duties as may from time to time be assigned to the Chief Executive Officer by the Board. 4.8 President. At the request of the Chairman or at the request of the Board, the President shall perform all duties of the President and, in so performing, shall have the power of, and be subject to all restrictions upon, the President. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and, in general, the President shall perform all duties as from time to time may be assigned to the President by the Board or the Chief Executive Officer. 4.9 Vice Presidents. At the request of the President, or, in the President's absence, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board, or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the President and, in so performing, shall have all the powers of, and be subject to all restrictions upon, the President. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and each Vice President shall perform such other duties as from time to time may be assigned to such Vice President by the Board, the Chief Executive Officer or the President. 4.10 Secretary. The Secretary shall attend all meetings of the Board and of the Stockholders and shall record all the proceedings of the meetings of the Board and of the Stockholders in a book to be kept for that purpose, and shall perform like duties for committees of the Board, when required. The Secretary shall give, or cause to be given, notice of all special meetings of the Board and of the Stockholders and shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer, under whose supervision the Secretary shall 11 12 be. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to impress the same on any instrument requiring it, and when so impressed the seal may be attested by the signature of the Secretary or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to impress the seal of the Corporation and to attest the same by such officer's signature. The Secretary or an Assistant Secretary may also attest all instruments signed by the Chairman, the Chief Executive Officer, the President or any Vice President. The Secretary shall have charge of all the books, records and papers of the Corporation relating to its organization and management, shall see that the reports, statements and other documents required by statute are properly kept and filed and, in general, shall perform all duties incident to the office of Secretary of a corporation and such other duties as may from time to time be assigned to the Secretary by the Board or the Chief Executive Officer. 4.11 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys and valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositories of the Corporation signed in such manner as shall be determined by the Board and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books or other records maintained for the purpose full and adequate account of all moneys received or paid for the account of the Corporation; have the right to require from time to time reports or statements giving such information as the Treasurer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the Chief Executive Officer or the Board, whenever the Chief Executive Officer or the Board shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all financial transactions of the Corporation; exhibit at all reasonable times the records and books of account to any of the Directors upon application at the Office of the Corporation where such records and books are kept; disburse the funds of the Corporation as ordered by the Board; and, in general, perform all duties incident to the office of Treasurer of a corporation and such other duties as may from time to time be assigned to the Treasurer by the Board or the Chief Executive Officer. 4.12 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or the Chief Executive Officer. ARTICLE 5 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 5.1 Execution of Contracts. The Board, except as otherwise provided in these Bylaws, may prospectively or retroactively authorize any officer or officers, employee or employees or agent or agents, in the name and on behalf of the Corporation, to enter into any contract or execute and deliver any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. 12 13 5.2 Loans. The Board may prospectively or retroactively authorize the Chief Executive Officer or any other officer, employee or agent of the Corporation to effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances the person so authorized may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances, or otherwise limited. 5.3 Checks, Drafts, Etc. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 5.4 Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation with such banks, trust companies, investment banking firms, financial institutions or other depositories as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power to select may from time to time be delegated by the Board. ARTICLE 6 STOCK AND DIVIDENDS 6.1 Certificates Representing Shares. The Shares of the Corporation shall be represented by certificates in such form as shall be approved by the Board. Such certificates shall be signed by the Chairman, the Chief Executive Officer, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with the seal of the Corporation or a facsimile thereof. In case any officer who has signed any certificate shall have ceased to be such officer before such certificate is issued, such certificate may, unless otherwise ordered by the Board, be issued by the Corporation with the same effect as if such person were such officer at the date of issue. All certificates for Shares shall be numbered consecutively or otherwise identified; and the name and address of the persons to whom they are issued, with the number of Shares and the date of issue, shall be entered on the stock transfer books of the Corporation. 6.2 Transfer of Shares. Transfers of Shares of the Corporation shall be made only on the books of the Corporation by the holder thereof or by the holder's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary, and on surrender of the certificate or certificates representing such Shares properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary of the Corporation. A person in whose name Shares shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of Shares shall be valid as against the Corporation, 13 14 its Stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 6.3 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any Shares of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such Shares, and the Board may authorize the issuance of a new certificate to replace the certificate alleged to have been lost, destroyed, stolen or mutilated upon receipt of an affidavit to such fact from the person claiming the loss, destruction, theft or mutilation. The Board may, in its discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed, stolen or mutilated certificate, or his or her legal representatives, to give the Corporation a bond in such form, in such sums and with such surety or sureties as the Board may direct, to indemnify the Corporation against any claim that may be made against the Corporation on account of the continued existence of any such certificate so alleged to have been lost, destroyed, stolen or mutilated and against any expense in connection with such claim; provided, however, that the Board, by resolution reciting the circumstances justifying such action, may authorize the issuance of the new certificate without requiring such a bond. 6.4 Rules and Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws or with the Articles of Incorporation, concerning the issue, transfer and registration of certificates representing Shares. 6.5 Restriction on Transfer of Stock. A written restriction on the transfer of Shares of the Corporation, if noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted Shares or any successor or transferee of the holder, including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing such Shares, a restriction shall be ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer of Shares of the Corporation may be imposed either by the Articles of Incorporation or by an agreement among any number of Stockholders or among such Stockholders and the Corporation. No restriction so imposed shall be binding with respect to Shares issued prior to the adoption of the restriction unless the holders of such Shares are parties to an agreement or voted in favor of the restriction. 6.6 Reacquired Shares. Shares of the Corporation that have been issued and thereafter reacquired by the Corporation shall constitute authorized but unissued Shares. 6.7 Distributions. The Board from time to time may authorize, and the Corporation may pay, distributions and share dividends on the Corporation's outstanding Shares in the manner and upon the terms and conditions provided by law and by the Corporation's Articles of Incorporation. 14 15 ARTICLE 7 INDEMNIFICATION OF PRE-MERGER DIRECTORS, OFFICERS AND AGENTS 7.1 Scope and Term of Indemnification. The indemnification provisions contained in this Article 7 shall apply only to persons otherwise entitled to indemnification hereunder who served in an indemnifiable capacity with The Lundy Packing Company at any time prior to the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. The provisions of this Article 7 automatically shall terminate and be of no further force or effect on the sixth (6th) anniversary of the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. 7.2 Limitations. The Corporation shall not be obligated to provide any indemnification hereunder to Annabelle L. Fetterman, Lewis M. Fetterman, Jr., or Mabel F. Held (collectively, "Inside Directors") with respect to any claim brought by an independent third party against any one or more of the Inside Directors which would have constituted a breach of the representations and warranties contained in that certain Acquisition Agreement dated as of July 12, 2000, by and among The Lundy Packing Company, PSF Acquisition Corp. and Premium Standard Farms, Inc. ("Agreement"). In determining whether any such claim would have constituted a breach of the representations and warranties contained in the Agreement, the Corporation and the Inside Directors shall follow the standards and procedures set forth in Section 8.1 of the Agreement. 7.3 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason that he is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a trustee or administrator under an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director, officer, employee, agent, trustee or administrator, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Business Corporation Act against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to serve in the capacity which initially entitled such person to indemnity hereunder and shall inure to the benefit of his heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article 7 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Business Corporation Act so requires, the payment of expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made 15 16 only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that the director or officer is not entitled to be indemnified under this Section or otherwise. 7.4 Right of Claimant to Bring Suit. If a claim under Section 7.3 hereof is not paid in full by the Corporation within ninety days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Business Corporation Act for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Business Corporation Act, nor an actual determination by the Corporation (including its Board of Directors, independent counsel, or its stockholders) that the claimant has not met the applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 7.5 Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this Article 7 shall not be exclusive of any other right which any person may have or hereafter acquire under any law (common or statutory), the Articles of Incorporation, these bylaws, any agreement, the vote of stockholders or disinterested directors or otherwise. 7.6 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any person who is or was serving as a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or trustee or administrator under an employee benefit plan against any liability asserted against and incurred by that person in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify that person against such liability under the Business Corporation Act. 7.7 Savings Clause. If this Article 7 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and hold harmless each director and officer of the Corporation, as to costs, charges and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by any applicable portion of this Article 7 that shall not have been invalidated and to the full extent permitted by applicable law. 16 17 ARTICLE 7A INDEMNIFICATION 7A.1 Scope of Indemnification. The indemnification provisions contained in this Article 7A shall apply only to persons otherwise entitled to indemnification hereunder who serve (or served) in an indemnifiable capacity (a) with PSF Acquisition Corp. at any time prior to the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. and (b) at any time on or after the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. 7A.2 Indemnity Undertaking. To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation or any constituent corporation or a limited liability company absorbed in a consolidation or merger by the Corporation, or, at the request of the Corporation, is or was serving as a director or officer of any other corporation or in a capacity with comparable authority or responsibilities for any partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). Persons who are not Directors or officers of the Corporation (or otherwise entitled to indemnification pursuant to the preceding sentence) may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Article 7A. 7A.3 Reimbursement. The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the Business Corporation Act, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses. 7A.4 Other Indemnification Rights. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7A shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, the Articles of Incorporation, these Bylaws, any agreement, any vote of Stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 17 18 7A.5 Continuation of Benefits. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7A shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 7A.6 Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article 7A, the Articles of Incorporation or under the Business Corporation Act or any other provision of law. 7A.7 Coverage. The provisions of this Article 7A shall be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time while this Article 7A is in effect, any former director, officer or member of a corporation or a limited liability company which was absorbed by the corporation in a consolidation or merger and any other person entitled to indemnification hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer or other person intend to be, and shall be legally bound. No repeal or modification of this Article 7A shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 7A.8 Enforcement. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7A shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 7A.9 Service Deemed at Corporation's Request. Any Director or officer of the Corporation serving in any capacity (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 18 19 7A.10 Governing Law. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article 7A may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made by a notice in writing to the Corporation at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE 8 BOOKS AND RECORDS 8.1 Books and Records. There shall be kept at the Office of the Corporation correct and complete records and books of account recording the financial transactions of the Corporation and minutes of the proceedings of the Stockholders, the Board and any committee of the Board. The Corporation shall keep at the Office of the Corporation a record containing the names and addresses of all Stockholders, the number and class of Shares held by each and the dates when they respectively became the owners of record thereof. 8.2 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of magnetic tape, punch cards, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 8.3 Inspection of Books and Records. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the Stockholders for inspection. ARTICLE 9 SEAL The corporate seal of the Corporation shall consist of two concentric circles between which is the name of the Corporation and in the center of which is inscribed SEAL; and such seal, in the form approved and adopted by the Board, shall be the corporate seal of the Corporation. 19 20 ARTICLE 10 FISCAL YEAR The fiscal year of the Corporation shall be fixed, and may be changed, by resolution of the Board. ARTICLE 11 PROXIES AND CONSENTS Unless otherwise directed by the Board, the Chairman, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer, or any one of them, may execute and deliver on behalf of the Corporation proxies respecting any and all shares or other ownership interests of any Other Entity owned by the Corporation appointing such person or persons as the officer executing the same shall deem proper to represent and vote the shares or other ownership interests so owned at any and all meetings of holders of shares or other ownership interests, whether general or special, and/or to execute and deliver consents respecting such shares or other ownership interests; or any of the aforesaid officers may attend any meeting of the holders of shares or other ownership interests of such Other Entity and thereat vote or exercise any or all other powers of the Corporation as the holder of such shares or other ownership interests. ARTICLE 12 EMERGENCY BY-LAWS Unless the Articles of Incorporation provides otherwise, the following provisions of this Article 12 shall be effective during an emergency, which is defined as when a quorum of the Corporation's Directors cannot be readily assembled because of some catastrophic event. During such emergency: 12.1 Notice to Board Members. Any one member of the Board or any one of the following officers: Chairman, Chief Executive Officer, President, any Vice President, Secretary, or Treasurer, may call a meeting of the Board. Notice of such meeting need be given only to those Directors whom it is practicable to reach, and may be given in any practical manner, including by publication and radio. Such notice shall be given at least six (6) hours prior to commencement of the meeting. 12.2 Temporary Directors and Quorum. One or more officers of the Corporation present at the emergency Board meeting, as is necessary to achieve a quorum, shall be considered to be Directors for the meeting, and shall so serve in order of rank, and within the same rank, in order of seniority. In the event that less than a quorum of the Directors are present (including any officers who are to serve as Directors for the meeting), those Directors present (including the officers serving as Directors) shall constitute a quorum. 12.3 Actions Permitted To Be Taken. The Board as constituted in Section 12.2, and after notice as set forth in Section 12.1 may: 12.3.1 prescribe emergency powers to any officer of the Corporation; 20 21 12.3.2 delegate to any officer or Director, any of the powers of the Board; 12.3.3 designate lines of succession of officers and agents, in the event that any of them are unable to discharge their duties; 12.3.4 relocate the principal place of business, or designate successive or simultaneous principal places of business; and 12.3.5 take any other convenient, helpful or necessary action to carry on the business of the Corporation. ARTICLE 13 AMENDMENTS Except to the extent otherwise provided in the Corporation's Articles of Incorporation or by law, these Bylaws may be amended or repealed and new bylaws may be adopted by the Board. No bylaw adopted, amended or repealed by the Stockholders shall be readopted, amended or repealed by the Board unless the Corporation's Articles of Incorporation or a bylaw adopted by the Stockholders authorizes the Board to adopt, amend or repeal that particular bylaw or the Bylaws generally. The Stockholders may amend or repeal these Bylaws even though these Bylaws also may be amended or repealed by the Board. ARTICLE 14 OFFICES 14.1 Executive Office. The Office of the Corporation shall be located in Clinton, North Carolina. 14.2 Registered Office. The registered office of the Corporation required by law to be maintained in the State of North Carolina may be, but need not be, identical with the principal office. 14.3 Other Offices. The Corporation may have offices at such other places, either within or without the State of North Carolina, as the Board from time to time may determine, or as the affairs of the Corporation from time to time may require. ARTICLE 15 DEFINITIONS As used in these Bylaws, unless the context otherwise requires, the term: 15.1 "Assistant Secretary" means an Assistant Secretary of the Corporation. 21 22 15.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 15.3 "Board" means the Board of Directors of the Corporation. 15.4 "Business Corporation Act" means the North Carolina Business Corporation Act, as amended from time to time. 15.5 "Business Day" means any day other than a Saturday, Sunday, or a day when banks in New York City are authorized or required by law to be closed. 15.6 "Bylaws" means the bylaws of the Corporation, as amended from time to time. 15.7 "Articles of Incorporation" means the Articles of Incorporation of the Corporation, as amended, supplemented or restated from time to time. 15.8 "Chairman" means the Chairman of the Board of the Corporation. 15.9 "Chief Executive Officer" means the Chief Executive Officer of the Corporation. 15.10 "Corporation" means PSF Acquisition Corp. prior to the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. and means The Lundy Packing Company on and after the effective time of such merger. 15.11 "Directors" means directors of the Corporation. 15.12 "Entire Board" means all Directors of the Corporation in office, whether or not present at a meeting of the Board, but disregarding vacancies. 15.13 "Office of the Corporation" means the executive office of the Corporation. 15.14 "Other Entity" shall have the meaning ascribed thereto in Section 7A.2. 15.15 "President" means the President of the Corporation. 15.16 "Proceeding" shall have the meaning ascribed thereto in Section 7A.2. 15.17 "Secretary" means the Secretary of the Corporation. 15.18 "Shares" means all classes of stock designated in the Articles of Incorporation as the common stock. 15.19 "Stockholders" means all stockholders of the Corporation. 15.20 "Treasurer" means the Treasurer of the Corporation. 22 23 15.21 "Vice President" means a Vice President of the Corporation. 23 EX-3.9 13 y50886ex3-9.txt RESTATED BY-LAWS 1 Exhibit 3.9 RESTATED BYLAWS OF LUNDY INTERNATIONAL, INC. A North Carolina corporation ARTICLE 1 STOCKHOLDERS 1.1 Place of Meetings. Every meeting of Stockholders shall be held at the Office of the Corporation or at such other place within or without the State of North Carolina as shall be specified or fixed in the notice of such meeting or in the waiver of notice thereof. 1.2 Annual Meeting. A meeting of Stockholders shall be held annually for the election of Directors and the transaction of other business at such hour and on such Business Day as may be determined by the Board and designated in the notice of meeting. 1.3 Substitute Annual Meeting. If the annual meeting of Stockholders for the election of Directors and the transaction of other business is not held within one hundred twenty (120) days following the Corporation's immediately preceding fiscal year end, the Board shall call a meeting of Stockholders for the election of Directors and the transaction of other business as soon thereafter as convenient. 1.4 Special Meetings. A special meeting of Stockholders (other than a special meeting for the election of Directors), unless otherwise prescribed by statute, may be called at any time by the Board, the Chairman, the Chief Executive Officer, the President or the Secretary, or by the holders of a majority of all outstanding Shares entitled to vote at such meeting, voting as a single class. At any special meeting of Stockholders only such business may be transacted as is related to the purpose or purposes of such meeting set forth in the notice thereof given pursuant to Section 1.6 hereof or in any waiver of notice thereof given pursuant to Section 1.7 hereof. 1.5 Fixing Record Date. For the purpose of (a) determining the Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders or any adjournment thereof, (ii) unless otherwise provided in the Articles of Incorporation, to express consent to corporate action in writing without a meeting or (iii) to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock; or (b) any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date was adopted by the Board and which record date shall not be more than seventy (70) days before the date of such meeting or such action requiring a determination of Stockholders. If no such record date is fixed: 1.5.1 the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on 2 which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; 1.5.2 the record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting (unless otherwise provided in the Articles of Incorporation), when no prior action by the Board is required under the Business Corporation Act, shall be the first day on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of North Carolina, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of Stockholders are recorded; and when prior action by the Board is required under the Business Corporation Act, the record date for determining Stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action; and 1.5.3 the record date for determining Stockholders for any purpose other than those specified in Sections 1.5.1 and 1.5.2 shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of Stockholders entitled to notice of or to vote at any meeting of Stockholders has been made as provided in this Section 1.5, such determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. Delivery made to the Corporation's registered office in accordance with Section 1.5.2 shall be by hand or by certified or registered mail, return receipt requested. 1.6 Notice of Meetings of Stockholders. Except as otherwise provided in Sections 1.5 and 1.7 hereof, whenever under the provisions of any statute, the Articles of Incorporation or these Bylaws, Stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless such a statement expressly is required by the provisions of the Business Corporation Act. Unless otherwise provided by any statute, the Articles of Incorporation or these Bylaws, a copy of the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each Stockholder entitled to notice of or to vote at such meeting. Said notice may be communicated in person; by telegraph, teletype, or other form of wire or wireless communication, or by facsimile transmission; or by mail or private carrier. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, addressed to the Stockholder at his or her address as it appears on the current records of the Corporation. An affidavit of the Secretary or an Assistant Secretary that the notice required by this Section 1.6 has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. If any meeting of Stockholders is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting. If a new record date for the adjourned 2 3 meeting is or must be fixed pursuant to North Carolina law, notice of the adjourned meeting must be given as provided in this Section to persons who are Stockholders as of the new record date. 1.7 Waivers of Notice. Any Stockholder may waive notice of any meeting before or after the meeting. The waiver must be in writing, signed by the Stockholder, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. A Stockholder's attendance, in person or by proxy, at a meeting (a) waives objection to lack of notice or defective notice of the meeting, unless the Stockholder or the Stockholder's proxy at the beginning of the meeting objects to holding the meeting or transacting business thereat, and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the Stockholder or the Stockholder's proxy objects to considering the matter before it is voted upon. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders need be specified in any written waiver of notice unless so required by statute, the Articles of Incorporation or these Bylaws. 1.8 List of Stockholders. The Secretary shall prepare and make, or cause to be prepared and made, at least ten (10) Business Days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of Shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, the Stockholder's agent, or attorney, at the Stockholder's expense, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) Business Days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. The Corporation shall maintain the Stockholder list in written form or in another form capable of conversion into written form within a reasonable time. Upon the willful neglect or refusal of the Directors to produce such a list at any meeting for the election of Directors, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the stock ledger, the list of Stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of Stockholders. 1.9 Quorum of Stockholders; Adjournment. Shares entitled to vote may take action on a matter at a meeting of Stockholders only if a quorum of those Shares is present at the meeting. Except as otherwise provided by any statute, the Articles of Incorporation or these Bylaws, the holders of a majority of all outstanding Shares of stock entitled to vote at any meeting of Stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. Once a Share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. In the absence of a quorum at the opening of any meeting of Stockholders, such meeting may be adjourned from time to time by a vote of the majority of the votes cast on the motion to adjourn; 3 4 and at any adjourned meeting any business may be transacted which might have been transacted at the original meeting if a quorum exists with respect to the matter proposed. Absent special circumstances, Shares of the Corporation are not entitled to vote and are not counted for quorum purposes if they are owned by the Corporation or, directly or indirectly, by another corporation in which the Corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided that this provision does not limit the power of the Corporation to vote its own Shares held by it in a fiduciary capacity. 1.10 Voting; Proxies. Unless otherwise provided in the Articles of Incorporation, every Stockholder of record shall be entitled at every meeting of Stockholders to one vote for each Share standing in his or her name on the record of Stockholders determined in accordance with Section 1.5 hereof. If the Articles of Incorporation provide for more or less than one vote for any Share on any matter, each reference in the Bylaws or the Business Corporation Act to a majority or other proportion of Shares shall refer to such majority or other proportion of the votes of such Shares. The provisions of Sections 55-7-21 - 55-7-23, inclusive, of the Business Corporation Act shall apply in determining whether any Shares may be voted and the persons, if any, entitled to vote such Shares; but the Corporation shall be protected in assuming that the persons in whose names Shares stand on the stock ledger of the Corporation are entitled to vote such Shares. Holders of redeemable Shares are not entitled to vote after the notice of redemption is mailed to such holders and a sum sufficient to redeem the Shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the Shares of stock. At any meeting of Stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by law, the Articles of Incorporation or these Bylaws, shall be decided by a majority of all the votes cast at such meeting by the holders of Shares, voting together as a single class, present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. Elections of Directors need not be by written ballot unless otherwise provided in the Articles of Incorporation. In voting on any other question on which a vote by ballot is required by law or is demanded by any Stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the Stockholder voting or the Stockholder's proxy and shall state the number of Shares voted. On all other questions, the voting may be viva voce. Each Stockholder entitled to vote at a meeting of Stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such Stockholder by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 55-7-22 of the Business Corporation Act. A Stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary. 1.11 Voting Procedures and Inspectors of Election at Meetings of Stockholders. The Board, in advance of any meeting of Stockholders, may appoint one or more inspectors to act at the meeting and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed or is able to act at a meeting, the person presiding at the meeting may appoint, and on the 4 5 request of any Stockholder entitled to vote thereat shall appoint, one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (a) ascertain the number of Shares outstanding and the voting power of each, (b) determine the Shares represented at the meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of Shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. Unless otherwise provided by the Board, the date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be determined by the person presiding at the meeting and shall be announced at the meeting. No ballot, proxies or votes, or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless a court of competent jurisdiction in the State of North Carolina upon application by a Stockholder shall determine otherwise. 1.12 Organization. At each meeting of Stockholders, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, the President, or in the absence of the President, a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present), shall act as chairman of the meeting. The Secretary, or in his or her absence, one of the Assistant Secretaries, shall act as Secretary of the meeting. In case none of the officers above designated to act as chairman or secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.13 Order of Business. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.14 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Articles of Incorporation, any action which may be taken at any annual or special meeting of Stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by all of the persons who would be entitled to vote upon such action at a meeting and delivered to the Secretary of the Corporation for inclusion in the minutes or filing with the corporate records. If the Corporation is required by law to give notice to nonvoting Stockholders of action to be taken by unanimous written consent of the voting Stockholders, then the Corporation shall give the nonvoting Stockholders, if any, written notice of the proposed action at least ten (10) days before the action is taken. 5 6 ARTICLE 2 DIRECTORS 2.1 General Powers. Except as otherwise provided in the Articles of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Articles of Incorporation or these Bylaws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred by these Bylaws, the Board may exercise all powers and perform all acts that are not required, by these Bylaws or the Articles of Incorporation or by statute, to be exercised and performed by the Stockholders. 2.2 Number, Term and Qualifications. The number of directors constituting the Board of the Corporation shall be three. Each Director shall hold office until such Director's death, resignation, retirement, removal or disqualification, or until election and qualification of such Director's successor. The Stockholders or the Board from time to time may change the number of directors by amending these Bylaws, but the Board may not increase or decrease the number of Directors by more than thirty percent (30%) during any twelve-month period. Directors need not be residents of the State of North Carolina or Stockholders of the Corporation. 2.3 Election. Except as provided in Section 2.5, the Directors shall be elected at the annual meeting of the Stockholders; and those persons who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected. 2.4 Removal. Any Director may be removed from office at any time with or without cause by the affirmative vote of holders of a majority of the issued and outstanding Shares. If a Director is elected by a voting group of Stockholders, only the Stockholders of that voting group may participate in the vote to remove such Director. A Director may not be removed by the Stockholders at a meeting unless the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the Director. If any Directors are so removed, new Directors may be elected at the same meeting. 2.5 Vacancies. Unless otherwise provided in the Articles of Incorporation, vacancies occurring in the Board for any reason, including the removal of Directors without cause, may be filled by the affirmative vote of a majority of the remaining Directors or the sole remaining Director, as the case may be, or may be elected by the affirmative vote of a plurality of the holders of the Shares entitled to vote in the election at a special meeting of Stockholders called for that purpose. A Director elected to fill a vacancy shall be elected to hold office until a successor is elected and qualified, or until the Director's death, resignation or removal. 2.6 Resignation. Any Director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified in such resignation, the acceptance of such resignation shall not be necessary to make it effective. 6 7 2.7 Compensation. Each Director, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at Directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in connection with the performance of his or her duties. Each Director who shall serve as a member of any committee of Directors in consideration of serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in the performance of his or her duties. Nothing contained in this Section 2.7 shall preclude any Director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 2.8 Times and Places of Meetings. The Board may hold meetings, both regular and special, either within or without the State of North Carolina. The times and places for holding meetings of the Board may be fixed from time to time by resolution of the Board or (unless contrary to a resolution of the Board) in the notice of the meeting. 2.9 Annual Meetings. On the day when and at the place where the annual meeting of Stockholders for the election of Directors is held, and as soon as practicable thereafter, the Board shall hold its annual meeting, without notice of such meeting, for the purpose of the election of officers and the transaction of other business. 2.10 Regular Meetings. Regular meetings of the Board may be held without notice at such times and at such places as shall from time to time be determined by the Board. 2.11 Special Meetings. Special meetings of the Board may be called by or at the request of the Chairman, the Chief Executive Officer, the President or the Secretary or any two (2) or more Directors then serving on at least two (2) day's notice to each Director given by one of the means specified in Section 2.14 hereof. Special meetings shall be called by the Chairman, the Chief Executive Officer, the President or the Secretary in like manner and on like notice on the written request of any two (2) or more of the Directors then serving. Notice of a special meeting need not specify the purpose for which the meeting is called. 2.12 Telephone Meetings. Directors or members of any committee designated by the Board may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.12 shall constitute presence in person at such meeting. 2.13 Adjourned Meetings. A majority of the Directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. At least one (1) day's notice of any adjourned meeting of the Board shall be given to each Director, whether or not present at the time of the adjournment, by one 7 8 of the means specified in Section 2.14 hereof. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called. 2.14 Notice Procedure. Whenever, under the provisions of any statute, the Articles of Incorporation or these Bylaws, notice is required to be given to any Director, such notice shall be deemed given effectively if given in person or by telephone, by mail addressed to such Director at such Director's address as it appears on the records of the Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or similar means addressed as aforesaid. 2.15 Waiver of Notice. Whenever the giving of any notice is required by statute, the Articles of Incorporation or these Bylaws, a waiver thereof, in writing, signed by the person or persons entitled to said notice and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. The attendance by a Director at, or the participation of a Director in, a meeting shall constitute a waiver of any required notice of such meeting, unless the Director, at the beginning of the meeting (or promptly upon the Director's arrival thereat), objects to holding the meeting or to transacting any business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors or a committee of Directors need be specified in any written waiver of notice unless so required by statute, the Articles of Incorporation or these Bylaws. 2.16 Organization. At each meeting of the Board, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, a chairman chosen by a majority of the Directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 2.17 Quorum of Directors. Unless the Corporation's Articles of Incorporation provide otherwise, the presence, in person or by telephone, of a majority of the Entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board, but a majority of a smaller number may adjourn any such meeting to a later date. 2.18 Action by Majority Vote. Except as otherwise expressly required by statute, the Articles of Incorporation or these Bylaws, the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board. 2.19 Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board or at a meeting of any committee of the Board at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) such Director objects at the beginning of the meeting (or promptly upon the Director's arrival thereat) to holding the meeting or to transacting any business at the meeting, or (b) such Director's contrary vote is recorded or such Director's dissent or abstention from the action taken otherwise is entered in the minutes of the 8 9 meeting, or (c) such Director files written notice of dissent or abstention to such action with the person presiding at the meeting before the adjournment thereof or forwards such notice by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right of dissent or abstention is not available to a Director who voted in favor of the action taken. 2.20 Action Without Meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all Directors or members of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE 3 COMMITTEES OF THE BOARD 3.1 Appointment. The Board may, by resolution passed by a vote of a majority of the Entire Board, designate one or more committees, each committee to consist of two (2) or more of the Directors of the Corporation. The designation of any committee and the delegation thereto of authority shall not operate to relieve the Board, or any member thereof, of any responsibility or liability imposed upon the Board, or any member thereof, by law. 3.2 Voting Procedure. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by a unanimous vote, appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. 3.3 Actions. Any such committee, to the extent authorized by law and provided in the resolution of the Board passed as provided in Section 3.1 hereof, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be impressed on all papers that may require it, but no such committee shall have the power or authority of the Board in reference to amending the Articles of Incorporation or the Bylaws of the Corporation, adopting an agreement of merger or consolidation under the Business Corporation Act, recommending to the Stockholders (a) the sale, lease or exchange of all or substantially all of the Corporation's property and assets, or (b) a dissolution of the Corporation or a revocation of a dissolution; and, unless the resolution designating it expressly so provides, no such committee shall have the power and authority to declare a dividend, to authorize the issuance of stock, or to adopt a plan of merger pursuant to the Business Corporation Act. 3.4 Quorum. Unless otherwise specified in the resolution of the Board designating a committee or in these Bylaws, at all meetings of such committee a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. 9 10 3.5 Procedures. Each committee shall keep regular minutes of its meetings. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article 2 of these Bylaws. ARTICLE 4 OFFICERS 4.1 Positions. The officers of the Corporation shall be a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers as the Board may appoint, including a Chairman, one or more Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Board may designate one or more Vice Presidents as Executive Vice Presidents and may use descriptive words or phrases to designate the standing, seniority or areas of special competence of the Vice Presidents elected or appointed by it. Any two (2) or more offices may be held by the same person. 4.2 Election. The officers of the Corporation shall be elected by the Board at its annual meeting or at such other time or times as the Board shall determine. 4.3 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that the officer also is a Director. The election of an officer does not of itself create any contract rights. 4.4 Term of Office. Each officer of the Corporation shall hold office for the term for which he or she is elected and until such officer's successor is chosen and qualifies or until such officer's earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. Any officer elected or appointed by the Board may be removed at any time, with or without cause, by vote of a majority of the Entire Board but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any vacancy occurring in any Office of the Corporation shall be filled by the Board. The removal of an officer without cause shall be without prejudice to the officer's contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 4.5 Fidelity Bonds. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 10 11 4.6 Chairman. The Chairman of the Corporation, if one shall have been appointed, shall preside at all meetings of the Stockholders and at all meetings of the Board. The Chairman shall have general supervision over the business of the Corporation, subject to the control of the Board and of any duly authorized committee of Directors, and shall exercise such powers and perform such other duties as shall be determined from time to time by the Board. The Chairman may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chairman shall perform all duties incident to the office of the Chairman. 4.7 Chief Executive Officer. The Chief Executive Officer of the Corporation shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and any duly authorized committee of Directors. The Chief Executive Officer shall preside at all meetings of the Stockholders and at all meetings of the Board at which the Chairman (if there be one) is not present. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chief Executive Officer shall perform all duties incident to the office of Chief Executive Officer of a corporation and such other duties as may from time to time be assigned to the Chief Executive Officer by the Board. 4.8 President. At the request of the Chairman or at the request of the Board, the President shall perform all duties of the President and, in so performing, shall have the power of, and be subject to all restrictions upon, the President. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and, in general, the President shall perform all duties as from time to time may be assigned to the President by the Board or the Chief Executive Officer. 4.9 Vice Presidents. At the request of the President, or, in the President's absence, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board, or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the President and, in so performing, shall have all the powers of, and be subject to all restrictions upon, the President. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and each Vice President shall perform such other duties as from time to time may be assigned to such Vice President by the Board, the Chief Executive Officer or the President. 11 12 4.10 Secretary. The Secretary shall attend all meetings of the Board and of the Stockholders and shall record all the proceedings of the meetings of the Board and of the Stockholders in a book to be kept for that purpose, and shall perform like duties for committees of the Board, when required. The Secretary shall give, or cause to be given, notice of all special meetings of the Board and of the Stockholders and shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to impress the same on any instrument requiring it, and when so impressed the seal may be attested by the signature of the Secretary or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to impress the seal of the Corporation and to attest the same by such officer's signature. The Secretary or an Assistant Secretary may also attest all instruments signed by the Chairman, the Chief Executive Officer, the President or any Vice President. The Secretary shall have charge of all the books, records and papers of the Corporation relating to its organization and management, shall see that the reports, statements and other documents required by statute are properly kept and filed and, in general, shall perform all duties incident to the office of Secretary of a corporation and such other duties as may from time to time be assigned to the Secretary by the Board or the Chief Executive Officer. 4.11 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys and valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositories of the Corporation signed in such manner as shall be determined by the Board and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books or other records maintained for the purpose full and adequate account of all moneys received or paid for the account of the Corporation; have the right to require from time to time reports or statements giving such information as the Treasurer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the Chief Executive Officer or the Board, whenever the Chief Executive Officer or the Board shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all financial transactions of the Corporation; exhibit at all reasonable times the records and books of account to any of the Directors upon application at the Office of the Corporation where such records and books are kept; disburse the funds of the Corporation as ordered by the Board; and, in general, perform all duties incident to the office of Treasurer of a corporation and such other duties as may from time to time be assigned to the Treasurer by the Board or the Chief Executive Officer. 4.12 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or the Chief Executive Officer. 12 13 ARTICLE 5 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 5.1 Execution of Contracts. The Board, except as otherwise provided in these Bylaws, may prospectively or retroactively authorize any officer or officers, employee or employees or agent or agents, in the name and on behalf of the Corporation, to enter into any contract or execute and deliver any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. 5.2 Loans. The Board may prospectively or retroactively authorize the Chief Executive Officer or any other officer, employee or agent of the Corporation to effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances the person so authorized may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances, or otherwise limited. 5.3 Checks, Drafts, Etc. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 5.4 Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation with such banks, trust companies, investment banking firms, financial institutions or other depositories as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power to select may from time to time be delegated by the Board. ARTICLE 6 STOCK AND DIVIDENDS 6.1 Certificates Representing Shares. The Shares of the Corporation shall be represented by certificates in such form as shall be approved by the Board. Such certificates shall be signed by the Chairman, the Chief Executive Officer, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with the seal of the Corporation or a facsimile thereof. In case any officer who has signed any certificate shall have ceased to be such officer before such certificate is issued, such certificate may, unless otherwise ordered by the Board, be issued by the Corporation with the same effect as if such person were such officer at the date of issue. All certificates for Shares shall be numbered consecutively or otherwise identified; and the name and address of the persons to whom they are issued, with the number of Shares and the date of issue, shall be entered on the stock transfer books of the Corporation. 13 14 6.2 Transfer of Shares. Transfers of Shares of the Corporation shall be made only on the books of the Corporation by the holder thereof or by the holder's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary, and on surrender of the certificate or certificates representing such Shares properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary of the Corporation. A person in whose name Shares shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of Shares shall be valid as against the Corporation, its Stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 6.3 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any Shares of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such Shares, and the Board may authorize the issuance of a new certificate to replace the certificate alleged to have been lost, destroyed, stolen or mutilated upon receipt of an affidavit to such fact from the person claiming the loss, destruction, theft or mutilation. The Board may, in its discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed, stolen or mutilated certificate, or his or her legal representatives, to give the Corporation a bond in such form, in such sums and with such surety or sureties as the Board may direct, to indemnify the Corporation against any claim that may be made against the Corporation on account of the continued existence of any such certificate so alleged to have been lost, destroyed, stolen or mutilated and against any expense in connection with such claim; provided, however, that the Board, by resolution reciting the circumstances justifying such action, may authorize the issuance of the new certificate without requiring such a bond. 6.4 Rules and Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws or with the Articles of Incorporation, concerning the issue, transfer and registration of certificates representing Shares. 6.5 Restriction on Transfer of Stock. A written restriction on the transfer of Shares of the Corporation, if noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted Shares or any successor or transferee of the holder, including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing such Shares, a restriction shall be ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer of Shares of the Corporation may be imposed either by the Articles of Incorporation or by an agreement among any number of Stockholders or among such Stockholders and the Corporation. No restriction so imposed shall be binding with respect to Shares issued prior to the adoption of the restriction unless the holders of such Shares are parties to an agreement or voted in favor of the restriction. 14 15 6.6 Reacquired Shares. Shares of the Corporation that have been issued and thereafter reacquired by the Corporation shall constitute authorized but unissued Shares. 6.7 Distributions. The Board from time to time may authorize, and the Corporation may pay, distributions and share dividends on the Corporation's outstanding Shares in the manner and upon the terms and conditions provided by law and by the Corporation's Articles of Incorporation. ARTICLE 7 INDEMNIFICATION OF PRE-MERGER DIRECTORS, OFFICERS AND AGENTS 7.1 Scope and Term of Indemnification. The indemnification provisions contained in this Article 7 shall apply only to persons otherwise entitled to indemnification hereunder who served in an indemnifiable capacity at any time prior to the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. The provisions of this Article 7 automatically shall terminate and be of no further force or effect on the sixth (6th) anniversary of the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. 7.2 Limitations. The Corporation shall not be obligated to provide any indemnification hereunder to Annabelle L. Fetterman, Lewis M. Fetterman, Jr., or Mabel F. Held (collectively, "Inside Directors") with respect to any claim brought by an independent third party against any one or more of the Inside Directors which would have constituted a breach of the representations and warranties contained in that certain Acquisition Agreement dated as of July 12, 2000, by and among The Lundy Packing Company, PSF Acquisition Corp. and Premium Standard Farms, Inc. ("Agreement"). In determining whether any such claim would have constituted a breach of the representations and warranties contained in the Agreement, the Corporation and the Inside Directors shall follow the standards and procedures set forth in Section 8.1 of the Agreement. 7.3 Right to Indemnification. With respect to persons entitled to indemnification pursuant to this Article 7, each such person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason that he is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a trustee or administrator under an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director, officer, employee, agent, trustee or administrator, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Business Corporation Act against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to serve in the capacity which initially entitled such person to indemnity hereunder and shall inure to the benefit of his heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) 15 16 initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article 7 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Business Corporation Act so requires, the payment of expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that the director or officer is not entitled to be indemnified under this Section or otherwise. 7.4 Right of Claimant to Bring Suit. If a claim under Section 7.3 hereof is not paid in full by the Corporation within ninety days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Business Corporation Act for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Business Corporation Act, nor an actual determination by the Corporation (including its Board of Directors, independent counsel, or its stockholders) that the claimant has not met the applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 7.5 Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this Article 7 shall not be exclusive of any other right which any person may have or hereafter acquire under any law (common or statutory), the Articles of Incorporation, these bylaws, any agreement, the vote of stockholders or disinterested directors or otherwise. 7.6 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any person who is or was serving as a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or trustee or administrator under an employee benefit plan against any liability asserted against and incurred by that person in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify that person against such liability under the Business Corporation Act. 16 17 7.7 Savings Clause. If this Article 7 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and hold harmless each director and officer of the Corporation, as to costs, charges and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by any applicable portion of this Article 7 that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE 7A INDEMNIFICATION 7A.1 Scope of Indemnification. The indemnification provisions contained in this Article 7A shall apply only to persons otherwise entitled to indemnification hereunder who serve (or served) in an indemnifiable capacity at any time on or after the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. 7A.2 Indemnity Undertaking. With respect to persons entitled to indemnification pursuant to this Article 7A, to the extent not prohibited by law, the Corporation shall indemnify any such person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation or any constituent corporation or a limited liability company absorbed in a consolidation or merger by the Corporation, or, at the request of the Corporation, is or was serving as a director or officer of any other corporation or in a capacity with comparable authority or responsibilities for any partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). Persons who are not Directors or officers of the Corporation (or otherwise entitled to indemnification pursuant to the preceding sentence) may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Article 7A. 7A.3 Reimbursement. The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the Business Corporation Act, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses. 17 18 7A.4 Other Indemnification Rights. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7A shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, the Articles of Incorporation, these Bylaws, any agreement, any vote of Stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 7A.5 Continuation of Benefits. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7A shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 7A.6 Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article 7A, the Articles of Incorporation or under the Business Corporation Act or any other provision of law. 7A.7 Coverage. The provisions of this Article 7A shall be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time while this Article 7A is in effect, any former director, officer or member of a corporation or a limited liability company which was absorbed by the corporation in a consolidation or merger and any other person entitled to indemnification hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer or other person intend to be, and shall be legally bound. No repeal or modification of this Article 7A shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 7A.8 Enforcement. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7A shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in 18 19 connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 7A.9 Service Deemed at Corporation's Request. Any Director or officer of the Corporation serving in any capacity (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 7A.10 Governing Law. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article 7A may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made by a notice in writing to the Corporation at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE 8 BOOKS AND RECORDS 8.1 Books and Records. There shall be kept at the Office of the Corporation correct and complete records and books of account recording the financial transactions of the Corporation and minutes of the proceedings of the Stockholders, the Board and any committee of the Board. The Corporation shall keep at the Office of the Corporation a record containing the names and addresses of all Stockholders, the number and class of Shares held by each and the dates when they respectively became the owners of record thereof. 8.2 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of magnetic tape, punch cards, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 8.3 Inspection of Books and Records. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the Stockholders for inspection. 19 20 ARTICLE 9 SEAL The corporate seal of the Corporation shall be in such form as may be approved and adopted by the Board of Directors. ARTICLE 10 FISCAL YEAR The fiscal year of the Corporation shall be fixed, and may be changed, by resolution of the Board. ARTICLE 11 PROXIES AND CONSENTS Unless otherwise directed by the Board, the Chairman, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer, or any one of them, may execute and deliver on behalf of the Corporation proxies respecting any and all shares or other ownership interests of any Other Entity owned by the Corporation appointing such person or persons as the officer executing the same shall deem proper to represent and vote the shares or other ownership interests so owned at any and all meetings of holders of shares or other ownership interests, whether general or special, and/or to execute and deliver consents respecting such shares or other ownership interests; or any of the aforesaid officers may attend any meeting of the holders of shares or other ownership interests of such Other Entity and thereat vote or exercise any or all other powers of the Corporation as the holder of such shares or other ownership interests. ARTICLE 12 EMERGENCY BY-LAWS Unless the Articles of Incorporation provides otherwise, the following provisions of this Article 12 shall be effective during an emergency, which is defined as when a quorum of the Corporation's Directors cannot be readily assembled because of some catastrophic event. During such emergency: 12.1 Notice to Board Members. Any one member of the Board or any one of the following officers: Chairman, Chief Executive Officer, President, any Vice President, Secretary, or Treasurer, may call a meeting of the Board. Notice of such meeting need be given only to those Directors whom it is practicable to reach, and may be given in any practical manner, including by publication and radio. Such notice shall be given at least six (6) hours prior to commencement of the meeting. 12.2 Temporary Directors and Quorum. One or more officers of the Corporation present at the emergency Board meeting, as is necessary to achieve a quorum, shall be considered to be Directors for the meeting, and shall so serve in order of rank, and within the same rank, in order of 20 21 seniority. In the event that less than a quorum of the Directors are present (including any officers who are to serve as Directors for the meeting), those Directors present (including the officers serving as Directors) shall constitute a quorum. 12.3 Actions Permitted To Be Taken. The Board as constituted in Section 12.2, and after notice as set forth in Section 12.1 may: 12.3.1 prescribe emergency powers to any officer of the Corporation; 12.3.2 delegate to any officer or Director, any of the powers of the Board; 12.3.3 designate lines of succession of officers and agents, in the event that any of them are unable to discharge their duties; 12.3.4 relocate the principal place of business, or designate successive or simultaneous principal places of business; and 12.3.5 take any other convenient, helpful or necessary action to carry on the business of the Corporation. ARTICLE 13 AMENDMENTS Except to the extent otherwise provided in the Corporation's Articles of Incorporation or by law, these Bylaws may be amended or repealed and new bylaws may be adopted by the Board. No bylaw adopted, amended or repealed by the Stockholders shall be readopted, amended or repealed by the Board unless the Corporation's Articles of Incorporation or a bylaw adopted by the Stockholders authorizes the Board to adopt, amend or repeal that particular bylaw or the Bylaws generally. The Stockholders may amend or repeal these Bylaws even though these Bylaws also may be amended or repealed by the Board. ARTICLE 14 OFFICES 14.1 Executive Office. The Office of the Corporation shall be located in Clinton, North Carolina. 14.2 Registered Office. The registered office of the Corporation required by law to be maintained in the State of North Carolina may be, but need not be, identical with the principal office. 21 22 14.3 Other Offices. The Corporation may have offices at such other places, either within or without the State of North Carolina, as the Board from time to time may determine, or as the affairs of the Corporation from time to time may require. ARTICLE 15 DEFINITIONS As used in these Bylaws, unless the context otherwise requires, the term: 15.1 "Assistant Secretary" means an Assistant Secretary of the Corporation. 15.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 15.3 "Board" means the Board of Directors of the Corporation. 15.4 "Business Corporation Act" means the North Carolina Business Corporation Act, as amended from time to time. 15.5 "Business Day" means any day other than a Saturday, Sunday, or a day when banks in New York City are authorized or required by law to be closed. 15.6 "Bylaws" means the bylaws of the Corporation, as amended from time to time. 15.7 "Articles of Incorporation" means the Articles of Incorporation of the Corporation, as amended, supplemented or restated from time to time. 15.8 "Chairman" means the Chairman of the Board of the Corporation. 15.9 "Chief Executive Officer" means the Chief Executive Officer of the Corporation. 15.10 "Corporation" means PSF Acquisition Corp. prior to the effective time of the merger of The Lundy Packing Company with PSF Acquisition Corp. and means The Lundy Packing Company on and after the effective time of such merger. 15.11 "Directors" means directors of the Corporation. 15.12 "Entire Board" means all Directors of the Corporation in office, whether or not present at a meeting of the Board, but disregarding vacancies. 15.13 "Office of the Corporation" means the executive office of the Corporation. 15.14 "Other Entity" shall have the meaning ascribed thereto in Section 7A.2. 15.15 "President" means the President of the Corporation. 22 23 15.16 "Proceeding" shall have the meaning ascribed thereto in Section 7A.2. 15.17 "Secretary" means the Secretary of the Corporation. 15.18 "Shares" means all classes of stock designated in the Articles of Incorporation as the common stock. 15.19 "Stockholders" means all stockholders of the Corporation. 15.20 "Treasurer" means the Treasurer of the Corporation. 15.21 "Vice President" means a Vice President of the Corporation. 23 EX-3.10 14 y50886ex3-10.txt RESTATED BY-LAWS 1 Exhibit 3.10 RESTATED BYLAWS OF PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. A Delaware corporation ARTICLE 1 STOCKHOLDERS 1.1 Place of Meetings. Every meeting of Stockholders shall be held at the Office of the Corporation or at such other place within or without the State of Delaware as shall be specified or fixed in the notice of such meeting or in the waiver of notice thereof. 1.2 Annual Meeting. A meeting of Stockholders shall be held annually for the election of Directors and the transaction of other business at such hour and on such Business Day as may be determined by the Board and designated in the notice of meeting. 1.3 Substitute Annual Meeting. If the annual meeting of Stockholders for the election of Directors and the transaction of other business is not held within one hundred twenty (120) days following the Corporation's immediately preceding fiscal year end, the Board shall call a meeting of Stockholders for the election of Directors and the transaction of other business as soon thereafter as convenient. 1.4 Special Meetings. A special meeting of Stockholders (other than a special meeting for the election of Directors), unless otherwise prescribed by statute, may be called at any time by the Board, the Chairman, the Chief Executive Officer, the President or the Secretary, or by the holders of a majority of all outstanding Shares entitled to vote at such meeting, voting as a single class. At any special meeting of Stockholders only such business may be transacted as is related to the purpose or purposes of such meeting set forth in the notice thereof given pursuant to Section 1.6 hereof or in any waiver of notice thereof given pursuant to Section 1.7 hereof. 1.5 Fixing Record Date. For the purpose of determining the Stockholders entitled to notice of or to vote at any meeting of Stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or for the purpose of determining Stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a date as the record dated for any such determination of Stockholders. Such record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting nor more than sixty (6) days prior to any other action. If no such record date is fixed: 1.5.1 The record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on 2 which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; 1.5.2 The record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the written consent is expressed. 1.5.3 The record date for determining Stockholders for any purpose other than those specified in Sections 1.5.1 and 1.5.2 shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of Stockholders entitled to notice of or to vote at any meeting of Stockholders has been made as provided in this Section 1.5, such determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting. 1.6 Notice of Meetings of Stockholders. Except as otherwise provided in Sections 1.5 and 1.7 hereof, whenever under the provisions of the General Corporation Law, the Certificate of Incorporation or these Bylaws, Stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be given, personally or by mail, not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each Stockholder entitled to notice of or to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, addressed to the Stockholder at his or her address as it appears on the current records of the Corporation. An affidavit of the Secretary or an Assistant Secretary that the notice required by this Section 1.6 has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. If any meeting of Stockholders is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting. If a new record date for the adjourned meeting is or must be fixed pursuant to Delaware law, notice of the adjourned meeting must be given as provided in this Section to persons who are Stockholders as of the new record date. 1.7 Waivers of Notice. Whenever notice is required to be given to any Stockholder under any provision of the General Corporation Law or the Certificate of Incorporation or the Bylaws, a written waiver thereof, signed by the Stockholder entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a Stockholder at a meeting shall constitute a waiver of notice of such meeting, except when the Stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders need be specified in any written waiver of notice unless so required by statute, the Certificate of Incorporation or these Bylaws. 2 3 1.8 List of Stockholders. The Secretary shall prepare and make, or cause to be prepared and made, at least ten (10) Business Days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of Shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, the Stockholder's agent, or attorney, at the Stockholder's expense, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) Business Days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. 1.9 Quorum of Stockholders; Adjournment. Shares entitled to vote may take action on a matter at a meeting of Stockholders only if a quorum of those Shares is present at the meeting. Except as otherwise provided by any statute, the Certificate of Incorporation or these Bylaws, the holders of a majority of all outstanding Shares of stock entitled to vote at any meeting of Stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. Once a Share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. 1.10 Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation, every Stockholder of record shall be entitled at every meeting of Stockholders to one vote for each Share standing in his or her name on the record of Stockholders determined in accordance with Section 1.5 hereof. If the Certificate of Incorporation provides for more or less than one vote for any Share on any matter, each reference in the Bylaws or the General Corporation Law to a majority or other proportion of Shares shall refer to such majority or other proportion of the votes of such Shares. The provisions of Sections 212 and 217 of the General Corporation Law shall apply in determining whether any Shares may be voted and the persons, if any, entitled to vote such Shares; but the Corporation shall be protected in assuming that the persons in whose names Shares stand on the stock ledger of the Corporation are entitled to vote such Shares. At any meeting of Stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, shall be decided by a majority of all the votes cast at such meeting by the holders of Shares, voting together as a single class, present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. Elections of Directors shall be by written ballot unless otherwise provided in the Certificate of Incorporation. In voting on any other question on which a vote by ballot is required by law or is demanded by any Stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the Stockholder voting or the Stockholder's proxy and shall state the number of Shares voted. On all other questions, the voting may be viva voce. Each Stockholder entitled to vote at a meeting of Stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such Stockholder by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the General Corporation Law. A Stockholder may revoke any proxy that is not irrevocable by attending the 3 4 meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary. 1.11 Voting Procedures and Inspectors of Election at Meetings of Stockholders. The Board, in advance of any meeting of Stockholders, may appoint one or more inspectors to act at the meeting, or any adjournment thereof, and make a written report thereof. If inspectors are not so appointed, the person presiding at such meeting may, and on the request of any Stockholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. The inspector or inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all Stockholders. On request of the person presiding at the meeting or any Stockholder entitled to vote thereat, the inspector or inspectors shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them. Any report or certificate made by the inspector or inspectors shall be prima facie evidence of the facts stated and of the vote as certified by him or them. 1.12 Organization. At each meeting of Stockholders, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, the President, or in the absence of the President, a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present), shall act as chairman of the meeting. The Secretary, or in his or her absence, one of the Assistant Secretaries, shall act as Secretary of the meeting. 1.13 Order of Business. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of Shares present in person or represented by proxy and entitled to vote at the meeting. 1.14 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by the General Corporation Law to be taken at any annual or special meeting of Stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by all of the persons who would be entitled to vote upon such action at a meeting and delivered to the Secretary of the Corporation for inclusion in the minutes or filing with the corporate records. 4 5 ARTICLE 2 DIRECTORS 2.1 General Powers. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or these Bylaws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred by these Bylaws, the Board may exercise all powers and perform all acts that are not required, by these Bylaws or the Certificate of Incorporation or by statute, to be exercised and performed by the Stockholders. 2.2 Number, Term and Qualifications. The number of directors constituting the Board of the Corporation shall be three. Each Director shall hold office until such Director's death, resignation, retirement, removal or disqualification, or until election and qualification of such Director's successor. The Stockholders or the Board from time to time may change the number of directors by amending these Bylaws, but the Board may not increase or decrease the number of Directors by more than thirty percent (30%) during any twelve-month period. Directors need not be residents of the State of Delaware or Stockholders of the Corporation. 2.3 Election. Except as provided in Section 2.5, the Directors shall be elected at the annual meeting of the Stockholders; and those persons who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected. 2.4 Removal. Any Director may be removed from office at any time with or without cause by the affirmative vote of holders of a majority of the issued and outstanding Shares. If a Director is elected by a voting group of Stockholders, only the Stockholders of that voting group may participate in the vote to remove such Director. A Director may not be removed by the Stockholders at a meeting unless the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the Director. If any Directors are so removed, new Directors may be elected at the same meeting. 2.5 Vacancies. Unless otherwise provided in the Certificate of Incorporation, vacancies occurring in the Board for any reason, including the removal of Directors without cause, may be filled by the affirmative vote of a majority of the remaining Directors or the sole remaining Director, as the case may be, or may be elected by the affirmative vote of a plurality of the holders of the Shares entitled to vote in the election at a special meeting of Stockholders called for that purpose. A Director elected to fill a vacancy shall be elected to hold office until a successor is elected and qualified, or until the Director's death, resignation or removal. 2.6 Resignation. Any Director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified in such resignation, the acceptance of such resignation shall not be necessary to make it effective. 5 6 2.7 Compensation. Each Director, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at Directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in connection with the performance of his or her duties. Each Director who shall serve as a member of any committee of Directors in consideration of serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in the performance of his or her duties. Nothing contained in this Section 2.7 shall preclude any Director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 2.8 Times and Places of Meetings. The Board may hold meetings, both regular and special, either within or without the State of Delaware. The times and places for holding meetings of the Board may be fixed from time to time by resolution of the Board or (unless contrary to a resolution of the Board) in the notice of the meeting. 2.9 Annual Meetings. On the day when and at the place where the annual meeting of Stockholders for the election of Directors is held, and as soon as practicable thereafter, the Board shall hold its annual meeting, without notice of such meeting, for the purpose of the election of officers and the transaction of other business. 2.10 Regular Meetings. Regular meetings of the Board may be held without notice at such times and at such places as shall from time to time be determined by the Board. 2.11 Special Meetings. Special meetings of the Board may be called by or at the request of the Chairman, the Chief Executive Officer, the President or the Secretary or any two (2) or more Directors then serving on at least two (2) day's notice to each Director mailed to the address designated by him for that purpose or, if none is designated, at his last known address; or such notice may be sent to each Director at such address by electronic telecommunications, or may be delivered to him personally, not later than the day before the date on which such meeting is to be held. Every such notice shall state the time and place of the meeting but need not state the purposes of the meeting, except to the extent required by law. If mailed, each notice shall be deemed given when deposited, with postage thereon prepaid, in a post office or official depository under the exclusive care and custody of the United State post office department. Such mailing shall be by first class mail. 2.12 Adjourned Meetings. A majority of the Directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Notice of any adjourned meeting of the Board need not be given to each Director, whether or not present at the time of the adjournment. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called. 6 7 2.13 Waiver of Notice. Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these Bylaws, a waiver thereof, in writing, signed by the person or persons entitled to said notice and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. The attendance by a Director at, or the participation of a Director in, a meeting shall constitute a waiver of any required notice of such meeting, unless the Director, at the beginning of the meeting (or promptly upon the Director's arrival thereat), objects to holding the meeting or to transacting any business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors or a committee of Directors need be specified in any written waiver of notice. 2.14 Organization. At each meeting of the Board, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, a chairman chosen by a majority of the Directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 2.15 Quorum of Directors. A majority of the Entire Board shall constitute a quorum for the transaction of business or of any specified item of business at any meeting of the Board. 2.16 Action by Majority Vote. Except as otherwise expressly required by statute, the Certificate of Incorporation or these Bylaws, the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board. 2.17 Action by the Board. All corporate action taken by the Board or any committee thereof shall be taken at a meeting of the Board, or of such committee, as the case may be, except that any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.17 shall constitute presence in person at such meeting. Except as otherwise provided by the Certificate of Incorporation or by law, the vote of a majority of the directors present (including those who participate by means of conference telephone or similar communications equipment) at the time of the vote, if a quorum is present at such time, shall be the act of the Board. 7 8 ARTICLE 3 COMMITTEES OF THE BOARD 3.1 Appointment. The Board may, by resolution passed by a vote of a majority of the Entire Board, designate one or more committees, each committee to consist of two (2) or more of the Directors of the Corporation. The designation of any committee and the delegation thereto of authority shall not operate to relieve the Board, or any member thereof, of any responsibility or liability imposed upon the Board, or any member thereof, by law. 3.2 Voting Procedure. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by a unanimous vote, appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. 3.3 Actions. Any such committee, to the extent authorized by law and provided in the resolution of the Board passed as provided in Section 3.1 hereof, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be impressed on all papers that may require it, but no such committee shall have the power or authority of the Board in reference to amending the Certificate of Incorporation or the Bylaws of the Corporation, adopting an agreement of merger or consolidation under the laws of the State of Delaware, recommending to the Stockholders (a) the sale, lease or exchange of all or substantially all of the Corporation's property and assets, or (b) a dissolution of the Corporation or a revocation of a dissolution; and, unless the resolution designating it expressly so provides, no such committee shall have the power and authority to declare a dividend, to authorize the issuance of stock, or to adopt a plan of merger pursuant to the laws of the State of Delaware. 3.4 Quorum. Unless otherwise specified in the resolution of the Board designating a committee or in these Bylaws, at all meetings of such committee a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. 3.5 Procedures. Each committee shall keep regular minutes of its meetings. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article 2 of these Bylaws. 8 9 ARTICLE 4 OFFICERS 4.1 Positions. The officers of the Corporation shall be a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers as the Board may appoint, including a Chairman, one or more Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Board may designate one or more Vice Presidents as Executive Vice Presidents and may use descriptive words or phrases to designate the standing, seniority or areas of special competence of the Vice Presidents elected or appointed by it. Any two (2) or more offices may be held by the same person, except that no officer may act in more than one capacity where action of two (2) or more officers is required. 4.2 Election. The officers of the Corporation shall be elected by the Board at its annual meeting or at such other time or times as the Board shall determine. 4.3 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that the officer also is a Director. The election of an officer does not of itself create any contract rights. 4.4 Term of Office. Each officer of the Corporation shall hold office for the term for which he or she is elected and until such officer's successor is chosen and qualifies or until such officer's earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. Any officer elected or appointed by the Board may be removed at any time, with or without cause, by vote of a majority of the Entire Board but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any vacancy occurring in any Office of the Corporation shall be filled by the Board. The removal of an officer without cause shall be without prejudice to the officer's contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 4.5 Fidelity Bonds. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 4.6 Chairman. The Chairman of the Corporation, if one shall have been appointed, shall preside at all meetings of the Stockholders and at all meetings of the Board. The Chairman shall have general supervision over the business of the Corporation, subject to the control of the Board and of any duly authorized committee of Directors, and shall exercise such powers and perform such other duties as shall be determined from time to time by the Board. The Chairman may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board 9 10 or by these Bylaws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chairman shall perform all duties incident to the office of the Chairman. 4.7 Chief Executive Officer. The Chief Executive Officer of the Corporation shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and any duly authorized committee of Directors. The Chief Executive Officer shall preside at all meetings of the Stockholders and at all meetings of the Board at which the Chairman (if there be one) is not present. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the Chief Executive Officer shall perform all duties incident to the office of Chief Executive Officer of a corporation and such other duties as may from time to time be assigned to the Chief Executive Officer by the Board. 4.8 President. At the request of the Chairman or at the request of the Board, the President shall perform all duties of the President and, in so performing, shall have the power of, and be subject to all restrictions upon, the President. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and, in general, the President shall perform all duties as from time to time may be assigned to the President by the Board or the Chief Executive Officer. 4.9 Vice Presidents. At the request of the President, or, in the President's absence, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board, or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the President and, in so performing, shall have all the powers of, and be subject to all restrictions upon, the President. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by statute otherwise to be signed or executed, and each Vice President shall perform such other duties as from time to time may be assigned to such Vice President by the Board, the Chief Executive Officer or the President. 4.10 Secretary. The Secretary shall attend all meetings of the Board and of the Stockholders and shall record all the proceedings of the meetings of the Board and of the Stockholders in a book to be kept for that purpose, and shall perform like duties for committees of the Board, when required. The Secretary shall give, or cause to be given, notice of all special meetings of the Board and of the Stockholders and shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to impress the same on any instrument requiring it, and 10 11 when so impressed the seal may be attested by the signature of the Secretary or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to impress the seal of the Corporation and to attest the same by such officer's signature. The Secretary or an Assistant Secretary may also attest all instruments signed by the Chairman, the Chief Executive Officer, the President or any Vice President. The Secretary shall have charge of all the books, records and papers of the Corporation relating to its organization and management, shall see that the reports, statements and other documents required by statute are properly kept and filed and, in general, shall perform all duties incident to the office of Secretary of a corporation and such other duties as may from time to time be assigned to the Secretary by the Board or the Chief Executive Officer. 4.11 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys and valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositories of the Corporation signed in such manner as shall be determined by the Board and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books or other records maintained for the purpose full and adequate account of all moneys received or paid for the account of the Corporation; have the right to require from time to time reports or statements giving such information as the Treasurer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the Chief Executive Officer or the Board, whenever the Chief Executive Officer or the Board shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all financial transactions of the Corporation; exhibit at all reasonable times the records and books of account to any of the Directors upon application at the Office of the Corporation where such records and books are kept; disburse the funds of the Corporation as ordered by the Board; and, in general, perform all duties incident to the office of Treasurer of a corporation and such other duties as may from time to time be assigned to the Treasurer by the Board or the Chief Executive Officer. 4.12 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or the Chief Executive Officer. ARTICLE 5 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 5.1 Execution of Contracts. The Board, except as otherwise provided in these Bylaws, may prospectively or retroactively authorize any officer or officers, employee or employees or agent or agents, in the name and on behalf of the Corporation, to enter into any contract or execute and deliver any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. 11 12 5.2 Loans. The Board may prospectively or retroactively authorize the Chief Executive Officer or any other officer, employee or agent of the Corporation to effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances the person so authorized may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances, or otherwise limited. 5.3 Checks, Drafts, Etc. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 5.4 Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation with such banks, trust companies, investment banking firms, financial institutions or other depositories as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power to select may from time to time be delegated by the Board. ARTICLE 6 STOCK AND DIVIDENDS 6.1 Certificates Representing Shares. The Shares of the Corporation shall be represented by certificates in such form as shall be approved by the Board. Such certificates shall be signed by the Chairman, the Chief Executive Officer, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with the seal of the Corporation or a facsimile thereof. In case any officer who has signed any certificate shall have ceased to be such officer before such certificate is issued, such certificate may, unless otherwise ordered by the Board, be issued by the Corporation with the same effect as if such person were such officer at the date of issue. All certificates for Shares shall be numbered consecutively or otherwise identified; and the name and address of the persons to whom they are issued, with the number of Shares and the date of issue, shall be entered on the stock transfer books of the Corporation. 6.2 Transfer of Shares. Transfers of Shares of the Corporation shall be made only on the books of the Corporation by the holder thereof or by the holder's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary, and on surrender of the certificate or certificates representing such Shares properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary of the Corporation. A person in whose name Shares shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of Shares shall be valid as against the Corporation, 12 13 its Stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 6.3 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any Shares of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such Shares, and the Board may authorize the issuance of a new certificate to replace the certificate alleged to have been lost, destroyed, stolen or mutilated upon receipt of an affidavit to such fact from the person claiming the loss, destruction, theft or mutilation. The Board may, in its discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed, stolen or mutilated certificate, or his or her legal representatives, to give the Corporation a bond in such form, in such sums and with such surety or sureties as the Board may direct, to indemnify the Corporation against any claim that may be made against the Corporation on account of the continued existence of any such certificate so alleged to have been lost, destroyed, stolen or mutilated and against any expense in connection with such claim; provided, however, that the Board, by resolution reciting the circumstances justifying such action, may authorize the issuance of the new certificate without requiring such a bond. 6.4 Rules and Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws or with the Certificate of Incorporation, concerning the issue, transfer and registration of certificates representing Shares. 6.5 Restriction on Transfer of Stock. A written restriction on the transfer of Shares of the Corporation, if noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted Shares or any successor or transferee of the holder, including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing such Shares, a restriction shall be ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer of Shares of the Corporation may be imposed either by the Certificate of Incorporation or by an agreement among any number of Stockholders or among such Stockholders and the Corporation. No restriction so imposed shall be binding with respect to Shares issued prior to the adoption of the restriction unless the holders of such Shares are parties to an agreement or voted in favor of the restriction. 6.6 Reacquired Shares. Shares of the Corporation that have been issued and thereafter reacquired by the Corporation shall constitute authorized but unissued Shares. 6.7 Distributions. The Board from time to time may authorize, and the Corporation may pay, distributions and share dividends on the Corporation's outstanding Shares in the manner and upon the terms and conditions provided by law and by the Corporation's Certificate of Incorporation. 13 14 ARTICLE 7 INDEMNIFICATION 7.1 Scope of Indemnification. The indemnification provisions contained in this Article 7 shall apply only to persons otherwise entitled to indemnification hereunder who serve (or served) in an indemnifiable capacity with the Corporation. 7.2 Indemnity Undertaking. To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation or any constituent corporation or a limited liability company absorbed in a consolidation or merger by the Corporation, or, at the request of the Corporation, is or was serving as a director or officer of any other corporation or in a capacity with comparable authority or responsibilities for any partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). Persons who are not Directors or officers of the Corporation (or otherwise entitled to indemnification pursuant to the preceding sentence) may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Article 7. 7.3 Reimbursement. The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the General Corporation Law, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses. 7.4 Other Indemnification Rights. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, the Certificate of Incorporation, these Bylaws, any agreement, any vote of Stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 14 15 7.5 Continuation of Benefits. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 7.6 Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article 7, the Certificate of Incorporation or under the General Corporation Law or any other provision of law. 7.7 Coverage. The provisions of this Article 7 shall be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time while this Article 7 is in effect, any former director, officer or member of a corporation or a limited liability company which was absorbed by the corporation in a consolidation or merger and any other person entitled to indemnification hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer or other person intend to be, and shall be legally bound. No repeal or modification of this Article 7 shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 7.8 Enforcement. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 7 shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its Stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 7.9 Service Deemed at Corporation's Request. Any Director or officer of the Corporation serving in any capacity (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 15 16 7.10 Governing Law. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article 7 may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made by a notice in writing to the Corporation at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE 8 BOOKS AND RECORDS 8.1 Books and Records. There shall be kept at the Office of the Corporation correct and complete records and books of account recording the financial transactions of the Corporation and minutes of the proceedings of the Stockholders, the Board and any committee of the Board. The Corporation shall keep at the Office of the Corporation a record containing the names and addresses of all Stockholders, the number and class of Shares held by each and the dates when they respectively became the owners of record thereof. 8.2 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of magnetic tape, punch cards, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 8.3 Inspection of Books and Records. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the Stockholders for inspection. ARTICLE 9 SEAL The corporate seal of the Corporation shall consist of two concentric circles between which is the name of the Corporation and in the center of which is inscribed SEAL; and such seal, in the form approved and adopted by the Board, shall be the corporate seal of the Corporation. 16 17 ARTICLE 10 FISCAL YEAR The fiscal year of the Corporation shall be fixed, and may be changed, by resolution of the Board. ARTICLE 11 VOTING OF SHARES HELD Unless otherwise provided by resolution of the Board, the Chairman, the Chief Executive Officer, any Vice President, the Secretary or the Treasurer, or any one of them, may from time to time, appoint one or more attorneys or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of stock or other securities of such other corporation, or to consent in writing to any action by any such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, revocations, consents, waivers, or other instruments as he may deem necessary or proper in the premises; or any of said officers may attend in person any meeting of the holders of the stock or other securities of any such other corporation and thereat vote or exercise any or all other powers of the Corporation as the holder of such stock or other securities of such other corporation. ARTICLE 12 EMERGENCY BY-LAWS Unless the Certificate of Incorporation provides otherwise, the following provisions of this Article 12 shall be effective during an emergency, which is defined as when a quorum of the Corporation's Directors cannot be readily assembled because of some catastrophic event. During such emergency: 12.1 Notice to Board Members. Any one member of the Board or any one of the following officers: Chairman, Chief Executive Officer, President, any Vice President, Secretary, or Treasurer, may call a meeting of the Board. Notice of such meeting need be given only to those Directors whom it is practicable to reach, and may be given in any practical manner, including by publication and radio. Such notice shall be given at least six (6) hours prior to commencement of the meeting. 12.2 Temporary Directors and Quorum. One or more officers of the Corporation present at the emergency Board meeting, as is necessary to achieve a quorum, shall be considered to be Directors for the meeting, and shall so serve in order of rank, and within the same rank, in order of seniority. In the event that less than a quorum of the Directors are present (including any officers who are to serve as Directors for the meeting), those Directors present (including the officers serving as Directors) shall constitute a quorum. 17 18 12.3 Actions Permitted To Be Taken. The Board as constituted in Section 12.2, and after notice as set forth in Section 12.1 may: 12.3.1 prescribe emergency powers to any officer of the Corporation; 12.3.2 delegate to any officer or Director, any of the powers of the Board; 12.3.3 designate lines of succession of officers and agents, in the event that any of them are unable to discharge their duties; 12.3.4 relocate the principal place of business, or designate successive or simultaneous principal places of business; and 12.3.5 take any other convenient, helpful or necessary action to carry on the business of the Corporation. ARTICLE 13 AMENDMENTS Except to the extent otherwise provided in the Corporation's Certificate of Incorporation or by law, these Bylaws may be amended or repealed and new bylaws may be adopted by the Board. No bylaw adopted, amended or repealed by the Stockholders shall be readopted, amended or repealed by the Board unless the Corporation's Certificate of Incorporation or a bylaw adopted by the Stockholders authorizes the Board to adopt, amend or repeal that particular bylaw or the Bylaws generally. The Stockholders may amend or repeal these Bylaws even though these Bylaws also may be amended or repealed by the Board. ARTICLE 14 OFFICES 14.1 Executive Office. The Office of the Corporation shall be located in New York, New York. 14.2 Registered Office. The registered office of the Corporation required by law to be maintained in the State of Delaware may be, but need not be, identical with the principal office. 14.3 Other Offices. The Corporation may have offices at such other places, either within or without the State of Delaware, as the Board from time to time may determine, or as the affairs of the Corporation from time to time may require. 18 19 ARTICLE 15 DEFINITIONS As used in these Bylaws, unless the context otherwise requires, the term: 15.1 "Assistant Secretary" means an Assistant Secretary of the Corporation. 15.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 15.3 "Board" means the Board of Directors of the Corporation. 15.4 "General Corporation Law" means the General Corporation Law of the State of Delaware, as amended from time to time. 15.5 "Business Day" means any day other than a Saturday, Sunday, or a day when banks in New York City are authorized or required by law to be closed. 15.6 "Bylaws" means the bylaws of the Corporation, as amended from time to time. 15.7 "Certificate of Incorporation" means the Certificate of Incorporation of the Corporation, as amended, supplemented or restated from time to time. 15.8 "Chairman" means the Chairman of the Board of the Corporation. 15.9 "Chief Executive Officer" means the Chief Executive Officer of the Corporation. 15.10 "Corporation" means Premium Standard Farms of North Carolina, Inc. 15.11 "Directors" means directors of the Corporation. 15.12 "Entire Board" means all Directors of the Corporation in office, whether or not present at a meeting of the Board, but disregarding vacancies. 15.13 "Office of the Corporation" means the executive office of the Corporation. 15.14 "Other Entity" shall have the meaning ascribed thereto in Section 7.2. 15.15 "President" means the President of the Corporation. 15.16 "Proceeding" shall have the meaning ascribed thereto in Section 7.2. 15.17 "Secretary" means the Secretary of the Corporation. 19 20 15.18 "Shares" means all classes of stock designated in the Certificate of Incorporation as the common stock. 15.19 "Stockholders" means all stockholders of the Corporation. 15.20 "Treasurer" means the Treasurer of the Corporation. 15.21 "Vice President" means a Vice President of the Corporation. 20 EX-4.1.A 15 y50886ex4-1_a.txt INDENTURE 1 EXHIBIT 4.1a PREMIUM STANDARD FARMS, INC., Issuer PSF GROUP HOLDINGS, INC., THE LUNDY PACKING COMPANY, PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC., and LUNDY INTERNATIONAL, INC., Guarantors and WILMINGTON TRUST COMPANY, Trustee ___________________ Indenture Dated as of June 7, 2001 ___________________ 9-1/4% Senior Notes due 2011 2 CROSS-REFERENCE TABLE
TIA Sections Indenture Sections ------------ ------------------ Section 310(a)(1) 7.10 (a)(2) 7.10 (b) 7.03; 7.08 Section 311(a) 7.03 (b) 7.03 Section 312(a) 2.04 (b) 11.02 (c) 11.02 Section 313(a) 7.06 (b)(2) 7.07 (c) 7.05; 7.06; 11.02 (d) 7.06 Section 314(a) 7.05; 11.02 (a)(4) 4.17; 11.02 (c)(1) 11.03 (c)(2) 11.03 (e) 4.17; 11.04 Section 315(a) 7.02 (b) 7.05; 11.02 (c) 7.02 (d) 7.02 (e) 6.11 Section 316(a)(1)(A) 6.05 (a)(1)(B) 6.04 (b) 6.07 (c) 9.03 Section 317(a)(1) 6.08 (a)(2) 6.09 (b) 2.05 Section 318(a) 11.01 (c) 11.01
Note: The Cross-Reference Table shall not for any purpose be deemed to be a part of this Indenture. 3 TABLE OF CONTENTS(1)
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions............................................................................1 SECTION 1.02. Incorporation by Reference of Trust Indenture Act.....................................22 SECTION 1.03. Rules of Construction.................................................................22 ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating.......................................................................23 SECTION 2.02. Restrictive Legends...................................................................24 SECTION 2.03. Execution, Authentication and Denominations...........................................26 SECTION 2.04. Registrar and Paying Agent............................................................26 SECTION 2.05. Paying Agent to Hold Money in Trust...................................................27 SECTION 2.06. Transfer and Exchange.................................................................27 SECTION 2.07. Book-Entry Provisions for Global Notes................................................28 SECTION 2.08. Special Transfer Provisions...........................................................30 SECTION 2.09. Replacement Notes.....................................................................33 SECTION 2.10. Outstanding Notes.....................................................................33 SECTION 2.11. Temporary Notes.......................................................................34 SECTION 2.12. Cancellation..........................................................................34 SECTION 2.13. CUSIP Numbers.........................................................................34 SECTION 2.14. Defaulted Interest....................................................................34
- ---------------------------- Note: The Table of Contents shall not for any purposes be deemed to be a part of this Indenture. i 4 SECTION 2.15. Issuance of Additional Notes..........................................................35 ARTICLE THREE REDEMPTION SECTION 3.01. Right of Redemption...................................................................35 SECTION 3.02. Notices to Trustee....................................................................35 SECTION 3.03. Selection of Notes to Be Redeemed.....................................................36 SECTION 3.04. Notice of Redemption..................................................................36 SECTION 3.05. Effect of Notice of Redemption........................................................37 SECTION 3.06. Deposit of Redemption Price...........................................................37 SECTION 3.07. Payment of Notes Called for Redemption................................................37 SECTION 3.08. Notes Redeemed in Part................................................................37 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes......................................................................38 SECTION 4.02. Maintenance of Office or Agency.......................................................38 SECTION 4.03. Limitation on Indebtedness............................................................38 SECTION 4.04. Limitation on Restricted Payments.....................................................41 SECTION 4.05. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries..........................................................................45 SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries.......46 SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries......................47 SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates...........................48 SECTION 4.09. Limitation on Liens...................................................................49 SECTION 4.10. Limitation on Sale-Leaseback Transactions.............................................50 SECTION 4.11. Limitation on Asset Sales.............................................................50 SECTION 4.12. Repurchase of Notes upon a Change of Control..........................................52
ii 5 SECTION 4.13. Existence.............................................................................52 SECTION 4.14. Payment of Taxes and Other Claims.....................................................52 SECTION 4.15. Maintenance of Properties and Insurance...............................................52 SECTION 4.16. Notice of Defaults....................................................................53 SECTION 4.17. Compliance Certificates...............................................................53 SECTION 4.18. Commission Reports and Reports to Holders.............................................53 SECTION 4.19. Waiver of Stay, Extension or Usury Laws...............................................54 SECTION 4.20. Issuance of Subsidiary Guarantees by Restricted Subsidiaries..........................54 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. When Company or Guarantors May Merge, Etc.............................................54 SECTION 5.02. Successor Substituted.................................................................56 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default.....................................................................56 SECTION 6.02. Acceleration..........................................................................58 SECTION 6.03. Other Remedies........................................................................59 SECTION 6.04. Waiver of Past Defaults...............................................................59 SECTION 6.05. Control by Majority...................................................................59 SECTION 6.06. Limitation on Suits...................................................................59 SECTION 6.07. Rights of Holders to Receive Payment..................................................60 SECTION 6.08. Collection Suit by Trustee............................................................60 SECTION 6.09. Trustee May File Proofs of Claim......................................................60 SECTION 6.10. Priorities............................................................................61 SECTION 6.11. Undertaking for Costs.................................................................61 SECTION 6.12. Restoration of Rights and Remedies....................................................61
iii 6 SECTION 6.13. Rights and Remedies Cumulative........................................................61 SECTION 6.14. Delay or Omission Not Waiver..........................................................61 ARTICLE SEVEN TRUSTEE SECTION 7.01. General...............................................................................62 SECTION 7.02. Certain Rights of Trustee.............................................................62 SECTION 7.03. Individual Rights of Trustee..........................................................63 SECTION 7.04. Trustee's Disclaimer..................................................................63 SECTION 7.05. Notice of Default.....................................................................63 SECTION 7.06. Reports by Trustee to Holders.........................................................64 SECTION 7.07. Compensation and Indemnity............................................................64 SECTION 7.08. Replacement of Trustee................................................................65 SECTION 7.09. Successor Trustee by Merger, Etc......................................................66 SECTION 7.10. Eligibility...........................................................................66 SECTION 7.11. Money Held in Trust...................................................................66 ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations..................................................66 SECTION 8.02. Defeasance and Discharge of Indenture.................................................67 SECTION 8.03. Defeasance of Certain Obligations.....................................................69 SECTION 8.04. Application of Trust Money............................................................70 SECTION 8.05. Repayment to Company..................................................................71 SECTION 8.06. Reinstatement.........................................................................71 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders............................................................71
iv 7 SECTION 9.02. With Consent of Holders...............................................................72 SECTION 9.03. Revocation and Effect of Consent......................................................73 SECTION 9.04. Notation on or Exchange of Notes......................................................73 SECTION 9.05. Trustee to Sign Amendments, Etc.......................................................73 SECTION 9.06. Conformity with Trust Indenture Act...................................................74 ARTICLE TEN GUARANTEE OF NOTES SECTION 10.01. Note Guarantee........................................................................74 SECTION 10.02. Obligations Unconditional.............................................................76 SECTION 10.03. Release of Note Guarantees............................................................76 SECTION 10.04. Notice to Trustee.....................................................................76 SECTION 10.05. This Article Not to Prevent Events of Default.........................................77 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act of 1939...........................................................77 SECTION 11.02. Notices...............................................................................77 SECTION 11.03. Certificate and Opinion as to Conditions Precedent....................................78 SECTION 11.04. Statements Required in Certificate or Opinion.........................................78 SECTION 11.05. Rules by Trustee, Paying Agent or Registrar...........................................79 SECTION 11.06. Payment Date Other Than a Business Day................................................79 SECTION 11.07. Governing Law.........................................................................79 SECTION 11.08. No Adverse Interpretation of Other Agreements.........................................79 SECTION 11.09. No Recourse Against Others............................................................79 SECTION 11.10. Successors............................................................................80 SECTION 11.11. Duplicate Originals...................................................................80 SECTION 11.12. Separability..........................................................................80
v 8 SECTION 11.13. Table of Contents, Headings, Etc......................................................80 EXHIBIT A Form of Note..............................................................................A-1 EXHIBIT B Form of Certificate.......................................................................B-1 EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Non-QIB Accredited Investors..................................................C-1 EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S........................................................D-1
vi 9 INDENTURE, dated as of June 7, 2001 between PREMIUM STANDARD FARMS, INC., a Delaware corporation (the "Company"), PSF Group Holdings, Inc., a Delaware corporation, The Lundy Packing Company, a North Carolina corporation, Premium Standard Farms of North Carolina, Inc., a Delaware corporation, and Lundy International Inc., a North Carolina corporation (collectively, the "Guarantors"), as guarantors, and WILMINGTON TRUST COMPANY, a Delaware banking corporation, trustee (the "Trustee"). RECITALS The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance initially of up to $175,000,000 aggregate principal amount of the Company's 9-1/4% Senior Notes due 2011 (the "Notes") issuable as provided in this Indenture. All things necessary to make this Indenture a valid agreement of the Company and each Guarantor, in accordance with its terms, have been done, and the Company and each Guarantor have done all things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, valid obligations of the Company as hereinafter provided. This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act of 1939, as amended, that are required to be a part of and to govern indentures qualified under the Trust Indenture Act of 1939, as amended. AND THIS INDENTURE FURTHER WITNESSETH For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or Indebtedness of a Restricted Subsidiary assumed in connection with an Asset Acquisition by such Restricted Subsidiary; provided such Indebtedness was not Incurred in connection with or in contemplation of such Person becoming a Restricted Subsidiary or such Asset Acquisition. "Adjusted Consolidated Net Income" means, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period determined in conformity with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income (or loss) of any Person that is not a Restricted Subsidiary, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries; 10 (ii) the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by the Company or any of its Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to sales of assets outside the ordinary course of business of the Company and its Restricted Subsidiaries; (v) solely for purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of the first paragraph of Section 4.04, any amount paid or accrued as dividends on Preferred Stock of the Company owned by Persons other than the Company and any of its Restricted Subsidiaries; and (vi) all extraordinary gains and, solely for purposes of calculating the Interest Coverage Ratio, extraordinary losses. "Adjusted Consolidated Net Tangible Assets" means the total amount of assets of the Company and its Restricted Subsidiaries (less applicable depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups of capital assets (excluding write-ups in connection with accounting for acquisitions in conformity with GAAP), after deducting therefrom (i) all current liabilities of the Company and its Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recent quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries, prepared in conformity with GAAP and filed with the Commission or provided to the Trustee. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means any Registrar, Co-Registrar, Paying Agent or authenticating agent. "Agent Members" has the meaning provided in Section 2.07(a). "Asset Acquisition" means (i) an investment by the Company or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a 2 11 Restricted Subsidiary or shall be merged into or consolidated with the Company or any of its Restricted Subsidiaries; provided that such Person's primary business is, in the judgment of the Board of Directors of the Company, related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such investment or (ii) an acquisition by the Company or any of its Restricted Subsidiaries of the property and assets of any Person other than the Company or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person; provided that the property and assets acquired are, in the judgment of the Board of Directors of the Company, related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such acquisition. "Asset Disposition" means the sale or other disposition by the Company or any of its Restricted Subsidiaries (other than to the Company or another Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of any Restricted Subsidiary or (ii) all or substantially all of the assets that constitute a division or line of business of the Company or any of its Restricted Subsidiaries. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transaction) in one transaction or a series of related transactions by the Company or any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted Subsidiary, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries or (iii) any other property and assets (other than the Capital Stock or other Investment in an Unrestricted Subsidiary) of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary and, in each case, that is not governed by Article Five of this Indenture; provided that "Asset Sale" shall not include (a) sales or other dispositions of inventory, receivables and other current assets, (b) sales, transfers or other dispositions of assets constituting a Permitted Investment or Restricted Payment permitted to be made under Section 4.04, (c) sales, transfers or other dispositions of assets with a fair market value not in excess of $1.0 million in any transaction or series of related transactions, or (d) any sale, transfer, assignment or other disposition of any property or equipment that has become damaged, worn out, obsolete or otherwise unsuitable for use in connection with the business of the Company or its Restricted Subsidiaries. "Average Life" means, at any date of determination with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security and (b) the amount of such principal payment by (ii) the sum of all such principal payments. "Board of Directors" means, with respect to any Person, the Board of Directors such Person or any duly authorized committee of such Board of Directors. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. 3 12 "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in The City of New York or Wilmington, Delaware are authorized by law to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether outstanding on the Closing Date or issued thereafter, including, without limitation, all Common Stock and Preferred Stock. "Capitalized Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person. "Capitalized Lease Obligations" means the discounted present value of the rental obligations under a Capitalized Lease. "Change of Control" means such time as (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than the Existing Stockholders and their Affiliates, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the Voting Stock of the Company on a fully diluted basis; (ii) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than the Existing Stockholders and their Affiliates, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the Voting Stock of PSF Group Holdings on a fully diluted basis; or (iii) individuals who on the Closing Date constitute the Board of Directors of the Company or PSF Group Holdings (together with any new directors whose election by the Board of Directors of the Company or PSF Group Holdings, as the case may be, or whose nomination by the Board of Directors of the Company or PSF Group Holdings, as the case may be, for election by the Company's or PSF Group Holdings' stockholders, as the case may be, was approved by a vote of at least a majority of the members of the Board of Directors of the Company or PSF Group Holdings, as the case may be, then in office who either were members of the Board of Directors of the Company or PSF Group Holdings, as the case may be, on the Closing Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors of the Company or PSF Group Holdings, as the case may be, then in office. "Closing Date" means the date on which the Notes are originally issued under this Indenture. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Commodity Agreement" means any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement. 4 13 "Common Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's equity, other than Preferred Stock of such Person, whether outstanding on the Closing Date or issued thereafter, including, without limitation, all series and classes of such common stock. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to Article Five of this Indenture and thereafter means the successor. "Company Order" means a written request or order signed in the name of the Company (i) by its Chairman, a Vice Chairman, its President or a Vice President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee; provided, however, that such written request or order may be signed by any two of the officers or directors listed in clause (i) above in lieu of being signed by one of such officers or directors listed in such clause (i) and one of the officers listed in clause (ii) above. "Consolidated EBITDA" means, for any period, Adjusted Consolidated Net Income for such period plus, to the extent such amount was deducted in calculating such Adjusted Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income taxes, (iii) depreciation expense, (iv) amortization expense, (v) non-recurring fees and expenses incurred in connection with the consummation of any acquisition in an aggregate amount not to exceed 5% of the total consideration of such acquisition and (vi) all other non-cash items reducing Adjusted Consolidated Net Income (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made), less all non-cash items increasing Adjusted Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (a) the amount of the Adjusted Consolidated Net Income attributable to such Restricted Subsidiary multiplied by (b) the percentage ownership interest in the income of such Restricted Subsidiary not owned on the last day of such period by the Company or any of its Restricted Subsidiaries. "Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of Indebtedness (including, without limitation, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements (provided that if Interest Rate Agreements result in net benefits rather than costs, such benefits shall be credited in determining Consolidated Interest Expense unless, pursuant to GAAP, such net benefits are otherwise reflected in Consolidated Net Income); and Indebtedness that is Guaranteed or secured by the Company or any of its Restricted Subsidiaries) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by the Company and its Restricted Subsidiaries during such period; excluding, however, (i) any amount of such interest of any Restricted Subsidiary if the net income of such Restricted 5 14 Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof (but only in the same proportion as the net income of such Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses (and any amortization thereof) payable in connection with the offering of the Notes, all as determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in conformity with GAAP. "Consolidated Net Worth" means, with respect to any Person, at any date of determination, stockholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of such Person and its Restricted Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation, and which shall not take into account Unrestricted Subsidiaries), plus, to the extent not included, any Preferred Stock of such Person, less any amounts attributable to Disqualified Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of the Capital Stock of such Person or any of its Restricted Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "ContiGroup" means ContiGroup Companies, Inc., a Delaware corporation. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890; Attention: Corporate Trust Department. "Credit Agreement" means the Credit Agreement between the Company, the lenders party thereto and U.S. Bancorp Ag Credit, Inc. (formerly FBS Ag Credit, Inc.), as Agent, dated August 27, 1997, together with all agreements, instruments and documents executed or delivered pursuant thereto and in connection therewith, in each case as amended, supplemented, extended, renewed, replaced (by one or more credit facilities or debt instruments supplemental thereto) or otherwise modified from time to time including, without limitation, any agreement increasing the amount of, extending the maturity of, refinancing (in whole or in part) or otherwise restructuring (including, but not limited to, by the inclusion of additional or different lenders thereunder, additional borrowers or guarantors thereof or by the addition of collateral or other credit enhancement to support the obligations thereunder) all or any portion of the Indebtedness under such agreement or any successor agreement or agreements (regardless of when incurred). "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. 6 15 "Depositary" means The Depository Trust Company, its nominees, and their respective successors. "Disqualified Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is (i) required to be redeemed prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Section 4.11 and Section 4.12 and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be repurchased pursuant to Section 4.11 and Section 4.12. "Event of Default" has the meaning provided in Section 6.01. "Excess Proceeds" has the meaning provided in Section 4.11. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means any securities of the Company containing terms identical to the Notes (except that such Exchange Notes shall be registered under the Securities Act) that are issued and exchanged for the Notes pursuant to the Registration Rights Agreement and this Indenture. "Existing Stockholders" means (i) PSF Group Holdings; (ii) ContiGroup; (iii) Mary Ann Fribourg; (iv) each of the five children of Michel Fribourg; and (v) any lineal descendants of any of the five children of Michel Fribourg; provided that any such descendant shall only be deemed to be an "Existing Stockholder" to the extent such descendant acquired beneficial ownership of stock of the Company or PSF Group Holdings directly or indirectly from Mary Ann Fribourg or any of the five children of Michel Fribourg. "fair market value" means the price that would be paid in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the Board of Directors, whose determination shall be conclusive if evidenced by a Board Resolution. "Foreign Subsidiary" means any Restricted Subsidiary of the Company that is an entity which is a controlled foreign corporation under Section 957 of the Internal Revenue Code. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Closing Date, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of 7 16 Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations contained or referred to in this Indenture shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of this Indenture shall be made without giving effect to (i) the amortization of any expenses incurred in connection with the offering of the Notes and (ii) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17. "Global Notes" has the meaning provided in Section 2.01. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services (unless such purchase arrangements are on arm's-length terms and are entered into in the ordinary course of business), to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranteed Indebtedness" has the meaning provided in Section 4.07. "Guarantor" means each of PSF Group Holdings and each Subsidiary Guarantor until (a) a successor replaces it pursuant to Article Five of this Indenture and thereafter means the successor or (b) it is released from its Guarantee pursuant to the terms of this Indenture. "Holder" or "Noteholder" means the registered holder of any Note. "Incur" means, with respect to any Indebtedness, to incur create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness; provided that (i) any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary will be deemed to be incurred by such Restricted Subsidiary at the time that it becomes a Restricted Subsidiary and (ii) neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication): (i) all indebtedness of such Person for borrowed money; (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (other than, in the case of the Company and the Subsidiary 8 17 Guarantors, any non-negotiable bonds, debentures or notes or similar instruments of the Company or any Subsidiary Guarantor issued to its insurance carriers in lieu of maintenance of policy reserves in connection with workers' compensation and liability insurance programs of the Company or any Subsidiary Guarantor); (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto, but excluding obligations with respect to letters of credit (including trade letters of credit) securing obligations (other than obligations described in (i) or (ii) above or (v), (vi) or (vii) below) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement); (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables; (v) all Capitalized Lease Obligations; (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (a) the fair market value of such asset at such date of determination and (b) the amount of such Indebtedness; (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person; and (viii) to the extent not otherwise included in this definition, obligations under Commodity Agreements, Currency Agreements and Interest Rate Agreements (other than Commodity Agreements, Currency Agreements and Interest Rate Agreements designed solely to protect the Company or its Restricted Subsidiaries against fluctuations in commodity prices, foreign currency exchange rates or interest rates and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in commodity prices, foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, assuming such contingency had occurred on such date, provided (A) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, 9 18 (B) that money borrowed and set aside at the time of the Incurrence of any Indebtedness in order to pre-fund the payment of the interest on such Indebtedness shall not be deemed to be "Indebtedness" so long as such money is held to secure the payment of such interest; provided that the release of such money to make such interest payments shall not constitute an Incurrence of Indebtedness and (C) that Indebtedness shall not include: (x) any liability for federal, state, local or other taxes, (y) performance, surety or appeal bonds provided in the ordinary course of business or (z) agreements providing for indemnification, adjustment of purchase price or similar obligations, or Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), so long as the principal amount does not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition. "Indenture" means this Indenture as originally executed or as it may be amended or supplemented from time to time by one or more indentures supplemental to this Indenture entered into pursuant to the applicable provisions of this Indenture. "Initial Subsidiary Guarantors" means The Lundy Packing Company, Premium Standard Farms of North Carolina, Inc., and Lundy International, Inc. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Coverage Ratio" means, on any Transaction Date, the ratio of (i) the aggregate amount of Consolidated EBITDA for the then most recent four fiscal quarters prior to such Transaction Date for which reports have been filed with the Commission or provided to the Trustee (the "Four Quarter Period") to (ii) the aggregate Consolidated Interest Expense during such Four Quarter Period. In making the foregoing calculation, (A) pro forma effect shall be given to any Indebtedness Incurred or repaid during the period (the "Reference Period") commencing on the first day of the Four Quarter Period and ending on the Transaction Date (other than Indebtedness Incurred or repaid under a revolving credit or similar arrangement to the extent of the commitment thereunder (or under any predecessor revolving credit or similar arrangement) in effect on the last day of such Four Quarter Period unless any portion of such Indebtedness is projected, in the reasonable judgment of the senior management of the Company, to remain outstanding for a period in excess of 12 months from the date of the Incurrence thereof), in each case as if such Indebtedness had been Incurred or repaid on the first day of such Reference Period; (B) Consolidated Interest Expense attributable to interest on any Indebtedness 10 19 (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the Transaction Date (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months or, if shorter, at least equal to the remaining term of such Indebtedness) had been the applicable rate for the entire period; (C) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur during such Reference Period as if they had occurred and such proceeds had been applied on the first day of such Reference Period; and (D) pro forma effect shall be given to asset dispositions and asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Restricted Subsidiary or has been merged with or into the Company or any Restricted Subsidiary during such Reference Period and that would have constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such Reference Period; provided that, to the extent that clause (C) or (D) of this sentence requires that pro forma effect be given to an Asset Acquisition or Asset Disposition, such pro forma calculation shall be based upon the four full fiscal quarters immediately preceding the Transaction Date of the Person, or division or line of business of the Person, that is acquired or disposed for which financial information is available. "Interest Payment Date" means each semiannual interest payment date on June 15 and December 15 of each year, commencing December 15, 2001. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement. "Investment" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on the balance sheet of the Company or its Restricted Subsidiaries and endorsements for collection or deposit arising in the ordinary course of business) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person and shall include (i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the retention of the Capital Stock (or any other Investment) by the Company or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a Restricted Subsidiary, including without limitation, by reason of any transaction permitted by clause (iii) or (iv) of Section 4.06. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.04, (a) the amount of or a reduction in an Investment shall be equal to the fair market value thereof at the time such Investment is made or reduced and (b) in the event the Company or a Restricted Subsidiary makes an Investment by transferring assets to any Person and as part of such transaction receives Net Cash Proceeds, the amount of such Investment shall be the fair market value of the assets less the amount of Net 11 20 Cash Proceeds so received, provided the Net Cash Proceeds are applied in accordance with clause (i)(A) or (ii)(B) of Section 4.11. "L&S Farms" means L&S Farms, a North Carolina general partnership. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to give any security interest). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means: (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale; (ii) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole; (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (x) is secured by a Lien on the property or assets sold or (y) is required to be paid as a result of such sale; (iv) all distributions and other payments required to be made to minority interest holders in any Restricted Subsidiary as a result of such Asset Sale, provided that such distributions and payments are made to such holders on a pro rata basis based on such holder's interest in such Restricted Subsidiary; and (v) appropriate amounts to be provided by the Company or any Restricted Subsidiary as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP; and (b) with respect to a capital contribution or any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Non-U.S. Person" means a person who is not a "U.S. person" (as defined in Regulation S). 12 21 "Note Guarantee" means any Guarantee of the obligations of the Company under this Indenture and the Notes by any Guarantor. "Notes" means any of the securities, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Notes" shall include the Notes initially issued on the Closing Date, any Exchange Notes to be issued and exchanged for any Notes pursuant to the Registration Rights Agreement and this Indenture and any other Notes issued after the Closing Date under this Indenture. For purposes of this Indenture, all Notes shall vote together as one series of Notes under this Indenture. "Offer to Purchase" means an offer to purchase Notes by the Company from the Holders commenced by mailing a notice to the Trustee and each Holder stating: (1) the covenant pursuant to which the offer is being made and that all Notes validly tendered will be accepted for payment on a pro rata basis; (2) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); ------------ (3) that any Note not tendered will continue to accrue interest pursuant to its terms; (4) that, unless the Company defaults in the payment of the purchase price, any Note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (5) that Holders electing to have a Note purchased pursuant to the Offer to Purchase will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples of $1,000. On the Payment Date, the Company shall (a) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to an Offer to Purchase; (b) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so 13 22 accepted; and (c) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officers' Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples of $1,000. The Company shall publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Notes pursuant to an Offer to Purchase. "Officer" means, with respect to the Company, (i) the Chairman of the Board, any Vice Chairman of the Board, the Chief Executive Officer, the President, any Vice President or the Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary. "Officers' Certificate" means a certificate signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof or two officers listed in clause (i) of the definition thereof. Each Officers' Certificate (other than certificates provided pursuant to TIA Section 314(a)(4)) shall include the statements provided for in TIA Section 314(e). "Offshore Global Note" has the meaning provided in Section 2.01. "Offshore Physical Notes" has the meaning provided in Section 2.01. "Opinion of Counsel" means a written opinion signed by legal counsel reasonably acceptable to the Trustee, who may be an employee of or counsel to the Company, that meets the requirements of Section 11.04. Each such Opinion of Counsel shall include the statements provided for in TIA Section 314(e). "Paying Agent" has the meaning provided in Section 2.04, except that, for the purposes of Article Eight, the Paying Agent shall not be the Company or a Subsidiary of the Company or an Affiliate of any of them. The term "Paying Agent" includes its successors and assigns and any additional Paying Agent. "Payment Date" has the meaning provided in the definition of Offer to Purchase. "Permanent Offshore Global Notes" has the meaning provided in Section 2.01. "Permitted Investment" means: (i) an Investment in the Company or a Subsidiary Guarantor or a person which will, upon the making of such Investment, become a Subsidiary Guarantor or be merged or consolidated with or into or transfer or convey all or substantially all its assets to, the Company or a Subsidiary Guarantor; provided that such person's primary business 14 23 is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash Investments; (iii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; (iv) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary pursuant to a work-out or similar arrangement or proceeding or in satisfaction of judgments or pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of a debtor; (v) an Investment in an Unrestricted Subsidiary consisting solely of an Investment in another Unrestricted Subsidiary; (vi) Commodity Agreements, Interest Rate Agreements and Currency Agreements designed solely to protect the Company or its Restricted Subsidiaries against fluctuations in commodity prices, interest rates or foreign currency exchange rates; (vii) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in an amount not to exceed $2.0 million outstanding at any time; (viii) Investments existing on the Closing Date; and (ix) Investments having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), in an aggregate amount not to exceed 5% of Adjusted Consolidated Net Tangible Assets (determined as of the date of the last fiscal quarter for which a consolidated balance sheet of the Company and its Subsidiaries has been filed with the Commission or provided to the Trustee) at any time outstanding plus the net reduction in Investments made pursuant to this clause (ix) resulting from distributions on or repayments of such Investments or from the Net Cash Proceeds from the sale or other disposition of any such Investment (except in each case to the extent of any gain on such sale or disposition that would be included in the calculation of Adjusted Consolidated Net Income for purposes of clause (C)(1) of Section 4.04) or from such Person becoming a Restricted Subsidiary (valued in each case as provided in the definition of "Investments") or the release of any Guarantee; provided that the net reduction in any Investment shall not exceed the amount of such Investment. "Permitted Liens" means: (i) Liens for taxes, assessments, governmental charges or claims that are not yet delinquent or are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; 15 24 (ii) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen, agisters or other similar Liens arising in the ordinary course of business (including construction of facilities) and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security and other similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds, warranty obligations and other obligations of a similar nature incurred in the ordinary course of business (including to facilitate the purchase, shipment or storage of inventory or goods but exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or any of its Restricted Subsidiaries; (vi) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; (vii) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets; (viii) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (ix) Liens arising from filing Uniform Commercial Code financing statements regarding leases or consignments; (x) Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets acquired; (xi) Liens in favor of the Company or any Restricted Subsidiary; (xii) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary that does not give rise to an Event of Default; 16 25 (xiii) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xiv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xv) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Commodity Agreements, Interest Rate Agreements and Currency Agreements designed solely to protect the Company or any of its Restricted Subsidiaries from fluctuations in interest rates, currencies or the price of commodities; (xvi) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (xvii) Liens on shares of Capital Stock of any Unrestricted Subsidiary to secure Indebtedness of such Unrestricted Subsidiary; (xviii) Liens on or sales of receivables and the proceeds thereof; (xix) Liens securing obligations to a trustee pursuant to the compensation and indemnity provisions of any indenture and Liens securing compensation and indemnity obligations to a trustee or agent with respect to any security interest granted in connection with any Indebtedness permitted under the terms of this Indenture; and (xx) Liens on property or assets used to defease Indebtedness that was not incurred in violation of this Indenture. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Physical Notes" has the meaning provided in Section 2.01. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's preferred or preference equity, whether outstanding on the Closing Date or issued thereafter, including, without limitation, all series and classes of such preferred or preference stock. "principal" of a debt security, including the Notes, means the principal amount due on the Stated Maturity as shown on such debt security. "Private Placement Legend" means the legend initially set forth on the Notes in the form set forth in Section 2.02. 17 26 "PSF Group Holdings" means PSF Group Holdings, Inc., a Delaware corporation and its successors. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Redemption Date" means, when used with respect to any Note to be redeemed, the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" means, when used with respect to any Note to be redeemed, the price at which such Note is to be redeemed pursuant to this Indenture. "Registrar" has the meaning provided in Section 2.04. "Registration Rights Agreement" means the registration rights agreement among the Company, the Guarantors, Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc. dated June 4, 2001. "Registration Statement" means the Registration Statement as defined and described in the Registration Rights Agreement. "Regular Record Date" for the interest payable on any Interest Payment Date means the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Replacement Assets" means, on any date, property or assets (other than current assets) of a nature or type or that are used in a business (or an Investment in a company having property or assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on such date. "Responsible Officer," when used with respect to the Trustee, means any officer of the Trustee in its Corporate Trust Office with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Payments" has the meaning provided in Section 4.04. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, and its successors. 18 27 "Securities Act" means the Securities Act of 1933, as amended. "Security Register" has the meaning provided in Section 2.04. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means, at any date of determination, any Restricted Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for more than 10% of the consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more than 10% of the consolidated assets of the Company and its Restricted Subsidiaries, all as set forth on the most recently available consolidated financial statements of the Company for such fiscal year. "Stated Maturity" means, (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the voting power of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "Subsidiary Guarantee" means any Guarantee by a Restricted Subsidiary of the Company of the obligations of the Company under this Indenture. "Subsidiary Guarantor" means any Initial Subsidiary Guarantor and any other Restricted Subsidiary which Guarantees the Company's obligations under this Indenture. "Temporary Cash Investment" means any of the following: (i) direct obligations of the United States of America or any agency thereof or obligations fully and unconditionally guaranteed by the United States of America or any agency thereof; (ii) time deposit accounts, certificates of deposit and money market deposits maturing within one year of the date of acquisition thereof or demand deposits issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $100 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money market fund sponsored by a registered broker dealer or mutual fund distributor; 19 28 (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank or trust company meeting the qualifications described in clause (ii) above; (iv) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P; (v) securities with maturities of one year or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or Moody's; (vi) any mutual fund that has at least 95% of its assets continuously invested in investments of the types described in clauses (i) through (v) above; and (vii) in the case of Foreign Subsidiaries, in short term investments comparable to the foregoing. "Temporary Offshore Global Notes" has the meaning provided in Section 2.01. "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date this Indenture was executed, except as provided in Section 9.06. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. "Transaction Date" means, with respect to the Incurrence of any Indebtedness, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Trustee" means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of Article Seven of this Indenture and thereafter means such successor. "United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended and as codified in Title 11 of the United States Code, as amended from time to time hereafter, or any successor federal bankruptcy law. "Unrestricted Subsidiary" means (i) L&S Farms, (ii) any other Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below, and (iii) any Subsidiary of an Unrestricted 20 29 Subsidiary. The Board of Directors may designate any Restricted Subsidiary (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary; provided that (a) any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the Company or such Restricted Subsidiary (or both, if applicable) at the time of such designation; (b) either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.04; and (c) if applicable, the Incurrence of Indebtedness and the Investment referred to in clause (a) of this proviso would be permitted under Section 4.03 and Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (I) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such designation and (II) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately after such designation would, if Incurred at such time, have been permitted to be Incurred (and shall be deemed to have been Incurred) for all purposes of this Indenture. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Global Notes" has the meaning provided in Section 2.01. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Notes, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "U.S. Physical Notes" means the Notes issued in the form of permanent certificated Notes in registered form in substantially the form set forth in Exhibit A to Institutional Accredited Investors which are not QIBs (excluding Non-U.S. Persons). "Voting Stock" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Wholly Owned" means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock of such Subsidiary (other than any director's 21 30 qualifying shares or Investments by foreign nationals mandated by applicable law) by such Person or one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder or a Noteholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule of the Commission and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (iii) "or" is not exclusive; (iv) words in the singular include the plural, and words in the plural include the singular; (v) provisions apply to successive events and transactions; (vi) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (vii) all ratios and computations based on GAAP contained in this Indenture shall be computed in accordance with the definition of GAAP set forth in Section 1.01; and (viii) all references to Sections or Articles refer to Sections or Articles of this Indenture unless otherwise indicated. 22 31 ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form annexed hereto as Exhibit A with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange agreements to which the Company or the Guarantors are subject or usage. The Company shall approve the form of the Notes and any notation, legend or endorsement on the Notes. Each Note shall be dated the date of its authentication. The terms and provisions contained in the form of the Notes annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company, each Guarantor and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent Global Notes in registered form, substantially in the form set forth in Exhibit A (the "U.S. Global Notes"), registered in the name of the nominee of the Depositary, deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the U.S. Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, in accordance with the instructions given by the Holder thereof, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued initially in the form of one or more temporary Global Notes in registered form substantially in the form set forth in Exhibit A (the "Temporary Offshore Global Notes"), registered in the name of the nominee of the Depositary, deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. At any time on or after July 17, 2001, upon receipt by the Trustee and the Company of a certificate substantially in the form of Exhibit B hereto, one or more permanent global Notes in registered form substantially in the form set forth in Exhibit A (the "Permanent Offshore Global Notes"; and together with the Temporary Offshore Global Notes, the "Offshore Global Notes") duly executed by the Company and authenticated by the Trustee as hereinafter provided shall be deposited with the Trustee, as custodian for the Depositary or its nominee, and the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Temporary Offshore Global Notes in an amount equal to the principal amount of the beneficial interest in the Temporary Offshore Global Notes transferred. Notes transferred to Institutional Accredited Investors pursuant to Section 2.08(a) of this Indenture shall be issued in the form of permanent certificated Notes in registered form in substantially the form set forth in Exhibit A (the "U.S. Physical Notes"). Notes issued pursuant to Section 2.07 in exchange for interests in the Offshore Global Notes shall be in the form of permanent certificated Notes in registered form substantially in the form set forth in Exhibit A (the "Offshore Physical Notes"). 23 32 The Offshore Physical Notes and U.S. Physical Notes are sometimes collectively herein referred to as the "Physical Notes." The U.S. Global Notes and the Offshore Global Notes are sometimes referred to herein as the "Global Notes." The definitive Notes shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the Officers executing such Notes, as evidenced by their execution of such Notes. SECTION 2.02. Restrictive Legends. Unless and until a Note is exchanged for an Exchange Note or sold in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, (i) the U.S. Global Notes and U.S. Physical Notes shall bear the legend set forth below on the face thereof, (ii) the Offshore Physical Notes, until at least the 41st day after the Closing Date and receipt by the Company and the Trustee of a certificate substantially in the form of Exhibit B hereto, and the Temporary Offshore Global Notes shall bear the legend set forth below on the face thereof and (iii) the Company shall have obtained a CUSIP or CINS number (if then generally in use) with respect to the unlegended Offshore Physical Note or Offshore Global Note, as the case may be. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO PREMIUM STANDARD FARMS, INC. OR ANY OF ITS SUBSIDIARIES, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO PREMIUM STANDARD FARMS, INC. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES 24 33 ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT AFTER THE ORIGINAL ISSUANCE OF THE NOTE, THE HOLDER MUST TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR NON-U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND PREMIUM STANDARD FARMS, INC. SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. Each Global Note, whether or not an Exchange Note, shall also bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN THE NAME OF SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF THE INDENTURE. 25 34 SECTION 2.03. Execution, Authentication and Denominations. Subject to Article Four and applicable law, the aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is unlimited. The Notes shall be executed by two Officers of the Company. The signature of these Officers on the Notes may be by facsimile or manual signature in the name and on behalf of the Company. If an Officer whose signature is on a Note no longer holds that office at the time the Trustee or authenticating agent authenticates the Note, the Note shall be valid nevertheless. A Note shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. At any time and from time to time after the execution of this Indenture, the Trustee or an authenticating agent shall upon receipt of a Company Order authenticate for original issue Notes in the aggregate principal amount specified in such Company Order; provided that the Trustee shall be entitled to receive an Officers' Certificate and an Opinion of Counsel of the Company in connection with such authentication of Notes. Such Company Order shall specify the amount of Notes to be authenticated and the date on which the original issue of Notes is to be authenticated and, in case of an issuance of Notes pursuant to Section 2.15, shall certify that such issuance is in compliance with Article Four. The Trustee may appoint an authenticating agent to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such authenticating agent. An authenticating agent has the same rights as an Agent to deal with the Company or the Guarantors or an Affiliate of the Company or the Guarantors. The Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 in principal amount and any integral multiple thereof. SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange (the "Registrar"), an office or agency where Notes may be presented for payment (the "Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served, which shall be in the Borough of Manhattan, The City of New York. The Company shall cause the Registrar to keep a register of the Notes and of their transfer and exchange (the "Security Register"). The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. The Company may have one or more co-Registrars and one or more additional Paying Agents. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent and any change in the address of such Agent. If the Company fails to maintain a Registrar, Paying Agent and/or agent for service of notices and demands, the Company shall appoint the Trustee to act as, and the Trustee shall act as, such Registrar, Paying 26 35 Agent and/or agent for service of notices and demands. The Company may remove any Agent upon written notice to such Agent and the Trustee; provided that no such removal shall become effective until (i) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (i) of this proviso. The Company, any Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar, and/or agent for service of notice and demands. The Company hereby initially appoints the Trustee as Registrar, Paying Agent and authenticating agent. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee as of each Regular Record Date and at such other times as the Trustee may reasonably request the names and addresses of Holders as they appear in the Security Register, including the aggregate principal amount of Notes held by each Holder. SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than 11:00 a.m. (New York City time) on each due date of the principal, premium, if any, and interest on any Notes, the Company shall deposit with the Paying Agent money in immediately available funds sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Notes (whether such money has been paid to it by the Company or any other obligor on the Notes), and such Paying Agent shall promptly notify the Trustee of any default by the Company (or any other obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as Paying Agent, it will, on or before each due date of any principal of, premium, if any, or interest on the Notes, segregate and hold in a separate trust fund for the benefit of the Holders a sum of money sufficient to pay such principal, premium, if any, or interest so becoming due until such sum of money shall be paid to such Holders or otherwise disposed of as provided in this Indenture, and will promptly notify the Trustee of its action or failure to act. SECTION 2.06. Transfer and Exchange. The Notes are issuable only in registered form. A Holder may transfer a Note only by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Security Register. Prior to the registration of any transfer by a Holder as provided herein, the Company, the Trustee, and any agent of the Company shall treat the person in whose name the Note is registered as the owner thereof for all purposes whether or not the Note shall be overdue, 27 36 and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary. Furthermore, any Holder of a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent) and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. When Notes are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other authorized denominations (including an exchange of Notes for Exchange Notes), the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met (including that such Notes are duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Trustee and Registrar duly executed by the Holder thereof or by an attorney who is authorized in writing to act on behalf of the Holder); provided that no exchanges of Notes for Exchange Notes shall occur until a Registration Statement shall have been declared effective by the Commission and that any Notes that are exchanged for Exchange Notes shall be cancelled by the Trustee. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's request. No service charge shall be made for any registration of transfer or exchange or redemption of the Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Section 2.11, 3.08 or 9.04). The Registrar shall not be required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Notes selected for redemption under Section 3.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 2.07. Book-Entry Provisions for Global Notes. The U.S. Global Notes and Offshore Global Notes initially shall (i) be registered in the name of the Depositary for such Global Notes or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 2.02. (a) Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary, or the Trustee as its custodian, or under such Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in Global Notes may be transferred in 28 37 accordance with the rules and procedures of the Depositary and the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the U.S. Global Notes or the Offshore Global Notes, as the case may be, if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the U.S. Global Notes or the Offshore Global Notes, as the case may be, and a successor depositary is not appointed by the Company within 90 days of such notice, (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depositary or (iii) in accordance with the rules and procedures of the Depositary and the provisions of Section 2.08. (c) Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in such other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. (d) In connection with any transfer of a portion of the beneficial interests in a Global Note to beneficial owners pursuant to paragraph (b) of this Section 2.07, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in such Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Notes or Offshore Physical Notes, as the case may be, of like tenor and amount. (e) In connection with the transfer of the U.S. Global Notes or the Offshore Global Notes, in whole, to beneficial owners pursuant to paragraph (b) of this Section 2.07, the U.S. Global Notes or Offshore Global Notes, as the case may be, shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the U.S. Global Notes or Offshore Global Notes, as the case may be, an equal aggregate principal amount of U.S. Physical Notes or Offshore Physical Notes, as the case may be, of authorized denominations. (f) Any U.S. Physical Note delivered in exchange for an interest in the U.S. Global Notes pursuant to paragraph (b), (d) or (e) of this Section 2.07 shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the legend regarding transfer restrictions applicable to the U.S. Physical Note set forth in Section 2.02. (g) Any Offshore Physical Note delivered in exchange for an interest in the Offshore Global Notes pursuant to paragraph (b), (d) or (e) of this Section 2.07 shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the legend regarding transfer restrictions applicable to the Offshore Physical Note set forth in Section 2.02. (h) The registered holder of a Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests 29 38 through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. SECTION 2.08. Special Transfer Provisions. Unless and until a Note is exchanged for an Exchange Note or sold in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, the following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. The following provisions shall apply with respect to the registration of any proposed transfer of a Note to any Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons): (i) The Registrar shall register the transfer of any Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the time period referred to in Rule 144(k) under the Securities Act or (y) the proposed transferee has delivered to the Registrar (A) a certificate substantially in the form of Exhibit C hereto and (B) if the aggregate principal amount of the Notes being transferred is less than $100,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Notes, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Notes in an amount equal to the principal amount of the beneficial interest in the U.S. Global Notes to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Note to a QIB (excluding Non-U.S. Persons): (i) If the Note to be transferred consists of (x) either Offshore Physical Notes prior to the removal of the Private Placement Legend or U.S. Physical Notes, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or 30 39 has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in the U.S. Global Notes, the transfer of such interest may be effected only through the book entry system maintained by the Depositary. (ii) If the proposed transferee is an Agent Member, and the Note to be transferred consists of U.S. Physical Notes, upon receipt by the Registrar of the documents referred to in paragraph (i) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of U.S. Global Notes in an amount equal to the principal amount of the U.S. Physical Notes to be transferred, and the Trustee shall cancel the U.S. Physical Notes so transferred. (c) Transfers of Interests in the Temporary Offshore Global Notes. The following provisions shall apply with respect to registration of any proposed transfer of an interest in a Temporary Offshore Global Notes: (i) The Registrar shall register the transfer of any Note (x) if the proposed transferee is a Non-U.S. Person and the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto or (y) if the proposed transferee is a QIB and the proposed transferor has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (ii) If the proposed transferee is an Agent Member, upon receipt by the Registrar of the documents referred to in clause (i)(y) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Notes in an amount equal to the principal amount of the Temporary Offshore Global Notes to be transferred, and the Trustee shall decrease the amount of the Temporary Offshore Global Notes. (d) Transfers of Interests in the Permanent Offshore Global Notes or Unlegended Offshore Physical Notes. The following provisions shall apply with respect to any transfer of interests in Permanent Offshore Global Notes or unlegended Offshore 31 40 Physical Notes. The Registrar shall register the transfer of any such Note without requiring any additional certification. (e) Transfers to Non-U.S. Persons at Any Time. The following provisions shall apply with respect to any transfer of a Note to a Non-U.S. Person: (i) Prior to July 17, 2001, the Registrar shall register any proposed transfer of a Note to a Non-U.S. Person upon receipt of a certificate substantially in the form of Exhibit D hereto from the proposed transferor. (ii) On and after July 17, 2001, the Registrar shall register any proposed transfer to any Non-U.S. Person if the Note to be transferred is a U.S. Physical Note or an interest in U.S. Global Notes, upon receipt of a certificate substantially in the form of Exhibit D hereto from the proposed transferor. (iii) (a) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Notes, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (ii) and (y) instructions in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Notes in an amount equal to the principal amount of the beneficial interest in the U.S. Global Notes to be transferred, and (b) if the proposed transferee is an Agent Member, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Offshore Global Notes in an amount equal to the principal amount of the U.S. Physical Notes or the U.S. Global Notes, as the case may be, to be transferred, and the Trustee shall cancel the Physical Note, if any, so transferred or decrease the amount of the U.S. Global Notes. (f) Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) the Private Placement Legend is no longer required by Section 2.02, (ii) the circumstances contemplated by paragraph (a)(i)(x) of this Section 2.08 exist or (iii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (g) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall not register a transfer of any Note unless such transfer complies with the restrictions on transfer of such Note set forth in this Indenture. In connection with any transfer of Notes, each 32 41 Holder agrees by its acceptance of the Notes to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.07 or this Section 2.08. The Company, at its sole cost and expense, shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder claims that the Note has been lost, destroyed or wrongfully taken, then, in the absence of written notice to the Company or the Trustee that such Note has been acquired by a protected purchaser, the Company shall issue and the Trustee shall authenticate a replacement Note of like tenor and principal amount and bearing a number not contemporaneously outstanding; provided that the requirements of this Section 2.09 are met. If required by the Trustee or the Company, an indemnity bond must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if a Note is replaced. The Company may charge such Holder for its expenses and the expenses of the Trustee in replacing a Note. In case any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay such Note instead of issuing a new Note in replacement thereof. Every replacement Note is an additional obligation of the Company and each Guarantor and shall be entitled to the benefits of this Indenture. SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.10 as not outstanding. If a Note is replaced pursuant to Section 2.09, it ceases to be outstanding unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a protected purchaser. If the Paying Agent (other than the Company or an Affiliate of the Company) holds on the maturity date money sufficient to pay Notes payable on that date, then on and after that date such Notes cease to be outstanding and interest on them shall cease to accrue. A Note does not cease to be outstanding because the Company or one of its Affiliates holds such Note, provided, however, that in determining whether the Holders of the requisite principal amount of the outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or 33 42 any other obligor upon the Notes or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee has actual knowledge to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor. SECTION 2.11. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and execute and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Notes, as evidenced by their execution of such temporary Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall be entitled to the same benefits under this Indenture as definitive Notes. SECTION 2.12. Cancellation. The Company, at any time, may deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, payment or cancellation and shall destroy them in accordance with its normal procedure. SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use "CUSIP," "CINS" or "ISIN" numbers (if then generally in use), and the Company and the Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any change in "CUSIP," "CINS" or "ISIN" numbers for the Notes. SECTION 2.14. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay, the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date. A special record date, as used in this Section 2.14 with respect to the payment of any defaulted interest, shall mean the 15th day next preceding the date fixed by the 34 43 Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.15. Issuance of Additional Notes. The Company may, subject to Article Four of this Indenture and applicable law, issue additional Notes under this Indenture. The Notes issued on the Closing Date and any additional Notes subsequently issued shall be treated as a single class for all purposes under this Indenture. ARTICLE THREE REDEMPTION SECTION 3.01. Right of Redemption. (a) The Notes are redeemable, at the Company's option, in whole or in part, at any time or from time to time, on or after June 15, 2006 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's last address, as it appears in the Security Register, at the following Redemption Prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing June 15 of the years set forth below:
Redemption Year Price ------------------------------------------------------------- 2006........................................... 104.625% 2007........................................... 103.083% 2008........................................... 101.542% 2009 and thereafter............................ 100.000%
(b) In addition, at any time prior to June 15, 2004, the Company may redeem up to 35% of the aggregate principal amount of the Notes with the Net Cash Proceeds of one or more sales of Capital Stock of the Company (other than Disqualified Stock) or a capital contribution to the Company's common equity, at any time as a whole or from time to time in part, at a Redemption Price (expressed as a percentage of principal amount) of 109.250%, plus accrued and unpaid interest to the Redemption Date (subject to the rights of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date); provided that (i) at least 65% of the aggregate principal amount of Notes originally issued on the Closing Date remains outstanding after each such redemption and (ii) notice of such redemption is mailed within 60 days after such sale of Capital Stock. SECTION 3.02. Notices to Trustee. If the Company elects to redeem Notes pursuant to Section 3.01, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Notes to be redeemed and the clause of this Indenture pursuant to which redemption shall occur. 35 44 The Company shall give each notice provided for in this Section 3.02 in an Officers' Certificate at least 45 days before the Redemption Date (unless a shorter period shall be satisfactory to the Trustee). SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements, as certified to it by the Company, of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange or automated quotation system, by lot or by such other method as the Trustee in its sole discretion shall deem fair and appropriate; provided that no Note of $1,000 in principal amount or less shall be redeemed in part. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption. Notes in denominations of $1,000 in principal amount may only be redeemed in whole. The Trustee may select for redemption portions (equal to $1,000 in principal amount or any integral multiple thereof) of Notes that have denominations larger than $1,000 in principal amount. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Company and the Registrar promptly in writing of the Notes or portions of Notes to be called for redemption. SECTION 3.04. Notice of Redemption. With respect to any redemption of Notes pursuant to Section 3.01, at least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail to each Holder whose Notes are to be redeemed. The notice shall identify the Notes to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the name and address of the Paying Agent; (iv) that Notes called for redemption must be surrendered to the Paying Agent in order to collect the Redemption Price; (v) that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price plus accrued interest to the Redemption Date upon surrender of the Notes to the Paying Agent; (vi) that, if any Note is being redeemed in part, the portion of the principal amount (equal to $1,000 in principal amount or any integral multiple thereof) of such Note to be redeemed and that, on and after the Redemption Date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be reissued; and 36 45 (vii) that, if any Note contains a CUSIP, CINS or ISIN number as provided in Section 2.13, no representation is being made as to the correctness of the CUSIP, CINS or ISIN number either as printed on the Notes or as contained in the notice of redemption and that reliance may be placed only on the other identification numbers printed on the Notes. At the Company's request (which request may be revoked by the Company at any time prior to the time at which the Trustee shall have given such notice to the Holders), made in writing to the Trustee at least 45 days (or such shorter period as shall be satisfactory to the Trustee) before a Redemption Date, the Trustee shall give the notice of redemption in the name and at the expense of the Company. If, however, the Company gives such notice to the Holders, the Company shall concurrently deliver to the Trustee an Officers' Certificate stating that such notice has been given. SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender of any Notes to the Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued interest, if any, to the Redemption Date. Notice of redemption shall be deemed to be given when mailed, whether or not the Holder receives the notice. In any event, failure to give such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of Notes held by Holders to whom such notice was properly given. SECTION 3.06. Deposit of Redemption Price. On or prior to 11:00 a.m., New York City time, on any Redemption Date, the Company shall deposit with the Paying Agent (or, if the Company is acting as its own Paying Agent, shall segregate and hold in trust as provided in Section 2.05) money sufficient to pay the Redemption Price of and accrued interest on all Notes to be redeemed on that date other than Notes or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation. SECTION 3.07. Payment of Notes Called for Redemption. If notice of redemption has been given in the manner provided above, the Notes or portion of Notes specified in such notice to be redeemed shall become due and payable on the Redemption Date at the Redemption Price stated therein, together with accrued interest to such Redemption Date, and on and after such date (unless the Company shall default in the payment of such Notes at the Redemption Price and accrued interest to the Redemption Date, in which case the principal, until paid, shall bear interest from the Redemption Date at the rate prescribed in the Notes), such Notes shall cease to accrue interest. Upon surrender of any Note for redemption in accordance with a notice of redemption, such Note shall be paid and redeemed by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders registered as such at the close of business on the relevant Regular Record Date. SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to 37 46 the Holder without service charge, a new Note equal in principal amount to the unredeemed portion of such surrendered Note. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes. The Company shall pay the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes and this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the Company, or any Affiliate of any of them) holds on that date money designated for and sufficient to pay the installment. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as Paying Agent, an installment of principal, premium, if any, or interest shall be considered paid on the due date if the entity acting as Paying Agent complies with the last sentence of Section 2.05. As provided in Section 6.09, upon any bankruptcy or reorganization procedure relative to the Company, the Trustee shall serve as the Paying Agent, if any, for the Notes. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at the rate per annum specified in the Notes. SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates Computershare Trust Company of New York, Wall Street Plaza, 88 Pine Street, New York, New York, 10005 the Corporate Trust Office of the Trustee as such office of the Company in accordance with Section 2.04. SECTION 4.03. Limitation on Indebtedness. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the Notes, the Note Guarantees and other Indebtedness existing on the Closing Date); provided that 38 47 the Company or any Subsidiary Guarantor may Incur Indebtedness, and any Restricted Subsidiary may Incur Acquired Indebtedness, if, after giving effect to such Incurrence and the receipt and application of the proceeds therefrom, the Interest Coverage Ratio would be greater than 2.0:1. Notwithstanding the foregoing, the Company and any Restricted Subsidiary (except as specified below) may Incur each and all of the following: (i) Indebtedness of the Company or any Subsidiary Guarantor outstanding at any time in an aggregate principal amount (together with refinancings thereof) not to exceed the greater of (A) $225 million, less any amount of such Indebtedness permanently repaid as provided under Section 4.11 and (B) the sum of (x) 85% of the consolidated book value of the accounts receivable of the Company and its Restricted Subsidiaries (other than any Foreign Subsidiaries) plus (y) 80% of the consolidated book value of the inventory of the Company and its Restricted Subsidiaries (other than any Foreign Subsidiaries), in each case determined in accordance with GAAP as of the most recent fiscal quarter for which reports have been filed with the Commission or provided to the Trustee; (ii) Indebtedness owed (A) to the Company or any Subsidiary Guarantor or (B) to any other Restricted Subsidiary; provided that (x) any subsequent event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause (ii) and (y) if the Company or any Subsidiary Guarantor is the obligor on such Indebtedness and the payee is a Restricted Subsidiary that is not a Subsidiary Guarantor, such Indebtedness must be expressly subordinated in right of payment to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Subsidiary Guarantor; (iii) Indebtedness issued in exchange for, or the net proceeds of which are used to redeem, defease, refinance or refund, then outstanding Indebtedness (other than Indebtedness outstanding under clause (ii) or (v)) and any extensions, renewals and refinancings thereof in an amount not to exceed the amount so redeemed, defeased, refinanced or refunded (plus premiums, accrued interest, fees, costs and expenses incurred in connection with any such exchange, refinancing, redemption, defeasance or refunding); provided that (A) Indebtedness the proceeds of which are used to redeem, defease, refinance or refund the Notes or Indebtedness that is pari passu with, or subordinated in right of payment to, the Notes or a Note Guarantee shall only be permitted under this clause (iii) if (x) in case the Notes are redeemed, defeased or refinanced in part or the Indebtedness to be redeemed, defeased or refinanced is pari passu with the Notes or a Note Guarantee, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the 39 48 remaining Notes or a Note Guarantee, or (y) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes or a Note Guarantee, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes or a Note Guarantee at least to the extent that the Indebtedness to be redeemed, defeased or refinanced is subordinated to the Notes or a Note Guarantee, (B) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be redeemed, defeased, refinanced or refunded (or, if earlier, the Stated Maturity of the Notes), and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded (or, if less, the remaining Average Life of the Notes) and (C) such new Indebtedness is Incurred by the Company or a Subsidiary Guarantor or by the Restricted Subsidiary who is the obligor on the Indebtedness to be refinanced or refunded; (iv) Indebtedness of the Company, to the extent the net proceeds thereof are promptly (A) used to purchase Notes tendered in an Offer to Purchase made as a result of a Change in Control in accordance with this Indenture or (B) deposited to defease the Notes as described under Section 8.02 and Section 8.03; (v) Guarantees of the Notes and Guarantees of Indebtedness of the Company or any Subsidiary Guarantor by any Restricted Subsidiary provided the Guarantee of such Indebtedness is permitted by and made in accordance with Section 4.07; (vi) Indebtedness of the Company or any Subsidiary Guarantor with respect to industrial revenue bonds, pollution control bonds and other tax favored or tax exempt bonds, and documents or instruments delivered in connection therewith in an aggregate principal amount outstanding at any time (together with refinancings thereof) not to exceed $25.0 million; (vii) Indebtedness of Foreign Subsidiaries outstanding at any time in an aggregate principal amount (together with refinancings thereof) not to exceed the sum of (x) 85% of the consolidated book value of the accounts receivable of the Foreign Subsidiaries of the Company plus (y) 80% of the consolidated book value of the inventory of the Foreign Subsidiaries of the Company, in each case determined in accordance with GAAP as of the most recent fiscal quarter for which reports have been filed with the Commission or provided to the Trustee; and (viii) Indebtedness of the Company, or any Restricted Subsidiary (in addition to Indebtedness permitted under clauses (i) through (vii) above) in an aggregate principal amount outstanding at any time (together with refinancings thereof) not to exceed $75.0 million, less any amount of such Indebtedness permanently repaid as provided under the Section 4.11; provided, however, that the aggregate principal amount of Indebtedness that may be incurred under this 40 49 clause (viii) by Restricted Subsidiaries that are not Subsidiary Guarantors shall not exceed $10.0 million; (b) Notwithstanding any other provision of this Section 4.03, the maximum amount of Indebtedness that may be Incurred pursuant to this Section 4.03 shall not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in the exchange rates of currencies. (c) For purposes of determining any particular amount of Indebtedness under this Section 4.03, (x) Indebtedness Incurred under the Credit Agreement on or prior to the Closing Date shall be treated as Incurred pursuant to clause (i) of the second paragraph of clause (a) of this Section 4.03, (y) Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included and (z) any Liens granted pursuant to the equal and ratable provisions referred to in Section 4.09 shall not be treated as Indebtedness. For purposes of determining compliance with this Section 4.03, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above (other than Indebtedness referred to in clause (x) of the preceding sentence), including under the first paragraph of part (a), the Company, in its sole discretion, shall classify, and from time to time may reclassify, such item of Indebtedness and only be required to include the amount of such Indebtedness in one of such classes. (d) The Company will not Incur any Indebtedness if such Indebtedness is subordinate in right of payment to any other Indebtedness unless such Indebtedness is also subordinate in right of payment to the Notes to the same extent, provided that the foregoing shall not apply to distinctions between categories of Indebtedness that exist solely by reason of Liens or Guarantees. SECTION 4.04. Limitation on Restricted Payments. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make any distribution on or with respect to its Capital Stock (other than (x) dividends or distributions payable solely in shares of its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to acquire shares of such Capital Stock and (y) pro rata dividends or distributions on Common Stock of Restricted Subsidiaries (other than Subsidiary Guarantors) held by minority stockholders) held by Persons other than the Company or any of its Restricted Subsidiaries, (ii) purchase, call for redemption or redeem, retire or otherwise acquire for value any shares of Capital Stock of (A) the Company, any Subsidiary Guarantor or any direct or indirect parent of the Company (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person or (B) a Restricted Subsidiary other than a Subsidiary Guarantor (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Affiliate of the Company or any direct or indirect parent of the Company (other than a Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of the Capital Stock of the Company or any direct or indirect parent of the Company, (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes or any Indebtedness of a Subsidiary Guarantor that is subordinated in right of payment to a Note 41 50 Guarantee or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) above being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing, (B) the Company could not Incur at least $1.00 of additional Indebtedness under the first paragraph of part (a) of Section 4.03 or (C) the aggregate amount of all Restricted Payments made after the Closing Date shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the amount of such loss) accrued on a cumulative basis during the period (taken as one accounting period) beginning on the first day of the fiscal quarter immediately following the Closing Date and ending on the last day of the last fiscal quarter preceding the Transaction Date for which reports have been filed with the Commission or provided to the Trustee plus (2) the aggregate Net Cash Proceeds received by the Company after the Closing Date as a capital contribution or from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of the Company, including an issuance or sale permitted by this Indenture of Indebtedness of the Company for cash subsequent to the Closing Date upon the conversion of such Indebtedness into Capital Stock (other than Disqualified Stock) of the Company, or from the issuance to a Person who is not a Subsidiary of the Company of any options, warrants or other rights to acquire Capital Stock of the Company (in each case, exclusive of any Disqualified Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the Notes) plus (3) an amount equal to the net reduction in Investments (other than Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Adjusted Consolidated Net Income), from the release of any Guarantee or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed, in each case, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend, distribution or redemption of any Capital Stock within 60 days after the related date of declaration or call for redemption if, at said date of declaration or call for redemption, such payment or redemption would comply with the preceding paragraph; 42 51 (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes or any Note Guarantee including premium, if any, and accrued interest, fees, costs and expenses with the proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the second paragraph of part (a) of Section 4.03; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company, a Subsidiary Guarantor or any direct or indirect parent of the Company (or options, warrants or other rights to acquire such Capital Stock) in exchange for, or out of the proceeds of a capital contribution or a substantially concurrent offering of, shares of Capital Stock (other than Disqualified Stock) of the Company (or options, warrants or other rights to acquire such Capital Stock); provided that such options, warrants or other rights are not redeemable at the option of the holder, or required to be redeemed, prior to the Stated Maturity of the Notes; (iv) the making of any principal payment or the repurchase, redemption, retirement, defeasance or other acquisition for value of Indebtedness which is subordinated in right of payment to the Notes or any Note Guarantee in exchange for, or out of the proceeds of a capital contribution or a substantially concurrent offering of, shares of the Capital Stock (other than Disqualified Stock) of the Company (or options, warrants or other rights to acquire such Capital Stock); provided that such options, warrants or other rights are not redeemable at the option of the holder, or required to be redeemed, prior to the Stated Maturity of the Notes; (v) payments or distributions, to dissenting stockholders pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets of (A) the Company, that complies with the provisions of this Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company and (B) any Subsidiary Guarantor, that complies with the provisions of this Indenture applicable to mergers and consolidations of such Subsidiary Guarantor; provided, in the case of this clause (B), that immediately after giving effect to such merger or consolidation, on a pro forma basis, such Subsidiary Guarantor or the surviving person, as the case may be, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately prior to such merger or consolidation, without giving effect to any capital contributions by the Company or any Restricted Subsidiary made in anticipation of such merger or consolidation to satisfy this clause (B); (vi) Investments acquired as a capital contribution to, or in exchange for, or out of, or the payment of any dividend from, the proceeds of a substantially concurrent offering of, Capital Stock (other than Disqualified Stock) of, the Company; 43 52 (vii) the repurchase of Capital Stock deemed to occur upon the exercise of options or warrants if such Capital Stock represents all or a portion of the exercise price thereof; (viii) payment of dividends, other distribution or other amounts by the Company to PSF Group Holdings in amounts required for PSF Group Holdings to pay fees required to maintain its existence and provide for all other operating costs of PSF Group Holdings, including, without limitation, in respect of director fees and expenses, administrative, legal and accounting services provided by third parties and other costs and expenses of being a public company, including all costs and expenses with respect to filings with the Commission of up to $500,000 per fiscal year; (ix) the payment of dividends or other distributions by the Company to PSF Group Holdings in amounts required to pay the tax obligations of PSF Group Holdings attributable to the Company and its Subsidiaries determined as if the Company and its Subsidiaries had filed a separate consolidated, combined or unitary return for the relevant taxing jurisdiction; provided that (x) the amount of dividends paid pursuant to this clause (ix) to enable PSF Group Holdings to pay federal and state income taxes (and franchise taxes based on income) at any time shall not exceed the amount of such federal and state income taxes (and franchise taxes based on income) actually owing by PSF Group Holdings at such time to the respective tax authorities for the respective period and (y) any refunds received by PSF Group Holdings or any of its Subsidiaries shall promptly be returned by PSF Group Holdings to the Company through a capital contribution or purchase of Capital Stock (other than Disqualified Stock) of the Company; (x) the purchase, repurchase, acquisition, cancellation or other retirement for value by the Company or any Restricted Subsidiary of, or dividends, distributions or advances to PSF Group Holdings to allow PSF Group Holdings to purchase, repurchase, acquire, cancel or otherwise retire for value Capital Stock (including options, warrants or other rights to acquire such Capital Stock) of PSF Group Holdings or the Company from employees of PSF Group Holdings, the Company or any Restricted Subsidiary upon the death, disability, retirement or termination of employment of such employees or to the extent required pursuant to employee benefit plans, employment agreements or other arrangements with employees in an aggregate amount not to exceed (a) $3.0 million in any calendar year (with up to two years in unused amounts being carried over to any succeeding year) or (b) $15.0 million in the aggregate; or (xi) Restricted Payments in an aggregate amount not to exceed $10.0 million; provided that, except in the case of clauses (i) and (iii), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. 44 53 Each Restricted Payment permitted pursuant to the preceding paragraph (other than the Restricted Payment referred to in clause (ii), (ix) or (x) thereof, an exchange of Capital Stock for Capital Stock or Indebtedness referred to in clause (iii) or (iv) thereof and an Investment acquired as a capital contribution or in exchange for Capital Stock referred to in clause (vi) thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred to in clauses (iii), (iv) or (vi), shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 4.04 have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of the Company are used for the redemption, repurchase or other acquisition of the Notes, or Indebtedness that is pari passu with the Notes or any Note Guarantee, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this Section 4.04 only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of Indebtedness. For purposes of determining compliance with this Section 4.04, (x) the amount, if other than in cash, of any Restricted Payment shall be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution and (y) in the event that a Restricted Payment meets the criteria of more than one of the types of Restricted Payments described in the above clauses, including the first paragraph of this Section 4.04, the Company, in its sole discretion, may order and classify, and from time to time may reclassify, such Restricted Payment if it would have been permitted at the time such Restricted Payment was made and at the time of such reclassification. SECTION 4.05. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make loans or advances to the Company or any other Restricted Subsidiary or (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the Closing Date under the Credit Agreement, this Indenture, the Notes or any other agreements in effect on the Closing Date, and any amendments, extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such amendments, extensions, refinancings, renewals or replacements taken as a whole are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being amended, extended, refinanced, renewed or replaced; (ii) existing under or by reason of applicable law; (iii) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions 45 54 are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired and any amendments, extensions, refinancings, renewals or replacements thereof; provided that the encumbrances and restrictions in any such amendments, extensions, refinancings, renewals or replacements taken as a whole are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being amended, extended, refinanced, renewed or replaced; (iv) in the case of clause (iv) of the first paragraph of this Section 4.05, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary; (vi) customary provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; or (vii) with respect to a Foreign Subsidiary and imposed pursuant to any agreement or instrument governing Indebtedness (whether or not outstanding) of such Foreign Subsidiary permitted to be Incurred under Section 4.03 so long as (A) such encumbrance or restriction is not applicable to any Person or the property or assets of any Person other than such Foreign Subsidiary or the property or assets of such Foreign Subsidiary and its Foreign Subsidiaries and (B) not more than 20% of such Foreign Subsidiary's assets are located in the United States. Nothing contained in this Section 4.05 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 4.09 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company will not sell, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) except: 46 55 (i) to the Company or a Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales to foreign nationals of shares of Capital Stock of Foreign Subsidiaries, to the extent required by applicable law; (iii) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under Section 4.04 if made on the date of such issuance or sale; or (iv) sales of Common Stock (including options, warrants or other rights to purchase shares of such Common Stock) of a Restricted Subsidiary by the Company or a Restricted Subsidiary, provided that the Company or such Restricted Subsidiary applies the Net Cash Proceeds of any such sale in accordance with clause (i)(A) or (i)(B) of Section 4.11. SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries. The Company shall cause each Restricted Subsidiary other than a Foreign Subsidiary to execute and deliver a supplemental indenture to this Indenture providing for an unsubordinated Guarantee (a "Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary. The Company shall not permit any Foreign Subsidiary, directly or indirectly, to Guarantee any Indebtedness ("Guaranteed Indebtedness") of the Company or any Subsidiary Guarantor, unless (i) such Foreign Subsidiary simultaneously executes and delivers a Subsidiary Guarantee and (ii) such Foreign Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Foreign Subsidiary under its Subsidiary Guarantee until the Notes have been paid in full. If the Guaranteed Indebtedness is (A) pari passu in right of payment with the Notes or any Subsidiary Guarantee, then the Guarantee of such Guaranteed Indebtedness shall be pari passu in right of payment with, or subordinated to, the Subsidiary Guarantee or (B) subordinated in right of payment to the Notes or any Subsidiary Guarantee, then the Guarantee of such Guaranteed Indebtedness shall be subordinated in right of payment to the Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is subordinated to the Notes or any Subsidiary Guarantee. Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted Subsidiary may provide by its terms that it shall be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer (including by way of merger or consolidation), to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by this Indenture) or upon the designation of such Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the terms of this Indenture; or (ii) solely in the case of a Subsidiary Guarantee by a Foreign Subsidiary issued in connection with the immediately preceding paragraph, the release or 47 56 discharge of the Guarantee which resulted in the creation of such Subsidiary Guarantee, except a discharge or release by or as a result of payment under such Guarantee. SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or PSF Group Holdings or with any Affiliate of the Company or any Restricted Subsidiary, except upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than could be obtained, at the time of such transaction or, if such transaction is pursuant to a written agreement, at the time of the execution of the agreement providing therefor, in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate. The foregoing limitation does not limit, and shall not apply to: (i) transactions (A) approved by a majority of the disinterested members of the Board of Directors of the Company or (B) for which the Company or a Restricted Subsidiary delivers to the Trustee a written opinion of an investment banking, accounting, valuation or appraisal firm of recognized standing stating that the transaction is fair to the Company or such Restricted Subsidiary from a financial point of view; (ii) any transaction solely between (A) the Company and any of its Wholly Owned Restricted Subsidiaries or solely among Wholly Owned Restricted Subsidiaries and (B) the Company and any of its other Restricted Subsidiaries or solely among other Restricted Subsidiaries in the ordinary course of business; provided that solely for the purposes of this clause (B) no Affiliate of the Company (other than its Restricted Subsidiaries) owns any Capital Stock of any such Restricted Subsidiary; (iii) the payment of reasonable and customary compensation to directors of the Company who are not employees of the Company and reasonable indemnification arrangements entered into by the Company; (iv) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which the Company files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes; (v) any sale of shares of Capital Stock (other than Disqualified Stock) of the Company; (vi) any Restricted Payments not prohibited by Section 4.04; (vii) the payment of fees to Morgan Stanley & Co. Incorporated or its Affiliates for financial, advisory, consulting, commercial banking or investment banking services and related expenses that the Board of Directors deems advisable or appropriate (including, without limitation, the payment of any underwriting discounts or commissions or placement agency fees in connection with the issuance and sale of securities); 48 57 (viii) the payment of reasonable fees to ContiGroup for legal, hedging and other services in an aggregate amount not to exceed $1.0 million in any fiscal year; (ix) the payment to ContiGroup for consulting fees for work done in reaching a settlement of certain environmental matters in an aggregate amount not to exceed $3.5 million; or (x) the reimbursement for reasonable expenses incurred by ContiGroup in connection with contract grower services provided in accordance with past practice. Notwithstanding the foregoing, any transaction or series of related transactions covered by the first paragraph of this Section 4.08 and not covered by clauses (ii) through (x) of this paragraph, (a) the aggregate amount of which exceeds $2.0 million in value, must be approved or determined to be fair in the manner provided for in clause (i)(A) or (B) above and (b) the aggregate amount of which exceeds $10.0 million in value, must be determined to be fair in the manner provided for in clause (i)(B) above. SECTION 4.09. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on any of its assets or properties of any character, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all of the Notes and all other amounts due under this Indenture to be directly secured equally and ratably with (or, if the obligation or liability to be secured by such Lien is subordinated in right of payment to the Notes, prior to) the obligation or liability secured by such Lien. The foregoing limitation does not apply to: (i) Liens existing on the Closing Date, including Liens securing obligations under the Credit Agreement; (ii) Liens granted after the Closing Date on any assets or Capital Stock of the Company or its Restricted Subsidiaries created in favor of the Trustee for its benefit and for the benefit of the Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the Company or such other Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to refinance secured Indebtedness which is permitted to be Incurred under clause (iii) of the second paragraph of Section 4.03; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; or (v) Liens to secure Indebtedness (including Indebtedness under the Credit Agreement) Incurred under clause (i) or (viii) of the second paragraph of Section 4.03; 49 58 (vi) Liens (including extensions and renewals thereof) upon real or personal property (including Capital Stock) acquired or constructed after the Closing Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred, in accordance with Section 4.03, to finance or refinance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost (including transaction costs relating to such purchase, construction or improvement), and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; (vii) Liens on cash set aside at the time of the Incurrence of any Indebtedness, or government securities purchased with such cash, in either case to the extent that such cash or government securities pre-fund the payment of interest on such Indebtedness and are held in a collateral or escrow account or similar arrangement to be applied for such purpose; or (viii) Permitted Liens. SECTION 4.10. Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any sale-leaseback transaction involving any of its assets or properties, whether now owned or hereafter acquired, whereby the Company or a Restricted Subsidiary sells or transfers such assets or properties more than six months after acquiring or completion of construction of such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties which the Company or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the assets or properties sold or transferred. The foregoing restriction does not apply to any sale-leaseback transaction if (i) the lease is for a period, including renewal rights, of not in excess of three years; (ii) the lease secures or relates to industrial revenue bonds, pollution control bonds or other tax favored or tax exempt bonds; (iii) the transaction is solely between the Company and any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted Subsidiaries; (iv) the Company or such Restricted Subsidiary, within 12 months after the sale or transfer of any assets or properties is completed, applies an amount not less than the net proceeds received from such sale in accordance with clause (i)(A) or (i)(B) of the second paragraph of Section 4.11; or (v) the lease secures or relates to any vehicle; provided that the aggregate fair market value of such vehicles subject to such lease does not exceed $15.0 million. SECTION 4.11. Limitation on Asset Sales. The Company will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless (i) the consideration received by the Company or such Restricted Subsidiary is at least equal to the fair market value of the assets sold or disposed of and (ii) at least 75% of the consideration received consists of (a) cash or Temporary Cash Investments, (b) the assumption of unsubordinated Indebtedness of the Company or any Subsidiary Guarantor or Indebtedness of any other Restricted Subsidiary (in 50 59 each case, other than Indebtedness owed to the Company or any Affiliate of the Company), provided that the Company, such Subsidiary Guarantor or such other Restricted Subsidiary is irrevocably and unconditionally released from all liability under such Indebtedness or (c) Replacement Assets. For the purposes of this Section 4.11 only, cash shall include any securities, notes or other obligations received by the Company or any such Restricted Subsidiary that are converted, sold or exchanged by the Company or any such Restricted Subsidiary into cash within 90 days of the related Asset Sale to the extent of the cash received in that conversion. In the event and to the extent that the Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries from one or more Asset Sales occurring on or after the Closing Date in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the date closest to the commencement of such 12-month period for which a consolidated balance sheet of the Company and its Subsidiaries has been filed with the Commission or provided to the Trustee), then the Company shall or shall cause the relevant Restricted Subsidiary to: (i) within twelve months after the date Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets, (A) apply an amount equal to such excess Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or any Subsidiary Guarantor or Indebtedness of any other Restricted Subsidiary, in each case owing to a Person other than the Company or any Affiliate of the Company, or (B) invest an equal amount, or the amount not so applied pursuant to clause (A) (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in Replacement Assets, and (ii) apply (no later than the end of the 12-month period referred to in clause (i)) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (i) as extended in accordance with any definitive agreement referred to in subclause (B)) as provided in the following paragraphs of this Section 4.11. The amount of such excess Net Cash Proceeds required to be applied (or to be committed to be applied) during such 12-month period as set forth in clause (i) of the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds." If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this Section 4.11 totals at least $10.0 million, the Company must commence, not later than the fifteenth Business Day of such month, and consummate an Offer to Purchase from the Holders (and if required by the terms of any Indebtedness that is pari passu with the Notes ("Pari Passu Indebtedness"), from the holders of such Pari Passu Indebtedness) on a pro rata basis an aggregate principal amount of Notes (and Pari Passu Indebtedness) equal to the Excess Proceeds on such date, at a purchase price equal to 100% of their principal amount, plus, in each case, accrued interest (if any) to the Payment Date. If any Excess Proceeds remain after consummation of an Offer to Purchase, the 51 60 Company or any Restricted Subsidiary may use such Excess Proceeds for any purpose not otherwise prohibited by this Indenture. SECTION 4.12. Repurchase of Notes upon a Change of Control. The Company must commence, within 30 days after the occurrence of a Change of Control, and consummate an Offer to Purchase for all Notes then outstanding, at a purchase price equal to 101% of their principal amount, plus accrued interest (if any) to the Payment Date. The Company will not be required to make an Offer to Purchase pursuant to this Section 4.12 if a third party makes an offer to purchase the Notes in the manner, at the times and price and otherwise in compliance with this Section and purchases all Notes validly tendered and not withdrawn in such Offer to Purchase. SECTION 4.13. Existence. Subject to Articles Four and Five of this Indenture, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence and the existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of the Company and each Restricted Subsidiary and the rights (whether pursuant to charter, partnership certificate, agreement, statute or otherwise), licenses and franchises of the Company and each Restricted Subsidiary; provided that the Company shall not be required to preserve any such right, license or franchise, or the existence of any Restricted Subsidiary, if the maintenance or preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries taken as a whole. SECTION 4.14. Payment of Taxes and Other Claims. The Company shall pay or discharge and shall cause each of its Subsidiaries to pay or discharge, or cause to be paid or discharged, before the same shall become delinquent (i) all material taxes, assessments and governmental charges levied or imposed upon (a) the Company or any such Subsidiary, (b) the income or profits of any such Subsidiary which is a corporation or (c) the property of the Company or any such Subsidiary and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien upon the property of the Company or any such Subsidiary; provided that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been established. SECTION 4.15. Maintenance of Properties and Insurance. The Company shall cause all properties used or useful in the conduct of its business or the business of any of its Restricted Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section 4.15 shall prevent the Company or any Restricted Subsidiary from discontinuing the use, operation or maintenance of any of such properties or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company, desirable in the conduct of the business of the Company or such Restricted Subsidiary. 52 61 The Company will provide or cause to be provided, for itself and its Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, including, but not limited to, products liability insurance and public liability insurance, with reputable insurers or with the government of the United States of America, or an agency or instrumentality thereof, in such amounts, with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry in which the Company or any such Restricted Subsidiary, as the case may be, is then conducting business. SECTION 4.16. Notice of Defaults. In the event that any Officer becomes aware of any Default or Event of Default, the Company shall promptly deliver to the Trustee an Officers' Certificate specifying such Default or Event of Default. SECTION 4.17. Compliance Certificates. (a) The Company shall deliver to the Trustee, within 45 days after the end of each of the first three fiscal quarters of each year and within 90 days after the end of the last fiscal quarter of each year, an Officers' Certificate stating whether or not the signers know of any Default or Event of Default that occurred during such fiscal quarter. In the case of the Officers' Certificate delivered within 90 days after the end of the Company's fiscal year, such certificate shall contain a certification from the principal executive officer, principal financial officer or principal accounting officer of the Company that a review has been conducted of the activities of the Company and its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries' performance under this Indenture and that the Company has complied with all conditions and covenants under this Indenture. For purposes of this Section 4.17, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If any of the officers of the Company signing such certificate has knowledge of such a Default or Event of Default, the certificate shall describe any such Default or Event of Default and its status. The first certificate to be delivered pursuant to this Section 4.17(a) shall be for the first fiscal quarter beginning after the execution of this Indenture. (b) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, beginning with the fiscal year in which this Indenture was executed, a certificate signed by the Company's independent certified public accountants stating (i) that their audit examination has included a review of the terms of this Indenture and the Notes as they relate to accounting matters, (ii) that they have read the most recent Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this Section 4.17 and (iii) whether, in connection with their audit examination, anything came to their attention that caused them to believe that the Company was not in compliance with any of the terms, covenants, provisions or conditions of Article Four and Section 5.01 of this Indenture as they pertain to accounting matters and, if any Default or Event of Default has come to their attention, specifying the nature and period of existence thereof; provided that such independent certified public accountants shall not be liable in respect of such statement by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards in effect at the date of such examination. SECTION 4.18. Commission Reports and Reports to Holders. At all times from and after the earlier of (i) the date of the commencement of an Exchange Offer or the 53 62 effectiveness of the Shelf Registration Statement (the "Registration") and (ii) the date that is six months after the Closing Date, in either case, whether or not the Company is then required to file reports with the Commission, the Company shall file with the Commission all such reports and other information as it would be required to file with the Commission by Section 13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject thereto. The Company shall supply to the Trustee and to each Holder who so requests or shall supply to the Trustee for forwarding to each such Holder, without cost to such Holder, copies of such reports and other information. In addition, at all times prior to the earlier of the date of the Registration and the date that is six months after the Closing Date, the Company shall, at its cost, deliver to the Trustee and each Holder who so requests quarterly and annual reports substantially equivalent to those which would be required by the Exchange Act. In addition, at all times prior to the Registration, upon the request of any Holder or any prospective purchaser of the Notes designated by a Holder, the Company shall supply to such Holder or such prospective purchaser the information required under Rule 144A under the Securities Act. Notwithstanding the foregoing so long as PSF Group Holdings guarantees the Notes, the reports, information and other documents required to be filed and provided as described above shall be those of PSF Group Holdings, rather than the Company, so long as such filings would satisfy the Commission's requirements. SECTION 4.19. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.20. Issuance of Subsidiary Guarantees by Restricted Subsidiaries. Each Subsidiary of the Company (other than a Foreign Subsidiary) which becomes a Restricted Subsidiary after the date of this Indenture and has assets in excess of $1,000 shall, together with the Company and each other Guarantor, not later than 30 days after such Subsidiary becomes a Restricted Subsidiary, execute and deliver a supplemental indenture to this Indenture providing for a Note Guarantee by such Restricted Subsidiary pursuant to Article Ten. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. When Company or Guarantors May Merge, Etc. Neither the Company nor PSF Group Holdings will consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into it unless: 54 63 (i) it shall be the continuing Person, or the Person (if other than it) formed by such consolidation or into which it is merged or that acquired or leased such property and assets of (the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of the Company's or PSF Group Holdings' obligations, as the case may be, under this Indenture and the Notes; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) if such transaction involves the Company, immediately after giving effect to such transaction on a pro forma basis, the Company or the Surviving Person, as the case may be, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (iv) if such transaction involves the Company, immediately after giving effect to such transaction on a pro forma basis the Company, or the Surviving Person, as the case may be, could Incur at least $1.00 of Indebtedness under the first paragraph of Section 4.03; provided that this clause (iv) shall not apply to a consolidation, merger or sale of all (but not less than all) of the assets of the Company if all Liens and Indebtedness of the Company or the Surviving Person, as the case may be, and its Restricted Subsidiaries outstanding immediately after such transaction would have been permitted (and all such Liens and Indebtedness, other than Liens and Indebtedness of the Company and its Restricted Subsidiaries outstanding immediately prior to the transaction, shall be deemed to have been Incurred) for all purposes of this Indenture; (v) it delivers to the Trustee an Officers' Certificate (if such transaction involves the Company, attaching the arithmetic computations to demonstrate compliance with clauses (iii) and (iv)) and Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this Section 5.01 and that all conditions precedent provided for herein relating to such transaction have been complied with; and (vi) each Guarantor, unless such Guarantor is the Person entering into such transaction under this Section 5.01 shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall apply to the obligations of the Company or the Surviving Person in accordance with the Notes and this Indenture; provided, however, that clauses (iii) and (iv) above do not apply (a) if in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company and any such transaction shall not have as one of its purposes the evasion of the foregoing limitations, or (b) to any transaction solely between the Company and any Wholly Owned Restricted Subsidiary. 55 64 Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose Note Guarantee is to be released in accordance with the terms of this Indenture) will not, and the Company will not cause or permit any Subsidiary Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Subsidiary Guarantor unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Subsidiary Guarantor) is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity assumes by supplemental indenture all of the obligations of the Subsidiary Guarantor on its Note Guarantee; (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iv) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Company could satisfy the provisions of clause (iv) of the first paragraph of this Section 5.01; and (v) it delivers to the Trustee an Officers' Certificate and Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this Section 5.01 and that all conditions precedent provided for herein relating to such transaction have been complied with. SECTION 5.02. Successor Substituted. Upon any consolidation or merger, or any sale, conveyance, transfer, lease or other disposition of all or substantially all of the property and assets of the Company or any Guarantor in accordance with Section 5.01 of this Indenture, the successor Person formed by such consolidation or into which the Company or any Guarantor is merged or to which such sale, conveyance, transfer, lease or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor under this Indenture with the same effect as if such successor Person had been named as the Company or such Guarantor herein; provided that the Company shall not be released from its obligation to pay the principal of, premium, if any, or interest on the Notes and such Guarantor shall not be released from its Note Guarantee in the case of a lease of all or substantially all of its property and assets. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. The following events will be defined as "Events of Default" in this Indenture: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; 56 65 (c) (i) default in the performance or breach of the provisions of this Indenture applicable to (A) mergers, consolidations and transfers of all or substantially all of the assets of the Company or PSF Group Holdings or (B) mergers or consolidations of any Subsidiary Guarantor or (ii) the failure by the Company to make or consummate an Offer to Purchase in accordance with Section 4.11 or Section 4.12; (d) the Company, any Subsidiary Guarantor or PSF Group Holdings defaults in the performance of or breaches any other covenant or agreement in this Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (e) there occurs with respect to any issue or issues of Indebtedness of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary having an outstanding principal amount of $7.5 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (A) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration and/or (B) the failure to make a principal payment at the final (but not any interim) fixed maturity and such defaulted payment shall not have been made, waived or extended within 30 days of such payment default; (f) final judgments or orders (not covered by insurance) for the payment of money in excess of $7.5 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $7.5 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or for all or substantially all of the property and assets of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or (C) the winding up or liquidation of the affairs of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; 57 66 (h) the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or for all or substantially all of the property and assets of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; or (i) any Guarantor repudiates its obligations under its Note Guarantee or, except as permitted by this Indenture, any Note Guarantee is determined to be unenforceable or invalid or shall for any reason cease to be in full force and effect. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in clause (g) or (h) of Section 6.01 that occurs with respect to the Company) occurs and is continuing under this Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes, then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued interest on the Notes to be immediately due and payable. Upon a declaration of acceleration, such principal of, premium, if any, and accrued interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (e) of Section 6.01 has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (e) of Section 6.01 shall be remedied or cured by the Company, PSF Group Holdings, any Subsidiary Guarantor or the relevant Significant Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (g) or (h) of Section 6.01 occurs with respect to the Company or any Guarantor, the principal of, premium, if any, and accrued interest on the Notes then outstanding shall automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after such declaration of acceleration, but before a judgment or decree for the payment of money due has been obtained by the Trustee, the Holders of at least a majority in principal amount of the outstanding Notes by written notice to the Company and to the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses and disbursements and advances of the Trustee, it agents and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and premium, if any, on any Notes that have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate prescribed therefor by such Notes, and (iv) to the extent that payment for such interest is lawful, interest upon overdue interest, if any, at the rate prescribed therefor by such Notes, (b) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been 58 67 cured or waived and (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may, and at the direction of the Holders of at least a majority in principal amount of the outstanding Notes shall, pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07 and 9.02, the Holders of at least a majority in principal amount of the outstanding Notes, by notice to the Trustee, may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of, premium, if any, or interest on any Note as specified in clause (a) or (b) of Section 6.01 or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of the Holder of each outstanding Note affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 6.05. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of Notes. SECTION 6.06. Limitation on Suits. A Holder may not institute any proceeding, judicial or otherwise, with respect to this Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (i) the Holder has previously given the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of outstanding Notes shall have made a written request to the Trustee to pursue such remedy; (iii) such Holder or Holders offer the Trustee indemnity reasonably satisfactory to the Trustee against any costs, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and 59 68 (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a direction that is inconsistent with the request. For purposes of Section 6.05 of this Indenture and this Section 6.06, the Trustee shall comply with TIA Section 316(a) in making any determination of whether the Holders of the required aggregate principal amount of outstanding Notes have concurred in any request or direction of the Trustee to pursue any remedy available to the Trustee or the Holders with respect to this Indenture or the Notes or otherwise under the law. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of the principal of, premium, if any, or interest on, such Note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal, premium or interest specified in clause (a), (b) or (c) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor of the Notes for the whole amount of principal, premium, if any, and accrued interest remaining unpaid, together with interest on overdue principal, premium, if any, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate specified in the Notes, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor of the Notes), its creditors or its property and shall be entitled and empowered to collect and receive any monies, securities or other property payable or deliverable upon conversion or exchange of the Notes or upon any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes 60 69 or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for all amounts due under Section 7.07; Second: to Holders for amounts then due and unpaid for principal of, premium, if any, and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal, premium, if any, and interest, respectively; and Third: to the Company or any other obligors of the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by Holders of more than 10% in principal amount of the outstanding Notes. SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Notes in Section 2.09, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default 61 70 shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Six or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. ARTICLE SEVEN TRUSTEE SECTION 7.01. General. The duties and responsibilities of the Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. Whether or not herein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article Seven. Except during the continuance of a Default, the Trustee will not be liable, except for the performance of such duties as are specifically set forth in this Indenture. If an Event of Default has occurred and is continuing, the Trustee will use the same degree of care and skill in its exercise of the rights and powers vested in it under this Indenture as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections 315(a) through (d): (i) the Trustee may rely, and shall be protected in acting or refraining from acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper person; (ii) before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 11.04. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion; (iii) the Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care by it hereunder; (iv) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction; 62 71 (v) the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers, provided that the Trustee's conduct does not constitute negligence or bad faith; (vi) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (vii) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, financial statement, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, at the Company's sole cost and expense, to examine the books, records and premises of the Company personally or by agent or attorney; and (viii) the Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Notes unless either (1) a Responsible Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to the Trustee by the Company, any Guarantor or by any Holder of the Notes. SECTION 7.03. Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to TIA Sections 310(b) and 311. SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no representation as to the validity or adequacy of this Indenture or the Notes, (ii) shall not be accountable for the Company's use or application of the proceeds from the Notes and (iii) shall not be responsible for any statement in the Notes other than its certificate of authentication. SECTION 7.05. Notice of Default. If any Default or any Event of Default occurs and is continuing and if such Default or Event of Default is known to any Responsible Officer of the Trustee, the Trustee shall mail to each Holder in the manner and to the extent provided in TIA Section 313(c) notice of the Default or Event of Default within 45 days after it occurs, unless such Default or Event of Default has been cured; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or a Responsible Officer of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. 63 72 SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15, beginning with May 15, 2002, the Trustee shall mail to each Holder as provided in TIA Section 313(c) a brief report dated as of such May 15, if required by TIA Section 313(a). A copy of each report at the time of its mailing to the Holders of Securities shall be mailed to the Company and filed with the Commission and each stock exchange on which the Securities are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange or of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee such compensation as shall be agreed upon in writing, from time to time, for its services hereunder. The compensation of the Trustee shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by the Trustee without negligence or bad faith on its part. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company and each of the Guarantors, jointly and severally, shall indemnify the Trustee, its directors, officers, agents and employees for, and hold it harmless against, any loss or liability, cost or expense incurred by it without negligence or bad faith on its part in connection with the acceptance or administration of this Indenture and its duties under this Indenture and the Notes, including, without limitation, the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under this Indenture and the Notes. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder, unless the Company is materially prejudiced thereby. The Company shall defend the claim and the Trustee shall cooperate in the defense provided, however, that the Trustee shall have the right to defend such claim if, upon the advice of counsel, its interests may be prejudiced by the conduct of such defense by the Company. Unless otherwise set forth herein, the Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, premium, if any, and interest on particular Notes. If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clause (g) or (h) of Section 6.01, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any applicable federal or state law for the relief of debtors. The provisions of this Section 7.07 shall survive the resignation or removal of the Trustee and termination of this Indenture. 64 73 The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign at any time by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the consent of the Company. The Company may remove the Trustee if: (i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting. If the Trustee resigns or is removed, or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If the successor Trustee does not deliver its written acceptance required by the next succeeding paragraph of this Section 7.08 within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in principal amount of the outstanding Notes may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after the delivery of such written acceptance, subject to the lien provided in Section 7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, (ii) the resignation or removal of the retiring Trustee shall become effective and (iii) the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. If the Trustee is no longer eligible under Section 7.10 or shall fail to comply with TIA Section 310(b), any Holder who satisfies the requirements of TIA Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.08, the Trustee shall resign immediately in the manner and with the effect provided in this Section. The Company shall give notice of any resignation and any removal of the Trustee and each appointment of a successor Trustee to all Holders. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligation under Section 7.07 shall continue for the benefit of the retiring Trustee. 65 74 Upon the Trustee's resignation or removal, the Company shall promptly pay the Trustee all amounts owed by the Company to the Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein, provided such corporation shall be otherwise qualified and eligible under this Article. SECTION 7.10. Eligibility. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have a combined capital and surplus of at least $25 million as set forth in its most recent published annual report of condition that is subject to the requirements of applicable federal or state supervising or examining authority. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.10, the Trustee shall resign immediately in the manner and with the effect specified in this Article. SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article Eight of this Indenture. ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations. Except as otherwise provided in this Section 8.01, the Company may terminate its obligations under the Notes and this Indenture if: (i) all Notes previously authenticated and delivered (other than destroyed, lost or stolen Notes that have been replaced or Notes that are paid pursuant to Section 4.01 or Notes for whose payment money or securities have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or (ii) (A) the Notes mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (B) the Company irrevocably deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders for that purpose, money or U.S. Government Obligations sufficient (in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment of any interest thereon, to pay principal, premium, if, any, and interest on the Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, (C) no Default or Event of Default with respect to the Notes 66 75 shall have occurred and be continuing on the date of such deposit, (D) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound and (E) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. With respect to the foregoing clause (i), the Company's obligations under Section 7.07 shall survive. With respect to the foregoing clause (ii), the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.04, 8.05 and 8.06 shall survive. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Notes and this Indenture except for those surviving obligations specified above. SECTION 8.02. Defeasance and Discharge of Indenture. The Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Notes on the 123rd day after the deposit referred to in clause (A) of this Section 8.02, and the provisions of this Indenture will no longer be in effect with respect to the Notes (except for, among other matters, certain obligations to register the transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes, to maintain paying agencies and to hold monies for payment in trust) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same if: (A) With reference to this Section 8.02, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10) and conveyed all right, title and interest to the Trustee for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust specifically pledged to the Trustee for the benefit of the Holders as security for payment of the principal of, or premium, if any, on the Notes and dedicated solely to, the benefit of the Holders, in and to (1) money in an amount, (2) U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in clause (A), money in an amount or (3) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and accrued interest on the outstanding Notes on the Stated Maturity of such principal and interest; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Notes; 67 76 (B) The Company has delivered to the Trustee (1) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 8.02 and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel shall be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after the Closing Date such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (2) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and that after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (I) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (II) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (a) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute and (b) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding; (C) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (D) if the Notes are then listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge; and (E) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02 have been complied with. 68 77 Notwithstanding the foregoing, prior to the end of the 123-day (or one-year) period referred to in clause (B)(2) of this Section 8.02, none of the Company's obligations under this Indenture shall be discharged. Subsequent to the end of such 123-day (or one year) period with respect to this Section 8.02, the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 8.04, 8.05, 8.06 and the rights, powers, trusts, duties and immunities of the Trustee hereunder and Article Eleven (with respect to payments in respect of Senior Subordinated Obligations other than with the assets held in trust as described in this Section 8.02) shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.04, 8.05 and 8.06 shall survive. If and when a ruling from the Internal Revenue Service or an Opinion of Counsel referred to in clause (B)(1) of this Section 8.02 is able to be provided specifically without regard to, and not in reliance upon, the continuance of the Company's obligations under Section 4.01, then the Company's obligations under such Section 4.01 shall cease upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance with the other conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Notes and this Indenture except for those surviving obligations in the immediately preceding paragraph. SECTION 8.03. Defeasance of Certain Obligations. The Company may omit to comply with any term, provision or condition set forth in clauses (iii) and (iv) of Section 5.01 and Sections 4.03 through 4.11 and Section 4.20 and clause (c) of Section 6.01 with respect to clauses (iii) and (iv) of Section 5.01, clause (d) of Section 6.01 with respect to Sections 4.01, 4.02 and 4.12 through 4.19 and clauses (e) and (f) of Section 6.01 shall be deemed not to be Events of Default, in each case with respect to the outstanding Notes if: (i) with reference to this Section 8.03, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10) and conveyed all right, title and interest to the Trustee for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged to the Trustee for the benefit of the Holders as security for payment of the principal of, premium, if any, and interest, if any, on the Notes, and dedicated solely to, the benefit of the Holders, in and to (A) money in an amount, (B) U.S. Government Obligations that, through the payment of interest, premium, if any, and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in this clause (i), money in an amount or (C) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and interest on the outstanding Notes on the Stated Maturity of such principal or interest; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Notes; 69 78 (ii) the Company has delivered to the Trustee an Opinion of Counsel to the effect that (A) the creation of the defeasance trust does not violate the Investment Company Act of 1940, (B) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (1) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (2) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (x) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise (except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute) and (y) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding, (C) the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred and (D) the Trustee, for the benefit of the Holders, has a valid first-priority security interest in the trust funds; (iii) immediately after giving effect to such deposit on a pro forma basis, no Default or Event of Default shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after such date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (iv) if the Notes are then listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge; and (v) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.03 have been complied with. SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with the Notes and this Indenture to the payment of principal of, premium, if any, and interest on the Notes; but such money need not be segregated from other funds except to the extent required by law. 70 79 SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company upon request set forth in an Officers' Certificate any excess money held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years; provided that the Trustee or Paying Agent before being required to make any payment may cause to be published at the expense of the Company once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money at such Holder's address (as set forth in the Security Register) notice that such money remains unclaimed and that after a date specified therein (which shall be at least 30 days from the date of such publication or mailing) any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company, when authorized by a resolution of its Board of Directors (as evidenced by a Board Resolution delivered to the Trustee), and the Trustee may amend or supplement this Indenture or the Notes without notice to or the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency in this Indenture; provided that such amendments or supplements shall not, in the good faith opinion of the Board of Directors as evidenced by a Board Resolution, adversely affect the interests of the Holders in any material respect; (2) to comply with Article Five or Section 4.20; (3) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; 71 80 (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (5) to make any change that, in the good faith opinion of the Board of Directors as evidenced by a Board Resolution, does not materially and adversely affect the rights of any Holder. SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and 6.07 and without prior notice to the Holders, the Company, when authorized by its Board of Directors (as evidenced by a Board Resolution delivered to the Trustee), and the Trustee may amend this Indenture and the Notes with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding, and the Holders of a majority in aggregate principal amount of the Notes then outstanding by written notice to the Trustee may waive future compliance by the Company with any provision of this Indenture or the Notes. Notwithstanding the provisions of this Section 9.02, without the consent of each Holder affected, an amendment or waiver, including a waiver pursuant to Section 6.04, may not: (i) change the Stated Maturity of the principal of, or any installment of interest on, any Note; (ii) reduce the principal amount of, or premium, if any, or interest on, any Note; (iii) change the optional redemption dates or optional redemption prices of the Notes from that stated in Section 3.01; (iv) change any place or currency of payment of principal of, premium, if any, or interest on, any Note; (v) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of redemption, on or after the Redemption Date) on any Note; (vi) reduce the percentage or principal amount of outstanding Notes the consent of whose Holders is necessary to modify or amend this Indenture or to waive compliance with certain provisions of or certain Defaults under this Indenture; (vii) waive a Default in the payment of principal of, premium, if any, or interest on, any Note; (viii) modify any of the provisions of this Section 9.02, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note affected thereby; or (ix) release any Guarantor from its Note Guarantee, except as provided in this Indenture. 72 81 It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company will mail supplemental indentures to Holders upon request. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. SECTION 9.03. Revocation and Effect of Consent. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the Note of the consenting Holder, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to its Note or portion of its Note. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver shall become effective on receipt by the Trustee of written consents from the Holders of the requisite percentage in principal amount of the outstanding Notes. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then, notwithstanding the last two sentences of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies) and only those persons shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder unless it is of the type described in the second paragraph of Section 9.02. In case of an amendment or waiver of the type described in the second paragraph of Section 9.02, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder of a Note that evidences the same indebtedness as the Note of the consenting Holder. SECTION 9.04. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder to deliver such Note to the Trustee. At the Company's expense, the Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Note thereafter authenticated. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation, or issue a new Note, shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating 73 82 that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture and that it will be valid and binding upon the Company. Subject to the preceding sentence, the Trustee shall sign such amendment, supplement or waiver if the same does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the TIA as then in effect. ARTICLE TEN GUARANTEE OF NOTES SECTION 10.01. Note Guarantee. Subject to the provisions of this Article Ten, each of the Guarantors hereby, jointly and severally, fully and unconditionally Guarantees to each Holder of Notes hereunder and to the Trustee on behalf of the Holders: (i) the due and punctual payment of the principal of, premium, if any, on and interest on each Note, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal of and interest, if any, on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms of such Note and this Indenture and (ii) in the case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at Stated Maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in the next succeeding paragraph. Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the Guarantee by such Guarantor pursuant to its Note Guarantee not constitute a fraudulent transfer or conveyance for purposes of the United States Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under its Note Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Note Guarantee or pursuant to the following paragraph, result in the obligations of such Guarantor under its Note Guarantee not constituting such fraudulent transfer or conveyance. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under its Note Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and 74 83 expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Notes or any other Guarantor's obligations with respect to its Note Guarantee. "Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Note Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under the Note Guarantee of such Guarantor), excluding debt in respect of its Note Guarantee, as they become absolute and matured. Each of the Guarantors hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, the benefit of discussion, protest or notice with respect to any such Note or the debt evidenced thereby and all demands whatsoever (except as specified above), and covenants that this Note Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof and interest thereon and as provided in Sections 8.01, 8.02 and 8.03. In the event of any declaration of acceleration of such obligations as provided in Article Six, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purposes of this Article Ten. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article Six, the Trustee shall promptly make a demand for payment on the Notes under the Note Guarantee provided for in this Article Ten. The obligations of each Guarantor under its Note Guarantee are independent of the obligations Guaranteed by such Guarantor hereunder, and a separate action or actions may be brought and prosecuted by the Trustee on behalf of, or by, the Holders, subject to the terms and conditions set forth in this Indenture, against a Guarantor to enforce this Guarantee, irrespective of whether any action is brought against the Company or whether the Company is joined in any such action or actions. If the Trustee or the Holder is required by any court or otherwise to return to the Company or any Guarantor, or any custodian, receiver, liquidator, trustee, sequestrator or other similar official acting in relation to Company or such Guarantor, any amount paid to the Trustee or such Holder in respect of a Note, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each of the Guarantors further agrees, to the fullest extent that it may lawfully do so, that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, the maturity of the obligations Guaranteed hereby may be accelerated as provided in Article Six hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition extant under any applicable bankruptcy law preventing such acceleration in respect of the obligations Guaranteed hereby. Each of the Guarantors hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company or any other Guarantor that arise from the 75 84 existence, payment, performance or enforcement of its obligations under this Note Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, any right to participate in any claim or remedy of the Holders against the Company or any Guarantor or any collateral which any such Holder or the Trustee on behalf of such Holder hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company or a Guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to a Guarantor in violation of the preceding sentence and the principal of, premium, if any, and accrued interest on the Notes shall not have been paid in full, such amount shall be deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders, and shall forthwith be paid to the Trustee for the benefit of the Holders to be credited and applied upon the principal of, premium, if any, and accrued interest on the Notes. Each of the Guarantors acknowledges that it will receive direct and indirect benefits from the issuance of the Notes pursuant to this Indenture and that the waivers set forth in this Section 10.01 are knowingly made in contemplation of such benefits. The Note Guarantee set forth in this Section 10.01 shall not be valid or become obligatory for any purpose with respect to a Note until the certificate of authentication on such Note shall have been signed by or on behalf of the Trustee. SECTION 10.02. Obligations Unconditional. Nothing contained in this Article Ten or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among any Guarantor and the holders of the Notes, the obligation of such Guarantor, which is absolute and unconditional, upon failure by the Company to pay to the holders of the Notes the principal of, premium, if any, and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of such Guarantor, nor shall anything herein or therein prevent any Holder or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture. Without limiting the foregoing, nothing contained in this Article Ten will restrict the right of the Trustee or the Holders to take any action to declare the Note Guarantee to be due and payable prior to the Stated Maturity of any Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder. SECTION 10.03. Release of Note Guarantees. The Note Guarantee issued by any Subsidiary Guarantor will be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer (including by way of merger or consolidation) to any Person not an Affiliate of the Company of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Guarantor (which such sale, exchange or transfer is not prohibited by this Indenture) or (ii) the designation of such Subsidiary Guarantor or Restricted Subsidiary as an Unrestricted Subsidiary, in accordance with the terms of this Indenture. SECTION 10.04. Notice to Trustee. A Guarantor shall give prompt written notice to the Trustee of any fact known to such Guarantor which would prohibit the making of 76 85 any payment to or by the Trustee in respect of the Note Guarantee pursuant to the provisions of this Article Ten. SECTION 10.05. This Article Not to Prevent Events of Default. The failure to make a payment on account of principal of, premium, if any, or interest on the Notes by reason of any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act of 1939. Prior to the effectiveness of the Registration Statement, this Indenture shall incorporate and be governed by the provisions of the TIA that are required to be part of and to govern indentures qualified under the TIA. After the effectiveness of the Registration Statement, this Indenture shall be subject to the provisions of the TIA that are required to be a part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 11.02. Notices. Any notice, request or communication shall be sufficiently given if in writing and delivered in person, mailed by first-class mail or sent by telecopier transmission addressed as follows: if to the Company: Premium Standard Farms, Inc. 423 West 8th Street, Suite 200 Kansas City, MO 64105 Telecopier No.: (816) 472-5837 Attention: Chief Financial Officer if to the Trustee: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Telecopier No.: (302) 651-8882 Attention: Corporate Trust Department The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to it at its address as it appears on the Security Register by first-class mail and shall be sufficiently given to 77 86 the Holder if so mailed within the time prescribed. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Copies of any such communication or notice to a Holder shall also be mailed to the Trustee and each Agent at the same time. Failure to mail a notice or communication to a Holder as provided herein or any defect in any such notice or communication shall not affect its sufficiency with respect to other Holders. Except for a notice to the Trustee, which is deemed given only when received, and except as otherwise provided in this Indenture, if a notice or communication is mailed in the manner provided in this Section 11.02, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 11.03. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (i) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel stating that, in the opinion of such Counsel, all such conditions precedent have been complied with. SECTION 11.04. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; 78 87 (iii) a statement that, in the opinion of each such person, the person has made such examination or investigation as is necessary to enable the person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that, with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.06. Payment Date Other Than a Business Day. If an Interest Payment Date, Redemption Date, Payment Date, Stated Maturity or date of maturity of any Note shall not be a Business Day, then payment of principal of, premium, if any, or interest on such Note, as the case may be, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Payment Date or Redemption Date, or at the Stated Maturity or date of maturity of such Note; provided that no interest shall accrue for the period from and after such Interest Payment Date, Payment Date, Redemption Date, Stated Maturity or date of maturity, as the case may be. SECTION 11.07. Governing Law. This Indenture and the Notes shall be governed by the laws of the State of New York. The Trustee, the Company and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture or the Notes. SECTION 11.08. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.09. No Recourse Against Others. No recourse for the payment of the principal of, premium, if any, or interest on any of the Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company contained in this Indenture or in any of the Notes, or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator or against any past, present or future partner, stockholder, other equityholder, officer, director, employee or controlling person, as such, of the Company or of any successor Person, either directly or through the Company or any successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. 79 88 SECTION 11.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.11. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.12. Separability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.13. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. 80 89 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. PREMIUM STANDARD FARMS, INC. By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President THE LUNDY PACKING COMPANY By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President LUNDY INTERNATIONAL, INC. By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President PSF GROUP HOLDINGS, INC. By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President 81 90 WILMINGTON TRUST COMPANY By: /s/ James Nesci ---------------------------------------- Name: James Nesci Title: Authorized Signer 82 91 Exhibit A [APPLICABLE LEGENDS] [FACE OF NOTE] PREMIUM STANDARD FARMS, INC. 9-1/4% Senior Note due 2011 [CUSIP] [CINS] [__________] No. ____ $ PREMIUM STANDARD FARMS, INC. a Delaware corporation (the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to _____________, or its registered assigns, the principal sum of ____________ ($____) on June 15, 2011. Interest Payment Dates: June 15 and December 15, commencing December 15, 2001. Regular Record Dates: June 1 and December 1. PSF Group Holdings, Inc., a Delaware corporation, The Lundy Packing Company, a North Carolina corporation, Premium Standard Farms of North Carolina, Inc., a Delaware corporation, and Lundy International, Inc., a North Carolina corporation (collectively, the "Guarantors", which term includes any successors under the Indenture hereinafter referred to and any Restricted Subsidiary that provides a Note Guarantee pursuant to the Indenture), have jointly and severally, fully and unconditionally guaranteed the payment of principal of premium, if any, and interest on the Notes. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-1 92 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. PREMIUM STANDARD FARMS, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: (Trustee's Certificate of Authentication) This is one of the 9-1/4% Senior Notes due 2011 described in the within-mentioned Indenture. Date: [________, ____] WILMINGTON TRUST COMPANY, as Trustee By: --------------------------------------- Authorized Signer A-2 93 [REVERSE SIDE OF NOTE] PREMIUM STANDARD FARMS, INC. 9-1/4% Senior Note due 2011 1. Principal and Interest. The Company will pay the principal of this Note on June 15, 2011. The Company promises to pay interest on the principal amount of this Note on each Interest Payment Date, as set forth below, at the rate per annum shown above. Interest will be payable semiannually (to the holders of record of the Notes at the close of business on the June 1 or December 1 immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing December 15, 2001. If neither an exchange offer (the "Exchange Offer") registered under the Securities Act is consummated nor a shelf registration statement (the "Shelf Registration Statement") under the Securities Act with respect to resales of the Notes is declared effective by the Commission, on or before December 7, 2001 in accordance with the terms of the Registration Rights Agreement dated June 4, 2001 among the Company, each of the Guarantors and Morgan Stanley & Co. Incorporated and J.P Morgan Securities, Inc., then the annual interest rate borne by the Notes shall be increased by 0.5% from the rate shown above accruing from December 7, 2001, payable in cash semiannually, in arrears, on each Interest Payment Date, commencing December 15, 2001 until the earlier of (a) the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement and (b) the expiration of the period set forth in Rule 144(k) under the Securities Act of 1933 with respect to the Notes. The Holder of this Note is entitled to the benefits of such Registration Rights Agreement. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from June 7, 2001; provided that, if there is no existing default in the payment of interest and this Note is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at a rate per annum that is 2% in excess of the rate otherwise payable. 2. Method of Payment. The Company will pay interest (except defaulted interest) on the principal amount of the Notes as provided above on each June 15 and December 15, commencing December 15, 2001 to the persons who are Holders (as reflected in the Security Register at the close of business on the June 1 or December 1 immediately preceding the Interest Payment Date), in each case, even if the Note is cancelled on registration of transfer or registration of exchange after such A-3 94 record date; provided that, with respect to the payment of principal, the Company will make payment to the Holder that surrenders this Note to a Paying Agent on or after June 15, 2011. The Company will pay principal, premium, if any, and as provided above, interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by its check payable in such money. It may mail an interest check to a Holder's registered address (as reflected in the Security Register). If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. The Notes may be exchanged or transferred at the office or agency of the Company in The Borough of Manhattan, The City of New York. Initially, Computerserve Trust Company of New York, Wall Street Plaza, 88 Pine Street, New York, New York 10005 will serve as such office. If you give the Company wire transfer instructions, the Company will pay all principal, premium and interest on your Notes in accordance with your instructions. If the Company is not given wire transfer instructions, payments of principal, premium and interest will be made at the office or agency of the paying agent which will initially be the Trustee, unless the Company elects to make interest payments by check mailed to the Holders. 3. Paying Agent and Registrar. Initially, the Trustee will act as authenticating agent, Paying Agent and Registrar. The Company may change any authenticating agent, Paying Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar. 4. Indenture; Limitations. The Company issued the Notes under an Indenture dated as of June 7, 2001 (the "Indenture"), among the Company, each of the Guarantors and Wilmington Trust Company Company, trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. The Notes are general unsecured obligations of the Company. The Company may, subject to Article Four of the Indenture and applicable law, issue additional Notes under the Indenture. 5. Optional Redemption. The Notes are redeemable, at the Company's option, in whole or in part, at any time or from time to time, on or after June 15, 2006 and prior to maturity, upon not less than 30 A-4 95 nor more than 60 days' prior notice mailed by first-class mail to each Holder's last address, as it appears in the Security Register, at the following Redemption Prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing June 15 of the years set forth below:
Redemption Year Price -------------------------------------------------------- 2006........................................... 104.625% 2007........................................... 103.083% 2008........................................... 101.542% 2009 and thereafter............................ 100.000%
In addition, at any time prior to June 15, 2004, the Company may redeem up to 35% of the aggregate principal amount of the Notes with the Net Cash Proceeds of one or more sales of Capital Stock of the Company (other than Disqualified Stock) or a capital contribution to the Company's common equity, at any time as a whole or from time to time in part, at a Redemption Price (expressed as a percentage of principal amount) of 109.250%, plus accrued and unpaid interest to the Redemption Date (subject to the rights of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date); provided that (i) at least 65% of the aggregate principal amount of Notes originally issued on the Closing Date remains outstanding after each such redemption and (ii) notice of such redemption is mailed within 60 days after such sale of Capital Stock. Notes in original denominations larger than $1,000 may be redeemed in part. On and after the Redemption Date, interest ceases to accrue on Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. 6. Repurchase upon Change of Control. Upon the occurrence of any Change of Control, each Holder shall have the right to require the repurchase of its Notes by the Company in cash pursuant to the offer described in the Indenture at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Payment Date"). A notice of such Change of Control will be mailed within 30 days after any Change of Control occurs to each Holder at its last address as it appears in the Security Register. Notes in original denominations larger than $1,000 may be sold to the Company in part. On and after the Payment Date, interest ceases to accrue on Notes or portions of Notes surrendered for purchase by the Company, unless the Company defaults in the payment of the purchase price. 7. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any A-5 96 taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Notes selected for redemption. Also, it need not register the transfer or exchange of any Notes for a period of 15 days before the day of mailing of a notice of redemption of Notes selected for redemption. 8. Persons Deemed Owners. A Holder shall be treated as the owner of a Note for all purposes. 9. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 10. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain provisions thereof, and (b) to the Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Holder. 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries, among other things, to Incur additional Indebtedness, make Restricted Payments, suffer to exist restrictions on the ability of Restricted Subsidiaries to make certain payments to the Company, issue Capital Stock of Restricted Subsidiaries, Guarantee Indebtedness of the Company, engage in transactions with Affiliates, suffer to exist or incur Liens, enter into sale-leaseback transactions, use the proceeds from Asset Sales, or merge, consolidate or transfer substantially all of its assets. Within 45 days after the end of each of the first three fiscal quarters of each year and within 90 days after the end of the last fiscal quarter of each year, the Company shall deliver to the Trustee an Officers' Certificate stating whether or not the signers thereof know of any Default or Event of Default under such restrictive covenants. A-6 97 13. Successor Persons. When a successor person or other entity assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor person will be released from those obligations. 14. Defaults and Remedies. Any of the following events constitutes an "Event of Default" under the Indenture: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; (c) (i) default in the performance or breach of the provisions of the Indenture applicable to (A) mergers, consolidations and transfers of all or substantially all of the assets of the Company or PSF Group Holdings or (B) mergers or consolidations of any Subsidiary Guarantor or (ii) the failure by the Company to make or consummate an Offer to Purchase in accordance with Section 4.11 or Section 4.12 of the Indenture; (d) the Company, any Subsidiary Guarantor or PSF Group Holdings defaults in the performance of or breaches any other covenant or agreement of the Company in the Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (e) there occurs with respect to any issue or issues of Indebtedness of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary having an outstanding principal amount of $7.5 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (A) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration and/or (B) the failure to make a principal payment at the final (but not any interim) fixed maturity and such defaulted payment shall not have been made, waived or extended within 30 days of such payment default; (f) final judgments or orders (not covered by insurance) for the payment of money in excess of $7.5 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such A-7 98 Persons to exceed $7.5 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or for all or substantially all of the property and assets of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or (C) the winding up or liquidation of the affairs of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (h) the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or for all or substantially all of the property and assets of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; or (i) any Guarantor repudiates its obligations under its Note Guarantee or, except as permitted by the Indenture, any Note Guarantee is determined to be unenforceable or invalid or shall for any reason cease to be in full force and effect. If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee may, and at the direction of the Holders of at least 25% in aggregate principal amount of the Notes then outstanding shall, declare all the Notes to be due and payable. If a bankruptcy or insolvency default with respect to the Company or any Guarantor occurs and is continuing, the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of at least a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. 15. Guarantee. The Company's obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors. 16. Trustee Dealings with the Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company, the Guarantors or their A-8 99 Affiliates and may otherwise deal with the Company, the Guarantors or their Affiliates as if it were not the Trustee. 17. No Recourse Against Others. No incorporator or any past, present or future partner, stockholder, other equityholder, officer, director, employee or controlling person, as such, of the Company or of any successor Person shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 18. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish a copy of the Indenture to any Holder upon written request and without charge. Requests may be made to Premium Standard Farms, Inc. 423 West 8th Street, Suite 200, Kansas City, Missouri 645105; Attention: Chief Financial Officer. A-9 100 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. __________________________________ __________________________________ Please print or typewrite name and address including zip code of assignee __________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________ attorney to transfer said Note on the books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES, TEMPORARY OFFSHORE GLOBAL NOTES AND UNLEGENDED PHYSICAL NOTES] In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date the Shelf Registration Statement is declared effective or (ii) the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] [ ](a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933 provided by Rule 144A thereunder. or [ ](b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. A-10 101 If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.08 of the Indenture shall have been satisfied. Date: ---------------------- -------------------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: --------------------- -------------------------------------------- NOTICE: To be executed by an executive officer A-11 102 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 4.11 or 4.12 of the Indenture, check the Box: [ ] If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.11 or 4.12 of the Indenture, state the principal amount: $ . ------------------- Date: Your Signature: --------------------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------------------- Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. A-12 103 EXHIBIT B Form of Certificate ________, Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Department Re: Premium Standard Farms, Inc. (the "Company") 9-1/4% Senior Notes due 2011 (the "Notes") Dear Sirs: This letter relates to U.S. $ __________ principal amount of Notes represented by a Note (the "Legended Note") which bears a legend outlining restrictions upon transfer of such Legended Note. Pursuant to Section 2.02 of the Indenture dated as of June 7, 2001 (the "Indenture") relating to the Notes, we hereby certify that we are (or we will hold such securities on behalf of) a person outside the United States to whom the Notes could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933. Accordingly, you are hereby requested to exchange the legended certificate for an unlegended certificate representing an identical principal amount of Notes, all in the manner provided for in the Indenture. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Holder] By:________________________________ Authorized Signature B-1 104 EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors __________, Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Department Re: Premium Standard Farms, Inc. (the "Company") 9-1/4% Senior Notes due 2011 (the "Notes") Dear Sirs: In connection with our proposed purchase of $_______________ aggregate principal amount of the Notes, we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of June 7, 2001 (the "Indenture") relating to the Notes and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with such restrictions and conditions and the Securities Act of 1933, amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Notes within the time period referred to in Rule 144(k) of the Securities Act, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of an aggregate principal amount of less than $100,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to you and the Company such certifications, legal opinions and other information as C-1 105 you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By: --------------------------------- Authorized Signature C-2 106 EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Department Re: Premium Standard Farms, Inc. (the "Company") 9-1/4% Senior Notes due 2011 (the "Notes") Dear Sirs: In connection with our proposed sale of U.S.$ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933 and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: --------------------------------- Authorized Signature D-1 EX-4.1.B 16 y50886ex4-1_b.txt SPECIMEN CERTIFICATE 1 EXHIBIT 4.1(b) [APPLICABLE LEGENDS] [FACE OF NOTE] PREMIUM STANDARD FARMS, INC. 9-1/4% Senior Note due 2011 [CUSIP] [CINS] [__________] No. ____ $ PREMIUM STANDARD FARMS, INC. a Delaware corporation (the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to _____________, or its registered assigns, the principal sum of ____________ ($____) on June 15, 2011. Interest Payment Dates: June 15 and December 15, commencing December 15, 2001. Regular Record Dates: June 1 and December 1. PSF Group Holdings, Inc., a Delaware corporation, The Lundy Packing Company, a North Carolina corporation, Premium Standard Farms of North Carolina, Inc., a Delaware corporation, and Lundy International, Inc., a North Carolina corporation (collectively, the "Guarantors", which term includes any successors under the Indenture hereinafter referred to and any Restricted Subsidiary that provides a Note Guarantee pursuant to the Indenture), have jointly and severally, fully and unconditionally guaranteed the payment of principal of premium, if any, and interest on the Notes. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 2 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. PREMIUM STANDARD FARMS, INC. By: Name: Title: By: Name: Title: (Trustee's Certificate of Authentication) This is one of the 9-1/4% Senior Notes due 2011 described in the within-mentioned Indenture. Date: [________, ____] WILMINGTON TRUST COMPANY, as Trustee By: Authorized Signer 2 3 [REVERSE SIDE OF NOTE] PREMIUM STANDARD FARMS, INC. 9-1/4% Senior Note due 2011 1. Principal and Interest. The Company will pay the principal of this Note on June 15, 2011. The Company promises to pay interest on the principal amount of this Note on each Interest Payment Date, as set forth below, at the rate per annum shown above. Interest will be payable semiannually (to the holders of record of the Notes at the close of business on the June 1 or December 1 immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing December 15, 2001. If neither an exchange offer (the "Exchange Offer") registered under the Securities Act is consummated nor a shelf registration statement (the "Shelf Registration Statement") under the Securities Act with respect to resales of the Notes is declared effective by the Commission, on or before December 7, 2001 in accordance with the terms of the Registration Rights Agreement dated June 4, 2001 among the Company, each of the Guarantors and Morgan Stanley & Co. Incorporated and J.P Morgan Securities, Inc., then the annual interest rate borne by the Notes shall be increased by 0.5% from the rate shown above accruing from December 7, 2001, payable in cash semiannually, in arrears, on each Interest Payment Date, commencing December 15, 2001 until the earlier of (a) the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement and (b) the expiration of the period set forth in Rule 144(k) under the Securities Act of 1933 with respect to the Notes. The Holder of this Note is entitled to the benefits of such Registration Rights Agreement. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from June 7, 2001; provided that, if there is no existing default in the payment of interest and this Note is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at a rate per annum that is 2% in excess of the rate otherwise payable. 2. Method of Payment. The Company will pay interest (except defaulted interest) on the principal amount of the Notes as provided above on each June 15 and December 15, commencing December 15, 2001 to the persons who are Holders (as reflected in the Security Register at the close of business on the June 1 or December 1 immediately preceding the Interest Payment Date), in each case, even if the Note is cancelled on registration of transfer or registration of exchange after such 3 4 record date; provided that, with respect to the payment of principal, the Company will make payment to the Holder that surrenders this Note to a Paying Agent on or after June 15, 2011. The Company will pay principal, premium, if any, and as provided above, interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by its check payable in such money. It may mail an interest check to a Holder's registered address (as reflected in the Security Register). If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. The Notes may be exchanged or transferred at the office or agency of the Company in The Borough of Manhattan, The City of New York. Initially, Computerserve Trust Company of New York, Wall Street Plaza, 88 Pine Street, New York, New York 10005 will serve as such office. If you give the Company wire transfer instructions, the Company will pay all principal, premium and interest on your Notes in accordance with your instructions. If the Company is not given wire transfer instructions, payments of principal, premium and interest will be made at the office or agency of the paying agent which will initially be the Trustee, unless the Company elects to make interest payments by check mailed to the Holders. 3. Paying Agent and Registrar. Initially, the Trustee will act as authenticating agent, Paying Agent and Registrar. The Company may change any authenticating agent, Paying Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar. 4. Indenture; Limitations. The Company issued the Notes under an Indenture dated as of June 7, 2001 (the "Indenture"), among the Company, each of the Guarantors and Wilmington Trust Company Company, trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. The Notes are general unsecured obligations of the Company. The Company may, subject to Article Four of the Indenture and applicable law, issue additional Notes under the Indenture. 5. Optional Redemption. The Notes are redeemable, at the Company's option, in whole or in part, at any time or from time to time, on or after June 15, 2006 and prior to maturity, upon not less than 30 nor more 4 5 than 60 days' prior notice mailed by first-class mail to each Holder's last address, as it appears in the Security Register, at the following Redemption Prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing June 15 of the years set forth below:
Redemption Year Price ---------------------------------------------------------- 2006........................................... 104.625% 2007........................................... 103.083% 2008........................................... 101.542% 2009 and thereafter............................ 100.000%
In addition, at any time prior to June 15, 2004, the Company may redeem up to 35% of the aggregate principal amount of the Notes with the Net Cash Proceeds of one or more sales of Capital Stock of the Company (other than Disqualified Stock) or a capital contribution to the Company's common equity, at any time as a whole or from time to time in part, at a Redemption Price (expressed as a percentage of principal amount) of 109.250%, plus accrued and unpaid interest to the Redemption Date (subject to the rights of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date); provided that (i) at least 65% of the aggregate principal amount of Notes originally issued on the Closing Date remains outstanding after each such redemption and (ii) notice of such redemption is mailed within 60 days after such sale of Capital Stock. Notes in original denominations larger than $1,000 may be redeemed in part. On and after the Redemption Date, interest ceases to accrue on Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. 6. Repurchase upon Change of Control. Upon the occurrence of any Change of Control, each Holder shall have the right to require the repurchase of its Notes by the Company in cash pursuant to the offer described in the Indenture at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Payment Date"). A notice of such Change of Control will be mailed within 30 days after any Change of Control occurs to each Holder at its last address as it appears in the Security Register. Notes in original denominations larger than $1,000 may be sold to the Company in part. On and after the Payment Date, interest ceases to accrue on Notes or portions of Notes surrendered for purchase by the Company, unless the Company defaults in the payment of the purchase price. 7. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any 5 6 taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Notes selected for redemption. Also, it need not register the transfer or exchange of any Notes for a period of 15 days before the day of mailing of a notice of redemption of Notes selected for redemption. 8. Persons Deemed Owners. A Holder shall be treated as the owner of a Note for all purposes. 9. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 10. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain provisions thereof, and (b) to the Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Holder. 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries, among other things, to Incur additional Indebtedness, make Restricted Payments, suffer to exist restrictions on the ability of Restricted Subsidiaries to make certain payments to the Company, issue Capital Stock of Restricted Subsidiaries, Guarantee Indebtedness of the Company, engage in transactions with Affiliates, suffer to exist or incur Liens, enter into sale-leaseback transactions, use the proceeds from Asset Sales, or merge, consolidate or transfer substantially all of its assets. Within 45 days after the end of each of the first three fiscal quarters of each year and within 90 days after the end of the last fiscal quarter of each year, the Company shall deliver to the Trustee an Officers' Certificate stating whether or not the signers thereof know of any Default or Event of Default under such restrictive covenants. 6 7 13. Successor Persons. When a successor person or other entity assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor person will be released from those obligations. 14. Defaults and Remedies. Any of the following events constitutes an "Event of Default" under the Indenture: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; (c) default in the performance or breach of the provisions of the Indenture applicable to (A) mergers, consolidations and transfers of all or substantially all of the assets of the Company or PSF Group Holdings or (B) mergers or consolidations of any Subsidiary Guarantor or (ii) the failure by the Company to make or consummate an Offer to Purchase in accordance with Section 4.11 or Section 4.12 of the Indenture; (d) the Company, any Subsidiary Guarantor or PSF Group Holdings defaults in the performance of or breaches any other covenant or agreement of the Company in the Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (e) there occurs with respect to any issue or issues of Indebtedness of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary having an outstanding principal amount of $7.5 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (A) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration and/or (B) the failure to make a principal payment at the final (but not any interim) fixed maturity and such defaulted payment shall not have been made, waived or extended within 30 days of such payment default; (f) final judgments or orders (not covered by insurance) for the payment of money in excess of $7.5 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such 7 8 Persons to exceed $7.5 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or for all or substantially all of the property and assets of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or (C) the winding up or liquidation of the affairs of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (h) the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or for all or substantially all of the property and assets of the Company, any Subsidiary Guarantor, PSF Group Holdings or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; or (i) any Guarantor repudiates its obligations under its Note Guarantee or, except as permitted by the Indenture, any Note Guarantee is determined to be unenforceable or invalid or shall for any reason cease to be in full force and effect. If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee may, and at the direction of the Holders of at least 25% in aggregate principal amount of the Notes then outstanding shall, declare all the Notes to be due and payable. If a bankruptcy or insolvency default with respect to the Company or any Guarantor occurs and is continuing, the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of at least a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. 15. Guarantee. The Company's obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors. 16. Trustee Dealings with the Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company, the Guarantors or their 8 9 Affiliates and may otherwise deal with the Company, the Guarantors or their Affiliates as if it were not the Trustee. 17. No Recourse Against Others. No incorporator or any past, present or future partner, stockholder, other equityholder, officer, director, employee or controlling person, as such, of the Company or of any successor Person shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 18. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish a copy of the Indenture to any Holder upon written request and without charge. Requests may be made to Premium Standard Farms, Inc. 423 West 8th Street, Suite 200, Kansas City, Missouri 645105; Attention: Chief Financial Officer. 9 10 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. Please print or typewrite name and address including zip code of assignee the within Note and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer said Note on the books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES, TEMPORARY OFFSHORE GLOBAL NOTES AND UNLEGENDED PHYSICAL NOTES] In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date the Shelf Registration Statement is declared effective or (ii) the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933 provided by Rule 144A thereunder. or [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. 10 11 If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.08 of the Indenture shall have been satisfied. Date: NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: NOTICE: To be executed by an executive officer 11 12 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 4.11 or 4.12 of the Indenture, check the Box: [ ] If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.11 or 4.12 of the Indenture, state the principal amount: $___________________. Date: Your Signature: ____________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ______________________________ Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. 12 EX-4.2 17 y50886ex4-2.txt REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT Dated June 4, 2001 among PREMIUM STANDARD FARMS, INC. PSF GROUP HOLDINGS, INC. THE LUNDY PACKING COMPANY PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. LUNDY INTERNATIONAL, INC. and MORGAN STANLEY & CO. INCORPORATED J.P. MORGAN SECURITIES INC. 2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into June 4, 2001, between PREMIUM STANDARD FARMS, INC., a Delaware corporation (the "Company"), PSF GROUP HOLDINGS, INC. ("PSF Holdings"), the subsidiaries of the Company listed in Schedule I hereto (together with PSF Holdings, the "Guarantors"), and MORGAN STANLEY & CO. INCORPORATED and J.P. MORGAN SECURITIES INC. (the "Placement Agents"). This Agreement is made pursuant to the Placement Agreement dated June 4, 2001, among the Company, the Guarantors and the Placement Agents (the "Placement Agreement"), which provides for the sale by the Company to the Placement Agents of an aggregate of $175,000,000 principal amount of the Company's 9-1/4% Senior Notes Due 2011 (the "Securities"). The Securities will be fully and unconditionally guaranteed on a senior unsecured basis by the Guarantors. In order to induce the Placement Agents to enter into the Placement Agreement, the Company and the Guarantors have agreed to provide to the Placement Agents and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Placement Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Closing Date" shall mean the Closing Date as defined in the Placement Agreement. "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors. "Exchange Offer" shall mean the exchange offer by the Company of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2(a) hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form) and all amendments and supplements to such registration statement, in each case including the 3 Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Securities" shall mean securities issued by the Company and severally guaranteed by the Guarantors under the Indenture containing terms identical to the Securities (except that (i) interest thereon shall accrue from the last date interest was paid on the Securities, and (ii) the Exchange Securities will not contain restrictions on transfer) and to be offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer. "Guarantors" shall have the meaning set forth in the preamble and shall also include any Guarantor's successors. "Holder" shall mean the Placement Agents, for so long as they own any Registrable Securities, and each of their successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture; provided that for purposes of Sections 4 and 5 of this Agreement, the term "Holder" shall include Participating Broker-Dealers (as defined in Section 4(a)). "Indenture" shall mean the Indenture relating to the Securities to be dated as of June 7, 2001 among the Company, the Guarantors and Wilmington Trust Company, as trustee, and as the same may be amended from time to time in accordance with the terms thereof. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of outstanding Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage or amount. "Person" shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Placement Agents" shall have the meaning set forth in the preamble. "Placement Agreement" shall have the meaning set forth in the preamble. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to such prospectus, and in each case including all material incorporated by reference therein. "Registrable Securities" shall mean the Securities and the guarantees thereof by the Guarantors; provided, however, that the Securities and the guarantees shall cease to 2 4 be Registrable Securities (i) when a Registration Statement with respect to such Securities and the guarantees shall have been declared effective under the 1933 Act and such Securities and the guarantees shall have been exchanged or disposed of pursuant to such Registration Statement, (ii) when such Securities and the guarantees have been sold to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) under the 1933 Act or (iii) when such Securities and the guarantees shall have ceased to be outstanding. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company and the Guarantors with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws, (vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees and disbursements of counsel for the Company and the Guarantors and, in the case of a Shelf Registration Statement, the fees and disbursements of one counsel for the Holders (which counsel shall be selected by the Majority Holders and which counsel may also be counsel for the Placement Agent) and (viii) the fees and disbursements of the independent public accountants of the Company and the Guarantors and KPMG LLP, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance. Notwithstanding the foregoing, Holders shall be responsible for fees and expenses of counsel to the underwriters (other than fees and expenses set forth in clauses (ii) and (vii) above) or the Holders and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the Company and the Guarantors that covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission. "Shelf Registration" shall mean a registration effected pursuant to Section 2(b) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company and the Guarantors pursuant to the provisions of Section 2(b) of this 3 5 Agreement which covers all of the Registrable Securities (but no other securities unless approved by the Holders whose Registrable Securities are covered by such Shelf Registration Statement; provided, however, that no such approval shall be required to include on such Shelf Registration Statement any of the securities of PSF Holdings, the holders of which have elected to exercise "piggyback" registration rights under the Warrants Agreement) on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Trustee" shall mean the trustee with respect to the Securities under the Indenture. "Underwriter" shall have the meaning set forth in Section 3 hereof. "Underwritten Registration" or "Underwritten Offering" shall mean a registration in which Registrable Securities are sold to an Underwriter for reoffering to the public. "Warrants Agreement" shall mean the Warrants Registration Rights Agreement, dated as of September 17, 1996, by PSF Holdings, L.L.C., a Delaware limited liability company, for the benefit of the holders identified therein. 2. Registration Under the 1933 Act. (a) To the extent not prohibited by any applicable law or applicable interpretation of the Staff of the SEC, the Company and the Guarantors shall use their reasonable best efforts to cause to be filed an Exchange Offer Registration Statement covering the offer by the Company and the Guarantors to the Holders to exchange all of the Registrable Securities for Exchange Securities and to have such Registration Statement remain effective until the closing of the Exchange Offer. The Company and the Guarantors shall commence the Exchange Offer promptly after the Exchange Offer Registration Statement has been declared effective by the SEC and use their reasonable best efforts to have the Exchange Offer consummated not later than 60 days after such effective date. The Company and the Guarantors shall commence the Exchange Offer by mailing the related exchange offer Prospectus and accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law: (i) that the Exchange Offer is being made pursuant to this Registration Rights Agreement and that all Registrable Securities validly tendered will be accepted for exchange; (ii) the dates of acceptance for exchange (which shall be a period of at least 20 business days from the date such notice is mailed) (the "Exchange Dates"); (iii) that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Registration Rights Agreement; 4 6 (iv) that Holders electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to surrender such Registrable Security, together with the enclosed letters of transmittal, to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice prior to the close of business on the last Exchange Date; and (v) that Holders will be entitled to withdraw their election, not later than the close of business on the last Exchange Date, by sending to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange and a statement that such Holder is withdrawing his election to have such Securities exchanged. As soon as practicable after the last Exchange Date, the Company and the Guarantors shall: (i) accept for exchange Registrable Securities or portions thereof tendered and not validly withdrawn pursuant to the Exchange Offer; and (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Company and issue, and cause the Trustee to promptly authenticate and mail to each Holder, an Exchange Security equal in principal amount to the principal amount of the Registrable Securities surrendered by such Holder. The Company and the Guarantors shall use their reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the 1933 Act, the 1934 Act and other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate applicable law or any applicable interpretation of the Staff of the SEC. The Company shall inform the Placement Agents of the names and addresses of the Holders to whom the Exchange Offer is made, and the Placement Agents shall have the right, subject to applicable law, to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. (b) In the event that (i) the Company and the Guarantors determine that the Exchange Offer Registration provided for in Section 2(a) above is not available or may not be consummated as soon as practicable after the last Exchange Date because it would violate applicable law or the applicable interpretations of the Staff of the SEC, (ii) the Exchange Offer is not for any other reason consummated by December 7, 2001 or (iii) the Exchange Offer has been completed and in the opinion of counsel for the Placement Agents a Registration Statement must be filed and a Prospectus must be delivered by the Placement Agents in connection with any offering or sale of Registrable Securities, the Company and the Guarantors shall use their reasonable best efforts to cause to be filed as soon as practicable after such determination, date or notice of such opinion of counsel is given to the Company, as the case may be, a Shelf Registration Statement providing for the sale by the Holders of all of the Registrable Securities and to have such Shelf Registration Statement declared effective by the SEC. In the event the 5 7 Company and the Guarantors are required to file a Shelf Registration Statement solely as a result of the matters referred to in clause (iii) of the preceding sentence, the Company and the Guarantors shall use their reasonable best efforts to file and have declared effective by the SEC both an Exchange Offer Registration Statement pursuant to Section 2(a) with respect to all Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) with respect to offers and sales of Registrable Securities held by the Placement Agents after completion of the Exchange Offer. The Company and the Guarantors agree to use their reasonable best efforts to keep the Shelf Registration Statement continuously effective until the expiration of the period referred to in Rule 144(k) with respect to the Registrable Securities or such shorter period that will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement. The Company and the Guarantors further agree to supplement or amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the 1933 Act or by any other rules and regulations thereunder for shelf registration or if reasonably requested by a Holder with respect to information relating to such Holder, and to use their reasonable best efforts to cause any such amendment to become effective and such Shelf Registration Statement to become usable as soon as thereafter practicable. The Company and the Guarantors agree to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. (c) The Company and the Guarantors shall pay all Registration Expenses in connection with the registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. (d) An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that, if, after it has been declared effective, the offering of Registrable Securities pursuant to a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. As provided for in the Indenture, in the event the Exchange Offer is not consummated and the Shelf Registration Statement is not declared effective on or prior to December 7, 2001, then commencing on the following day, the interest rate on the Securities will be increased by .5% per annum ("Additional Interest") until the Exchange Offer is consummated or the Shelf Registration Statement is declared effective by the SEC or the Securities become freely tradeable under the 1933 Act. (e) Without limiting the remedies available to the Placement Agents and the Holders, the Company and the Guarantors acknowledge that any failure by the Company or the Guarantors to comply with their obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Placement Agents or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries 6 8 precisely and that, in the event of any such failure, the Placement Agents or any Holder may obtain such relief as may be required to specifically enforce the Company's or the Guarantors' obligations under Section 2(a) and Section 2(b) hereof; provided, however that without limiting the ability of the Placement Agents or any Holder to specifically enforce such obligations, in the case of any terms of this Agreement for which Additional Interest pursuant to Section 2(d) is expressly provided as a remedy for a violation of such terms, such Additional Interest shall be the sole monetary damages for such a violation. 3. Registration Procedures. In connection with the obligations of the Company and the Guarantors with respect to the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the Company and the Guarantors shall as expeditiously as reasonably possible: (a) prepare and file with the SEC a Registration Statement on the appropriate form under the 1933 Act, which form (x) shall be selected by the Company and the Guarantors and (y) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof and (z) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith, and use their reasonable best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to keep each Prospectus current during the period described under Section 4(3) and Rule 174 under the 1933 Act that is applicable to transactions by brokers or dealers with respect to the Registrable Securities or Exchange Securities; (c) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, to counsel for the Placement Agents, to counsel for the Holders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or Underwriter may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities; and, subject to the penultimate paragraph of this Section 3, the Company and the Guarantors consent to the use of such Prospectus and any amendment or supplement thereto in accordance with applicable law by each of the selling Holders of Registrable Securities and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in the manner described in such Prospectus or any amendment or supplement thereto in accordance with applicable law; 7 9 (d) use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement shall reasonably request in writing by the time the applicable Registration Statement is declared effective by the SEC, to cooperate with such Holders in connection with any filings required to be made with the National Association of Securities Dealers, Inc. and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that neither the Company nor any Guarantor shall be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) file any general consent to service of process or (iii) subject itself to taxation in any such jurisdiction if it is not so subject; (e) in the case of a Shelf Registration, notify each Holder of Registrable Securities, counsel for the Holders and counsel for the Placement Agents promptly and, if requested by any such Holder or counsel, confirm such advice in writing (i) when a Registration Statement has become effective and when any post-effective amendment thereto has been filed and becomes effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company or any Guarantor contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects or if the Company or any Guarantor receives any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (v) of the happening of any event during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading and (vi) of any determination by the Company or any Guarantor that a post-effective amendment to a Registration Statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment and provide immediate notice to each Holder of the withdrawal of any such order; (g) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); 8 10 (h) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders may reasonably request at least one business day prior to the closing of any sale of Registrable Securities; (i) in the case of a Shelf Registration, upon the occurrence of any event contemplated by Section 3(e)(v) hereof, use their reasonable best efforts to prepare and file with the SEC a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company and the Guarantors agree to notify the Holders to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and the Holders hereby agree to suspend use of the Prospectus until the Company and the Guarantors have amended or supplemented the Prospectus to correct such misstatement or omission; (j) a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or any document which is to be incorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copies of such document to the Placement Agents and their counsel (and, in the case of a Shelf Registration Statement, the Holders and their counsel) and make such of the representatives of the Company and the Guarantors as shall be reasonably requested by the Placement Agents or their counsel (and, in the case of a Shelf Registration Statement, the Holders or their counsel) available for discussion of such document, and shall not at any time file or make any amendment to the Registration Statement, any Prospectus or any amendment of or supplement to a Registration Statement or a Prospectus or any document which is to be incorporated by reference into a Registration Statement or a Prospectus, of which the Placement Agents and their counsel (and, in the case of a Shelf Registration Statement, the Holders and their counsel) shall not have previously been advised and furnished a copy or to which the Placement Agents or their counsel (and, in the case of a Shelf Registration Statement, the Holders or their counsel) shall reasonably object; (k) obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement; (l) cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so 9 11 qualified in accordance with the terms of the TIA and execute, and use their reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (m) in the case of a Shelf Registration, make available for inspection by a representative of the Holders of the Registrable Securities, any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, and attorneys and accountants designated by the Holders, at reasonable times and in a reasonable manner, all financial and other records, pertinent documents and properties of the Company and the Guarantors, and cause the respective officers, directors and employees of the Company and the Guarantors to supply all information reasonably and customarily requested by any such representative, Underwriter, attorney or accountant in connection with a Shelf Registration Statement; (n) in the case of a Shelf Registration, use their reasonable best efforts to cause all Registrable Securities to be listed on any securities exchange or any automated quotation system on which similar securities issued by the Company or any Guarantor are then listed if requested by the Majority Holders, to the extent such Registrable Securities satisfy applicable listing requirements; (o) use their reasonable best efforts to cause the Exchange Securities to continue to be rated by two nationally recognized statistical rating organizations (as such term is defined in Rule 436(g)(2) under the 1933 Act), if the Registrable Securities have been rated; (p) if reasonably requested by any Holder of Registrable Securities covered by a Registration Statement, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information with respect to such Holder as such Holder reasonably requests to be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as the Company has received notification of the matters to be incorporated in such filing; and (q) in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including those requested by the Holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities including, but not limited to, an Underwritten Offering and in such connection, (i) to the extent possible, make such representations and warranties to the Holders and any Underwriters of such Registrable Securities with respect to the business of the Company and its subsidiaries, the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested, (ii) obtain opinions of counsel to the Company and the Guarantors (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the Holders and such Underwriters and their respective counsel) addressed to each selling Holder and Underwriter of Registrable Securities, 10 12 covering the matters customarily covered in opinions requested in underwritten offerings, (iii) obtain "cold comfort" letters from the independent certified public accountants of the Company and the Guarantors (and, if necessary, any other certified public accountant of any subsidiary of the Company or any Guarantor, or of any business acquired by the Company or any Guarantor for which financial statements and financial data are or are required to be included in the Registration Statement) addressed to each selling Holder and Underwriter of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold or the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the Company and the Guarantors made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in an underwriting agreement. In the case of a Shelf Registration Statement, the Company and the Guarantors may require each Holder of Registrable Securities to furnish to the Company and the Guarantors such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company and the Guarantors may from time to time reasonably request in writing, and the Company and the Guarantors may exclude from such Shelf Registration Statement the securities of any Holders that refuse to comply with such request. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company and the Guarantors of the happening of any event of the kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if so directed by the Company and the Guarantors, such Holder will deliver to the Company and the Guarantors (at its expense) all copies in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company and the Guarantors shall give any such notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement, the Company and the Guarantors shall extend the period during which the Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions. The Company and the Guarantors may give any such notice only twice during any 365 day period and any such suspensions may not exceed 30 days for each suspension and there may not be more than two suspensions in effect during any 365 day period. The Holders of Registrable Securities covered by a Shelf Registration Statement who desire to do so may sell such Registrable Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers (the "Underwriters") that will administer the offering will be selected by the Majority Holders of the Registrable Securities included in such offering. 11 13 4. Participation of Broker-Dealers in Exchange Offer. (a) The Staff of the SEC has taken the position that any broker-dealer that receives Exchange Securities for its own account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market-making or other trading activities (a "Participating Broker-Dealer"), may be deemed to be an "underwriter" within the meaning of the 1933 Act and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities. The Company and the Guarantors understand that it is the Staff's position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligation under the 1933 Act in connection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the 1933 Act. (b) In light of the above, notwithstanding the other provisions of this Agreement, the Company and the Guarantors agree that the provisions of this Agreement as they relate to a Shelf Registration shall also apply to an Exchange Offer Registration to the extent, and with such reasonable modifications thereto as may be, reasonably requested by the Placement Agents or by one or more Participating Broker-Dealers, in each case as provided in clause (ii) below, in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with the positions of the Staff recited in Section 4(a) above; provided that: (i) the Company and the Guarantors shall not be required to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement, as would otherwise be contemplated by Section 3(i), for a period exceeding 180 days after the last Exchange Date (as such period may be extended pursuant to the penultimate paragraph of Section 3 of this Agreement) and Participating Broker-Dealers shall not be authorized by the Company and the Guarantors to deliver and shall not deliver such Prospectus after such period in connection with the resales contemplated by this Section 4; and (ii) the application of the Shelf Registration procedures set forth in Section 3 of this Agreement to an Exchange Offer Registration, to the extent not required by the positions of the Staff of the SEC or the 1933 Act and the rules and regulations thereunder, will be in conformity with the reasonable request to the Company and the Guarantors by the Placement Agents or with the reasonable request in writing to the Company and the Guarantors by one or more broker-dealers who certify to the Placement Agents and the Company and the Guarantors in writing that they anticipate that they will be Participating Broker-Dealers; and provided further that, in connection with such application of the Shelf Registration procedures set forth in Section 3 to an Exchange Offer Registration, the Company and the Guarantors shall be obligated (x) to deal only with one entity representing the Participating Broker-Dealers, which shall be Morgan 12 14 Stanley & Co. Incorporated unless it elects not to act as such representative, (y) to pay the fees and expenses of only one counsel representing the Participating Broker-Dealers, which shall be counsel to the Placement Agents unless such counsel elects not to so act and (z) to cause to be delivered only one, if any, "cold comfort" letter with respect to the Prospectus in the form existing on the last Exchange Date and with respect to each subsequent amendment or supplement, if any, effected during the period specified in clause (i) above. (c) The Placement Agents shall have no liability to the Company, any Guarantor or any Holder with respect to any request that it may make pursuant to Section 4(b) above. 5. Indemnification and Contribution. (a) Each of the Company and the Guarantors agrees jointly and severally to indemnify and hold harmless the Placement Agents, each Holder and each Person, if any, who controls any Placement Agent or any Holder within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, or is under common control with, or is controlled by, any Placement Agent or any Holder, from and against all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by the Placement Agent, any Holder or any such controlling or affiliated Person in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or caused by any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if the Company and the Guarantors shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Placement Agents or any Holder furnished to the Company or the Guarantors in writing through Morgan Stanley & Co. Incorporated or any selling Holder expressly for use therein; or (ii) in the case of a Shelf Registration, that the Company shall not be liable to the Placement Agents under the provisions of this Section 5 with respect to any preliminary Prospectus to the extent that any such loss, claim, damage or liability results from the fact that the Placement Agent sold securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a final Prospectus (if the Company had previously furnished copies thereof to the Placement Agent), if the loss, claim, damage or liability of the Placement Agent results from an untrue statement or alleged untrue statement or an omission or alleged omission contained in the preliminary Prospectus that was corrected in the final Prospectus. In connection with any Underwritten Offering permitted by Section 3, the Company and the Guarantors will also indemnify the Underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of the 1933 Act and the 1934 Act) to the same extent 13 15 as provided above with respect to the indemnification of the Holders, if requested in connection with any Registration Statement. (b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, the Guarantors, the Placement Agents and the other selling Holders, and each of their respective directors, officers who sign the Registration Statement and each Person, if any, who controls the Company, the Guarantors, any Placement Agent and any other selling Holder within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as the foregoing indemnity from the Company and the Guarantors to the Placement Agents and the Holders, but only with reference to information relating to such Holder furnished to the Company and the Guarantors in writing by such Holder expressly for use in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). (c) In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above, such Person (the "indemnified party") shall promptly notify the Person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Placement Agents and all Persons, if any, who control any Placement Agent within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, the Guarantors, the directors and its officers who sign the Registration Statement and each Person, if any, who controls the Company or the Guarantors within the meaning of either such Section and (c) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Holders and all Persons, if any, who control any Holders within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In such case involving the Placement Agents and Persons who control the Placement Agents, such firm shall be designated in writing by Morgan Stanley & Co. Incorporated. In such case involving the Holders and such Persons who control Holders, such firm shall be designated in writing by the Majority Holders. In all other cases, such firm shall be designated by the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but, if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the 14 16 indemnified party, effect any settlement of any pending or threatened proceeding in respect of which such indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) If the indemnification provided for in paragraph (a) or paragraph (b) of this Section 5 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company, the Guarantors and the Holders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Guarantors or by the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this Section 5(d) are several in proportion to the respective principal amount of Registrable Securities of such Holder that were registered pursuant to a Registration Statement. (e) The Company, the Guarantors and each Holder agree that it would not be just or equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5, no Holder shall be required to indemnify or contribute any amount in excess of the amount by which the total price at which Registrable Securities were sold by such Holder exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 5 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution provisions contained in this Section 5 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Placement Agents, any Holder or any Person controlling any Placement Agent or any Holder, or by or on behalf of the Company, the Guarantors, their officers or directors or any Person controlling the Company or the Guarantors, (iii) acceptance of any of the Exchange Securities and (iv) any sale of Registrable Securities pursuant to a Shelf Registration Statement. 15 17 6. Miscellaneous. (a) No Inconsistent Agreements. Neither the Company nor the Guarantors have entered into, nor on or after the date of this Agreement will enter into, any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's or the Guarantors' other issued and outstanding securities under any such agreements. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company and the Guarantors have obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; provided, however, that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 6(c), which address initially is, with respect to the Placement Agents, the address set forth in the Placement Agreement; and (ii) if to the Company or the Guarantors, initially at the Company's address set forth in the Placement Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Placement Agreement. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed 16 18 to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. The Placement Agents (in their capacity as Placement Agents) shall have no liability or obligation to the Company or the Guarantors with respect to any failure by a Holder to comply with, or any breach by any Holder of, any of the obligations of such Holder under this Agreement. (e) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Placement Agents, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. This Agreement shall be governed by the laws of the State of New York. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 17 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PREMIUM STANDARD FARMS, INC. By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President PSF GROUP HOLDINGS, INC. By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President THE LUNDY PACKING COMPANY By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President LUNDY INTERNATIONAL, INC. By: /s/ Stephen Lightstone ---------------------------------------- Name: Stephen Lightstone Title: Executive Vice President 18 20 Confirmed and accepted as of the date first above written: MORGAN STANLEY & CO. INCORPORATED J.P. MORGAN SECURITIES INC. By: MORGAN STANLEY & CO. INCORPORATED In its individual capacity and as representative of the other Placement Agent By /s/ William Blais ------------------------------------ Name: William Blais Title: Principal 19 21 SCHEDULE I SUBSIDIARY GUARANTORS The Lundy Packing Company Premium Standard Farms of North Carolina, Inc. Lundy International, Inc. 20 EX-4.3.A 18 y50886ex4-3_a.txt CREDIT AGREEMENT 1 EXHIBIT 4.3(a) CREDIT AGREEMENT THIS CREDIT AGREEMENT (as amended, modified, supplemented, renewed or restated from time to time, this "AGREEMENT") is made as of the 27th day of August, 1997 by and among PREMIUM STANDARD FARMS, INC., a Delaware corporation ("BORROWER"), the financial institutions listed on the signature pages hereof and each other financial institution that may hereafter become a party hereto in accordance with the provisions hereof (collectively "LENDERS" and individually a "LENDER") and FBS AG CREDIT, INC., a Colorado corporation ("FBS AG CREDIT"), in its capacity as Agent for the Lenders (in such capacity, the "AGENT"). RECITAL The Borrower has requested that Lenders make loans, advances, extensions of credit and/or other financial accommodations to or for the benefit of the Borrower, and Lenders are willing to do so on the terms and conditions herein contained. NOW, THEREFORE, in consideration of the foregoing and of the terms and conditions contained in this Agreement, and of any loans or extensions of credit or other financial accommodations at any time made to or for the benefit of the Borrower by Lenders, the Borrower and Lenders agree as follows: 1 DEFINITIONS. 1.1 GENERAL DEFINITIONS. When used herein, the following capitalized terms shall have the meanings indicated, whether used in the singular or the plural: "ACCOUNT DEBTOR" shall mean the party which is obligated on or under an Account or a General Intangible. "ACCOUNTS" shall mean all present and future rights (including without limitation, rights under any Margin Accounts) of the Borrower to payment for Inventory or other goods sold or leased or for services rendered, which rights are not evidenced by instruments or chattel paper, regardless of whether such rights have been earned by performance. "AFFILIATE" shall mean any Person: (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the Borrower; (b) that directly or beneficially owns or holds ten percent (10%) or more of any class of the voting stock of the Borrower; (c) ten percent (10%) or more of the voting stock (or in the case of a Person which is not a corporation, ten percent (10%) or more of the equity interest) of which is owned directly or beneficially or held by the Borrower; or (d) that is a director, officer, agent or employee of the Borrower. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, membership interests, by contract or otherwise. 1 2 "AGENT" shall have the meaning set forth in the introduction hereto and shall include any successor agent which has been appointed in accordance with Section 12.7. "AGENT'S LETTER" shall mean the letter agreement between the Agent and the Borrower of even date with this Agreement and governing the Agent's fees. "ANNIVERSARY DATE" shall mean each anniversary of the Closing Date. "APPLICABLE MARGIN" shall mean with respect to Revolving Loans which are Reference Rate Loans or Eurodollar Rate Loans, the rates per annum set forth below:
Financial Reference Rate Eurodollar Rate Performance Level Level 1 0.0% 2.5% Level 2 (0.25%) 2.25% Level 3 (0.5%) 2.0% Level 4 (0.75%) 1.75%
The Agent will review the Borrower's financial performance as of each fiscal quarter end, after its receipt of the Borrower's financial statements and compliance certificate for such fiscal quarter, and will confirm the Borrower's determination as to whether the Borrower's Financial Performance Level for such fiscal quarter was Level 1, Level 2, Level 3 or Level 4. As so confirmed by the Agent, the Borrower's Financial Performance Level will determine the Applicable Margin effective for Revolving Loans for the three month period beginning on the first day of the month following the month in which the Agent receives such quarterly financial statements if the Agent receives such quarterly financial statements prior to the last five (5) Business Days of the month following the end of such fiscal quarter. If the Agent receives such quarterly financial statements during the last five (5) Business Days of the month following the end of such fiscal quarter, any reduction in the Applicable Margin will be delayed until the first day of the second month following the month in which the Agent receives such quarterly financial statements, but any increase in the Applicable Margin will be effective retroactively to the first day of the month following the month in which the Agent receives such quarterly financial statements. If the Agent does not receive such quarterly statements prior to the end of the month following the end of such fiscal quarter, the Borrower's Financial Performance Level shall be deemed to be Level 1 retroactively beginning with the first day of the second month following the end of such fiscal quarter. With respect to the Term Loans, the Applicable Margin shall mean 0.5% for Reference Rate Loans and 3.0% for Eurodollar Rate Loans. "AVAILABLE AMOUNT" shall mean, at any time, an amount equal to (a) the lesser of (i) the Borrowing Base or (ii) the Revolving Loan Commitments minus (b)(i) the aggregate principal amount of all Revolving Loans, minus (ii) the aggregate amount of all LC Obligations. 2 3 "BORROWING BASE" shall mean an amount determined and computed as set forth in Exhibit 1A. "BORROWING BASE CERTIFICATE" shall mean a certificate in the form of Exhibit 1B, signed as indicated thereon, setting forth the amount of the Borrower's Borrowing Base. "BUSINESS DAY" means any day other than a day on which commercial banks are authorized or required to close in Denver, Colorado and, if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Rate Loan or a notice by the Borrower with respect to any such borrowing, payment, prepayment or Interest Period, any day which is also a day on which dealings in Dollar deposits are carried on the interbank market selected by the Agent for purposes of selling the Eurodollar Rate. "CLOSING DATE" shall mean August 27, 1997. "COLLATERAL" shall mean any and all assets in which the Agent may at any time have a lien or security interest under or pursuant to the Security Documents or otherwise to secure the Liabilities. "COMMITMENT" shall mean, as to any Lender, such Lender's Revolving Loan Commitment, such Lender's LC Commitment and/or such Lender's Term Loan Commitment, and "Commitments" shall mean collectively, the Commitments for all the Lenders. "DEFAULT" shall mean the occurrence or existence of: (a) an event which, through the passage of time or the service of notice or both, would (assuming no action is taken by the Borrower or any other Person to cure the same) mature into a Matured Default; (b) an event which requires neither the passage of time nor the service of notice to mature into a Matured Default; or (c) the occurrence of a breach or a default under any other agreement at any time in existence between the Borrower or the Guarantor and the Agent or any of the Lenders, including without limitation, any of the Financing Agreements. "DEFAULTING LENDER" shall mean any Lender that is in breach of any of its Commitments, as evidenced by its failure to make available to the Agent such Lender's Pro Rata Percentage of any Loan at a time when there does not exist either a Default or a Matured Default and the Borrower has fully satisfied all conditions precedent to the making of such Loan. "DOLLARS" and "$" shall mean lawful currency of the United States of America. "EBITDA" shall mean the net combined income of the Borrower before provision for income taxes, interest expense (including without limitation, implicit interest expense on capitalized leases), depreciation, amortization and other noncash expenses or charges, excluding (to the extent included): (a) nonoperating gains (including without limitation, extraordinary or nonrecurring gains, gains from discontinuance of operations and gains arising from the sale of assets other than Inventory) during the applicable period; and (b) similar nonoperating losses during such period. 3 4 "ELIGIBLE ACCOUNTS" shall mean at the time of any determination thereof all Accounts (net of all allowances and reserves from doubtful or uncollectible accounts and sales adjustments) that met the following criteria at the time of creation and continue to meet the same at the time of such determination: (a) if the Account is owed by a meat packer in connection with the sale of "livestock" (as defined in PASA), the Account has not been outstanding and unpaid for more than seven (7) days after the delivery date of the livestock related thereto; (b) if the Account is owed by a Person other than a meat packer, or if the Account is owed by a meat packer in connection with the sale of Inventory other than "livestock" (as defined in PASA), the Account has not been outstanding and unpaid for more than twenty-one (21) days following the original invoice date of the original invoice related thereto; (c) such Account is denominated in dollars; (d) such Account arose from a completed sale of "livestock" (as defined in PASA) or of processed pork products by the Borrower; (e) the sale represented by such Account is not a bill-and-hold, undelivered sale, guaranteed sale (excluding returns in the normal course of business), sale or return, consignment or sale-on-approval basis; (f) such Account is owned solely by the Borrower and is subject to a perfected first priority security interest in favor of the Agent for the ratable benefit of the Lenders; (g) such Account arose in the ordinary course of business of the Borrower and no event of death, bankruptcy, insolvency or inability to pay creditors generally of the Account Debtor thereunder has occurred (it being understood that if the Borrower receives notice of any such death, bankruptcy, insolvency or inability to pay creditors, the Borrower shall give written notice thereof to the Agent); (h) with respect to such Account, the Account Debtor (i) is (A) a Person domiciled in the United States or (B) a Person outside of the continental United States that has supplied the Borrower with an irrevocable letter of credit or other credit insurance in form and substance satisfactory to the Agent that (x) was issued by a financial institution reasonably satisfactory to the Agent and (y) has been duly transferred to or the benefits of which are otherwise enforceable by the Agent (together with sufficient documentation to permit direct draws by, or direct payment to, the Agent, as the case may be), (ii) is not the United States or a State or any other Governmental Authority unless the Borrower duly assigns its rights to payment of such Account to the Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727 et seq.) or any comparable act or law applicable in any state, as the case may be, in a manner reasonably satisfactory to the Agent and (iii) is not an Affiliate of the Borrower; 4 5 (i) such Account complies in all material respects with the requirements of all applicable laws and regulations, whether federal, state or local; and (j) the Administrative Agent has not, after consultation with the Borrower, notified the Borrower that the Administrative Agent is not reasonably satisfied with the credit standing of the Account Debtor in relation to the amount of the credit extended. Notwithstanding the foregoing clauses (a) through (j), an Account of any Account Debtor shall not be deemed to constitute an Eligible Account (1) to the extent that such Account, when aggregated with all other Accounts of such Account Debtor and its Affiliates, exceeds 5% of the outstanding balance of all Accounts of the Borrower then outstanding, provided however, that the Account Debtors listed on Exhibit 1C (as the same may be amended from time to time in the Agent's discretion) shall not be subject to the foregoing 5% limitation, or (2) if 10% or more of the outstanding balance of the Accounts of such Account Debtor are Accounts which have remained outstanding and unpaid past the time periods established in clause (a) or clause (b). If an Account of an Account Debtor is subject to any right of set-off or charge-back, the Accounts of such Account Debtor shall constitute Eligible Accounts only to the extent of the excess, if any, of the outstanding balance thereof over the principal amount owing by the Borrower to such Account Debtor. "ELIGIBLE INVENTORY" shall mean at the time of any determination thereof all Inventory that met the following criteria at the time of creation or acquisition and continue to meet the same at the time of such determination: (a) such Inventory is not deemed to be out-of-condition or otherwise unmerchantable by the United States Department of Agriculture, any state's Department of Agriculture, or any other Governmental Authority or any department or division thereof having regulatory authority over the Borrower or any of the Borrower's assets or activities; (b) such Inventory is not Inventory for which a prepayment has been received; (c) such Inventory is not in the possession of third parties, unless it is Inventory at a location for which the Agent has received a bailee letter reasonably satisfactory to the Agent, executed by such third party or unless it is Inventory covered by negotiable warehouse receipts or negotiable bills of lading issued by either (i) a warehouseman licensed and bonded by the United States Department of Agriculture or any state's Department of Agriculture or (ii) a recognized carrier having an office in the United States and in a financial condition reasonably acceptable to the Agent, which receipts or bills of lading designate the Agent directly or by endorsement as the only Person to which or to the order of which the warehouseman or carrier is legally obligated to deliver such Inventory; (d) such Inventory is owned solely by the Borrower and is subject to a perfected first priority security interest in favor of the Agent for the ratable benefit of the Lenders; and 5 6 (e) such Inventory complies in all material respects with the requirements of all applicable laws and regulations, whether federal, state or local. "EQUIPMENT" shall mean any and all goods, other than Inventory (including without limitation, equipment, machinery, implements, tools, parts and accessories) which are at any time owned by the Borrower, together with any and all accessions, parts and appurtenances. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "EURODOLLAR RATE" shall mean, with respect to each day during each Interest Period pertaining to a Eurodollar Rate Loan, the rate per annum equal to the rate at which Dollar deposits are offered for such Interest Period as set forth on the Reuters Screen LIBO Page at or about 9:00 a.m. (Denver time), three Business Days prior to the beginning of such Interest Period. "EURODOLLAR RATE LOAN" shall mean any Loan which bears interest at the Eurodollar Rate plus the Applicable Margin. "FARM PRODUCTS" shall mean all of the Borrower's seed and harvested or unharvested crops of all types and descriptions, whether annual or perennial and all other personal property of the Borrower used or for use in farming operations, including without limitation, native grass, grain, harvested crops, seed, feed, feed additives, feed ingredients, feed supplements, fertilizer, hay, silage, supplies (including without limitation, veterinary supplies and related goods) and livestock (including without limitation, the offspring of such livestock and livestock in gestation) and any other "farm products" (as defined in the Code). "FEDERAL FUNDS RATE" shall mean, for any day, the rate of interest per annum (rounded upward, if necessary, to the nearest whole multiple of 1/100th of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on such day, or if no such rate is so published on such day, on the most recent day preceding such day on which such rate is so published. "FINANCIAL PERFORMANCE LEVEL" shall mean the four levels of the Borrower's financial performance in any fiscal quarter, as set forth below.
Financial Performance Level Leverage Pricing Ratio Fixed Charge Pricing Ratio - --------------------------- ---------------------- -------------------------- Level 1 Greater than 2.5 to 1.0 Less than 1.2 to 1.0 Level 2 Greater than 2.25 to 1.0, and less Less than 1.3 to 1.0, and greater than or equal to 2.5 to 1.0 than or equal to 1.2 to 1.0 Level 3 Greater than 2.0 to 1.0, and less Less than 1.4 to 1.0, and greater than or equal to 2.25 to than or equal to 1.3 to
6 7 1.0 1.0 Level 4 Less than or equal to 2.0 to 1.0 Greater than or equal to 1.4 to 1.0
The Agent will review the Borrower's financial performance as of each fiscal quarter end, after its receipt of the Borrower's financial statements and compliance certificate for such fiscal quarter, and will confirm the Borrower's calculation of the Borrower's Leverage Pricing Ratio and the Borrower's Fixed Charge Pricing Ratio for such fiscal quarter. Both the Leverage Pricing Ratio and the Fixed Charge Pricing Ratio must be within the ranges established for a particular Financial Performance Level, for the Borrower's financial performance to be deemed within that Financial Performance Level. If the Leverage Pricing Ratio and the Fixed Charge Pricing Ratio fall within the ranges established for different Financial Performance Levels, then the Borrower's financial performance will be deemed to be within the lowest numbered Financial Performance Level that either the Leverage Pricing Ratio or the Fixed Charge Pricing Ratio falls within. "FINANCING AGREEMENTS" shall mean this Agreement, the Notes, the Agent's Letter, the Guaranty, the Intercreditor Agreement, all Security Documents and all agreements, instruments and documents, including without limitation, all security agreements, loan agreements, notes, letter of credit applications, guarantees, mortgages, deeds of trust, subordination agreements, pledges, powers of attorney, consents, assignments, contracts, notices, leases, financing statements and all other written matter at any time executed by or on behalf of the Borrower and delivered to the Agent or any of the Lenders, together with all and all amendments, modifications, supplements, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing, and together with all agreements, instruments and documents referred to therein or contemplated thereby. "FIRST BANK" shall mean First Bank National Association, a national banking association with its principal place of business in Minneapolis, Minnesota and an affiliate of FBS Ag Credit. "FISCAL YEAR" means the fiscal year of the Borrower, which shall be the twelve month period ending on or about the last Saturday in December each year. "FIXED CHARGE COVERAGE RATIO" shall mean for any period of determination, the ratio of: (a)(i) Unallocated Cash Flow during such period, plus (ii) the amount of cash interest paid during such period; over (b)(i) the amount of principal that has been paid during such period with respect to long term debt (including without limitation, principal payments made on the PIK Notes), plus (ii) the amount of cash interest paid during such period. Unless otherwise stated in this Agreement, all calculations of the Borrower's Fixed Charge Coverage Ratio shall be made on a rolling four-quarter basis. "FIXED CHARGE DEFICIENCY AMOUNT" shall mean for any fiscal quarter at the end of which the Borrower's Fixed Charge Coverage Ratio (calculated on a rolling four quarter basis) is less than 1.0 to 1.0, the amount by which the numerator would have to be increased in order to bring such Fixed Charge Coverage Ratio to 1.0 to 1.0. 7 8 "FIXED CHARGE PRICING RATIO" shall mean for any period of determination, the ratio of: (a) EBITDA during such period; over (b)(i) the amount of principal that has been paid during such period with respect to long term debt (including without limitation, principal payments made on the PIK Notes), plus (ii) the amount of cash interest paid during such period, plus (iii) the amount of cash taxes paid during such period, plus (iv) the amount of cash dividends paid during such period, plus (v) the net amount of capital expenditures during such period. Unless otherwise stated in this Agreement, all calculations of the Borrower's Fixed Charge Pricing Ratio shall be made on a rolling four-quarter basis. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination. "GENERAL INTANGIBLES" shall mean all of the Borrower's right, title and interest in and to any bank deposit accounts, customer deposit accounts, deposits, rights related to prepaid expenses, negotiable or nonnegotiable instruments or securities, chattel paper, choses in action, causes of action and all other intangible personal property of every kind and nature (other than Accounts), including without limitation, corporate or other business records, inventions, designs, patents, patent applications, trademarks, trade names, trade secrets, goodwill, registrations, copyrights, licenses, franchises, customer lists, tax refunds, tax refund claims, customs claims, guarantee claims, co-op memberships or patronage benefits, rights to any government subsidy, set aside, diversion, deficiency or disaster payment or payment in kind, water rights (including without limitation, water stock, ditch rights, well permits, water permits, applications and the like), leasehold interests in real and personal property and any security interests or other security held by or granted to the Borrower to secure payment by any Account Debtor of any of the Accounts, and any other "general intangibles" (as defined in the Code). "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation, any arbitration panel, any court or any commission. "GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them (excluding any of the foregoing that relate to environmental standards or controls and occupational safety and health standards or controls). "GUARANTOR" shall mean PSF, in its capacity as guarantor of the Liabilities, and any other Person who may hereafter execute and deliver in favor of the Agent and the Lenders, a guarantee of the Liabilities. 8 9 "GUARANTY" shall mean that certain Guaranty of the payment and performance of the Liabilities. "HIGHEST LAWFUL RATE" shall mean, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged, or received with respect to the Notes or on other amounts, if any, payable to such Lender pursuant to this Agreement or any other Financing Agreements, under laws applicable to such Lender which are presently in effect, or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement dated as of September 17, 1996 as amended and restated on the date hereof among the Borrower, PSF, Princeton Development Corporation, the Agent and State Street Bank & Trust Company, as the same may be amended, replaced, restated and/or supplemented from time to time. "INTEREST EXPENSE" shall mean, for any period, the aggregate amount of interest expense accrued during such period on indebtedness of the Borrower in accordance with GAAP. "INTEREST PERIOD" shall mean with respect to Eurodollar Rate Loans, the period of time for which the Eurodollar Rate shall be in effect as to any Eurodollar Rate Loan and which shall be a 1, 2, 3 or 6 month period of time, commencing with the borrowing date of the Eurodollar Rate Loan or the expiration date of the immediately preceding Interest Period, as the case may be, applicable to and ending on the effective date of any rate change or rate continuation made as provided in Section 3.2 as the Borrower may specify in the notice of borrowing delivered pursuant to Section 2.4 or the notice of interest conversion delivered pursuant to Section 3.2; provided however, that: (c) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day; (d) no Interest Period for any Revolving Loans shall extend beyond the Revolving Maturity Date; and (e) Interest Periods for the Term Loan shall be matched to the principal payments required by the Term Notes in such a manner as to permit all such payments to be timely made from: (i) Eurodollar Rate Loans with Interest Periods expiring on the due date of such payment, (ii) Reference Rate Loans, or (iii) a combination of (i) or (ii). "INVENTORY" shall mean any and all goods which shall at any time constitute "inventory" (as defined in the Code) or Farm Products of the Borrower, wherever located (including without limitation, goods in transit), or which from time to time are held for sale, lease or consumption, furnished under any contract of service or held as raw materials, work in process, finished inventory or supplies (including without limitation, packaging and/or shipping materials). "IRC" shall mean the Internal Revenue Code of 1986, as amended, as in effect at any time, together with all regulations, rulings and interpretations thereof or thereunder issued by the Internal Revenue Service. "LC" shall mean each letter of credit issued pursuant to this Agreement. 9 10 "LC COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $5,000,000 using the percentage set forth opposite such Lender's name under the heading "Revolving Loan Commitments" on Exhibit 1D, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, less such Lender's Pro Rata Percentage of the LC Obligations, and "LC Commitments" shall mean collectively, the LC Commitments for all the Lenders. "LC OBLIGATIONS" shall mean, at any time, an amount equal to the sum of (a) the aggregate undrawn and unexpired amount of the outstanding LC's plus (b) the aggregate amount of drawings under LC's which have not been reimbursed pursuant to Section 2.2(f). "LEVERAGE PRICING RATIO" shall mean for any period of determination, the ratio of: (a) the amount of interest bearing debt outstanding at the end of such period; over (b) EBITDA during such period. "LIABILITIES" shall mean any and all liabilities, obligations and indebtedness of the Borrower to the Agent and the Lenders of any and every kind and nature, at any time owing, arising, due or payable and howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise (including without limitation, LC Obligations and obligations of performance) and whether arising or existing under this Agreement or any of the other Financing Agreements or by operation of law. "LOANS" shall mean all loans made pursuant to this Agreement, whether Revolving Loans, Term Loans, Reference Rate Loans and/or Eurodollar Rate Loans. "MARGIN ACCOUNTS" shall mean all futures contracts or funds and other property related to such futures contracts, which the Borrower or the Borrower's authorized attorney-in-fact may acquire, accumulate, withdraw or pay out, and which may be held with any broker, including without limitation, any balance credited to any Margin Account upon its closing. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the business, property, condition (financial or otherwise), results of operations or business prospects of the Borrower, or (b) the ability of the Borrower to perform its obligations under the Financing Agreements. "MATURED DEFAULT" shall mean the occurrence or existence of any one or more of the following events: (a) the Borrower fails to pay any principal or interest pursuant to any of the Financing Agreements at the time such principal or interest becomes due or is declared due and such failure continues for a period of three (3) Business Days; (b) the Borrower fails to pay any of the Liabilities (other than principal and interest) on or before ten (10) Business Days after the Agent has notified the Borrower of the existence and amount of such Liabilities; (c) the Borrower fails or neglects to perform, keep or observe any of the covenants, conditions, promises or agreements contained in Sections 9.6, 10.1, 10.2, 10.3, 10.4, 10.5 or 10.10; (d) the Borrower fails or neglects to perform, keep or observe any of the covenants, conditions, promises or agreements contained in this Agreement or in any of the other Financing 10 11 Agreements (other than those covenants, conditions, promises and agreements referred to or covered in (a), (b), (c), or (e) of this definition), and such failure or neglect continues for more than thirty (30) days after the earlier of the date the Agent gives the Borrower written notice thereof or the date the Borrower first learns of such failure or neglect, provided however, that such grace period shall not apply, and a Matured Default shall be deemed to have occurred and to exist immediately if such failure or neglect may not, in the Required Lenders' reasonable determination, be cured by the Borrower during such thirty (30) day grace period; (e) the Borrower fails to comply with the provisions of Section 4.3(a); (f) any warranty or representation at any time made by or on behalf of the Borrower in connection with this Agreement or any of the other Financing Agreements is untrue or incorrect in any material respect when made, or any schedule, certificate, statement, report, financial data, notice, or writing furnished at any time by or on behalf of the Borrower to the Agent or the Lenders is untrue or incorrect in any material respect on the date as of which the facts set forth therein are stated or certified; (g) a judgment in excess of $3,000,000 is rendered against the Borrower and such judgment remains unsatisfied or undischarged and in effect for thirty (30) consecutive days without a stay of enforcement or execution, provided however, that this clause (g) shall not apply to any judgment for which the Borrower is fully insured and with respect to which the insurer has admitted liability in writing for such judgment; (h) all or any part of the Borrower's assets come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors; (i) a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed against the Borrower or the Guarantor and such proceeding is not dismissed within sixty (60) days of the date of its filing, or a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by the Borrower or the Guarantor, or the Borrower or the Guarantor makes an assignment for the benefit of creditors; (j) the Borrower or the Guarantor voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated or dies; (k) the Borrower is enjoined, restrained, or in any way prevented by the order of any court or any administrative or regulatory agency or by the termination or expiration of any permit or license, from conducting all or any material part of the Borrower's business affairs; (l) the Borrower or the Guarantor fails to make any payment due or otherwise defaults on any other obligation for borrowed money and the effects of such failure or default are to cause or permit the holder of such obligation or a trustee to cause such obligation to become due prior to its date of maturity and to cause a Material Adverse Affect; (m) the Guarantor purports to terminate its guaranty or to limit the application thereof to then existing Liabilities; (n) the Agent makes an expenditure under Section 13.3 and such amount shall not have been reimbursed to the Agent upon demand therefor; or (o) the occurrence of a default, an event of default or a matured default under any other agreement, instrument or document at any time entered into between the Borrower or the Guarantor and the Agent, which default, event of default or matured default has had or in the opinion of the Required Lenders is likely to have a Material Adverse Effect. "NOTES" shall mean the notes of the Borrower executed and delivered pursuant to this Agreement, whether Revolving Notes or Term Notes. "PASA" shall mean the Packers and Stockyards Act of 1921, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. 11 12 "PENSION PLAN" shall mean any employee pension benefit plan as defined in Section 3(2) of ERISA in which any personnel of the Borrower or an Affiliate which is under common control with the Borrower (within the meaning of Section 414 of the IRC) participate and which is subject to Title IV of ERISA or Section 412 of the IRC. "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, entity, party or government (whether national, federal, state, provincial, county, city, municipal or otherwise, including without limitation, any instrumentality, division, agency, body or department thereof). "PIK NOTES" shall mean the Borrower's 11% Senior Secured Notes Due 2003 issued in the original aggregate amount of $117,500,000 pursuant to an Indenture dated as of September 17, 1996 among the Borrower, PSF and Fleet National Bank as trustee. "PRODUCER PAYABLES" shall mean all amounts at any time payable by the Borrower to producers of Farm Products. "PROPERTY" shall mean the land, the improvements, the fixtures and the Equipment of the Borrower located in Mercer, Putnam and Sullivan Counties, Missouri and in Dallam and Hartley Counties, Texas as legally described on Exhibit 1E, provided however, that the Property specifically includes the Borrower's processing facility located in Milan, Missouri. "PRO RATA PERCENTAGE" shall mean with respect to each Lender and: (a) with respect to Revolving Loans and LC's, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Lender's Revolving Loan Commitment and the denominator of which shall be the aggregate amount of all the Revolving Loan Commitments of the Lenders, as adjusted from time to time in accordance with Section 13.24; (b) with respect to the Term Loans, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Lender's Term Loan Commitment and the denominator of which shall be the aggregate amount of all the Term Loan Commitments of the Lenders, as adjusted from time to time in accordance with Section 13.24; and (c) with respect to the Commitments, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Lender's Commitment and the denominator of which shall be the aggregate amount of all the Commitments of the Lenders, as adjusted from time to time in accordance with Section 13.24. "PSF" shall mean PSF Holdings L.L.C., a Delaware limited liability company. "REFERENCE RATE" shall mean the Reference Rate quoted by First Bank as of 12:00 Noon on a given day in Minneapolis, Minnesota, which is a base rate that First Bank from time to time establishes and which serves as a basis upon which effective rates of interest are calculated for those loans which make reference thereto. The Borrower acknowledges that said Reference Rate is not necessarily the lowest index rate used or the lowest rate made available to customers by said First Bank. "REFERENCE RATE LOAN" shall mean any Loan which bears interest at the Reference Rate. 12 13 "REQUIRED LENDERS" shall mean at any time, the Lenders having at least fifty five percent (55%) of the aggregate amount of all of the Lenders' Pro Rata Percentages. "REVOLVING LOAN COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $60,000,000 as set forth opposite such Lender's name under the heading "Revolving Loan Commitments" on Exhibit 1D, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, and "Revolving Loan Commitments" shall mean collectively, the Revolving Loan Commitments for all the Lenders. "REVOLVING MATURITY DATE" shall mean July 31, 2000 or the earlier date of termination in whole of the Commitments pursuant to Section 4.4 or 11.1. "SECURITY DOCUMENTS" shall mean any and all agreements, security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties, assignments of proceeds, assignments of income, assignments of contract rights, assignments of partnership interest, assignments of royalty interests, assignments of performance or other collateral assignments, completion or surety bonds, standby agreements, subordination agreements, undertakings and other documents, agreements, instruments and financing statements at any time executed and delivered by the Borrower or a third Person in connection with, or as security for the payment or performance of, the Notes, any indebtedness renewed or extended by such Notes and the Borrower's obligations under this Agreement. "TANGIBLE NET WORTH" shall mean as of any particular date, the difference between: (a) the Borrower's combined total assets as they would normally be shown on the balance sheet of the Borrower, adjusted by deducting: (i) all values attributable to General Intangibles, including without limitation, prepaid expenses, except: bank deposit accounts; Margin Accounts; government subsidy; set aside; diversion; deficiency or disaster payments receivable which are properly assigned to the Agent, and by deducting (ii) Accounts due from Affiliates with no further adjustment required for Accounts due from Affiliates already eliminated in combination except Accounts due from Affiliates which the Borrower could legally collect by setoff against Accounts due to Affiliates; and (b) the Borrower's combined total liabilities as they would normally be shown on the balance sheet of the Borrower. "TERM LOAN COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $30,000,000, as set forth opposite such Lender's name under the heading "Term Loan Commitments" on Exhibit 1D, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, less such Lender's Pro Rata Percentage of principal payments received with respect to the Term Loan, and "Term Loan Commitments" shall mean collectively, the Term Loan Commitments for all the Lenders. "TERM MATURITY DATE" shall mean September 30, 2001. "TEXAS PROPERTIES" shall mean those portions of the Property as are located in Dallam and Hartley Counties, Texas. 13 14 "TYPE" shall mean, with respect to any Loan, whether such Loan is a Reference Rate Loan or a Eurodollar Rate Loan. "UNALLOCATED CASH FLOW" shall mean for any period of determination (a) EBITDA during such period, minus (b) the amount of cash taxes paid during such period, minus (c) the amount of cash dividends paid during such period, minus (d) the amount of cash interest paid during such period, minus (e) the net amount of capital expenditures during such period, minus (f) the cash portion of the purchase price paid during such period for any acquisition permitted under Section 10.2. "UNIT" shall mean a combination of hog production facilities consisting of breeding, gestation and farrowing buildings sufficient to house 10,800 gilts and/or sows, together with such nursery and finishing buildings as are necessary to support the offspring of said 10,800 gilts and/or sows. "WORKING CAPITAL" shall mean as of any particular date, the amount of the Borrower's combined current assets (including breeding stock), adjusted by deducting prepaid expenses, less the Borrower's combined current liabilities (including without limitation, the aggregate amount of Revolving Loans outstanding), treating all amounts currently owing to Affiliates (except amounts owing to Affiliates eliminated by combination) as current liabilities and giving no value as assets to any amounts currently owing from Affiliates. 1.2 INDEX TO OTHER DEFINITIONS. When used herein, the following capitalized terms shall have the meanings given in the indicated portions of this Agreement:
TERM LOCATION ---- -------- Agreement introduction Application Section 2.2(b) Assignee Section 13.24 Assignment and Acceptance Section 13.24 Borrower introduction Code Section 1.4 Default Rate Section 3.1(b) Environmental Laws Section 7.9 Equalization Transfer Section 2.1(c) Excess Section 13.19
14 15 FBS Ag Credit introduction Issuer Section 2.2(a) Lenders introduction Loan Account Section 2.4 Purchasing Lender Section 2.1(f) Revolving Loans/Revolving Notes Section 2.1 Securities Act Section 13.21 Selling Lender Section 2.1(f) Taxes Section 5.5(a) Term Loan/Term Notes Section 2.3 UCP Section 2.2(c)
1.3 ACCOUNTING TERMS. Any accounting terms used in this Agreement which are not specifically defined in this Agreement shall have the meanings customarily given them in accordance with GAAP. 1.4 OTHERS DEFINED IN COLORADO UNIFORM COMMERCIAL CODE. All other terms contained in this Agreement (which are not specifically defined in this Agreement) shall have the meanings set forth in the Uniform Commercial Code of Colorado ("Code") to the extent the same are used or defined therein. 2 LOANS. 2.1 REVOLVING LOANS. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender severally agrees to make revolving credit loans (each a "REVOLVING LOAN" and more than one Revolving Loan, the "REVOLVING LOANS") to the Borrower on any one or more Business Days prior to the Revolving Maturity Date, up to an aggregate principal amount of Revolving Loans not exceeding each such Lender's Pro Rata Percentage of the Available Amount on such Business Day. Within such limits and during such period and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow Revolving Loans. (b) It is anticipated that on each Business Day the Borrower may wish to borrow and repay Revolving Loans. To minimize the number of transfers of funds to and from the Lenders resulting from such borrowings and repayments, the Agent will fund daily Revolving Loans for 15 16 the accounts of the Lenders and will apply daily repayments of Revolving Loans to the accounts of the Lenders, other than according to the Lenders' Pro Rata Percentages (i.e., without receiving from the other Lenders their Pro Rata Percentage of a Revolving Credit Loan on the date of disbursement thereof or without paying the other Lenders their Pro Rata Percentage of a repayment of a Revolving Credit Loan on the date of payment thereof), provided however, that no such Revolving Loan shall be made and no repayment of a Revolving Loan shall be applied other than according to the Lenders' Pro Rata Percentages, if: (i) at the time of such Revolving Loan or repayment the Agent has actual knowledge of a Matured Default, or (ii) after giving effect to the requested Revolving Loan or after applying the repayment, the absolute value of the amount that would have to be reallocated to make the Revolving Loans held according to the Lenders' Pro Rata Percentages, would exceed $3,000,000, and provided further, that the Agent's failure to fund daily Revolving Loans for the accounts of the Lenders as provided in this Section 2.1(b) shall not relieve each Lender's obligation (subject to the terms and conditions of this Agreement) to make Revolving Loans to the Borrower up to such Lender's Pro Rata Percentage. Nothing in this Section 2.1(b) shall be construed to require or to permit the Agent to fund any Revolving Loans in an amount which would exceed the then Available Amount, without the consent of all the Lenders. (c) At any time in the discretion of the Agent and in any event on Wednesday of each week if the outstanding Revolving Loans are not held according to the Lenders' Pro Rata Percentages, the Agent shall give notice by 9:30 a.m. (Denver time) to the Lenders of the amount of funds to be transferred from the Agent to the Lenders, or from the Lenders to the Agent, as the case may be (each such transfer, an "EQUALIZATION TRANSFER") required to cause the Revolving Loans to be held by the Lenders according to their Pro Rata Percentages. On the same Business Day as such notice the necessary Equalization Transfers shall be made in immediately available funds not later than 11:00 a.m. (Denver time). (d) Except as provided in Section 2.1(e), any Equalization Transfer by the Lenders to the Agent shall be deemed to constitute Revolving Loans by such Lenders to the Borrower and repayments by the Borrower of Revolving Loans held by the Agent, and any Equalization Transfer by the Agent to the Lenders shall be deemed to constitute Revolving Loans by the Agent to the Borrower and repayments of Revolving Loans held by the Lenders. (e) In the event that on the date on which any Equalization Transfer is required to be made pursuant to Section 2.1(b), a Matured Default of the type described in clause (i) of the definition thereof shall have occurred and be continuing, any Equalization Transfer by the Lenders to the Agent, and any Equalization Transfer by the Agent to the Lenders shall be deemed to constitute a purchase by the Lenders or the Agent, as the case may be, of a direct interest, in the amount of such Equalization Transfer, in outstanding Revolving Loans of the Lenders to the Borrower, to the end that each of the Lenders shall have an interest therein equal to their respective Pro Rata Percentages as of the date of occurrence of such Matured Default. (f) At any time after any Lender (a "SELLING LENDER") has received any Equalization Transfer that constitutes a purchase by any other Lender (a "PURCHASING LENDER") of a direct interest in such Selling Lender's Revolving Loans pursuant to Section 2.1(e), if such Selling Lender receives any payment on account of its Revolving Loans, such Selling Lender will distribute to such Purchasing Lender its proportionate share of such payment (appropriately 16 17 adjusted in the case of interest payments, to reflect the period of time during which such Purchasing Lender's direct interest was outstanding and funded); provided however, that in the event that such payment received by such Selling Lender is required to be returned, such Purchasing Lender will return to such Selling Lender any portion thereof previously distributed to it by such Selling Lender. (g) Each Lender's obligation to make Equalization Transfers pursuant to Section 2.1(c) shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or any other Person may have against the Agent or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or a Matured Default or the termination of the Commitments; (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any other Person; (iv) any breach of this Agreement by the Borrower or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. Notwithstanding the foregoing, if the Agent has made any Revolving Loan in an amount exceeding the then Available Amount without the consent of all the Lenders, any non-consenting Lender's obligation to make an Equalization Transfer with respect to such Revolving Loan, shall be reduced by such Lender's Pro Rata Percentage of any such excess. (h) The Borrower shall execute and deliver to the Agent for each Lender to evidence the Revolving Loans made by each Lender under such Lender's Revolving Loan Commitment, a revolving credit note (each such note, a "REVOLVING NOTE" and collectively the "REVOLVING NOTES"), which shall be (i) dated the date of the Closing Date; (ii) in the principal amount of such Lender's maximum Revolving Loan Commitment; and (iii) in substantially the form attached as Exhibit 2A, appropriately completed. Each Lender shall post (iv) the date and principal amount of each Revolving Loan made under such Revolving Note; (v) the rate of interest each such Revolving Loan will bear; and (vi) each payment of principal thereon; provided however, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. (i) In the event that the Borrower fails to pay any principal or interest on the date the same is due and payable, the Agent, upon instruction from the Required Lenders, shall notify the Lenders to make a Revolving Loan to pay such past due amount and each Lender shall post its records with respect to such Revolving Loan in accordance with Section 2.1(h) of this Agreement; provided however, that without the consent of all of the Lenders, no such Revolving Loan shall cause any Lender's Revolving Loans to exceed the amount of such Lender's Revolving Loan Commitment, and provided further, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. 2.2 LC's. (a) Subject to the terms and conditions of this Agreement, the Borrower may from time to time request that the Agent issue or cause to be issued by an Affiliate of the Agent one or more LC's for the Borrower's account for any purpose acceptable to the Agent in its reasonable discretion (the Agent or its Affiliate thereby becoming the "Issuer"); provided however, that the Agent shall not issue or cause its Affiliate to issue any such LC if (i) such issuance would cause the LC Obligations to exceed $5,000,000 at the time of such issuance, (ii) the face amount of 17 18 such LC exceeds the Available Amount at the time of such issuance, or (iii) the proposed expiry date for the LC is on or after a date which is the earlier of (A) twelve (12) months after its date of issuance or (B) the Revolving Maturity Date. (b) In order to effect the issuance of each LC, the Borrower shall deliver to the Agent a letter of credit application (the "Application") not later than 11:00 a.m. (Denver time), five (5) Business Days prior to the proposed date of issuance of the LC. The Application shall be duly executed by a responsible officer of the Borrower, shall be irrevocable and shall (i) specify the day on which such LC is to be issued (which shall be a Business Day), and (ii) be accompanied by a certificate executed by a responsible officer stating that all conditions precedent to such issuance have been satisfied and setting forth calculations evidencing availability for such LC as required pursuant to Section 2.2(a). (c) Upon receipt of the Application, and satisfaction of the applicable terms and conditions of this Agreement, and provided however, that no Default or Matured Default exists, or would exist after giving effect to the issuance of the LC, the Agent or its Affiliate shall issue such LC no later than the close of business, in Denver, Colorado or Minneapolis, Minnesota, on the date so specified. The Agent shall provide the Borrower and each Lender with a copy of the LC which has been issued. Each LC shall (i) provide for the payment of drafts presented for honor thereunder by the beneficiary in accordance with the terms thereof, when such drafts are accompanied by the documents described in the LC, if any, and (ii) to the extent not inconsistent with the express terms hereof or the applicable Application, be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (together with any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Agent or its Affiliate, the "UCP"), and shall, as to matters not governed by the UCP, be governed by, and construed and interpreted in accordance with, the laws of the State of Minnesota. (d) Upon the issuance date of each LC, the Agent shall be deemed, without further action by any party hereto, to have sold to each other Lender, and each other Lender shall be deemed, without further action by any party hereto, to have purchased from the Agent, a participation, to the extent of such Lender's Pro Rata Percentage in the LC, the obligations thereunder and in the reimbursement obligations of the Borrower due in respect of drawings made under the LC. If requested by the Agent, the other Lenders will execute any other documents reasonably requested by the Agent to evidence the purchase of such participations. (e) Upon the presentment of a draft for honor under any LC by the beneficiary thereof which the Issuer has determined is in compliance with the conditions for payment thereunder, the Issuer shall promptly notify the Borrower, the Agent (as applicable) and each Lender of the intended date of honor of such draft, the amount due and owing in respect of such draft shall automatically and without any action by any Person be due and payable by the Borrower on the intended date of honor, and each Lender shall, notwithstanding any other provision of this Agreement (including the occurrence and continuance of a Default or a Matured Default), make available to the Agent for the benefit of the Issuer an amount equal to its Pro Rata Percentage of the presented draft on the day the Issuer is required to honor such draft. If such amount is not in fact made available to the Agent by such Lender on such date, such amount shall bear interest at the lesser of (i) the federal funds rate or (ii) the Highest Lawful Rate, 18 19 payable on demand by the Agent. Each drawing under any LC shall constitute a request by the Borrower to the Agent for a borrowing pursuant to Section 2.1(a) of Revolving Loans in the amount of such drawing. (f) The Borrower's obligation to reimburse the Issuer for the amount of any draft drawn under an LC shall be absolute, unconditional and irrevocable and shall be paid immediately to the Agent for the account of the Lenders upon demand by the Agent, and otherwise strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation, the following circumstances: (i) The existence of any claim, set-off, defense or other rights which the Borrower may have at any time against any beneficiary or any transferee of any LC (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuer, any Lender or any other Person, whether in connection with this Agreement, any other Financing Agreement, the transactions contemplated herein or therein or any unrelated transaction, unless otherwise provided by the terms of such LC; (ii) Any statement or any other document presented under any LC proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (iii) Payment by the Issuer under any LC against presentation of a draft or certificate which does not comply with the terms of such LC, provided however, that such payment shall not have constituted gross negligence or willful misconduct of the Issuer; and (iv) Any other circumstance or event whatsoever, whether or not similar to the foregoing, provided however, that such other circumstance or event shall not have been the result of gross negligence or willful misconduct of the Issuer. (g) The Borrower assumes all risks of the acts or omissions of the beneficiary and any transferee of each LC with respect to its use of such LC. Neither the Issuer, the Agent nor any Lender shall be liable or responsible for, and the Borrower indemnifies and holds the Issuer, the Agent and each Lender harmless for: (i) the use which may be made of any LC or for any acts or omissions of the beneficiary and any transferee thereof in connection therewith, or (ii) the validity or genuineness of documents, or of any endorsement(s) thereon, even if such documents should, in fact prove to be in any or all respects invalid, fraudulent or forged, or any other circumstances whatsoever in making or failing to make payment, against the Issuer, the Agent or any Lender, except damages determined to have been caused by gross negligence or willful misconduct of the Issuer in determining whether documents presented under an LC comply with the terms of such LC and there shall have been a wrongful payment as a result thereof; provided however, that it is the intention of the Borrower to indemnify the Issuer, the Agent and each Lender for the negligence of the Issuer, the Agent or each Lender respectively, other than negligence constituting gross negligence or willful misconduct. In furtherance and not in limitation of the foregoing, the Issuer may accept documents that appear on their face to be in order, without responsibility for investigation, regardless of any notice or information to the contrary. 19 20 (h) In the event that any provision of an Application is inconsistent, or in conflict with, any provision of this Agreement, including provisions for the rate of interest applicable to draws thereunder, delivery of collateral or rights of set-off or any representations, warranties, covenants or any events of default set forth therein, the provisions of this Agreement shall govern. (i) If any LC has an expiration date after the Revolving Maturity Date, and if any Lender shall not have agreed to extend its Revolving Loan Commitment through a date which is on or after the latest expiration date of any LC, then the Borrower shall deposit with the Agent, for the ratable benefit of such non-extending Lenders, cash collateral or other liquid collateral, of a type and in an amount which is satisfactory to such non-extending Lenders, in their sole discretion, provided however, that cash in an amount equal to (i) 105% of the face amount of all such LC's, times (ii) the Pro Rata Percentages of all such non-extending Lender's Revolving Loan Commitments, is hereby agreed by all Lenders to be satisfactory collateral as to type and amount. 2.3 TERM LOAN. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender severally agrees to make a term loan (each a "TERM LOAN" and collectively the "TERM LOAN") to the Borrower on the first Business Day after the later of the Closing Date or the date on or before September 15, 1997 that all conditions precedent thereto as set forth in Section 8.1 have been satisfied, in the principal amount of such Lender's Term Loan Commitment. Once repaid, the Term Loan may not be reborrowed. (b) The Borrower shall execute and deliver to the Agent for each Lender to evidence the Term Loan made by each Lender under such Lender's Term Loan Commitment, a promissory note (each such note, a "TERM NOTE" and collectively the "TERM NOTES"), which shall be (i) dated the date of the Closing Date; (ii) in the principal amount of such Lender's maximum Term Loan Commitment; and (iii) in substantially the form attached as Exhibit 2B, appropriately completed. Each Lender shall post (iv) the date and principal amount of the Term Loan made under such Term Note; (v) the rate of interest the Term Loan will bear; and (vi) each payment of principal thereon; provided however, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. The outstanding principal balance of each Term Note shall be payable as set forth therein. 2.4 GENERAL PROVISIONS; ALL LOANS. (a) Each borrowing under this Agreement shall in the case of any Eurodollar Rate Loan, be in an aggregate amount of not less than $1,000,000 or in integral multiples of $100,000 in excess thereof; and at the option of the Borrower, any borrowing may be comprised of two or more Loans bearing different rates of interest; provided however, that a Loan made on the first Business Day after the Closing Date shall bear interest from the date of such Loan at a rate per annum equal to the lesser of (i) the Reference Rate in effect from time to time plus the Applicable Margin, or (ii) the Highest Lawful Rate, unless and until the Borrower gives notice under Section 3.2, and provided further that the Borrower may not have more than six (6) Eurodollar Rate Loans outstanding at any one time. Each Loan shall be made upon prior written 20 21 notice from the Borrower to the Agent delivered not later than 11:00 a.m. (Denver time) on the Closing Date with respect to any Loans to be made on the first Business Day after the Closing Date, or with respect to any Loans made thereafter, on the same Business Day as the proposed Loan if such borrowing is a Revolving Loan which is a Reference Rate Loan, or three Business Days prior to the proposed Loan if such borrowing is a Revolving Loan which is a Eurodollar Rate Loan. Each such notice of borrowing with respect to the Loans shall be irrevocable and shall specify (iii) the amount of the proposed borrowing; (iv) the date of the proposed borrowing; (v) the Type of each such Loan; (vi) whether the proposed borrowing is a Revolving Loan or the Term Loan; and (vii) with respect to any Eurodollar Rate Loan, the Interest Period with respect to each such Loan and the expiration date of each such Interest Period. The Borrower shall give the Agent written (including facsimile) notice by the required time of any proposed borrowing. Neither the Agent nor any Lender shall incur any liability to the Borrower in acting upon any facsimile notice referred to above which the Agent believes in good faith to have been given by the Borrower, or for otherwise acting in good faith under this Section 2.4(a). (b) The Agent shall notify each Lender of any notice received by the Agent from the Borrower pursuant to Section 2.4(a) not later than 9:30 a.m. (Denver time) on the date of any proposed Loan. In the case of a proposed borrowing of a Loan comprised of Eurodollar Rate Loans, the Agent shall also notify each Lender of the applicable interest rate on the same Business Day as the Agent receives such notice from the Borrower. Each Lender shall, before 11:00 a.m. (Denver time) on the date for the proposed Loan, make available for the account of the Agent at its address set forth in Section 13.18, in same day funds, its Pro Rata Percentage of such borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 8, on the date for the proposed Loan, the Agent shall make the borrowing available to the Borrower in immediately available funds. Any Loan made by the Agent pursuant to a request believed by the Agent to be an authorized request by the Borrower for a Loan pursuant to Section 2.4(e) shall be deemed to be a Loan for all purposes with the same effect as if the Borrower had in fact requested the Agent to make such Loan. (c) Unless the Agent shall have received notice from a Lender prior to the date of any borrowing of a Loan that such Lender will not make available to the Agent such Lender's Pro Rata Percentage of such borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such borrowing in accordance with Section 2.4(b) and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made its Pro Rata Percentage available to the Agent, such Lender and the Borrower severally agree to repay to the Agent, within five (5) Business Days after demand therefor, such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, (i) in the case of the Borrower, at the interest rate applicable at the time the Loans comprising such borrowing were made, and (ii) in the case of such Lender, at the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Loan as part of such borrowing for purposes of this Agreement. If the Borrower has been required to repay a Loan to the Agent pursuant to this Section 2.4(c), as a result of a Defaulting Lender's failure to make its Pro Rata Percentage of such Loan available to the Agent, then the Agent and the remaining Lenders shall have sixty (60) days from the date of such repayment to increase their Commitments in an aggregate amount equal to such Default Lender's Commitments, or to 21 22 replace the Defaulting Lender with another Lender in accordance with the provisions of Section 13.24. In the event the Agent and the remaining Lenders fail to increase their Commitments or replace the Defaulting Lender within said sixty (60) day period, then the Borrower may terminate the Commitments without the payment of the early termination fees described in Section 4.4(b). (d) The failure of any Lender to make the Loan to be made by it as part of any borrowing shall not relieve any other Lender of its obligation, if any, to make its Loan on the date of such borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the date of any borrowing. (e) Loans may be made by the Agent on the Agent's receipt of written notice from William R. Patterson or Dennis W. Harms, who are authorized to request Loans and direct the disposition of any such Loans until written notice of the revocation of such authority is received by the Agent at its address designated below. Any such Loans shall be conclusively presumed to have been made to or for the benefit of the Borrower when the Agent believes in good faith that such notice was made by authorized persons, or when said Loans are deposited to the credit of the account of the Borrower regardless of the fact that Persons other than those authorized hereunder may have authority to draw against such account. (f) The Agent shall maintain a loan account ("Loan Account") on its books in which shall be recorded: (a) all Revolving Loans made to the Borrower pursuant to this Agreement; (b) all payments made by the Borrower on all Revolving Loans; (c) the Term Loan made to the Borrower pursuant to this Agreement; (d) all payments made by the Borrower on the Term Loan; and (e) all other appropriate debits and credits as provided in this Agreement, including without limitation, all fees, charges, expenses and interest. All entries in the Borrower's Loan Account shall be made in accordance with the Agent's customary accounting practices as in effect from time to time. The Agent shall send to the Borrower monthly statements for the Loan Account. The Borrower promises to pay the amount reflected as owing by and under its Loan Account, as reflected on such monthly statements, and all other obligations hereunder as such amounts become due or are declared due pursuant to the terms of this Agreement, unless the Borrower notifies the Agent within thirty (30) days after the Borrower's receipt of such monthly statement, of a good faith dispute relating to the matter summarized on such monthly statement. In the absence of the Borrower's timely written notice of a good faith dispute, each monthly statement for the Loan Account shall become an account stated. (g) All Loans to the Borrower, and all other debits and credits provided for in this Agreement, shall be evidenced by entries made by the Agent in its internal data control systems showing the date and amount of each such debit or credit. Until such time as the Agent shall have rendered to the Borrower written statements of account as provided herein, the balance in the Borrower's Loan Account, as set forth on the Agent's most recent printout, shall be rebuttable presumptive evidence of the amounts due and owing the Agent and the Lenders by the Borrower. 22 23 2.5 PURPOSES. The purpose of the Revolving Loans is to provide working capital for the Borrower's hog production operations. Each LC shall be issued for proper business purposes. The purpose of the Term Loan is to refinance existing term debt. 3 INTEREST. 3.1 INTEREST. The Borrower shall pay interest on the unpaid principal amount of each Loan made by each Lender from the date of such Loan until such principal amount shall be paid in full, at the times and at the rates per annum set forth below: (a) So long as no Matured Default has occurred or is continuing, during such periods as such Loan is a Reference Rate Loan, a rate per annum equal to the lesser of (i) the sum of the Reference Rate in effect from time to time plus the Applicable Margin and (ii) the Highest Lawful Rate, payable monthly in arrears on the first day of each month commencing September 1, 1997, and if such Loan is a Revolving Loan, on the Revolving Maturity Date, and if such Loan is a Term Loan, on the Term Maturity Date. With respect to each Reference Rate Loan, the rate of interest accruing shall change concurrently with each change in the Reference Rate as announced by First Bank. (b) So long as no Matured Default has occurred or is continuing, during such periods as such Loan is a Eurodollar Rate Loan, a rate per annum during each Interest Period for such Loan, equal to the lesser of (i) the sum of the Eurodollar Rate for such Interest Period for such Loan plus the Applicable Margin and (ii) the Highest Lawful Rate, payable in arrears on the first day of each month during the applicable Interest Period, on the ninetieth day of such Interest Period if such Interest Period exceeds three months, and on the last day of such Interest Period, and if such Loan is a Revolving Loan, also on the Revolving Maturity Date, and if such Loan is a Term Loan, also on the Term Maturity Date. (c) After the occurrence of a Matured Default and for so long as such Matured Default is continuing, any amount due hereunder, under the Notes or under any other Financing Agreements, whether for principal, interest (to the extent permitted by applicable law), fees, expenses or otherwise, shall bear interest, from the date on which such Matured Default occurs and during the continuation of such Matured Default, payable on demand, at a rate per annum (the "Default Rate") equal to the lesser of (i) the sum of three percent (3.0%) per annum plus the Reference Rate in effect from time to time and (ii) the Highest Lawful Rate. (d) All computations of interest pursuant to this Section 3.1 shall be made by the Agent on the basis of a year of 360 days, unless the foregoing would result in a rate exceeding the Highest Lawful Rate, in which case such computations shall be based on a year of 365 or 366 days, as the case may be. Interest shall be charged for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. 23 24 3.2 VOLUNTARY CONVERSION OF LOANS. The Borrower may on any Business Day, upon the Borrower's written (including facsimile) notice given by the Borrower to the Agent not later than 11:00 a.m. (Denver time) on the day which is three Business Days prior to the date of any proposed interest conversion or rollover, convert Loans from one Type to another Type, or continue or rollover existing Eurodollar Rate Loans, (a) with respect to any conversion into or rollover of a Eurodollar Rate Loan, no Default or Matured Default shall have occurred and be continuing, (b) with respect to any facsimile notice of interest conversion, the Borrower shall promptly confirm such notice by sending the original notice to the Agent, and (c) any continuation or rollover of Eurodollar Rate Loans for the same or a different Interest Period or into Reference Rate Loans, shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Loans. Each such notice of interest conversion shall specify therein (d) the requested date of such conversion, (e) the Loans requested to be converted and whether such Loans constitute Revolving Loans or the Term Loan, and (f) if such interest conversion is into Loans constituting Eurodollar Rate Loans, the duration of the requested Interest Period for each such Loan on the same Business Day. The Agent shall deliver a copy of each such notice to each Lender on the same Business Day as the Agent receives such notice from the Borrower. Each such notice shall be irrevocable and binding on the Borrower. If the Borrower shall fail to give a notice of interest conversion with respect to any Eurodollar Rate Loan as set forth above, such Loan shall automatically convert to a Reference Rate Loan on the last day of the Interest Period with respect thereto. 4 PAYMENTS; PREPAYMENTS; TERMINATION OF REVOLVING LOAN COMMITMENTS; RELEASE OF COLLATERAL; ETC. 4.1 PAYMENT OF LOANS. (a) Whenever any payment hereunder or under any Note shall be due on a day other than a Business Day, the date for payment of such amounts shall be extended to the next succeeding Business Day, and such extension of time shall be included in the computation of payment of interest. (b) The Borrower shall make each payment hereunder and under the Notes not later than 11:00 a.m. (Denver time) on the day when due in lawful money of the United States and in immediately available funds to the Agent for the account of the Lenders. Subject to Section 2.1, the Agent will promptly distribute in lawful money of the United States and in immediately available funds to each Lender its ratable (based on the respective Pro Rata Percentages of the Lenders) share of each such payment received by the Agent for the account of the Lenders. 4.2 OPTIONAL PREPAYMENTS ON THE LOANS. The Borrower may at any time prepay the outstanding principal amount of any Loan, in either case in whole or in part, in accordance with this Section 4.2. The Borrower shall give prior written notice of any such prepayment to the Agent, which notice shall state the proposed date of such prepayment (which shall be a Business Day) and which notice shall be delivered to the Agent not later than 11:00 a.m. (Denver time), (a) with respect to any Revolving Loan which is a Reference Rate Loan, on the date of prepayment, and (b) with respect to the Term Loan or 24 25 any Revolving Loan which is a Eurodollar Rate Loan, three Business Days prior to the date of prepayment, which written notice shall specify the Loans to be prepaid and the aggregate amount of the prepayment. All prepayments of Reference Rate Loans shall be without premium or penalty of any kind except as provided under Section 4.4. All such prepayments of Eurodollar Rate Loans shall be made together with accrued and unpaid interest (if any) to the date of such prepayment on the principal amount prepaid without premium or penalty thereon, provided however, that funding losses incurred by any Lender under Section 5.3 shall be payable with respect to each such prepayment. Such notice shall be irrevocable and the payment amount specified in such notice shall be due and payable on the prepayment date described in such notice, together with, in the case of Eurodollar Rate Loans, accrued and unpaid interest (if any) on the principal amount prepaid and any amounts due under Section 5.3. The Borrower shall have no optional right to prepay the principal amount of any Eurodollar Rate Loan other than as provided in this Section 4.2. 4.3 MANDATORY PRINCIPAL PAYMENTS ON THE LOANS. (a) If at any time the aggregate principal amount of all Revolving Loans, plus the aggregate face amount of all outstanding LC's, exceeds the lesser of the Borrowing Base or the Revolving Loan Commitments, then the Borrower shall within three (3) Business Days, either (i) pay to the Agent for the ratable account of each Lender the amount of such excess as a payment on the Revolving Loans, or (ii) otherwise eliminate such excess by providing to the Agent an updated borrowing base certificate. (b) The Borrower shall pay to the Agent for the ratable account of each Lender the scheduled principal payments required by the Term Notes. 4.4 TERMINATION OF THE COMMITMENTS. (a) The Agent shall have the right, with the consent of the Required Lenders and without notice to the Borrower, to terminate the Commitments immediately upon a Matured Default. In addition, the Revolving Loan Commitments and the LC Commitments shall be deemed immediately terminated and all of the Liabilities relating to the Revolving Loans shall be immediately due and payable, without notice to the Borrower, on the Revolving Maturity Date. In the event any of the Commitments are terminated, the remainder of this Agreement shall remain in full force and effect until the indefeasible full payment and full satisfaction of the Liabilities. Notwithstanding the foregoing, in the event that a Default of the type described in clause (i) of the definition of Matured Default occurs, then this Agreement shall be deemed to be terminated immediately, all of the Liabilities shall automatically become immediately due and payable, and the obligations of the Lenders to make Loans and the Commitments shall automatically terminate in accordance with Section 11.1, provided however, that if such Default is cured within the time period (if applicable) set forth in clause (i) of the definition of Matured Default, then this Agreement shall be deemed to be reinstated as of the date that the Agent is given written notice of a final court order effecting such cure. (b) The Borrower shall have the right, upon at least five Business Days' notice to the Agent to terminate the Commitments in whole, provided however, that subject to Section 2.4(a), any such termination prior to July 31, 2000 shall be accompanied by the payment of an early 25 26 termination fee equal to the following percentages of the Commitments in the following periods: (i) before July 31, 1998: 3%; (ii) from August 1, 1998 through July 31, 1999: 2%; and (iii) from August 1, 1999 through July 31, 2000: 1%. The Borrower shall not have the right to terminate the Commitments in part. 4.5 CONDITIONAL RELEASE OF CERTAIN COLLATERAL. (a) The Lenders agree that the Agent will promptly release its liens and security interests in and to the Property other than the Texas Properties, upon the occurrence of the following events and subject to the following conditions: (a) the Borrower has been in compliance in all material respects with all of the terms and provisions of this Agreement and the Financing Agreements for the two-year period following the Closing Date, (b) there shall not have occurred a Matured Default during the two-year period following the Closing Date, (c) the Borrower shall have made a written request to the Agent for a release of Collateral pursuant to this Section 4.5, (d) at the time of such written request, there shall not then exist a Default, and (e) the Borrower shall have provided the Agent with FIRREA qualified appraisals of the Texas Properties showing an aggregate appraised market value of the Texas Properties in an amount sufficient to result in the then outstanding balance of the Term Loan being less than forty percent (40%) of such aggregate appraised market value. The Borrower's compliance with the requirements set forth in this Section 4.5 shall be determined by the Required Lenders, in their reasonable discretion. (b) The Lenders further agree that the Agent will promptly release its liens and security interests in and to the Borrower's processing facility located in Milan, Missouri promptly upon the Borrower's written request provided that at the time of the Borrower's request, no Default has occurred and is continuing. 5 EURODOLLAR RATE LOANS AND COST OF FUNDS RATE LOANS; INCREASED COSTS; TAXES; ETC. 5.1 EURODOLLAR RATE LOANS. Anything in this Agreement to the contrary notwithstanding: (a) If any Lender shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful, for such Lender to perform its obligations to make Eurodollar Rate Loans or to fund or maintain Eurodollar Rate Loans (whether or not such assertion carries the force of law), the obligation of such Lender to make, rollover or to convert Loans into Eurodollar Rate Loans shall be suspended until the Agent or such Lender shall notify the Borrower and such Lender that the circumstances causing such suspension no longer exist, and the existing Eurodollar Rate Loans of such Lender shall automatically convert, on and as of the date of such notification, into Reference Rate Loans; provided that each Lender represents and warrants to the Borrower that as of the later of (i) the Closing Date or (ii) the date on which it shall have executed an Assignment and Acceptance pursuant to Section 13.24(a), it has no actual knowledge that it would be unlawful for such Lender to make Eurodollar Rate Loans as contemplated. 26 27 (b) If the Required Lenders shall, not later than 11:00 a.m. (Denver time) one Business Day before the date of any requested borrowing consisting of Eurodollar Rate Loans, notify the Agent that the Eurodollar Rate for Eurodollar Rate Loans comprising such borrowing will not adequately reflect the cost to such Required Lenders of making or funding their respective Eurodollar Rate Loans for such borrowing, the right of the Borrower to select Eurodollar Rate Loans for such borrowing or any subsequent borrowing respectively shall be suspended until the Required Lenders shall notify the Agent that the circumstances causing such suspension no longer exist, and the Eurodollar Rate Loans comprising such requested borrowing shall be Reference Rate Loans. The Agent shall make a good faith effort to notify the Borrower promptly of any notice received by the Agent from the Required Lenders pursuant to this Section 5.1(b), provided however, that the failure to give such notice shall not affect the remaining provisions of this Section 5.1(b). 5.2 INCREASED COSTS. If, due to either (a) the introduction of or any change in or in the interpretation of any law or regulation or (b) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost or reduction in yield or rate of return to any Lender of agreeing to make or making or maintaining any Eurodollar Rate Loan or maintaining its Commitment with respect thereto (other than any increase in income or franchise taxes imposed on it by the jurisdiction under the laws of which such Lender is organized or the jurisdiction in which such Lender's relevant office is located), then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost, reduction in yield or rate of return, provided however, that similar compensation is also customarily demanded by such Lender from other borrowers similarly situated and under similar circumstances. Any request for payment under this Section 5.2 will be submitted to the Borrower and the Agent by such Lender identifying with reasonable specificity the basis for and the amount of such increased cost. 5.3 FUNDING LOSSES. The Borrower will indemnify each Lender against, and reimburse each Lender on demand for, any loss, cost or expense incurred or sustained by such Lender (including without limitation, any loss or expense incurred by reason of the liquidation or redeployment of deposits or other funds acquired by such Lender to fund or maintain any Loan) as a result of (a) any payment, conversion, rollover, or prepayment (whether authorized or required hereunder or otherwise) of all or a portion of any Loan on a day other than the last day of an Interest Period for such Loan; (b) any payment, conversion, rollover or prepayment (whether required hereunder or otherwise) of such Lender's Loan made after the delivery of a notice of borrowing delivered pursuant to Section 2.4(a) (whether oral or written) but before the proposed date for such Eurodollar Rate Loan if such payment or prepayment prevents the proposed borrowing from becoming fully effective; (c) after receipt by the Agent of a notice of borrowing delivered pursuant to Section 2.4(a), the failure of any Loan to be made or effected by such Lender due to any condition precedent to a borrowing not being satisfied or due to any other action or inaction of the Borrower; or (d) any rescission of a notice of borrowing delivered pursuant to Section 2.4(a) or a notice of interest conversion delivered pursuant to Section 3.2. Any Lender 27 28 demanding payment under this Section 5.3 shall deliver to the Borrower and the Agent a statement reasonably setting forth the amount and manner of determining such loss, cost or expense. Compensation owing to a Lender as a result of any such loss, cost or expense resulting from a payment, prepayment, conversion or rollover of a Eurodollar Rate Loan shall include without limitation, an amount equal to the sum of the amount of the interest that, but for such event, such Lender would have earned for the remainder of the applicable Interest Period plus any expense or penalty incurred by such Lender. 5.4 CAPITAL ADEQUACY REQUIREMENTS. (a) If any Lender shall have determined that the adoption after the date of this Agreement of any applicable law, rule or regulation regarding capital adequacy, or any change therein after the date of this Agreement, or any change in the interpretation or administration thereof after the date of this Agreement by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency issued after the date of this Agreement, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender, and that the amount of such capital requirement is increased, or has or would have the effect of reducing the rate of return on such Lender's or such corporation's capital to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance, in each case as a consequence of its obligations hereunder (taking into consideration such Lender's policies with respect to capital adequacy), then the Borrower shall pay to such Lender such additional amount or amounts as are reasonably determined by such Lender to be sufficient to compensate such Lender or such corporation in the light of such circumstances, provided however, that similar compensation is also customarily demanded by such Lender from other borrowers similarly situated and under similar circumstances. (b) A certificate of such Lender setting forth such amount or amounts as shall be necessary to compensate such Lender as specified in Section 5.4(a) above shall be delivered as soon as practicable to the Borrower. The Borrower shall pay such Lender the amount shown as due on any such certificate within fifteen (15) days after such Lender delivers such certificate. In preparing such certificate, such Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. 5.5 TAXES. (a) Subject to the provisions of Section 5.6(b), any and all payments by the Borrower hereunder or under the Notes shall be made free and clear of and without deduction for any and all present or future taxes, deductions, charges or withholdings, and all liabilities with respect thereto, including without limitation, such taxes, deductions, charges, withholdings or liabilities whatsoever imposed, assessed, levied or collected by any taxing authority and all (other than to the extent due to the gross negligence or willful misconduct of any Lender) interest, penalties, expenses or similar liabilities with respect thereto ("TAXES"), excluding however, from the definition of Taxes, in the case of each Lender and the Agent, taxes imposed on its income 28 29 (including penalties and interest payable in respect thereof), and franchise taxes imposed on it by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 5.5) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made and (ii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the Notes (hereinafter included within the definition of "Taxes"). (c) The Borrower will indemnify each Lender and the Agent for the full amount of Taxes (including without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section 5.5) paid by such Lender or the Agent (as the case may be) and any liability arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. This indemnification shall be made within five days from the date such Lender or the Agent (as the case may be) makes written demand therefor; provided however, to the extent that any Lender is reimbursed for any Tax that was incorrectly or illegally asserted in connection with this Agreement or the Notes, such Lender shall promptly return to the Borrower the amount of such reimbursement net of any reasonable costs of recovery, together with any interest that may have been paid by the taxing jurisdiction with respect thereto, to the extent the Borrower has actually paid such Lender with respect thereto. (d) Promptly after the date on which payment of any Taxes are due pursuant to applicable law, the Borrower will, at the request of the Agent or any Lender, furnish to the Agent or such Lender evidence in form and substance satisfactory to the Agent or such Lender, that the Borrower has met its obligations under this Section 5.5. (e) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreement and obligations of the Borrower contained in this Section 5.5 shall survive the payment in full of principal and interest hereunder and under the Notes. 5.6 WITHHOLDING TAXES. (a) Each Lender represents to the Borrower and the Agent that, as of the date it becomes a Lender and at all times thereafter, it is either (i) a corporation organized under the laws of the United States or any state thereof or (ii) entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made pursuant to this Agreement (x) under an applicable provision of a tax convention to which the United States is a party or (y) because it is acting through a branch, agency or office in the United States and any payment to be received by it hereunder is effectively connected with a 29 30 trade or business in the United States. Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the IRC) shall submit to the Borrower and the Agent, on or before the later of the Closing Date or the day on which such Lender becomes a Lender, duly completed and signed copies of either Form 1001 (relating to such Lender and entitling it to a complete exemption from withholding on all payments to be received by such Lender hereunder) or Form 4224 (relating to all payments to be received by such Lender hereunder) of the United States Internal Revenue Service, and if required by applicable law, a Form W-8 or a Form W-9. Thereafter and from time to time, each such Lender shall submit to the Borrower and the Agent such additional duly completed and signed copies of one or more of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be (i) reasonably requested by the Borrower or the Agent and (ii) required and permitted under then current United States law or regulations to avoid United States withholding taxes on payments in respect of all payments to be received by such Lender hereunder. Upon the request of the Borrower or the Agent, each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the IRC) shall submit to the Borrower and the Agent a certificate in such form as is reasonably satisfactory to the Borrower and the Agent to the effect that it is such a United States person. (b) If any Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the IRC) determines that the Borrower is required by law or regulation to make any deduction, withholding or backup withholding of any taxes, levies, imposts, duties, fees, liabilities or similar charges of the United States of America, any possession or territory of the United States of America (including the Commonwealth of Puerto Rico) or any area subject to the jurisdiction of the United States of America ("U.S. Taxes") from any payments to a Lender pursuant to any Financing Agreement in respect of the Liabilities payable to such Lender then or thereafter outstanding, the amount payable will be increased to the amount which, after deduction from such increased amount of all U.S. Taxes required to be withheld or deducted therefrom, will yield the amount required under any Loan Document to be paid with respect thereto; provided however, that the Borrower shall not be required to pay any additional amount pursuant to this Section 5.6(b) to any Lender (i) that is not, either on the date this Agreement is executed by such Lender or on the date such Lender becomes such under Section 13.24, either (x) entitled to submit Form 1001 (relating to such Lender and entitling it to a complete exemption from withholding on all payments to be received by such Lender hereunder) or Form 4224 (relating to all payments to be received by such Lender hereunder) or (y) a United States person (as such term is defined in Section 7701(a)(30) of the IRC), or (ii) that has failed to submit any form or certificate that it was required to file pursuant to subsection (a) and entitled to file under applicable law or (iii) arising from such Lender's failure to comply with any certification, identification or other similar requirement under United States income tax laws or regulations (including backup withholding) to establish entitlement to exemption from such U.S. Taxes; and provided further, that if a Lender, as a result of any amount paid by the Borrowers to such Lender pursuant to this Section 5.6, shall realize a tax credit or refund, which tax credit or refund would not have been realized but for the Borrower's payment of such amount, such Lender shall pay to the Borrower an amount equal to such tax credit or refund. Each Lender may determine the portion, if any, of any tax credit or refund attributable to the Borrower's payments using such attribution and accounting methods as such Lender reasonably selects. The obligation of the Borrower under this Section 5.6(b) shall survive the payment in full of the Liabilities and the termination of the Commitments of such Lender. 30 31 6 FEES. 6.1 COMMITMENT FEE WITH RESPECT TO REVOLVING LOAN COMMITMENTS. The Borrower agrees to pay to the Agent for distribution to the Lenders (based on their respective Revolving Loan Commitments) an annual commitment fee from the Closing Date to the Revolving Maturity Date, in the annual amount of Seventy Five Thousand Dollars ($75,000). The annual commitment fee for the Revolving Loan Commitments shall be due and payable in advance on the date of this Agreement, on each Anniversary Date prior to the Revolving Maturity Date unless the Borrower has fully terminated the Commitments in accordance with Section 4.4, and on the Revolving Maturity Date, unless the Borrower has fully terminated the Commitments in accordance with Section 4.4 and has fully paid and satisfied all of the Liabilities relating to the Revolving Loans (including without limitation, all of the LC Obligations), provided however, that the annual commitment fee for the period beginning on the Anniversary Date next preceding the Revolving Maturity Date shall be pro-rated if applicable. Each annual commitment fee shall be fully earned on the date it becomes payable each year and, at the option of the Agent, shall be paid by direct debit against the Borrower's checking account. 6.2 ADDITIONAL FEES WITH RESPECT TO LC'S. The Borrower agrees to pay to the Agent for distribution to the Lenders (based on their respective Pro Rata Percentages) a quarterly fee in respect of each LC issued hereunder, computed at the rate of two percent (2.0%) per annum on the face amount of such LC. The quarterly LC fees shall be due and payable in advance on the date of issuance of each LC and then on the first day of each January, April, July and October through the Revolving Maturity Date and thereafter if any of the LC's or the LC Obligations then remain outstanding. Each quarterly LC fee shall be fully earned on the date it becomes payable, and, at the option of the Agent, shall be paid by direct debit against the Borrower's checking account. 6.3 COMMITMENT FEE WITH RESPECT TO TERM LOAN COMMITMENTS. The Borrower agrees to pay to the Agent for distribution to the Lenders (based on their respective Term Loan Commitments) an initial commitment fee in the amount of Three Hundred Thousand Dollars ($300,000). The commitment fee for the Term Loan Commitments shall be due and payable in advance on the Closing Date, and shall be fully earned on the date it becomes payable and, at the option of the Agent, shall be paid by direct debit against the Borrower's checking account. 6.4 AGENT'S FEES. The Borrower agrees to pay to the Agent, in respect of its administrative duties hereunder, fees in the amounts and at the times set forth in the Agent's Letter. The arranger fee and the initial audit and loan servicing fees (all as described therein) shall be due and payable in advance on the Closing Date. The annual audit and loan servicing fees shall be due and payable in advance on each Anniversary Date hereafter as long as any Liabilities are outstanding under this Agreement, unless the Borrower has fully terminated the Commitments in accordance with Section 4.4 and has fully paid and satisfied all of the Liabilities (including without limitation, all 31 32 of the LC Obligations). All of the Agent's fees set forth in the Agent's Letter shall be fully earned on the dates they become payable and, at the option of the Agent, shall be paid by direct debit against the Borrower's checking account. No Persons other than the Agent shall have any interest in such Agent's fees. 6.5 FEES NOT INTEREST; NONPAYMENT. The fees described in this Agreement represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention, or forbearance of money. The obligation of the Borrower to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Borrower to pay interest, other fees described in this Agreement, and expenses otherwise described in this Agreement. Fees shall be payable when due in Dollars and in immediately available funds. All fees shall be non-refundable. 7 REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the Lenders to enter into this Agreement, the Borrower represents and warrants to the Agent and the Lenders that the following statements are and, after giving effect to the Loans, will be, true and correct as of the Closing Date, and that the following statements will be true and correct at all times after the Closing Date except as otherwise disclosed in writing to the Agent: 7.1 LITIGATION AND PROCEEDINGS. Except as set forth on Part 1 of Exhibit 7, no judgments are outstanding against the Borrower, nor is there now pending or threatened any litigation, contested claim, or governmental proceeding by or against the Borrower, except for judgments and pending or threatened litigation, contested claims and governmental proceedings which will not, in the aggregate, have a Material Adverse Effect. 7.2 OTHER AGREEMENTS. Except as set forth on Part 2 of Exhibit 7, the Borrower is not in default in any material respects under any contract, lease or commitment to which the Borrower is a party or by which the Borrower is bound. The Borrower knows of no dispute, except as set forth on Part 2 of Exhibit 7 or as previously disclosed to the Agent and the Lenders in writing, relating to any contract, lease, or commitment which is material to the continued financial success and well-being of the Borrower. 7.3 LICENSES, PATENTS, ETC. All of the Borrower's licenses, patents, copyrights, trademarks and trade names and all of the Borrower's applications for any of the foregoing are set forth on Part 3 of Exhibit 7. There is no action, proceeding, claim or complaint pending or, to the best of the Borrower's knowledge, threatened to be brought against the Borrower by any Person which might jeopardize any of the Borrower's interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names 32 33 or applications and which if determined adversely to the Borrower, would result in a Material Adverse Effect. 7.4 TITLE TO ASSETS. Except as contemplated by this Agreement and except as set forth on Part 4 of Exhibit 7, the Borrower owns all of its assets free and clear of all security interests, liens, claims, and encumbrances. No goods held by the Borrower on consignment or under sale or return contracts have been represented to be Inventory and no amounts receivable by the Borrower in respect of the sale of such goods (except markups or commissions which have been fully earned by the Borrower) have been represented to be Accounts. The Borrower represents that all amounts in the form of ordinary trade payables which are owing to suppliers of any of the Inventory have been paid in accordance with Section 9.13, and that none of such suppliers has asserted any interest in the Inventory. The Borrower will furnish, at the Agent's request, the names and addresses of all Persons who supply Inventory to the Borrower or who deliver goods to the Borrower on consignment or under sale or return contracts. 7.5 TAX LIABILITIES. The Borrower has filed all federal, state and local tax reports and returns required by any law or regulation to be filed by the Borrower and has either duly paid all taxes, duties and charges indicated to be due on the basis of such returns and reports or has made adequate provision for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected. The reserves for taxes reflected on the Borrower's balance sheet are adequate in amount for the payment of all liabilities for all taxes (whether or not disputed) of the Borrower accrued through the date of such balance sheet. There are no material unresolved questions or claims concerning any tax liability of the Borrower, except as described on Part 5 of Exhibit 7. 7.6 INDEBTEDNESS AND PRODUCER PAYABLES. Except (i) for the Liabilities; (ii) as disclosed on Part 6 of Exhibit 7; and (iii) as disclosed on the financial statements identified in Section 7.15 of this Agreement, the Borrower has no other indebtedness, contingent obligations or liabilities, outstanding bonds, letters of credit or acceptances to any other Person or loan commitments from any other Person. The Borrower's Producer Payables, other than those being contested in good faith by the Borrower, are not past due. 7.7 OTHER NAMES. The Borrower has not, during the preceding five years, been known by or used any other name, except as disclosed on Part 7 of Exhibit 7. 33 34 7.8 AFFILIATES. The Borrower has no Affiliates, other than those Persons disclosed on Part 8 of Exhibit 7, and the legal relationships of the Borrower to each such Affiliate are accurately and completely described thereon. 7.9 ENVIRONMENTAL MATTERS. (a) Except as disclosed on Part 9 of Exhibit 7, the Borrower has not received any notice to the effect, or has any knowledge, that its operations are not in compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations ("ENVIRONMENTAL LAWS") or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could have a Material Adverse Effect; (b) there have been no releases of hazardous materials at, on or under the Borrower's premises that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; (c) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under the Borrower's premises that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect on the financial condition, operations, assets, business or prospects of the Borrower; (d) the Borrower has not directly transported or directly arranged for the transportation of any hazardous material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against the Borrower for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; and (e) except as disclosed on Part 9 of Exhibit 7, no conditions exist at, on or under the Borrower's premises which, with the passage of time, or the giving of notice or both, would rise to any material liability under any Environmental Laws. 7.10 BANK ACCOUNTS. Part 10 of Exhibit 7 sets forth, as of the Closing Date, the account numbers and location of all bank accounts (including lockbox accounts) of the Borrower. 7.11 FARM PRODUCTS. Part 11 of Exhibit 7 sets forth a complete and accurate list of all states where farm products (as that term is defined in 7 USCA Section 1631(c)(5)) purchased by the Borrower have been produced. The Borrower: (a) is registered with the Secretaries of State of all states listed on Part 11 of Exhibit 7 which have established a central filing system certified by the Secretary of the United States Department of Agriculture pursuant to 7 USCA Section 1631(c)(2); (b) has obtained all waivers and releases of security interests, of which the Borrower has received notice from any Secretary of State of such states which have adopted a central filing system certified by the Secretary of the United States Department of Agriculture pursuant to 7 USCA Section 1631(c)(2); and (c) the Borrower has performed all payment obligations required to be performed by it (as set forth in 7 USCA Section 1631(e)(1)(B)) to insure that the Borrower has purchased such farm products 34 35 free and clear of all liens, claims, security interests and encumbrances, including those of secured parties of the seller of such farm products in states where there is no central filing system. 7.12 EXISTENCE. Borrower is a corporation duly organized, in existence and in good standing under the laws of the State of Delaware and is duly licensed to do business in all states where the nature and extent of the business transacted by it or the ownership of its assets makes such licensing necessary, except for those jurisdictions in which the failure to be so licensed would not, in the aggregate, have a Material Adverse Effect. 7.13 AUTHORITY. The execution and delivery by the Borrower of this Agreement and all of the other Financing Agreements and the performance of the Borrower's obligations hereunder and thereunder (a) are within the Borrower's corporate powers; (b) are duly authorized by Borrower's board of directors and, if necessary, Borrower's shareholders; (c) are not in contravention of any law or laws, or the terms of the Borrower's articles or certificates of incorporation or by-laws or any other agreement, instrument or document relating to Borrower's governance, or of any indenture, agreement or undertaking to which the Borrower is a party or by which the Borrower or any of the Borrower's property is bound; (d) do not require any governmental consent, registration or approval; (e) do not contravene any contractual or governmental restriction binding upon the Borrower; and (f) will not, except as contemplated or permitted by this Agreement, result in the imposition of any lien, charge, security interest or encumbrance upon any property of the Borrower under any existing indenture, mortgage, deed of trust, loan or credit agreement or other material agreement or instrument to which the Borrower is a party or by which the Borrower or any of the Borrower's property may be bound or affected. 7.14 BINDING EFFECT. This Agreement and all of the other Financing Agreements set forth the legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, moratorium or similar laws affecting creditors' rights generally and except as such enforcement may be limited by general principles of equity. 7.15 CORRECTNESS OF FINANCIAL STATEMENTS. The financial statements delivered by the Borrower to the Agent and the Lenders present fairly the financial condition of the Borrower, and have been prepared in accordance with GAAP consistently applied. As of the date of such financial statements, and since such date, there has been no materially adverse change in the condition or operation of the Borrower, nor has the Borrower mortgaged, pledged or granted a security interest in or encumbered any of the Borrower's assets or properties since such date. 35 36 7.16 EMPLOYEE CONTROVERSIES. There are no controversies pending or, to the best of the Borrower's knowledge, threatened between the Borrower or any of the Borrower's employees, other than employee grievances arising in the ordinary course of the Borrower's business which are not, in the aggregate, material to the continued financial success and well-being of the Borrower. 7.17 COMPLIANCE WITH LAWS AND REGULATIONS. The Borrower is in compliance with all laws, orders, regulations and ordinances of all federal, foreign, state and local governmental authorities relating to the business operations and the assets of the Borrower, except for laws, orders, regulations and ordinances, the violation of which would not have an adverse effect on the value of the Collateral or the Agent's interest in any of the Collateral and, in the aggregate, would not have a Material Adverse Effect. 7.18 SOLVENCY. The Borrower is solvent, able to pay the Borrower's debts generally as such debts mature, and has capital sufficient to carry on the Borrower's business and all businesses in which the Borrower is about to engage. The salable value of the Borrower's total assets at a fair valuation, and at a present fair salable value, is greater than the amount of the Borrower's total obligations to all Persons. The Borrower will not be rendered insolvent by the execution or delivery of this Agreement or of any of the other Financing Agreements or by the transactions contemplated hereunder or thereunder. 7.19 PENSION REFORM ACT. No events, including without limitation, any "Reportable Event" or "Prohibited Transactions," as those terms are defined in ERISA have occurred in connection with any Pension Plan of the Borrower which might constitute grounds for the termination of any such Pension Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any such Pension Plan. All of the Borrower's Pension Plans meet the minimum funding standards of Section 302 of ERISA. 7.20 MARGIN SECURITY. The Borrower does not own any margin security and none of the Loans shall be used for the purpose of purchasing or carrying any margin securities or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase any margin securities or for any other purpose not permitted by Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. 7.21 CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS. The Borrower is not a party to any contract or agreement or subject to any restriction which restricts the conduct of its business which could have a Material Adverse Effect. The Borrower is not in default under or in violation of any Governmental Requirement related to the 36 37 Loans or any other Governmental Requirement which default could have a Material Adverse Effect. Neither the execution and delivery of the Financing Agreements nor the consummation of the transactions contemplated thereby, nor fulfillment of and compliance with the respective terms, conditions and provisions thereof, will conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation or imposition of any lien or security interest on any of the Collateral pursuant to: (a) the charter or bylaws of the Borrower; (b) any Governmental Requirement; (c) any order, writ, injunction or decree of any court; or (d) the terms, conditions or provisions of any material agreement or instrument to which the Borrower is a party or by which it or its property is bound or to which it or its property is subject in any material respect. 7.22 INVESTMENT COMPANY ACT NOT APPLICABLE. The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.23 PUBLIC UTILITY HOLDING COMPANY ACT NOT APPLICABLE. The Borrower is not a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", or an affiliate of a "subsidiary company" of a "holding company", or a "public utility", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 7.24 NO CONSENT. The execution, delivery and performance by the Borrower of, and the effectuation of the transactions contemplated under, this Agreement, the Notes and the other Financing Agreements, and the borrowings hereunder by the Borrower as contemplated herein, do not require the consent or approval of any other Person, except such consents or approvals as have been obtained. The Borrower has not otherwise failed to obtain any material governmental consent, approval, license, permit, franchise or other governmental authorization necessary to the ownership of any of its properties or the conduct of its business. 7.25 FULL DISCLOSURE. All factual information taken as a whole in the materials furnished by or on behalf of the Borrower to the Agent or any Lender for purposes of or in connection with the transactions contemplated under this Agreement and the other Financing Agreements, does not contain any untrue statement of a material fact or omit to state any material fact necessary to keep the statements contained therein from being misleading as of the date of this Agreement. The financial projections and other financial information furnished to the Agent or any Lender by the Borrower and to be delivered under Section 9.1 of this Agreement, were prepared in good faith on the basis of information and assumptions that the Borrower believed to be reasonable as of the date of such information. 37 38 7.26 INTELLECTUAL PROPERTY. The Borrower owns or possesses (or will be licensed or otherwise have the full right to use) all intellectual property which is necessary for the operation of its business, without any known conflict with the rights of others. No product of the Borrower infringes upon any intellectual property owned by any other Person and no claim or litigation is pending or (to the knowledge of the Borrower) threatened against or affecting such Person, contesting its right to sell or to use any product or material, in any case which could have a Material Adverse Effect. There is no violation by the Borrower of any right of the Borrower with respect to any material patent, trademark, trade name, service mark, copyright or license owned or used by the Borrower. 7.27 SURVIVAL OF WARRANTIES. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement. All representations and warranties shall be deemed remade by the Borrower with each request for the making of a Loan or for the issuance of an LC except as otherwise disclosed in writing to the Agent. 8 CONDITIONS. 8.1 CONDITIONS TO ALL LOANS. The obligation of each Lender to advance its Pro Rata Percentage of any Loan and the obligation of the Agent issue or cause to be issued by an Affiliate of the Agent any LC is subject to the satisfaction of the following conditions precedent: (a) Documents. The Borrower shall have executed and/or delivered to the Agent, appropriately dated and in form and substance satisfactory to the Agent, together with original counterparts or copies for each Lender, as the case may be, all of the documents listed on the List of Closing Documents attached as Exhibit 8A, other than those listed thereon as post-closing items. (b) Actions and Events. (i) Payment of Expenses. There shall have been paid all fees due on the Closing Date and all fees and expenses of or incurred by the Agent and its counsel to the extent billed as of the Closing Date and payable pursuant to this Agreement. (ii) Insurance. The Agent shall have received evidence reasonably satisfactory to the Agent that the Borrower has insurance meeting the requirements of Sections 9.4 and 9.5. 38 39 (iii) Prohibitions. No law or regulation shall prohibit, and no order, judgment or decree of any Governmental Authority shall prohibit, and no litigation shall be pending or threatened which would enjoin, prohibit, restrain or otherwise adversely affect the consummation of the transactions contemplated under the Financing Agreements, or which would otherwise have a material adverse effect on the Borrower's financial condition, results of operations or business. (iv) Material Adverse Change. No change shall have occurred with respect to the financial condition, business, operations or prospects of the Borrower since the dates of the most recent financial statement delivered to the Agent and the Lenders, which in the sole discretion of the Agent and the Lenders, would result in a Material Adverse Effect. (v) Prior Indebtedness. The Agent shall have received evidence or assurances satisfactory to the Agent that any prior indebtedness listed on Exhibit 8B shall be paid in full on or before the Closing Date, and that any liens, encumbrances or security interests securing such prior indebtedness shall be released of record substantially contemporaneously with the Closing Date. (vi) Wiring Instructions. The Agent shall have received wiring instructions with respect to the proceeds of the Term Loan and any other Loans to be made on the Closing Date or the first Business Day thereafter. (vii) Bank Accounts. The Borrower shall have established one or more lockbox accounts and/or lockboxes into which the proceeds of the Collateral and all sums received by the Borrower shall be directed and which shall be governed by a lockbox agreement among the Borrower, the Agent and one or more depository banks reasonably satisfactory to the Agent. (viii) Other Documents. The Borrower shall have taken such actions, and the Agent shall have received such other documents, as the Agent may reasonably request. (ix) Approval of the Agent's Counsel. Legal matters, if any, relating to the Loans to be made on the Closing Date shall have been reviewed by and shall be satisfactory to counsel for the Agent. 39 40 (x) Compliance. All representations and warranties contained in this Agreement shall be true and correct in all material respects as though made on and as of any date the Borrower requests any Loan to be made or LC to be issued and on and as of the date of the making of such Loan or the issuance of such LC. (xi) Appraisals. The Borrower shall have delivered to the Agent FIRREA qualified appraisals of the Texas Properties which appraisals shall show an appraised value thereof of not less than $41,000,000. (xii) Title Insurance. The Borrower shall have provided to the Agent, for the ratable benefit of the Lenders, one or more title insurance policies or one or more commitments for title insurance policies, from a title insurance company reasonably satisfactory to the Agent, insuring or committing to insure for $30,000,000, the Agent's lien on the Property as a first priority lien, subject only to such exceptions, qualifications and limitations as may be satisfactory to, and with such endorsements as may be required by, the Required Lenders. (xiii) Forecasts and Budgets. The Borrower shall have delivered to the Agent annual operating and capital forecasts through the Borrower's 2002 Fiscal Year, including a detailed month-by-month budget for the Borrower's 1998 Fiscal Year, which forecasts and budgets shall be satisfactory in form and substance to the Required Lenders. (xiv) Surveys. The Borrower shall have delivered to the Agent ALTA as-built surveys of certain of the land and improvements comprising the Property, namely the Borrower's Milan processing plant, its headquarters property, and its Lucerne feed mill. Such surveys shall be certified to the Agent and to the title insurance company providing title insurance with respect thereto, which surveys shall be reasonably satisfactory to the Agent. (xv) Environmental Assessments. The Borrower shall have delivered to the Agent Phase I environmental assessments of the Property, certified to the Agent, which environmental assessments shall be performed by an environmental consultant reasonably satisfactory to the Agent and which environmental assessments shall be in form and substance satisfactory to the Agent. 40 41 (xvi) Licenses and Permits. The Agent shall have received evidence reasonably satisfactory to the Agent that the Borrower has all then necessary licenses and permits for operation of the Property. (c) Representations and Warranties. The representations and warranties set forth in Article 7 shall be true and correct in all material respects on the date of each Loan and on the date of issuance of each LC, notwithstanding any disclosure by the Borrower to the Agent to the contrary. Each request by the Borrower for the making of a Loan or for the issuance of any LC, shall be and constitute a representation and warranty by the Borrower to the effect that all of the representations and warranties set forth in Article 7 are true and correct in all material respects as of the date of such request, and that all conditions precedent to the making of such Loan or the issuance of such LC have been satisfied in all material respects as of the date of such request. (d) Covenants. The Borrower and the Guarantor shall be in material compliance with all of the terms and provisions of the Financing Agreements. (e) No Default. There shall not then exist a Default or a Matured Default. 9 AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that until the Liabilities are paid in full, and the Commitments, the LC's and all other obligations of the Lenders are finally terminated, the Borrower will: 9.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. Except as otherwise expressly provided for in this Agreement, the Borrower shall keep proper books of record and account in which full and true entries will be made of all dealings and transactions of or in relation to the business and affairs of the Borrower, in accordance with GAAP consistently applied, and the Borrower shall cause to be furnished to the Agent and the Lenders, from time to time and in a form reasonably acceptable to the Agent, such information as the Agent may reasonably request, including without limitation, the following: (a) as soon as practicable and in any event within ninety (90) days after the end of each Fiscal Year of the Borrower: (i) audited consolidated statements of income, retained earnings and changes in the financial condition of the Borrower for such year, and a consolidated balance sheet of the Borrower for such year, setting forth in each case, in comparative form, corresponding figures as of the end of the preceding Fiscal Year, all in reasonable detail and satisfactory in scope to the Agent and certified to the Borrower by such independent public accountants as are selected by the Borrower and satisfactory to the Agent, whose opinion shall be 41 42 in scope and substance satisfactory to the Required Lenders, (ii) a compliance certificate of the chief financial officer of the Borrower in the form attached as Exhibit 9A, and (iii) detailed month-by-month operating and capital budgets for the next Fiscal Year; (b) as soon as practicable and in any event within thirty (30) days after the end of each monthly accounting period in each Fiscal Year of the Borrower: (i) consolidated statements of income and retained earnings of the Borrower for such monthly period and for the period from the beginning of the then current Fiscal Year to the end of such monthly period, and a consolidated balance sheet of the Borrower as of the end of such monthly period, setting forth in each case, in comparative form, figures for the corresponding periods in the preceding Fiscal Year, all in reasonable detail and certified as accurate by the chief financial officer of the Borrower, subject to changes resulting from normal year-end adjustments, (ii) statements of cash flow for such monthly period, and (iii) a compliance certificate of the chief financial officer of the Borrower in the form attached as Exhibit 9A; (c) as soon as practicable and in any event within fifteen (15) days after the end of each month, a Borrowing Base Certificate for the Borrower computed as of the last day of such month, signed by the chief financial officer of the Borrower, together with, to the Agent only: (i) all Accounts owing by an Account Debtor that is a meat packer for the sale of "livestock" (as defined in PASA) if any Account owing by such Account Debtor is at that time unpaid for a period exceeding seven (7) days after the delivery date related thereto; (b) all Accounts owing by an Account Debtor that is not a meat packer or by an Account Debtor that is a meat packer for the sale of inventory other than "livestock" (as defined in PASA) if any Account owing by such Account Debtor is at that time unpaid for a period exceeding twenty-one (21) days after the original invoice date of the original invoice related thereto, (ii) a listing of the Borrower's accounts payable indicating which accounts payable are more than thirty (30) days past due, and (iii) a detailed listing of Inventory and other goods; and (d) upon request of the Agent, a list of the names and addresses of all Account Debtors of the Borrower. 9.2 CONDUCT OF BUSINESS. Except as contemplated by this Agreement, the Borrower shall: (a) maintain its existence and maintain in full force and effect all licenses, bonds, franchises, leases, patents, contracts and other rights necessary or desirable to the profitable conduct of the Borrower's business; (b) continue in, and limit the Borrower's operations to, the same general line of business as that presently conducted by the Borrower; (c) comply with all applicable laws and regulations of any federal, state or local governmental authority, except for such laws and regulations the violation of which would not, in the aggregate, have a Material Adverse Effect; and (d) keep and conduct the Borrower's business separate and apart from the business of the Borrower's Affiliates. 9.3 MAINTENANCE OF PROPERTIES. The Borrower shall keep the Borrower's real estate, leaseholds, equipment and other fixed assets in good condition, repair and working order, normal wear and tear excepted. 42 43 9.4 LIABILITY INSURANCE. The Borrower shall maintain, at the Borrower's expense, such public liability and property damage insurance as is ordinarily maintained by other companies in similar businesses, provided however, that in no event shall such public liability insurance provide for coverage less than $1,000,000 per occurrence for personal injury and $1,000,000 per occurrence for property damage. The Borrower's public liability insurance may provide for a deductible of not more than $25,000 per occurrence. All such policies of insurance shall be in form and with insurers reasonably acceptable to the Agent. The Borrower shall cause to be delivered to the Agent the insurance policies therefor or proper certificates evidencing the same. Such policies shall provide, in manner reasonably satisfactory to the Agent, that any losses under such policies shall be payable first to the Agent (for the ratable benefit of the Lenders), as the Agent's interest may appear. Each such policy shall include a provision for thirty (30) days' prior written notice to the Agent of any cancellation or expiration thereof and show the Agent as mortgagee and loss payee as provided in a form of loss payable endorsement in form and substance reasonably satisfactory to the Agent. In the event of any loss covered by any such policy, the carrier named in such policy is and shall be directed by the Borrower to make payment for such loss to the Agent (for the ratable benefit of the Lenders) and not to the Borrower or to the Borrower and the Agent jointly or to the Borrower, the Agent and the Lenders jointly. The Borrower irrevocably makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent) as the Borrower's true and lawful attorney and agent-in-fact for the purpose of making, settling or adjusting claims under such policies of insurance, provided however, that so long as no Matured Default has occurred and is continuing: (a) the Borrower may make, settle and adjust claims under $12,000,000 under such policies of insurance but shall not finally settle such claims without the Agent's consent, which consent shall not be unreasonably withheld, and (b) the Agent shall consult with the Borrower prior to finally making, settling or adjusting claims equal to or exceeding $12,000,000 under such policies of insurance and will not settle such claims without the Borrower's consent, which consent will not be unreasonably withheld. If payment as a result of any insurance losses in excess of $12,000,000 in the absence of a Matured Default or in any amount after the occurrence of a Matured Default shall be paid by check, draft or other instrument payable to the Borrower, or to the Borrower and the Agent jointly, the Agent may endorse the name of the Borrower on such check, draft or other instrument, and may do such other things as the Agent may deem advisable to reduce the same to cash. All loss recoveries in excess of $12,000,000 in the absence of a Matured Default or in any amount after the occurrence of a Matured Default may be applied and credited by the Agent to the Liabilities. The Borrower assigns all such insurance coverage proceeds, regardless of the amount, to the Agent as additional collateral security for the Liabilities. Any surplus of insurance proceeds in excess of the Liabilities shall be paid by the Agent to the Borrower. Any deficiency reasonably determined by the Agent to exist after application of insurance proceeds to the Liabilities shall be paid by the Borrower to the Agent, on demand. If the Borrower fails to procure insurance as provided in this Agreement, or to keep the same in force, or fails to perform any of the Borrower's other obligations hereunder, then the Agent may, at the Agent's option, and without obligation to do so, obtain such insurance and pay the premium thereon for the account of the Borrower, or make whatever other payments the Agent may deem appropriate to protect the Agent's and the Lenders' security for the Liabilities. Any such payments shall be additional Liabilities of the Borrower to the Lenders, payable on demand and secured by the Collateral. 43 44 9.5 PROPERTY INSURANCE. At the Borrower's own cost and expense, the Borrower shall keep all Collateral fully insured, with carriers, and in amounts acceptable to the Agent, against the hazards of fire, theft, collision, spoilage, hail, those covered by extended or all risk coverage insurance and such others as may reasonably be required by the Agent. The Borrower shall cause to be delivered to the Agent the insurance policies therefor or proper certificates evidencing the same. Such policies shall provide, in manner reasonably satisfactory to the Agent, that any losses under such policies shall be payable first to the Agent (for the ratable benefit of the Lenders), as the Agent's interest may appear. Each such policy shall include a provision for thirty (30) days' prior written notice to the Agent of any cancellation or expiration thereof and show the Agent as mortgagee and loss payee as provided in a form of loss payable endorsement in form and substance reasonably satisfactory to the Agent. In the event of any loss covered by any such policy, the carrier named in such policy is and shall be directed by the Borrower to make payment for such loss to the Agent (for the ratable benefit of the Lenders) and not to the Borrower or to the Borrower and the Agent jointly or to the Borrower, the Agent and the Lenders jointly. The Borrower irrevocably makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent) as the Borrower's true and lawful attorney and agent-in-fact for the purpose of making, settling or adjusting claims under such policies of insurance, provided however, that so long as there shall not have occurred a Matured Default: (a) the Borrower may make, settle and adjust claims under $12,000,000 under such policies of insurance but shall not finally settle such claims without the Agent's consent, which consent shall not be unreasonably withheld, and (b) the Agent shall consult with the Borrower prior to finally making, settling or adjusting claims equal to or exceeding $12,000,000 under such policies of insurance and will not settle such claims without the Borrower's consent, which consent will not be unreasonably withheld. If the payment as a result of any insurance loss is less than $12,000,000 in the absence of a Matured Default, the Borrower may apply the payment to the cost of restoring or replacing the Property or the portions thereof so damaged or destroyed, provided however, that if and to the extent such payment is not so used, the Borrower shall use the payment first to any Revolving Loan outstanding, and then as a prepayment of the Term Loans. If payment as a result of any insurance losses in excess of $12,000,000 in the absence of a Matured Default or in any amount after the occurrence of a Matured Default shall be paid by check, draft or other instrument payable to the Borrower, or to the Borrower and the Agent jointly, the Agent may endorse the name of the Borrower on such check, draft or other instrument, and may do such other things as the Agent may deem advisable to reduce the same to cash. All loss recoveries in excess of $12,000,000 in the absence of a Matured Default or in any amount after the occurrence of a Matured Default may be applied and credited by the Agent to the Liabilities. The Borrower assigns all such insurance coverage proceeds, regardless of the amount, to the Agent as additional collateral security for the Liabilities. Any surplus of insurance proceeds in excess of the Liabilities shall be paid by the Agent to the Borrower. Any deficiency reasonably determined by the Agent to exist after application of insurance proceeds to the Liabilities shall be paid by the Borrower to the Agent, on demand. If the Borrower fails to procure insurance as provided in this Agreement, or to keep the same in force, or fails to perform any of the Borrower's other obligations hereunder, then the Agent may, at the Agent's option, and without obligation to do so, obtain such insurance and pay the premium thereon for the account of the Borrower, or make whatever other payments the Agent may deem appropriate to protect the 44 45 Agent's and the Lenders' security for the Liabilities. Any such payments shall be additional Liabilities of the Borrower to the Lenders, payable on demand and secured by the Collateral. 9.6 FINANCIAL COVENANTS AND RATIOS. The Borrower shall maintain: (a) a Tangible Net Worth of not less than $125,000,000 at all times; (b) a ratio of total liabilities to Tangible Net Worth of not more than 1.75 to 1.0 at all times; (c) Working Capital of not less than $50,000,000 at all times; and (d) a Fixed Charge Coverage Ratio as of the end of each fiscal quarter of the Borrower of not less than 1.0 to 1.0, calculated on a rolling four quarter basis. Notwithstanding the foregoing, if such Fixed Charge Coverage Ratio, is less than 1.0 to 1.0, then the Fixed Charge Deficiency Amount shall be determined and the Borrower shall not be deemed to be in violation of the Fixed Charge Coverage Ratio covenant if: (i) the Borrower's cash at such fiscal quarter end, minus (ii) the outstanding amount of Revolving Loans, minus (iii) the outstanding amount of all LC Obligations, minus (iv) the amount of all then past due accounts payable, exceeds (v) the Fixed Charge Deficiency Amount. 9.7 PENSION PLANS. The Borrower shall: (a) keep in full force and effect any and all Pension Plans which are presently in existence or may, from time to time, come into existence under ERISA, unless such Pension Plans can be terminated without material liability to the Borrower in connection with such termination (as distinguished from any continuing funding obligation); (b) make contributions to all of the Borrower's Pension Plans in a timely manner and in an amount sufficient to comply with the requirements of ERISA; (c) comply with all requirements of ERISA which relate to such Pension Plans; (d) notify the Agent immediately upon receipt by the Borrower of any notice of the institution of any proceeding or other action which may result in the termination of any Pension Plans; and (e) acquire and maintain, when available, the contingent employer liability coverage insurance provided for under Section 4023 of ERISA, such insurance to be reasonably satisfactory to the Agent in coverage and amount. 9.8 NOTICE OF SUIT, ADVERSE CHANGE OR DEFAULT. The Borrower shall, as soon as possible, and in any event within five days after the Borrower learns of the following, give written notice to the Agent of (a) any proceeding being instituted or threatened to be instituted by or against the Borrower in any federal, state, local or foreign court or before any commission or other regulatory body (federal, state, local or foreign) for which claimed damages exceed $3,000,000; (b) any material adverse change in the business, assets or condition, financial or otherwise, of the Borrower; and (c) the occurrence of any Default. 45 46 9.9 USE OF PROCEEDS. The Borrower shall use the Revolving Loans, the LC's and the Term Loan only for the respective purposes set forth in Section 2.5. 9.10 BOOKS AND RECORDS; SEPARATE EXISTENCE. The Borrower shall maintain proper books of record and account in accordance with GAAP consistently applied in which true, full and correct entries will be made of all their respective dealings and business affairs. If any changes in accounting principles from those used in the preparation of the financial statements referenced in Section 7.15 are hereafter required or permitted by GAAP and are adopted by the Borrower with the concurrence of its independent certified public accountants and such changes in GAAP result in a change in the method of calculation or the interpretation of any of the financial covenants, standards or terms found in Section 9.6 or any other provision of this Agreement, the Borrower, the Agent and the Required Lenders agree to amend any such affected terms and provisions so as to reflect such changes in GAAP with the result that the criteria for evaluating the Borrower's financial condition shall be the same after such changes in GAAP as if such changes in GAAP had not been made. Borrower shall do all things necessary to maintain its separate corporate existence. 9.11 LAWS AND OBLIGATIONS. The Borrower shall comply with all Governmental Requirements in all material respects; and pay all taxes, assessments, governmental charges, claims for labor, supplies and rent, including without limitation, taxes, assessments, governmental charges, claims for labor, supplies and rent imposed upon or against or with respect to the ownership, use, occupancy or enjoyment of any real property owned by the Borrower, or any utility service thereon; provided however, that the Borrower shall not be required to pay any ad valorem or other real property taxes up to an aggregate amount at any time of $3,000,000 or any other taxes, assessments, governmental charges or claims if, in either case, the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings diligently conducted by or on behalf of the Borrower and, if required under GAAP, the Borrower shall have set up adequate reserves therefor; provided further, that, with respect to such other taxes, assessments, governmental charges or claims, no lien is claimed by the United States or any state or other political subdivision thereof which could have priority over the liens and security interests granted to the Agent pursuant to the Security Documents. 9.12 ENVIRONMENTAL LAWS. The Borrower shall at all times: (a) use and operate all of its businesses and Properties in compliance in all material respects with all environmental laws; keep all necessary permits relating to environmental and safety and health matters in effect and remain in compliance in all material respects therewith; handle all hazardous materials in compliance in all material respects with all applicable environmental laws; and dispose of all hazardous materials generated by the Borrower or at any 46 47 property owned or leased by the Borrower at facilities or with carriers that maintain valid permits for such disposal or transportation under applicable environmental laws; (b) promptly notify the Agent (and provide copies upon receipt) of all material claims, complaints, notices or inquiries relating to the environmental condition of the facilities and properties of the Borrower or its compliance with environmental laws; and (c) provide such other information and certifications which the Lenders may reasonably request from time to time to evidence compliance with this Section 9.12. 9.13 TRADE ACCOUNTS PAYABLE AND PRODUCER PAYABLES. The Borrower shall pay all Producer Payables within the respective terms applicable thereto. The Borrower shall pay all trade accounts payable other than Producer Payables, on a basis not more than forty-five (45) days past due, except (a) accounts payable contested in good faith or (b) accounts payable in an aggregate amount not to exceed at any time $1,000,000 and with respect to which no proceeding to enforce collection has been commenced or, to the knowledge of the Borrower, threatened. 9.14 COMPLIANCE WITH FEDERAL FOOD SECURITY ACT. The Borrower shall take all such actions as may be necessary to insure that they purchase all farm products (as defined in 7 USCA Section 1631(c)(5)) free and clear of all liens, claims, security interests and encumbrances, including the security interests of secured parties of the sellers of such farm products other than such liens, claims, security interests or encumbrances permitted under Section 10.1 of this Agreement. 9.15 ACCESS TO ACCOUNTANTS. The Borrower authorizes its independent public accountants to discuss the financial condition of the Borrower with the Lenders after reasonable notice to the Borrower of their intention to do so. Prior to such discussions, the Borrower shall be given the reasonable opportunity to participate in any such discussion. The Borrower shall deliver a letter to such accountants authorizing them to comply with the provisions of this Section 9.15. 9.16 COLLATERAL ASSIGNMENTS OF CONTRACTS. The Borrower shall execute and deliver in favor of the Agent, for the ratable benefit of the Lenders, such collateral assignments of such contracts as may be necessary for the operation of the Borrower's hog production and processing operations, including without limitation, assignments of any and all manure contracts to which the Borrower is hereafter a party, which assignments shall be in form and substance reasonably satisfactory to the Agent. 10 NEGATIVE COVENANTS. The Borrower covenants and agrees that, until the Liabilities are paid in full, and the Commitments, the LC's and all other obligations of the Lenders are finally terminated, the Borrower will not, without the prior written consent of the Required Lenders: 47 48 10.1 ENCUMBRANCES. Except for those liens, security interests and encumbrances presently in existence and reflected in the Borrower's financial statements referred to in Section 7.15 and permitted under Section 7.4, the Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of the Borrower's assets (including without limitation, the Collateral) other than: (a) liens securing the payment of taxes, either not yet due or the validity of which is being contested in good faith by appropriate proceedings, and as to which the Borrower shall, if appropriate under GAAP, have set aside on the Borrower's books and records adequate reserves; (b) liens securing deposits under workmen's compensation, unemployment insurance, social security and other similar laws, or securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations or surety or appeal bonds, or securing indemnity, performance or other similar bonds in the ordinary course of the Borrower's business; (c) liens and security interests in favor of the Agent for the ratable benefit of the Lenders; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of the Borrower's real property, and other liens, security interests and encumbrances on property which are subordinate to the liens and security interests of the Agent (for the ratable benefit of the Lenders) and which do not, in the Agent's determination (i) materially impair the use of such property or (ii) materially lessen the value of such property for the purposes for which the same is held by the Borrower; (e) liens securing the interests of any broker in any Margin Account; (f) purchase money security interests securing amounts relating to such items of Equipment as are specifically consented to by the Agent; (g) other liens and security interests securing indebtedness permitted under clause (d) of Section 10.4; and (h) liens being contested in good faith by appropriate proceedings and as to which the Borrower has established adequate reserves in accordance with GAAP, but in no event exceeding $3,000,000 in the aggregate in existence at any one time. 10.2 CONSOLIDATIONS, MERGERS OR ACQUISITIONS. The Borrower shall not recapitalize or consolidate with, merge with, or otherwise acquire all or substantially all of the assets or properties of any other Person, except that: (a) the Borrower may enter into any transaction to raise equity capital which transaction does not result in a change of control of the Borrower, (b) the Borrower may merge with any Affiliate which is a wholly-owned subsidiary of the Borrower, and (c) the Borrower may enter into acquisition transactions not exceeding $10,000,000 in aggregate purchase price, provided however, that all of such purchase price is paid in cash or debt permitted under Section 10.4, and provided further, that the Borrower demonstrates to the reasonable satisfaction of the Agent that each such acquisition transaction will not result in a violation of Section 9.6(d). 10.3 DEPOSITS, INVESTMENTS, ADVANCES OR LOANS. The Borrower shall not make or permit to exist deposits, investments, advances or loans (other than loans existing on the date of the execution of this Agreement and disclosed to the 48 49 Lenders in writing on or prior to such date) in or to Affiliates or any other Person, except: (a) investments in short-term direct obligations of the United States Government; (b) investments in obligations of any state or political subdivision thereof or any agency or instrumentality of such state or political subdivision; (c) investments in negotiable certificates of deposit or time or demand deposits issued by a bank, bank holding company, savings and loan association, trust company, or other financial institution satisfactory to the Agent in the Agent's reasonable discretion, made payable to the order of the Borrower or to bearer; (d) loans to officers, directors, partners, employees or Affiliates as and when permitted by Section 10.9 of this Agreement; (e) bonds, notes or other obligations of any publicly held company which at the time of their purchase are rated in either of the two highest rating categories by a nationally recognized rating service; (f) money market mutual funds that are registered with the federal Securities and Exchange Commission and that invest only in bonds, notes or other similar obligations that are rated in either of the two highest rating categories by a nationally recognized rating service; (g) secured loans to Persons that are finishing hogs under written contracts with the Borrower, provided however, that said secured loans together with any guaranties permitted under Section 10.5(c) shall not exceed $3,000,000 in the aggregate at any one time outstanding, and provided further, that the collateral for each such loan shall be reasonably acceptable to the Agent, and that the Borrower shall promptly after the request of the Agent, execute such agreements, instruments and/or documents and/or take such actions as may be necessary to assign the lender's interest in such secured loans and such collateral to the Agent as additional Collateral for the ratable benefit of the Lenders; and (h) other deposits, instruments, advances or loans that are reasonably acceptable to the Agent. 10.4 INDEBTEDNESS. Except for those obligations and that indebtedness presently in existence and reflected in the Borrower's financial statements referred to in Section 7.15 or referred to in Section 7.6, the Borrower shall not incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any obligations or indebtedness, direct or indirect, fixed or contingent, except: (a) the Liabilities; (b) obligations secured by liens or security interests permitted under Section 10.1 or contingent obligations permitted under Section 10.5; (c) trade obligations, Producer Payables and normal accruals in the ordinary course of the Borrower's business not yet due and payable, or with respect to which the Borrower is contesting in good faith the amount or validity thereof by appropriate proceedings, and then only to the extent that the Borrower has set aside on the Borrower's books adequate reserves therefor, if appropriate under GAAP; (d) other indebtedness not exceeding $5,000,000 at any one time outstanding; and (e) indebtedness evidenced by PIK Notes issued pursuant to the terms of the PIK Notes outstanding on the date hereof. 10.5 GUARANTEES AND OTHER CONTINGENT OBLIGATIONS. The Borrower shall not guarantee, endorse or otherwise in any way become or be responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of such Person or through the purchase of goods, supplies or services, or maintenance of working capital or other balance sheet covenants or conditions, or by way of stock purchase, capital contribution, advance or loan for the purpose of paying or discharging any indebtedness or obligation of such Person or otherwise, except: (a) for endorsements of 49 50 negotiable instruments for collection in the ordinary course of business; (b) that the Borrower may indemnify the Borrower's officers and directors to the extent permitted under the laws of the State in which the Borrower is organized; (c) guaranties of secured loans to Persons that are finishing hogs under written contracts with the Borrower, provided however, that said guaranties together with any secured loans permitted under Section 10.3(e) shall not exceed $3,000,000 in the aggregate at any one time outstanding; and (d) other guaranties not exceeding $3,000,000 in the aggregate at any one time outstanding. 10.6 DISPOSITION OF PROPERTY. The Borrower shall not sell, lease, transfer or otherwise dispose of any of the Borrower's properties, assets or rights, to any Person, except (a) in the ordinary course of the Borrower's business, or (b) as permitted in the Security Documents. 10.7 CAPITAL INVESTMENT LIMITATIONS. The Borrower shall not purchase, invest in or otherwise acquire additional real estate, equipment or other fixed assets (other than the replacement of breeding animals and obsolete and worn out Equipment in the ordinary course of business), totaling more in any one Fiscal Year than the lesser of: (a) the maximum amount that would maintain the Borrower's Fixed Charge Coverage Ratio for such Fiscal Year at no less than 1.0 to 1.0, (b) $43,000,000, or (c) the following specific limits: (i) $31,000,000 during the Borrower's 1997 Fiscal Year, (ii) $30,000,000 during the Borrower's 1998 Fiscal Year, plus the amount (if any) by which the Borrower's capital expenditures during its 1997 Fiscal Year were less than the specific limit for that Fiscal Year, (iii) $28,000,000 during the Borrower's 1999 Fiscal Year, plus the amounts (if any) by which the Borrower's capital expenditures during its 1997 and 1998 Fiscal Years were less than the specific limits for those Fiscal Years, (iv) $33,000,000 during the Borrower's 2000 Fiscal Year, plus the amounts (if any) by which the Borrower's capital expenditures during its 1997, 1998 and 1999 Fiscal Years were less than the specific limits for those Fiscal Years, and (v) $29,000,000 during the Borrower's 2001 Fiscal Year, plus the amounts (if any) by which the Borrower's capital expenditures during its 1997, 1998, 1999 and 2000 Fiscal Years were less than the specific limits for those Fiscal Years. Notwithstanding the foregoing specific limits, the Borrower may expend up to an additional $3,000,000 per Fiscal Year in capital expenditures, as long as such additional capital expenditures do not result in the Borrower's Fixed Charge Coverage Ratio for such Fiscal Year being less than 1.0 to 1.0, and as long as the capital expenditures in any one Fiscal Year do not exceed $43,000,000. 10.8 INTENTIONALLY OMITTED. 10.9 LOANS TO AFFILIATES. Except for advances for travel and expenses to the Borrower's officers, directors or employees in the ordinary course of the Borrower's business, the Borrower shall not make any loans to any officers or directors of the Borrower in excess of $500,000 in the aggregate outstanding at any one time, or any loans to Affiliates or shareholders of the Borrower in excess of $5,000,000 in the aggregate outstanding at any one time. 50 51 10.10 DISTRIBUTIONS, PREPAYMENTS OF DEBT. The Borrower shall not directly or indirectly: (a) redeem any of the Borrower's shares of capital stock; or (b) declare any dividends or distributions in respect of equity in any year, provided however, that the Borrower may make dividends in any one Fiscal Year of not more than $500,000 in the aggregate. 10.11 ISSUANCE OF EQUITY; AMENDMENT OF ORGANIZATION DOCUMENTS. The Borrower shall not issue or distribute any of the Borrower's capital stock or membership interests for consideration or otherwise, except that the Borrower may enter into any transaction to raise equity capital as long as such transaction does not result in a change in control of the Borrower, as such word is used in the definition of Affiliate. The Borrower shall not amend its articles or certificate of incorporation or organization or bylaws, except upon prior written notice to the Agent, provided however, that any such amendment shall not result in a change of control of the Borrower, as such word is used in the definition of Affiliate. 10.12 LEASE LIMITATIONSERROR! BOOKMARK NOT DEFINED.. The Borrower's annual lease expense under all operating leases of property and other similar agreements with respect to property shall not exceed $3,600,000 in the aggregate in any one Fiscal Year of the Borrower. 10.13 USE OF NAMES. The Borrower shall not use any names other than those referred to in Section 7.7, nor shall the Borrower change any of said names, provided however, that the Borrower may use other names or change any of the names referred to in Section 7.7, if the Borrower gives the Agent thirty (30) days prior written notice thereof, and in connection therewith, executes and delivers all financing statements or other documents (and pays the cost of filing or recording the same in all public offices deemed necessary by the Agent), as the Agent may request, in a form satisfactory to the Agent, to perfect and keep perfected the security interest in the Collateral granted by the Borrower to the Agent and otherwise to protect and preserve the Collateral and the Agent's security interests therein. 10.14 PAYMENT OF SUBORDINATED DEBT. The Borrower shall not directly or indirectly, pay, prepay, redeem or purchase, or deposit funds or property for the payment, prepayment, redemption or purchase of the indebtedness of the Borrower which is subordinated to the payment of any portion of the Liabilities, except that the Borrower may prepay subordinated debt in whole or in part at any time, as long as: (a) there is no Default or Matured Default at the time of such prepayment, (b) no Default or Matured Default would occur as a result of such prepayment, (c) the Borrower has delivered to the Agent and the Lenders not less than five (5) Business Days before the date of any such proposed prepayment, pro forma financial statements demonstrating to the satisfaction of the Required Lenders, that the Borrower will be in compliance with the requirements of Section 9.6 51 52 immediately following any such prepayment and at the end of the then current fiscal quarter, and (d) there are then no outstanding Revolving Loans. 10.15 FISCAL YEAR. The Borrower shall not change its Fiscal Year without giving thirty (30) days prior written notice thereof to the Agent. 10.16 CONSTRUCTION OF HOG PRODUCTION FACILITIES. The Borrower shall not construct any hog production facilities except as set forth in this Section 10.16. The Borrower may construct Units on the Property, provided however, that prior to the commencement of any portion of any such Unit, the Borrower shall demonstrate to the reasonable satisfaction of the Agent, that the construction costs for said Unit are not likely to result in a violation of Section 9.6(d), and provided further, that the Borrower shall not be constructing more than two (2) Units at any one time. 11 DEFAULT AND RIGHTS AND REMEDIES OF THE AGENT. 11.1 ACCELERATION. Upon a Matured Default, the Agent shall promptly give notice of such Matured Default to the Borrower and each Lender and (a) with respect to any Matured Default described in clause (i) of the definition thereof, all of the Liabilities shall automatically become immediately due and payable and the obligations of the Lenders to make Loans and the Commitments shall automatically terminate, without presentment, demand, protest or further notice (including without limitation, notice of intent to accelerate and notice of acceleration) of any kind, all of which are expressly waived by the Borrower; and (b) with respect to any other Matured Default, the Agent may with the consent of the Required Lenders, and shall at the request of the Required Lenders, by notice to the Borrower and the Lenders, (i) declare the several obligations of the Lenders to make Loans and to issue LC's to be terminated, whereupon such obligations and the Commitments of each Lender shall forthwith terminate, and (ii) declare all of the Liabilities to be due and payable, whereupon the Liabilities shall become and be due and payable, without presentment, demand, protest or further notice (including without limitation, notice of intent to accelerate and notice of acceleration) of any kind, all of which are expressly waived by the Borrower. 11.2 OTHER REMEDIES. Upon the occurrence and during the continuance of any Matured Default, the Agent may, with the consent of the Required Lenders (subject to the provisions of the other Financing Agreements), and shall at the request of the Required Lenders, proceed to protect and enforce the rights of the Lenders by suit in equity, by action at law or both, whether for the specific performance of any covenant or agreement contained in this Agreement or in any other Financing Agreement or in aid of the exercise of any power granted in this Agreement or any other Financing Agreement, or may proceed to enforce the payment of the Liabilities, or may proceed to foreclose upon any liens, claims, security interests and/or encumbrances granted 52 53 pursuant to the Security Documents and other Financing Agreements in the manner set forth therein, it being intended that no remedy conferred herein or in any of the other Financing Agreements is to be exclusive of any other remedy, and each and every remedy contained herein or in any other Financing Agreement shall be cumulative and shall be in addition to every other remedy given hereunder and under the other Financing Agreements, or at any time existing at law or in equity or by statute or otherwise. 12 THE AGENT AND THE LENDERS. 12.1 AUTHORIZATION AND ACTION. Each Lender appoints the Agent as its Agent under, and irrevocably authorizes the Agent (subject to Section 12.7) to take such action on its behalf and to exercise such powers under any Financing Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto. Without limiting the generality of the foregoing, each Lender expressly authorizes the Agent to execute, deliver, and perform its obligations under each of the Financing Agreements to which the Agent is a party, and to exercise all rights, powers, and remedies that the Agent may have thereunder. As to any matters not expressly provided for by this Agreement (including without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act, or to refrain from acting (and shall be fully protected in so acting or refraining from acting), upon the instructions of the Required Lenders, and such instructions shall be binding upon all the Lenders and all holders of any Note; provided however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of any Financing Agreement. 12.2 AGENT'S RELIANCE, ETC. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to any Lender for any action taken or omitted to be taken by it or them under or in connection with any Financing Agreement, except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Agent: (a) may treat the original or any successor holder of any Note as the holder thereof until it receives notice from the Lender which is the payee of such Note concerning the assignment of such Note; (b) may employ and consult with legal counsel (including counsel for the Borrower), independent public accountants, and other experts selected by it and shall not be liable to any Lender for any action taken, or omitted to be taken, in good faith by it or them in accordance with the advice of such counsel, accountants or experts received in such consultations and shall not be liable for any negligence or misconduct of any such counsel, accountants or other experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any opinions, certifications, statements, warranties or representations made in or in connection with any Financing Agreement; (d) shall not have any duty to any Lender to ascertain or to inquire as to the performance or observance of any of the terms, covenants, or conditions of any Financing Agreement or any other instrument or document furnished pursuant thereto or to satisfy itself that all conditions to and requirements for any Loan have been met or that the Borrower is 53 54 entitled to any Loan or to inspect the property (including the books and records) of the Borrower; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Financing Agreement or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate, or other instrument or writing (which may be by telegram, cable, telex, or otherwise) believed by it to be genuine and signed or sent by the proper party or parties. 12.3 DEFAULTS. The Agent shall not be deemed to have knowledge of the occurrence of a Default (other than, with respect to the Agent only, the nonpayment of principal of or interest hereunder or of any fees) unless the Agent has actual knowledge of such Default or has received written notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders (and the Agent shall give each Lender prompt notice of each such nonpayment). The Agent shall (subject to Section 11.1) take such action with respect to such Default as may be directed by the Required Lenders; provided however, that unless and until the Agent shall have received the directions referred to in Section 11.1, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable and in the best interest of the Lenders. 12.4 THE AGENT AS A LENDER, AFFILIATES. With respect to its Commitment, any Loan made by it, and the Note issued to it, the Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include the Agent in its individual capacity. The Agent and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its respective Affiliates and any Person who may do business with or own securities of the Borrower or any such Affiliate, all as if the Agent were not the Agent and without any duty to account therefor to the Lenders. 12.5 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its decision to enter into the transactions contemplated by the Financing Agreements and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under any Financing Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower or any other Person of any Financing Agreement or to inspect the properties or books of the Borrower. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any 54 55 Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of their Affiliates) which may come into the possession of the Agent or any of its affiliates. 12.6 INDEMNIFICATION. Notwithstanding anything to the contrary herein contained, the Agent shall be fully justified in failing or refusing to take any action hereunder unless it shall first be indemnified to its satisfaction by the Lenders against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of its taking or continuing to take any action. Each Lender agrees to indemnify the Agent (to the extent not reimbursed by the Borrower), according to such Lender's Commitment, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of any Financing Agreement or any action taken or omitted by the Agent under any Financing Agreement; provided however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the gross negligence or willful misconduct of the Person being indemnified. Without limiting the generality of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its Pro Rata Percentage of any out-of-pocket expenses (including attorneys' fees) incurred by the Agent in connection with the preparation, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, any Financing Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. 12.7 SUCCESSOR AGENT. The Agent may resign at any time as Agent under the Financing Agreements by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders or shall have accepted such appointment within sixty (60) days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank or other financial institution organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Financing Agreements. After the retiring Agent's resignation or removal as Agent, the provisions of this Section 12 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 55 56 12.8 AGENT'S RELIANCE. The Borrower shall notify the Agent in writing of the names of the Persons authorized to request a Loan on behalf of the Borrower and shall provide the Agent with a specimen signature for each such Person. The Agent shall be entitled to rely conclusively on such Person's authority to request a Loan on behalf of the Borrower until the Agent receives written notice from the Borrower to the contrary. The Agent shall have no duty to verify the authenticity of the signature appearing on any notice of borrowing, and with respect to any oral request for a Loan, the Agent shall have no duty to verify the identity of any Person representing himself as one of the Persons authorized to make such request on behalf of the Borrower. Neither the Agent nor any Lender shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent or such Lender believes in good faith to have been given by a duly authorized Person authorized to borrow on behalf of the Borrower or for otherwise acting in good faith. 12.9 ACTION UPON INSTRUCTIONS OF THE REQUIRED LENDERS. The Agent agrees, upon the written request of the Required Lenders, to take any action of the type specified in the Financing Agreements as being within the Agent's rights, duties, power or discretion. The Agent shall in all cases be fully protected in acting, or in refraining from acting in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Required Lenders and on all holders of the Notes. In the absence of a request by the Required Lenders, the Agent shall have authority, in its sole discretion, to take or not to take any action, unless the Financing Agreements specifically require the consent of the Required Lenders or of all of the Lenders. 13 MISCELLANEOUS. 13.1 TIMING OF PAYMENTS. For purposes of determining the outstanding balance of the Liabilities, including the computations of interest which may from time to time be owing to the Lenders, the receipt by the Agent of any check or any other item of payment whether through a blocked account or lockbox or otherwise, shall not be treated as a payment on account of the Liabilities until such check or other item of payment is actually received by the Agent at its office in Denver, Colorado and is paid to the Agent in cash or a cash equivalent. 13.2 ATTORNEYS' FEES AND COSTS. If at any time or times hereafter the Agent or any Lender employs counsel in connection with protecting or perfecting the Agent's security interest in the Collateral or in connection with any matters arising out of this Agreement or any of the Financing Agreements, whether: (a) to commence, defend, or intervene in any litigation or to file a petition, complaint, answer, motion or other pleading; (b) to take any other action in or with respect to any suit or proceeding (bankruptcy or otherwise); (c) to consult with officers of the Agent or such Lender to advise the Agent or such Lender or to draft documents in connection with any of the foregoing or in 56 57 connection with any release of the Agent's or any Lender's claims or the Agent's security interests or any proposed extension, amendment or refinancing of the Liabilities; (d) to protect, collect, lease, sell, take possession of, or liquidate any of the Collateral; or (e) to attempt to enforce or to enforce any security interest in any of the Collateral, or to enforce any rights of the Agent or the Lenders to collect any of the Liabilities; then in any of such events, all of the reasonable attorneys' fees arising from such services, and any expenses, costs and charges relating thereto, including without limitation, all fees of all paralegals, legal assistants and other staff employed by such attorneys whether outside the Agent or such Lender or in the Agent's or such Lender's legal department, together with interest at the default rate provided for in Section 3.1(b) if a Matured Default has occurred, or at the highest interest rate set forth in any promissory note referred to herein, shall constitute additional Liabilities, payable on demand and secured by the Collateral. 13.3 EXPENDITURES BY THE AGENT. In the event that the Borrower shall fail to pay taxes, insurance, assessments, costs or expenses which the Borrower is, under any of the terms hereof or of any of the other Financing Agreements, required to pay, or fails to keep the Collateral free from other security interests, liens or encumbrances, except as permitted herein, the Agent may, in its sole discretion and without obligation to do so, make expenditures for any or all of such purposes, and the amount so expended, together with interest at the default rate provided for in Section 3.1(b), shall constitute additional Liabilities, payable on demand and secured by the Collateral. 13.4 THE AGENT'S COSTS AND EXPENSES AS ADDITIONAL LIABILITIES. The Borrower shall reimburse the Agent for all expenses and fees paid or incurred in connection with the documentation, negotiation and closing of the loans and other financial accommodations described in this Agreement (including without limitation, filing and recording fees, and the fees and expenses of the Agent's attorneys, paralegals and legal assistants, whether outside the Agent or in its legal department, and whether such expenses and fees are incurred prior to or after the Closing Date). The Borrower further agrees to reimburse the Agent for all expenses and fees paid or incurred in connection with the documentation of any renewal or extension of the Loans, any additional financial accommodations, or any other amendments to this Agreement. All costs and expenses incurred by the Agent with respect to such negotiation and documentation together with interest at the highest interest rate set forth in any promissory note referred to herein, shall constitute additional Liabilities, payable on demand and secured by the Collateral. 13.5 CLAIMS AND TAXES. The Borrower agrees to indemnify and hold the Agent and the Lenders harmless from and against any and all claims, demands, liabilities, losses, damages, penalties, costs, and expenses (including without limitation, reasonable attorneys' fees) relating to or in any way arising out of the possession, use, operation or control of any of the Borrower's assets. The Borrower shall pay or cause to be paid all license fees, bonding premiums and related taxes and charges, and shall pay or cause to be paid all of the Borrower's real and personal property taxes, assessments and charges and all of the Borrower's franchise, income, unemployment, use, 57 58 excise, old age benefit, withholding, sales and other taxes and other governmental charges assessed against the Borrower, or payable by the Borrower, at such times and in such manner as to prevent any penalty from accruing or any lien or charge from attaching to the Borrower's property, provided however, that the Borrower shall have the right to contest in good faith, by an appropriate proceeding promptly initiated and diligently conducted, the validity, amount or imposition of any such tax, and upon such good faith contest to delay or refuse payment thereof, if (a) the Borrower establishes adequate reserves to cover such contested taxes; and (b) such contest does not have a material adverse effect on the financial condition of the Borrower, the ability of the Borrower to pay any of the Liabilities, or the priority or value of the Agent's security interests in the Collateral. 13.6 INSPECTION. The Agent (by and through its officers and employees), or any Person designated by the Agent in writing, shall have the right, from time to time hereafter, to call at the Borrower's place or places of business (or any other place where Collateral or any information relating thereto is kept or located) during reasonable business hours, and without hindrance or delay, to: (a) inspect, audit, check and make copies of and extracts from the Borrower's books, records, journals, orders, receipts and any correspondence and other data relating to the Borrower's business or to any transactions between the parties to this Agreement; (b) make such verification concerning the Collateral as the Agent may consider reasonable under the circumstances; and (c) review operating procedures, review maintenance of property and discuss the affairs, finances and business of the Borrower with the Borrower's officers, employees or directors. The Borrower agrees to pay to the Agent an annual audit fee in accordance with the Agent's Letter, on the date of this Agreement, and on the Anniversary Date as long as any Liabilities are outstanding, for all expenses incurred by or on behalf of the Agent in making inspections under this Section 13.6, including without limitation, travel and photocopying expenses, which fee shall be fully earned on the date it becomes payable and, at the option of the Agent, shall be paid by direct debit against the Borrower's checking account. The Lenders shall have the right to accompany the Agent on any inspections under this Section 13.6 in the absence of a Default, and shall have the right to conduct their own inspections as described in this Section 13.6 after the occurrence of a Default, provided however, that the cost of any such inspections shall be borne by the Lender accompanying the Agent on such inspection or conducting such inspection. 13.7 EXAMINATION OF BANKING RECORDS. The Borrower consents to the examination by the Agent, the Agent's officers, employees and agents, or any of them, whether or not there shall have occurred a Default or a Matured Default, of any and all of the Borrower's banking records, wherever they may be found, and directs any Person which may be in control or possession of such records (including without limitation, any bank, other financial institution, accountant or lawyer) to provide such records to the Agent and the Agent's officers, employees and agents, upon their request. Such examination may be conducted by the Agent upon reasonable notice to the Borrower and during normal business hours in the absence of a Default, and without notice to the Borrower and at any time after the occurrence of a Default, any such notice after the occurrence of a Default being waived by the Borrower. After the occurrence of a Matured Default, the rights granted to the Agent pursuant to this Section 13.7 shall also exist in favor of each Lender. 58 59 13.8 GOVERNMENTAL REPORTS. The Borrower authorizes all duly constituted federal, state and municipal authorities to furnish to the Agent copies of their reports of examinations or inspections of the Borrower. 13.9 RELIANCE BY THE AGENT AND THE LENDERS. All covenants, agreements, representations and warranties made herein by the Borrower shall, notwithstanding any investigation by the Agent or any of the Lenders, be deemed to be material to and to have been relied upon by the Agent and the Lenders. 13.10 PARTIES. Whenever in this Agreement there is reference made to any of the parties hereto, such reference shall be deemed to include, wherever applicable, a reference to the respective successors and assigns of the Borrower, the Agent and the Lenders. 13.11 APPLICABLE LAW; SEVERABILITY. This Agreement shall be construed in all respects in accordance with, and governed by, the laws and decisions of the State of Colorado. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement. 13.12 SUBMISSION TO JURISDICTION; WAIVER OF BOND AND TRIAL BY JURY. THE BORROWER CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED WITHIN THE CITY AND COUNTY OF DENVER, COLORADO AND WAIVES ANY OBJECTION WHICH THE BORROWER MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT. THE BORROWER FURTHER AGREES THAT AT ALL TIMES THE BORROWER SHALL HAVE AT LEAST ONE REGISTERED AGENT WITHIN THE CONTINENTAL UNITED STATES OF AMERICA, WHICH AGENT SHALL ACCEPT ANY AND ALL SERVICE OF PROCESS UPON THE BORROWER, AND THAT IN THE EVENT THE BORROWER FAILS AT ANY TIME TO HAVE SUCH A REGISTERED AGENT, OR SUCH REGISTERED AGENT REFUSES SUCH SERVICE OF PROCESS FOR ANY REASON WHATSOEVER, THEN SERVICE OF ANY AND ALL SUCH PROCESS UPON THE BORROWER MAY BE MADE BY MAIL OR MESSENGER DIRECTED TO THE BORROWER AT THE ADDRESS SET FORTH IN SECTION 13.18. SERVICE SO MADE SHALL BE DEEMED TO CONSTITUTE PERSONAL SERVICE UPON THE BORROWER, AND SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THE BORROWER'S ADDRESS. AT THE OPTION OF THE AGENT, THE 59 60 BORROWER WAIVES, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY, AND WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE AGENT. TO THE EXTENT PERMITTED BY LAW, THE BORROWER ALSO CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS PARAGRAPH SHALL AFFECT THE RIGHT OF THE AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE AGENT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR THE BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. 13.13 APPLICATION OF PAYMENTS WAIVER. Notwithstanding any contrary provision contained in this Agreement or in any of the other Financing Agreements, the Borrower irrevocably waives the right to direct the application of any and all payments at any time received by the Agent from the Borrower or with respect to any of the Collateral, and the Borrower irrevocably agrees that the Agent shall have the continuing exclusive right to apply and reapply any and all payments received at any time or times hereafter, whether with respect to the Collateral or otherwise, against the Liabilities, in such manner as the Agent may deem advisable, notwithstanding any entry by the Agent upon any of the Agent's books and records. 13.14 MARSHALING; PAYMENTS SET ASIDE. The Agent shall be under no obligation to marshall any assets in favor of the Borrower or against or in payment of any or all of the Liabilities. To the extent that the Borrower makes a payment or payments to the Agent or the Agent receives any payment or proceeds of the Collateral for the Borrower's benefit or enforces the Agent's security interests or exercises the Agent's rights of set-off, and such payment or payments or the proceeds of such Collateral, enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or set-off had not occurred. 13.15 SECTION TITLES. The section titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties. 13.16 CONTINUING EFFECT. This Agreement, the Agent's security interests in the Collateral, and all of the other Financing Agreements shall continue in full force and effect so long as any Liabilities shall be owed to the Agent and/or any of the Lenders and (even if there shall be no Liabilities outstand- 60 61 ing) so long as the Agent and/or any of the Lenders remains committed to make Loans under this Agreement. 13.17 NO WAIVER. The Agent's or the Required Lenders' failure, at any time or times hereafter, to require strict performance by the Borrower of any provision of this Agreement shall not waive, affect or diminish any right of the Agent or the Required Lenders thereafter to demand strict compliance and performance therewith. Any suspension or waiver by the Agent or the Required Lenders of any Default or Matured Default under this Agreement or any of the other Financing Agreements, shall not suspend, waive or affect any other Default or Matured Default under this Agreement or any of the other Financing Agreements, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. None of the undertakings, agreements, warranties, covenants and representations of the Borrower contained in this Agreement or any of the other Financing Agreements and no Default or Matured Default under this Agreement or any of the other Financing Agreements, shall be deemed to have been suspended or waived by the Agent or the Required Lenders unless such suspension or waiver is in writing signed by an officer of the Agent or each of the Required Lenders (as applicable) and is directed to the Borrower specifying such suspension or waiver. 13.18 NOTICES. (a) All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, telexed, cabled or delivered addressed as follows: (i) If to the Agent at: FBS Ag Credit, Inc. 950 Seventeenth Street, Suite 350 Denver, Colorado 80202 Attn: James A. Bosco, President Facsimile: (303) 585-4732 with a copy to: Ellen Beverley McNamara Dorsey & Whitney 370 Seventeenth Street, Suite 4400 Denver, Colorado 80202 (ii) If to the Borrower at: Premium Standard Farms, Inc. 423 West 8th Street, Suite 200 Kansas City, Missouri 64105 Attn: William R. Patterson 61 62 with a copy to: Sonnenschein Nath & Rosenthal 4520 Main Street, Suite 1100 Kansas City, Missouri 64111 Attn: James A. Heeter, Esq. (iii) If to any of the Lenders other than the Agent, at the address for such Lender set forth on the applicable signature page of this Agreement; and, as to each party hereto, at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall, when mailed, telecopied, telexed, transmitted, or cabled, become effective when deposited in the mail, confirmed by telex answerback, transmitted by telecopier, or delivered to the cable company, respectively except that notices and communications to the Agent shall not be effective until actually received by the Agent. (b) Advance notices of terminations or reductions of the Commitment, of borrowings, conversions and prepayments of Loans and of the duration of Interest Periods, shall be delivered to the Agent by 11:00 a.m. (Denver time) the number of Business Days set forth below before the proposed date for the respective termination, reduction, borrowing, conversion or prepayment: Borrowing of Revolving Loans Which are Reference Rate Loans Same Borrowing of Revolving Loans Which are Eurodollar Rate Loans Three Borrowing of the Term Loan One Conversion of Loans (including changes in Interest Periods for Eurodollar Rate Loans Three Prepayments of Revolving Loans Which are Reference Rate Loans Same Prepayments of Revolving Rate Loans Which are Eurodollar Rate Loans Three Prepayments of Term Loans Three Termination of Commitments Five 13.19 MAXIMUM INTEREST. No agreements, conditions, provisions or stipulations contained in this Agreement or in any of the other Financing Agreements, or any Matured Default, or any exercise by the Agent of the right to accelerate the payment of the maturity of principal and interest, or to exercise any option whatsoever, contained in this Agreement or any of the other Financing Agreements, or the arising of any contingency whatsoever, shall entitle the Agent to collect, in any event, interest exceeding the Highest Lawful Rate, and in no event shall the Borrower be obligated to pay 62 63 interest exceeding the Highest Lawful Rate, and all agreements, conditions or stipulations, if any, which may in any event or contingency whatsoever operate to bind, obligate or compel the Borrower to pay a rate of interest exceeding the Highest Lawful Rate, shall be without binding force or effect, at law or in equity, to the extent only of the excess of interest over such Highest Lawful Rate. In the event any interest is charged in excess of the Highest Lawful Rate ("Excess"), the Borrower acknowledges and stipulates that any such charge shall be the result of an accidental and bona fide error, and such Excess shall be, first, applied to reduce the principal of any Liabilities due, and, second, returned to the Borrower, it being the intention of the parties hereto not to enter at any time into a usurious or otherwise illegal relationship. The Borrower and the Agent both recognize that, with fluctuations in the Reference Rate and the Eurodollar Rate, such an unintentional result could inadvertently occur. By the execution of this Agreement, the Borrower covenants that (a) the credit or return of any Excess shall constitute the acceptance by the Borrower of such Excess and (b) the Borrower shall not seek or pursue any other remedy, legal or equitable, against the Agent based, in whole or in part, upon the charging or receiving of any interest in excess of the Highest Lawful Rate. For the purpose of determining whether or not any Excess has been contracted for, charged or received by the Agent, all interest at any time contracted for, charged or received by the Agent in connection with the Liabilities shall be amortized, prorated, allocated and spread in equal parts during the entire term of this Agreement. 13.20 ADDITIONAL ADVANCES. All fees, charges, expenses, costs, expenditures, obligations, liabilities, losses, penalties and damages incurred or suffered by the Agent and for which the Borrower is bound to indemnify or reimburse the Agent or the Lenders under this Agreement, and all principal and interest payments may, at the option of the Agent, be paid by direct debit against the Borrower's checking account pursuant to Section 2.1 if such amounts remain unpaid for a period of ten (10) days after the Agent has made demand therefor. 13.21 REPRESENTATIONS BY THE LENDERS. Each Lender represents that it is the present intention of such Lender, as of the date of its acquisition of the Notes, to acquire the Notes for its account or for the account of its affiliates, and not with a view to the distribution or sale thereof, and, subject to any applicable laws, the disposition of such Lender's property shall at all times be within its control. The Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be transferred, sold or otherwise disposed of except (a) in a registered offering under the Securities Act; (b) pursuant to an exemption from the registration provisions of the Securities Act; or (c) if the Securities Act shall not apply to the Notes or the transactions contemplated by the Financing Agreements. Nothing in this Section 13.21 shall affect the characterization of the Loans and the transactions contemplated hereunder as commercial lending transactions. 13.22 COUNTERPARTS. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an 63 64 original instrument, and all such separate counterparts shall constitute but one and the same instrument. 13.23 SET-OFF. The Borrower gives and confirms to each Lender a right of set-off, exercisable from and after the occurrence of a Matured Default, of all moneys, securities and other property of the Borrower (whether special, general or limited) and the proceeds thereof, now or hereafter delivered to remain with or in transit in any manner to such Lender, its correspondent or its agents from or for the Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise or coming into possession of such Lender in any way, and also, any balance of any deposit accounts and credits of the Borrower with, and any and all claims of security for the payment of the Liabilities owed by the Borrower to such Lender, contracted with or acquired by the Lender, whether such liabilities and obligations be joint, several, absolute, contingent, secured, unsecured, matured or unmatured, and the Borrower authorizes such Lender at any time or times after the occurrence of a Matured Default, without prior notice, to apply such money, securities, other property, proceeds, balances, credits of claims, or any part of the foregoing, to such liabilities in such amounts as it may select, whether such Liabilities be contingent, unmatured or otherwise, and whether any collateral security therefor is deemed adequate or not. The rights described herein shall be in addition to any collateral security described in any separate agreement executed by the Borrower. 13.24 ASSIGNMENTS AND PARTICIPATIONS. (a) After the Closing Date and subject to the prior written consent of the Agent and, in the absence of a Default, the prior written consent of the Borrower, such consents not to be unreasonably withheld, each Lender may assign to any Person (the "Assignee") all or a portion of its rights and obligations under this Agreement (including without limitation, all or a portion of its Commitment and the Notes held by it); provided however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement, (ii) the total amount of the Commitments (based on the original Commitments without giving effect to any repayments or prepayments) so assigned to an Assignee or to an Assignee and its affiliates taken as a whole shall not exceed the lesser of $5,000,000 or fifty percent (50%) of the assigning Lender's original Commitments, (iii) the remaining Commitments (based on the original Commitments without giving effect to any repayments or prepayments) held by the assigning Lender after giving effect to any such assignment shall equal or exceed $5,000,000, (iv) the assignment will not cause the Borrower to incur any additional liability, and (v) the parties to each such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in substantially the form attached as Exhibit 13A ("Assignment and Acceptance"), together with any Note or Notes subject to such assignment and a processing and recordation fee of $5,000. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be the date on which such Assignment and Acceptance is accepted by the Agent, (vi) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender under the Financing Agreements and (vii) the assigning Lender thereunder shall be deemed to have relinquished its 64 65 rights and to be released from its obligations under the Financing Agreements, to the extent (and only to the extent) that its rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under the Financing Agreements, such Lender shall cease to be a party thereto). Notwithstanding the foregoing, neither the Agent's consent nor the Borrower's consent shall be required for an assignment by any Lender to any affiliate of such Lender, all or a portion of its rights and obligations under this Agreement, but the remaining provisions of this Section 13.24(a) shall apply to any such assignment. (b) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Financing Agreements or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Financing Agreements or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Financing Agreements, the Security Documents or any other instrument or document furnished pursuant hereto; (iii) such Assignee confirms that it has received a copy of the Financing Agreements, together with copies of the financial statements referred to in Section 7.15 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Financing Agreements as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vi) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Financing Agreements are required to be performed by it as a Lender. (c) The Agent shall maintain at its address referred to in Section 13.18 a copy of each Assignment and Acceptance delivered to and accepted by it. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender, together with any Note subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed: (i) accept such Assignment and Acceptance, and (ii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note to the order of such Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it. Such new Note shall be in a principal amount equal to the principal amount of such surrendered Note, shall be dated the effective date of such 65 66 Assignment and Acceptance and shall otherwise be in substantially the form of Exhibits 2A or 2B. Upon receipt by the Agent of such new Note or Notes conforming to the requirements set forth in the preceding sentences, the Agent shall return to the Borrower such surrendered Note, marked to show that such surrendered Note has been replaced, renewed and extended by such new Note. (e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including without limitation, all or a portion of its Commitment and the Note held by it); provided however, that (i) such Lender's obligations under this Agreement (including without limitation, its Commitment to the Borrower) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the sale of the participation will not cause the Borrower to incur any additional liability, and (v) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, provided that no participant shall be entitled to recover under the above provisions an amount in excess of the proportionate share which such participant holds of the original aggregate principal amount to which the assigning Lender would otherwise be entitled. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 13.24, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided however, that prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender. (g) Any Lender may assign and pledge all or any of the instruments held by it to any Federal Reserve Bank, the United States Treasury or AgriBank, Farm Credit Bank, as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve System and/or such Federal Reserve Bank or any applicable regulation providing for such assignments and pledges to AgriBank, Farm Credit Bank; provided that any payment made by the Borrower for the benefit of such assigning and/or pledging Lender in accordance with the terms of the Financing Agreements shall satisfy the Borrower's obligations under the Financing Agreements in respect thereof to the extent of such payment. No such assignment and/or pledge shall release the assigning and/or pledging Lender from its obligations hereunder. (h) Each Defaulting Lender irrevocably makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent) as such Defaulting Lender's true and lawful attorney and agent-in-fact for the purpose of executing and delivering an Assignment and Acceptance in favor of a replacement Lender. 66 67 13.25 CREDIT AGREEMENT CONTROLS. If there are any conflicts or inconsistencies among this Agreement and any of the other Financing Agreements, the provisions of this Agreement shall prevail and control. 13.26 OBLIGATIONS SEVERAL. The obligations of each Lender under each Financing Agreement to which it is a party are several, and no Lender shall be responsible for any obligation or Commitment of any other Lender under any Financing Agreement to which it is a party. Nothing contained in any Financing Agreement to which it is a party, and no action taken by any Lender pursuant thereto, shall be deemed to constitute the Lenders to be a partnership, an association, a joint venture, or any other kind of entity. 13.27 PRO RATA TREATMENT. All Loans under, and all payments and other amounts received in connection with this Agreement (including without limitation, amounts received as a result of the exercise by any Lender of any right of set-off) shall be effectively shared by the Lenders ratably in accordance with their respective Pro Rata Percentages. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the principal of, or interest on, or fees in respect of, any Note held by it (other than pursuant to Section 5.2, 5.3 or 5.4) in excess of its Pro Rata Percentage of payments on account of similar Notes obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Notes or Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of: (a) the amount of such Lender's required repayment to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Disproportionate payments of interest shall be shared by the purchase of separate participations in unpaid interest obligations, disproportionate payments of fees shall be shared by the purchase of separate participations in unpaid fee obligations, and disproportionate payments of principal shall be shared by the purchase of separate participations in unpaid principal obligations. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 13.27 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. Notwithstanding the foregoing, a Lender may receive and retain an amount in excess of its Pro Rata Percentage to the extent, but only to the extent, that such excess results from such Lender's Highest Lawful Rate exceeding another Lender's Highest Lawful Rate. 67 68 13.28 CONFIDENTIALITY. Each of the Agent and the Lenders agrees that it will use its best efforts to keep confidential, in accordance with its customary procedures for handling confidential information and in accordance with safe and sound banking practices, any proprietary information of the Borrower in writing by the Borrower, as being proprietary and confidential; provided that the Agent or any Lender may disclose any such information (a) to enable it to comply with any Governmental Requirement applicable to it, (b) in connection with the defense of any litigation or other proceeding brought against it arising out of the transactions contemplated by this Agreement and the other Financing Agreements, (c) in connection with the supervision and enforcement of the rights and remedies of the Agent and Lenders under any Financing Agreement and (d) as set forth in Section 13.24 (f). 13.29 INDEPENDENCE OF COVENANTS. All covenants under Section 10 shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or a Matured Default if such action is taken or condition exists. 13.30 AMENDMENTS AND WAIVERS. (a) Except as provided in clause (b) or clause (c) of this Section 13.30, any term, covenant, agreement or condition of this Agreement may be amended only by a written amendment executed by the Borrower, the Required Lenders and, if the rights or duties of the Agent are affected thereby, the Agent, or compliance therewith only may be waived (either generally or in a particular instance and either retroactively or prospectively), if the Borrower shall have obtained the consent in writing of the Required Lenders and, if the rights or duties of the Agent are affected thereby, the Agent. (b) Notwithstanding clause (a) of this Section 13.30, no amendment or waiver that does not have the consent in writing of the holders of all outstanding Notes or of all Lenders if no Loans are outstanding, shall: (i) change the amount or postpone the date of payment of any scheduled payment or required payment of principal of the Notes or reduce the rate or extend the time of payment of interest on the Notes, or reduce the amount of principal thereof, or modify any of the provisions of the Notes with respect to the payment or prepayment thereof, (ii) give to any Term Note any preference over any other Term Note or give to any Revolving Note any preference over any other Revolving Note, (iii) alter, modify or amend the definition of Required Lenders, (iv) alter, modify or amend the provisions of this Section 13.30, (v) change the amount or term of any of the Commitments or the fees required under Section 6, (vi) alter, modify or amend the provisions of Section 8 of this Agreement, (vii) alter, modify or amend any Lender's right hereunder to consent to any action, make any request or give any notice, (viii) alter, modify or amend Exhibit 1A, (ix) release any Collateral having an aggregate value in excess of twenty percent (20%) of the aggregate book value of all Collateral, unless such release is permitted or contemplated by the Financing Agreements; or (x) alter, modify or amend the provisions of Section 2.1(b) or 2.1(g) requiring the consent of all Lenders. Any such amendment or waiver or shall apply equally to all Lenders and all the holders of the Notes and shall be binding upon 68 69 them, upon each future holder of any Note and upon the Borrower, whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived. (c) Notwithstanding clause (a) of this Section 13.30, the Agent and the Borrower, without the consent of either the Required Lenders or the holders of all outstanding Notes or of all Lenders if no Loans are outstanding, may execute amendments to this Agreement and the Financing Agreements which amendments consist solely of the making of technical corrections and/or other minor changes which do not materially adversely affect the rights of the Lenders. In addition, the Agent may, without the consent of either the Required Lenders or the holders of all outstanding Notes or of all Lenders if no Loans are outstanding, may consent to sales and partial releases of Collateral consisting of real property not exceeding $250,000 in the aggregate in any one Fiscal Year. 13.31 FINAL AGREEMENT. THIS WRITTEN AGREEMENT, THE NOTES AND THE OTHER FINANCING AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. PREMIUM STANDARD FARMS, INC., A DELAWARE CORPORATION ATTEST: BY: /s/ BY: /s/ WILLIAM PATTERSON ---------------------------------- ---------------------------------- ITS: ASST. SECRETARY ITS: EXEC. VICE PRESIDENT ---------------------------------- ---------------------------------- FBS AG CREDIT, INC., AS AGENT AND AS A LENDER 950 17TH STREET, SUITE 350 DENVER, COLORADO 80202 BY: RONALD E. VAN STEYN ----------------------------------- ITS: VICE PRESIDENT ----------------------------------- 69 70 THE OTHER LENDERS: FARM CREDIT SERVICES OF WESTERN MISSOURI, PCA 3042 E. CHESTNUT EXPRESSWAY SPRINGFIELD, MISSOURI 65802 ATTN: TERRY EIDSON TELEPHONE: (417) 862-0788 FACSIMILE: (417) 862-2246 BY: TERRY EIDSON ----------------------------------- ITS: SENIOR VICE PRESIDENT ----------------------------------- MERCANTILE BANK NATIONAL ASSOCIATION 721 LOCUST STREET, TRAM 12-3 ST. LOUIS, MISSOURI 63101 ATTN: WAYNE C. LEWIS TELEPHONE: (314) 425-3991 FACSIMILE: (314) 418-8430 BY: WAYNE C. LEWIS ----------------------------------- ITS: VICE PRESIDENT ----------------------------------- HARRIS TRUST AND SAVINGS BANK 111 WEST MONROE STREET P.O. BOX 755 CHICAGO, ILLINOIS 60690-0755 ATTN: JAY S. DAMERON TELEPHONE: (312) 461-2121 FACSIMILE: (312) 765-8095 BY: /s/ ----------------------------------- ITS: SR. VICE PRESIDENT ----------------------------------- 70 71 CAISSE NATIONALE DE CREDIT AGRICOLE 55 EAST MONROE STREET SUITE 4700 CHICAGO, ILLINOIS 60603-5702 ATTN: ROBERT K. HUGHES TELEPHONE: (312) 917-7442 FACSIMILE: (312) 372-3455 BY: /s/ W. LEROY STARTZ ----------------------------------- ITS: FIRST VICE PRESIDENT ----------------------------------- HELLER FINANCIAL, INC. 500 WEST MONROE STREET CHICAGO, ILLINOIS 60661 ATTN: BUD SONODA TELEPHONE: (312) 441-7268 FACSIMILE: (312) 441-7026 BY: /s/ MARY C. BOOTHMAN ----------------------------------- ITS: VICE PRESIDENT ----------------------------------- 71 72 CAISSE NATIONALE DE CREDIT AGRICOLE 55 EAST MONROE STREET SUITE 4700 CHICAGO, ILLINOIS 60603-5702 ATTN: ROBERT K. HUGHES TELEPHONE: (312) 917-7442 FACSIMILE: (312) 372-3455 BY: ---------------------------------- ITS: --------------------------------- HELLER FINANCIAL, INC. 500 WEST MONROE STREET CHICAGO, ILLINOIS 60661 ATTN: BUD SONODA TELEPHONE: (312) 441-7268 FACSIMILE: (312) 441-7026 BY: ---------------------------------- ITS: --------------------------------- 72 73 CAISSE NATIONALE DE CREDIT AGRICOLE 55 EAST MONROE STREET SUITE 4700 CHICAGO, ILLINOIS 60603-5702 ATTN: ROBERT K. HUGHES TELEPHONE: (312) 917-7442 FACSIMILE: (312) 372-3455 BY: ---------------------------------- ITS: --------------------------------- HELLER FINANCIAL, INC. 500 WEST MONROE STREET CHICAGO, ILLINOIS 60661 ATTN: BUD SONODA TELEPHONE: (312) 441-7268 FACSIMILE: (312) 441-7026 BY: ---------------------------------- ITS: --------------------------------- 73 EX-4.3.B 19 y50886ex4-3_b.txt FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 4.3(b) FIRST AMENDMENT TO CREDIT AGREEMENT BETWEEN U.S. BANCORP AG CREDIT, INC. (F/K/A/FBS AG CREDIT, INC.), AS AGENT FOR ITSELF AND CERTAIN OTHER LENDERS AND PREMIUM STANDARD FARMS, INC. DATED AUGUST 27, 1997 This First Amendment to Credit Agreement (this "AMENDMENT") is made this 13th day of May, 1998 among PREMIUM STANDARD FARMS, INC., a Delaware corporation ("PREMIUM"), CGC ASSET ACQUISITION CORP., a Delaware corporation ("ASSET SUB"), the financial institutions listed on the signature pages hereof (collectively the "LENDERS" and individually a "LENDER") and U.S. BANCORP AG CREDIT, INC. (f/k/a FBS Ag Credit, Inc.), a Colorado corporation (the "AGENT"), in its capacity as Agent for the Lenders under the Credit Agreement (hereinafter defined). RECITALS A. Premium, PSF Holdings, L.L.C. ("PSF") and Continental Grain Company, a Delaware corporation ("CGC") have entered into a Stock Purchase Agreement dated December 23, 1997 (the "STOCK PURCHASE AGREEMENT"), pursuant to which CGC has agreed to purchase and PSF has agreed to sell 51 % of the issued and outstanding common stock of Premium. B. In connection with the Stock Purchase Agreement, Premium has formed Asset Sub, a wholly-owned subsidiary. Asset Sub, Premium and CGC have entered into an Asset Purchase Agreement dated as of December 23, 1997 (the "ASSET PURCHASE AGREEMENT"), pursuant to which Asset Sub has agreed to purchase certain assets from CGC. C. In connection with the closing of the transactions contemplated by the Stock Purchase Agreement and the Asset Purchase Agreement, CGC and Asset Sub will be entering into a Market Hog Contract Grower Agreement (the "GROWER AGREEMENT") pursuant to which, among other things, CGC will provide certain services to Asset Sub in connection with the breeding, growing and caring for hogs owned by Asset Sub. D. In connection with the Stock Purchase Agreement and the Asset Purchase Agreement, CGC and PSF have entered into a Contribution Agreement dated as of December 23, 1997 (the "CONTRIBUTION AGREEMENT"), pursuant to which CGC will be forming PSF Group Holdings, Inc., a Delaware corporation ("NEWCO"), and pursuant to which each of CGC and PSF will make a capital contribution to Newco (directly or by way of merger) consisting of the stock each owns in Premium. E. In connection with the closing of the transactions contemplated by the Contribution Agreement, PSF and Newco will be entering into an Agreement and Plan of Merger (the "MERGER AGREEMENT"), pursuant to which PSF and Newco will merge, with Newco being the surviving corporation. 2 F. The Credit Agreement dated as of August 27, 1997 among Premium, the Agent and the Lenders (as the same may be amended, replaced, restated and/or supplemented from time to time, the "CREDIT AGREEMENT") currently prohibits Premium from consummating the transactions described in paragraphs A through E above and certain other related transactions (collectively the "CGC TRANSACTIONS"). In addition, Premium has requested that the Agent and the Lenders agree to increase their Revolving Loan Commitments from $60,000,000 in the aggregate to $90,000,000 in the aggregate. In connection with the Asset Purchase Agreement and the Grower Agreement, Asset Sub will require working capital financing. Accordingly, Premium and Asset Sub have requested that the Agent and the, Lenders permit Asset Sub to become a borrower under the Credit Agreement. Premium and Asset Sub have further requested certain other changes in the terms of the Credit Agreement. G. The Agent and the Lenders are willing to consent to the CGC Transactions, to increase the Revolving Loan Commitments to $90,000,000, to permit Asset Sub to become a borrower under the Credit Agreement, and to agree to the other changes in the terms of the Credit Agreement, but only on the terms and conditions herein contained. NOW THEREFORE, in consideration of the foregoing and of the terms and conditions contained in the Credit Agreement and this Amendment, and of any loans or extensions of credit or other financial accommodations heretofore, now or hereafter made to or for the benefit of Premium or Asset Sub by the Agent and the Lenders, Premium, Asset Sub, the Agent and the Leaders agree as follows: 1. Representation and Warranty as to CGC Transactions and Consent to CGC Transactions. The Borrower represents and warrants to the Agent and the Lenders that the factual information taken as a whole in the materials furnished by or on behalf of the Borrower to the Agent or any Lender for purposes of or in connection with the CGC Transactions, does not contain any untrue statement of a material fact or omit to state any material fact necessary to keep the statements contained therein from being misleading as of the date of this Agreement. The Borrower further represents and warrants to the Agent and the Lenders that the financial projections and other financial information furnished to the Agent or any Lender by the Borrower in connection with the CGC Transactions were prepared in good faith on the basis of information and assumptions that the Borrower believed to be reasonable as of the date of such information, provided however that the Agent and the Lenders acknowledge that financial projections are not a guaranty of future results. In reliance on the foregoing representation and warranties, the Agent and the Lenders consent to the CGC Transactions notwithstanding anything contained in the Credit Agreement prohibiting the CGC Transactions. Without limiting the generality of the foregoing, the Agent and the Lenders acknowledge that Premium and Asset Sub intend to use up to $53,000,000 of Revolving Loans in connection with the consummation of the CGC Transactions, and the, Agent and the Lenders consent to the same. 2. Definitions. Capitalized terms used and not defined in this Amendment shall have the meanings given to such terms in the Credit Agreement. 3. New Defined Terms. Section 1.1 of the Credit Agreement, Defined Terms, is amended to add the following new definitions which shall read in full as follows: 2 3 "A REVOLVING LOAN" shall mean any Revolving Loan made pursuant to Section 2.1(a)(i). "A REVOLVING LOAN COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $60,000,000 as set forth opposite such Lender's name under the heading "A Revolving Loan Commitments" on Exhibit 1F, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, and "A REVOLVING LOAN COMMITMENTS" shall mean collectively, the A Revolving Loan Commitments for all the Lenders. "A REVOLVING NOTE" shall mean any Revolving Note executed pursuant to Section 2.1(h)(i). "AMENDMENT #1 CLOSING DATE" shall mean May ___, 1998. "ASSET SUB" shall mean CGC Asset Acquisition Corp., a Delaware corporation. "B REVOLVING LOAN" shall mean any Revolving Loan made pursuant to Section 2.1(a)(ii). "B REVOLVING LOAN COMMITMENT" shall means as to any Lender, such Lender's Pro Rata Percentage of $30,000,000 as set forth opposite such Lender's name under the heading "B Revolving Loan Commitments" on Exhibit 1F, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, and "B REVOLVING LOAN COMMITMENTS" shall mean collectively, the B Revolving Loan Commitments for all Lenders. "B REVOLVING NOTE" shall mean any Revolving Note executed pursuant to Section 2.1(h)(ii). "BORROWER" shall mean Premium Standard Farms, Inc., a Delaware corporation and CGC Asset Acquisition Corp., a Delaware corporation, or if the context so requires, either of them. "CAPITAL SPENDING AMOUNT" shall mean for any period: (a) the consolidated net fixed assets of the Borrower at the end of such period, minus (b) the consolidated net fixed assets of the Borrower at the beginning of such period, plus (c) consolidated depreciation during such period. "CGC" shall mean Continental Grain Company, a Delaware corporation. "CONSOLIDATED" and "CONSOLIDATING" when used with respect to the Borrower's financial statements, shall mean that such financial statements 3 4 shall include the financial information of Premium and all of its subsidiaries, including without limitation, Asset Sub. "NEWCO" shall mean PSF Group Holdings, Inc., a Delaware corporation. "REVOLVING LOANS" shall mean the A Revolving Loans and/or the B Revolving Loans. "REVOLVING NOTES" shall mean the A Revolving Notes and/or the B Revolving Notes. 4. Replaced Defined Terms. Section 1.1 of the Credit Agreement, Defined Terms, is also amended by eliminating the definitions of "Agent's Letter", "EBITDA", "First Bank", "Fiscal Year", "Guarantor", "Guaranty", "Property", "Revolving Loan Commitment", "Unallocated Cash Flow", "Unit" and "Working Capital", and replacing them in full with the following definitions. "AGENT'S LETTER" shall mean the letter agreements entered into from time to time between the Agent and the Borrower and governing the Agents fees. "EBITDA" shall mean: (a) the net combined income of the Borrower before provision for income taxes, interest expense (including without limitation, implicit interest expense on capitalized leases), depreciation (other than depreciation attributable to breeding stock, amortization and other noncash expenses or charges, excluding (to the extent included): (i) nonoperating gains (including without limitation, extraordinary or nonrecurring pins, gains from discontinuance of operations and gains arising from the sale of assets other than Inventory) during the applicable period; and (ii) similar nonoperating losses during such period, plus (b) up to $22,000,000 in nonrecurring expenses incurred or accrued on or before the closing of the CGC transaction consisting of brokerage fees and management options payable in connection with the CGC Transactions. "FIRST BANK" shall mean U.S. Bank National Association, a national banking association with its principal place of business in Minneapolis, Minnesota and an Affiliate of the Agent, and its successors and assigns. "FISCAL YEAR" means the fiscal year of the Borrower, which shall be the twelve month period ending on or about March 31 each year. "GUARANTOR" shall mean Newco, in its capacity as guarantor of the Liabilities, and any other Person who may hereafter execute and deliver in favor of the Agent and the Lenders, a guarantee of the Liabilities. 4 5 "GUARANTY" shall mean that certain Guaranty by Newco dated as of the Amendment #1 Closing Date, guaranteeing the payment and performance of the Liabilities. "PROPERTY" shall mean: (a) the land, the improvements, the fixtures and the Equipment of Premium located in Mercer, Putnam and Sullivan Counties, Missouri and in Dallam and Hartley Counties, Texas as legally described on Exhibit 1E to the Credit Agreement provided however, that the Property specifically includes Premium's processing facility located in Milan, Missouri; and (b) the improvements, the fixtures and the Equipment of Asset Sub located in Gentry, Grundy, Harrison and Worth Counties, Missouri and acquired from CGC pursuant to the Asset Purchase Agreement, including without limitation, Asset Sub's feed mill and office located in Davies County. "REVOLVING LOAN COMMITMENT" shall mean, as to any Lender, such Lender's A Revolving Loan Commitment and/or such Lender's B Revolving Loan Commitment, and "REVOLVING LOAN COMMITMENT" shall mean collectively, the Revolving Loan Commitments for all the Lenders. "UNALLOCATED CASH FLOW" shall mean for any period of determination (a) EBITDA during such period, minus (b) the amount of cash taxes paid during such period, minus (c) the amount of cash dividends paid during such period, minus (d) the amount of cash interest paid during such period, minus (e) the Capital Spending Amount during such period (provided however, that Asset Sub's purchase of assets from CGC for $75,000,000 during the Borrower's 1998 Fiscal Year, shall not be included in determining the Capital Spending Amount for any period in which such purchase occurs, and provided further, that capital expenditures consisting of the purchase of breeding stock shall not be included in determining the Capital Spending Amount for any period in which such purchase occurs), minus (f) the cash portion of the purchase price paid during such period for any acquisition permitted under Section 10.2. "UNIT" shall mean a combination of hog production facilities consisting of breeding, gestation and farrowing buildings sufficient to house 9,900 to 10,800 gilts and/or sows, together with such nursery and finishing buildings as are necessary to support the offspring of said 9,900 to 10,800 gilts and/or sows. "WORKING CAPITAL" shall mean as of any particular date, the amount of the Borrower's combined current assets (including the net book value of breeding stock), adjusted by deducting prepaid expenses (excluding deferred income taxes), less the Borrower's combined current liabilities (including without limitation, the aggregate amount of Revolving Loans outstanding), treating all amounts currently owing to 5 6 Affiliates (except amounts owing to Affiliates eliminated by combination) as current liabilities and giving no value as assets to any amounts currently owing from Affiliates. 5. Deleted Defined Terms. Section 1.1 of the Credit Agreement, Defined Terms, is amended to delete the defined term "Fixed Charge Deficiency Amount" and its definition. 6. Section 1.2 of the Credit Agreement, is amended to add the following capitalized terms which are defined in the Preambles to this Amendment: "Asset Purchase Agreement", "Contribution Agreement", "CGC Transactions", "Grower Agreement", "Merger Agreement" and "Stock Purchase Agreement". 7. Revolving Loans. Section 2.1(a) of the Credit Agreement is amended to read in full as follows: (a)(i) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender severally agrees to make revolving credit loans (each an "A REVOLVING LOAN" and more than one A Revolving Loan, the "A REVOLVING LOANS") to the Borrower on any one or more Business Days prior to the Revolving Maturity Date, up to an aggregate principal amount of A Revolving Loans not exceeding for each Lender, the lesser of such Lender's Pro Rata Percentage of the Available Amount on such Business Day or the amount of such Lender's A Revolving Loan Commitment. Within such limits and during such period and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow A Revolving Loans. (ii) If the amount of A Revolving Loans outstanding equals the aggregate amount of the A Revolving Loan Commitments at any time, subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender severally agrees to make revolving credit loans (each a "B REVOLVING LOAN" and more than one B Revolving Loan, the "B REVOLVING LOANS") to the Borrower on any one or more Business Days prior to the Revolving Maturity Date, up to an aggregate principal amount of B Revolving Loans not exceeding for each Lender, the lesser of such Lender's Pro Rata Percentage of the Available Amount on such Business Day or the amount of such Lender's B Revolving Loan Commitment. Within such limits and during such period and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow B Revolving Loans. 8. Restated Revolving Notes. Section 2.1(h) of the Credit Agreement is amended to read in full as follows: (h)(i) The Borrower shall execute and deliver to the Agent for each Lender to evidence the A Revolving Loans made by each Lender 6 7 under such Lender's A Revolving Loan Commitment, a restated revolving credit note (each such note, an "A REVOLVING NOTE" and collectively the "A REVOLVING NOTES"), which shall be (i) dated the date of the Amendment #1 Closing Date; (ii) in the principal amount of such Lender's maximum A Revolving Loan Commitment; and (iii) in substantially the form attached as Exhibit 2C, appropriately completed. Each Lender shall post (iv) the date and principal amount of each A Revolving Loan made under such A Revolving Note; (v) the rate of interest each such A Revolving Loan will bear; and (vi) each payment of principal thereon; provided however, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. (ii) The Borrower shall execute and deliver to the Agent for each Lender to evidence the B Revolving Loans made by each Lender under such Lender's B Revolving Loan Commitment, a revolving credit note (each such note, a "B REVOLVING NOTE" and collectively the "B REVOLVING NOTES"), which shall be (i) dated the date of the Amendment #1 Closing Date; (ii) in the principal amount of such Lender's maximum B Revolving Loan Commitment; and (iii) in substantially the form attached as Exhibit 2D, appropriately completed. Each Lender shall post (iv) the date and principal amount of each B Revolving Loan made under such B Revolving Note; (v) the rate of interest each such B Revolving Loan will bear; and (vi) each payment of principal thereon; provided however, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. 9. Conditional Release of Certain Collateral. Section 4.5 of the Credit Agreement is deleted in its entirety. 10. Commitment Fee with Respect to Revolving Loan Commitments. Section 6.1 of the Agreement is amended to read in full as follows: Premium and Asset Sub jointly and severally agree to pay to the Agent for distribution to the Lenders (based on their respective Revolving Loan Commitments) an annual commitment fee from the Closing Date to the first Anniversary Date, in the annual amount of Seventy Five Thousand Dollars ($75,000), which amount is the total fee for Premium and Asset Sub together and not for Premium and Asset Sub individually. Premium and Asset Sub further jointly and severally agree to pay to the Agent for distribution to the Lenders (based on their respective Revolving Loan Commitments) an additional commitment fee from the Amendment #1 Closing Date to the first Anniversary Date, in the amount of Thirty Seven Thousand Five Hundred Dollars ($37,500), which amount is the total fee for Premium and Asset Sub together and not for Premium and Asset Sub individually. Beginning with the first Anniversary Date, the annual commitment fee shall be increased to One Hundred Twelve Thousand Five Hundred Dollars ($112,500), which amount is the total fee 7 8 for Premium and Asset Sub together and not for Premium and Asset Sub individually. The initial annual commitment fee for the Revolving Loan Commitments shall be due and payable in advance on the date of this Agreement, in the amount of Seventy Five Thousand Dollars ($75,000). The additional commitment fee for the Revolving Loan Commitments shall be due and payable in advance on the Amendment #1 Closing Date, in the amount of Thirty Seven Thousand Five Hundred Dollars ($37,500). Thereafter annual commitment fees for the Revolving Loan Commitments shall be due and payable in advance on each Anniversary Date prior to the Revolving Maturity Date in the amount of One Hundred Twelve Thousand Five Hundred Dollars ($112,500), and on the Revolving Maturity Date, unless the Borrower has fully terminated the Commitments in accordance with Section 4.4 and has fully paid and satisfied all of the Liabilities relating to the Revolving Loans (including without limitation, all of the LC Obligations), provided however, that the annual commitment fee for the period beginning on the Anniversary Date next preceding the Revolving Maturity Date shall be pro-rated if applicable. Each commitment fee shall be fully earned on the date it becomes payable and, at the option of the Agent, shall be paid by direct debit against the Borrower's checking account. 11. Other Names. Section 7.7 of the Agreement is amended to read in full as follows: Premium has not, during the preceding five years, been known by or used any other name, except as disclosed on Part 7 of Exhibit 7 to the Credit Agreement. Asset Sub has not, during the preceding five years, been known by or used any other name. 12. Affiliates. Section 7.8 of the Agreement is amended to read in full as follows: The Borrower has no Affiliates, other than those Persons disclosed on Exhibit 7A, and the legal relationships of the Borrower to each such Affiliate are accurately and completely described thereon. 13. Financial Covenants and Ratios. Section 9.6 of the Agreement is amended to read in full as follows: The Borrower shall maintain: (a) a consolidated Tangible Net Worth of not less than $125,000,000 at all times; (b) a consolidated ratio of total liabilities to Tangible Net Worth of not more than 1.75 to 1.0 at all times; (c) consolidated Working Capital of not less than $30,000,000 at all times; and 8 9 (d) a consolidated Fixed Charge Coverage Ratio (calculated on a rolling twelve month basis) as of the end of each fiscal month of the Borrower of not less 1.0 to 1.0 (the "required level") at all times, provided however, that the Borrower shall be permitted to have a Fixed Charge Coverage Ratio (so calculated) at the end of any fiscal month between 0.80 to 1.0 and the required level as long as the Fixed Charge Coverage Ratio (so calculated) returns to not less than the required level by the end of the twelfth fiscal month following the fiscal month end on which the Fixed Charge Coverage Ratio (so calculated) first went below the required level, and as long as the Fixed Charge Coverage Ratio (so calculated) does not fall below the required level after the expiration of twelve months following the fiscal month end on which the Fixed Charge Coverage Ratio (so calculated) first went below the required level. 14. Article 9 of the Agreement is amended to add a new Section 9.17, which reads in full as follows: 9.17 Ownership of Asset Sub. Asset Sub shall at all times be a wholly owned subsidiary of Premium except as allowed in Section 10.2(c). 15. Consolidations, Mergers or Acquisitions. Section 10.2 of the Agreement is amended to read in full as follows: Neither Premium nor Asset Sub shall recapitalize or consolidate with, merge with, or otherwise acquire all or substantially all of the assets or properties of any other Person, except that: (a) Premium may enter into any transaction to raise equity capital which transaction does not result in a change of control of Premium, as the word "control" is used in the definition of Affiliate, (b) Premium may merge with any Affiliate which is a wholly-owned subsidiary of Premium, (c) Premium and Asset Sub may merge with one another and Asset Sub may be dissolved in connection with any such merger, and (d) Premium or Asset Sub may enter into acquisition transactions not exceeding $10,000,000 in aggregate purchase price, provided however, that all of such purchase price is paid in cash or debt permitted under Section 10.4, and provided further, that Premium demonstrates to the reasonable satisfaction of the Agent that each such acquisition transaction will not result in a violation of Section 9.6(d). 16. Guaranties. Section 10.5 of the Agreement is amended to permit Premium to guarantee Asset Sub's liabilities and obligations to CGC under or pursuant to the Grower Agreement. 17. Capital Investment Limitations. Section 10.7 of the Agreement is amended to read in full as follows: 9 10 The Borrower shall not purchase, invest in or otherwise acquire additional real estate, equipment or other fixed assets (other than the replacement of breeding animals in the ordinary course of business, Asset Sub's purchase of assets from CGC for $75,000,000 during the Borrower's 1999 Fiscal Year and the replacement of obsolete and worn out Equipment in the ordinary course of business) which would cause its Capital Spending Amount in any one Fiscal Year to exceed the lesser of: (a) the maximum amount that would maintain the Borrower's consolidated Fixed Charge Coverage Ratio for such Fiscal Year at the level required in Section 9.6(d), (b) $43,000,000, or (c) the following specific limits: (i) $31,000,000 during the Borrower's 1997 Fiscal Year, (ii) $30,000,000 during the Borrower's 1999 Fiscal Year, plus the amount (if any) by which the Borrower's capital expenditures during its 1997 Fiscal Year were less than the specific limit for that Fiscal Year, (iii) $35,000,000 during the Borrower's 2000 Fiscal Year, plus the amounts (if any) by which the Borrower's capital expenditures during its 1997 and 1999 Fiscal Years were less than the specific limits for those Fiscal Years, (iv) $33,000,000 during the Borrower's 2001 Fiscal Year, plus the amounts (if any) by which the Borrower's capital expenditures during its 1997, 1999 and 2000 Fiscal Years were less than the specific limits for those Fiscal Years, and (v) $29,000,000 during the Borrower's 2002 Fiscal Year, plus the amounts (if any) by which the Borrower's capital expenditures during its 1997, 1999, 2000 and 2001 Fiscal Years were less than the specific limits for those Fiscal Years. Notwithstanding the foregoing specific limits, the Borrower may expend up to an additional $3,000,000 per Fiscal Year in capital expenditures, as long as such additional capital expenditures do not result in the Borrower's consolidated Fixed Charge Coverage Ratio for such Fiscal Year being less than the level required in Section 9.6(d), and as long as the capital expenditures in any one Fiscal Year do not exceed $43,000,000. 18. Loans to Affiliates. Section 10.9 of the Agreement is amended to add the following sentence at the end thereof: Nothing in this Section 10.9 shall limit the amount of loans from Premium to Asset Sub, or from Asset Sub to Premium, which may be outstanding at any one time. 19. Distributions, Prepayments of Debt. Section 10.10 of the Agreement is amended to read in full as follows: Premium shall not directly or indirectly: (a) redeem any of Premium's shares of capital stock; or (b) declare any dividends or distributions in respect of equity in any year, provided however, that Premium may make dividends in any one Fiscal Year of not more than $500,000 in the aggregate. 10 11 20. Issuance of Equity; Amendment of Organization Documents. Section 10.11 of the Agreement is amended to read in full as follows: Premium shall not issue or distribute any of Premium's capital stock or membership interests for consideration or otherwise, except that Premium may enter into any transaction to raise equity capital as long as such transaction does not result in a change in control of Premium, as the word "control" is used in the definition of Affiliate. Asset Sub shall not issue or distribute any of Asset Sub's capital stock or membership interests for consideration or otherwise. Neither Premium nor Asset Sub shall amend its articles or certificate of incorporation or organization or bylaws, except upon prior written notice to the Agent, provided however, that any such amendment shall not result in a change of control of Premium or Asset Sub, as the case may be, as the word "control" is used in the definition of Affiliate. The foregoing prohibitions shall not apply to any of the foregoing actions which is necessary to accomplish any transaction that is otherwise permitted under Section 10.2 as long as such transaction does not result in a change in control of Premium, as the word "control" is used in the definition of Affiliate. 21. Payment of Subordinated Debt. Section 10.14 of the Agreement is amended to read in full as follows: The Borrower shall not directly or indirectly, pay, prepay, redeem or purchase, or deposit funds or property for the payment, prepayment, redemption or purchase of the indebtedness of Premium, of Asset Sub or of both, which is subordinated to the payment of any portion of the Liabilities, except that the Borrower may prepay subordinated debt in whole or in part at any time, as long as: (a) there is no Default or Matured Default at the time of such prepayment, (b) no Default or Matured Default would occur as a result of such prepayment, and (c) the Borrower has delivered to the Agent and the Lenders not less than five (5) Business Days before the date of any such proposed prepayment, pro forma financial statements demonstrating to the satisfaction of the Required Lenders, that the Borrower will be in compliance with the requirements of Section 9.6 immediately following any such prepayment and at the end of the then current fiscal quarter. 22. Section 13.18(a) of the Credit Agreement is amended to read in full as follows: (a) All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, telexed, cabled or delivered addressed as follows: 11 12 (i) If to the Agent at: U.S. Bancorp Ag Credit, Inc. 950 Seventeenth Street, Suite 350 Denver, Colorado 80202 Attn: James A. Bosco, President Facsimile: (303) 585-4732 with a copy to: Ellen Beverley McNamara Dorsey & Whitney 370 Seventeenth Street, Suite 4400 Denver, Colorado 80202 (ii) If to the Borrower at: Premium Standard Farms, Inc. CGC Asset Acquisition, Inc. 423 West 8th Street, Suite 200 Kansas City, Missouri 64105 Attn: Chief Financial Officer with a copy to: Sonnenschein Nath & Rosenthal 4520 Main Street, Suite 1100 Kansas City, Missouri 64111 Attn: James A. Heeter, Esq. (iii) If to any of the Lenders other than the Agent, at the address for such Lender set forth on the applicable signature page of this Agreement; and, as to each party hereto, at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall, when mailed, telecopied, telexed, transmitted, or cabled, become effective when deposited in the mail, confirmed by telex answerback, transmitted by telecopier, or delivered to the cable company, respectively except that notices and communications to the Agent shall not be effective until actually received by the Agent. 23. Exhibit 1D to the Credit Agreement, the Lenders' Commitments, is replaced with Exhibit 1F to this Amendment. 24. Exhibit 2A to the Credit Agreement, the Form of Revolving Notes, is replaced with Exhibit 2C to this Agreement. 12 13 25. Exhibit 2B to the Credit Agreement, the Form of Term Notes, is replaced with Exhibit 2E to this Amendment. 26. Part 8 of Exhibit 7 to the Credit Agreement, Borrower's Affiliates, is replaced with Exhibit 7A to this Amendment. 27. Part 9 of Exhibit 7 to the Credit Agreement, Environmental Matters, is replaced with Exhibit 7B to this Amendment. 28. Exhibit 9A to the Credit Agreement, the Form of Compliance Certificate, is replaced with Exhibit 9B to this Amendment. 29. Assumption of Indebtedness by Asset Sub, Obligations and Covenants. Asset Sub hereby assumes all indebtedness of Premium to the Agent and the Lenders pursuant to, and as a co-borrower joins in the Credit Agreement. Asset Sub also agrees to pay all indebtedness to the Agent and the Lenders under all promissory notes issued pursuant to the Credit Agreement, and agrees that its liability to the Agent and the Lenders with respect to all indebtedness thereunder shall be primary as well as joint and several with Premium, all as if Asset Sub was an original obligor thereof. Asset Sub also agrees to abide by and observe all of the covenants, terms and conditions to be observed and performed by Borrower as contained in the Credit Agreement, and the agreements, instruments and/or documents related thereto. Asset Sub shall be added as a party to the Credit Agreement, and as a party to all of the agreements, instruments and/or documents related thereto, and any and all references to Borrower set forth in the Credit Agreement, or in any agreement, instrument or document related thereto, including without limitation this Amendment, shall hereafter include and pertain in all respects to Asset Sub. Premium acknowledges and consents to the foregoing, and agrees that its liability to the Agent and the Lenders with respect to all indebtedness under the Credit Agreement shall be primary as well as joint and several with Asset Sub. 30. Representations and Warranties. To induce the Agent and the Lenders to enter into this Amendment, the Borrower represents and warrants to the Agent and the Lenders that except as described in this Amendment, each and every representation and warranty set forth in the Credit Agreement is true and correct as of the date hereof, and shall be deemed remade by the Borrower as of the date hereof. 31. Conditions to Advances; Documentation. The effectiveness of this Amendment shall be conditioned upon the execution and/or delivery of the agreements, instruments and/or documents listed on Exhibit 8C attached hereto. 32. Incorporation of Credit Agreement. The parties agree that this Amendment shall be an integral part of the Credit Agreement, that all of the terms set forth therein are incorporated in this Amendment by reference, and that all terms of this Amendment are incorporated therein as of the date of this Amendment. All of the terms and conditions of the Credit Agreement which are not modified in this Amendment shall remain in full force and effect. To the extent the terms of this Amendment conflict with the terms of the Credit Agreement, the terms of this Amendment shall control. 13 14 33. Return of Notes. After the restated Notes required to be delivered pursuant to this Amendment have been delivered to the Agent and the Lenders, each Lender shall return to the Borrower, the Notes replaced by the restated Notes required to be delivered pursuant to this Agreement. Each Lender (including the Agent in its capacity as a Lender) agrees to return such replaced Notes to the Borrower as promptly as practicable after receiving the Notes required to be delivered pursuant to this Amendment. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. PREMIUM STANDARD FARMS, INC., A DELAWARE CORPORATION BY: /S/ WILLIAM PATTERSON --------------------------------------- ITS: --------------------------------------- CGC ASSET ACQUISITION CORP. A DELAWARE CORPORATION BY: /S/ WILLIAM PATTERSON --------------------------------------- ITS: --------------------------------------- 14 15 U.S. BANCORP AG CREDIT, INC. (F/K/A FBS AG CREDIT, INC.), AS AGENT AND AS A LENDER 950 17TH STREET, SUITE 350 DENVER, COLORADO 80202 BY: /S/ RONAL E. VAN STEYN --------------------------------------- ITS: V.P. --------------------------------------- FARM CREDIT SERVICES OF WESTERN MISSOURI, PCA BY: /S/ TERRY EIDSON --------------------------------------- ITS: SENIOR VICE PRESIDENT --------------------------------------- MERCANTILE BANK NATIONAL ASSOCIATION BY: /S/ WAYNE C. LEWIS --------------------------------------- ITS: VICE PRESIDENT --------------------------------------- HARRIS TRUST AND SAVINGS BANK BY: /S/ BRIAN J. MOELLER --------------------------------------- ITS: --------------------------------------- CREDIT AGRICOLE INDOSUEZ BY: /S/ W. LEROY STARZ AND DAVID BOUHL --------------------------------------- ITS: FIRST VICE PRESIDENT AND HEAD OF CORP. --------------------------------------- BANKING, CHICAGO --------------------------------------- HELLER FINANCIAL, INC. BY: /S/ --------------------------------------- ITS: --------------------------------------- 15 EX-4.3.C 20 y50886ex4-3_c.txt SECOND AMENDMENT TO CREDIT AGREEMENT 1 Exhibit 4.3(c) SECOND AMENDMENT TO CREDIT AGREEMENT BETWEEN U.S. BANCORP AG CREDIT, INC. AS AGENT FOR ITSELF AND CERTAIN OTHER LENDERS AND PREMIUM STANDARD FARMS, INC. DATED AUGUST 27, 1997 This Second Amendment to Credit Agreement (this "AMENDMENT") is made this 26th day of February, 1999 among PREMIUM STANDARD FARMS, INC., a Delaware corporation ("PREMIUM"), CGC ASSET ACQUISITION CORP., a Delaware corporation ("ASSET SUB" and collectively with Premium, the "BORROWER"), the financial institutions listed on the signature pages hereof (collectively the "LENDERS" and individually a "LENDER") and U.S. BANCORP AG CREDIT, INC., a Colorado corporation (the "AGENT"), in its capacity as Agent for the Lenders under the Credit Agreement (hereinafter defined). RECITALS A. The Borrower, the Agent and the Lenders have each acknowledged the existence of breaches or violations of certain of the provisions of the Credit Agreement dated as of August 27, 1997 among the Borrower, the Agent and the Lenders (as amended, extended, replaced, restated and/or supplemented from time to time, the "CREDIT AGREEMENT"). The Agent and the Lenders have agreed to waive these particular breaches or violations and continue to make revolving credit advances under the Credit Agreement on the terms and conditions herein contained. B. The Borrower desires to enter into the following transactions (the "TRANSACTIONS"): (i) The Borrower proposes to convey to the City of Gallatin, Missouri, Daviess County Missouri and/or the State of Missouri, the Borrower's office building complex in exchange for a release by the City of Gallatin and Daviess County and/or the Missouri Department of Economic Development of the Borrower's commitments to complete the infrastructure of the business park surrounding the office building (the "OFFICE BUILDING TRANSACTION"); and (ii) The Borrower proposes to sell approximately 915 acres of real property known as the Green Hills property to Dave Perkins for $300 per acre (this transaction is hereinafter referred to as the "PERKINS TRANSACTION" and shall be referred to collectively with the Office Building Transaction as the "TRANSACTIONS"). C. The Credit Agreement currently prohibits the Borrower from entering into the Transactions. The Borrower has requested that the Agent and the Lenders consent to the Borrower entering into the Transactions, and the Agent and the Lenders are willing to do so on the terms and conditions herein contained. 2 NOW, THEREFORE, in consideration of the foregoing and of the terms and conditions contained in the Credit Agreement and this Amendment, and of any loans or extensions of credit or other financial accommodations at any time made to or for the benefit of the Borrower by Agent and the Lenders, the Borrower, the Agent and the Lenders agree as follows: 1. Definitions. Capitalized terms used and not defined in this Amendment shall have the meanings given to such terms in the Credit Agreement. 2. Representation and Warranty as to Transactions, and Consent to Transactions. The Borrower represents and warrants to the Agent and the Lenders that the factual information taken as a whole in the materials furnished by or on behalf of the Borrower to the Agent or any Lender for purposes of or in connection with the Transactions, does not contain any untrue statement of material fact or omit to state any material fact necessary to keep the statements contained therein from being misleading as of the date of this Agreement. In reliance on the foregoing representation and warranties, the Agent and the Lenders consent to the Transactions notwithstanding anything contained in the Credit Agreement prohibiting the Transactions. 3. Acknowledgment of Specific Defaults. The Borrower, the Agent and each of the Lenders acknowledge the existence of the following Defaults and Matured Defaults: (a) the Borrower's monthly financial statements and Borrowing Base Certificate for the month ending September 26, 1998 were not delivered to the Agent and the Lenders in a timely manner as required by Section 9.1 of the Credit Agreement; (b) as of October 31, November 28 and December 26, 1998 and as of January 30, 1999, the aggregate principal amount of all Revolving Loans, plus the aggregate face amount of all outstanding LC's, exceeded the Borrowing Base, and the Borrower failed to cure or otherwise eliminate such excess in the manner required by Section 4.3 of the Credit Agreement; and (c) as of October 31, November 28 and December 26, 1998 and as of January 30, 1999, the Borrower had a Fixed Charge Coverage Ratio (calculated on a rolling twelve month basis) of less than 0.80 to 1.0, the level required by Section 9.6 of the Credit Agreement. 4. Acknowledgment of Anticipated Defaults. The Borrower, the Agent and each of the Lenders acknowledge the likelihood of additional Defaults and Matured Defaults occurring because, when the Borrower's February 27, March 27, April 24 and May 29, 1999 Borrowing Base Certificates are delivered to the Agent and the Lenders, each such Borrowing Base Certificate is expected to show that the aggregate principal amount of all Revolving Loans, plus the aggregate face amount of all outstanding LC's, will then exceed the Borrowing Base. The Borrower, the Agent and each of the Lenders further acknowledge, however, that the amount by which the aggregate principal amount of all Revolving Loans, plus the aggregate face amount of all outstanding LC's, exceeds the Borrowing Base (an "EXCESS") shall not exceed: (a) $13,000,000 during February, 1999, (b) $10,000,000 during March, 1999, (c) $7,000,000 during April, 1999, or (d) $3,000,000 during May, 1999. 5. Waiver of Specific Defaults. The Agent and the Lenders waive the specific Defaults and Matured Defaults acknowledged in Section 3 of this Amendment, and the anticipated Defaults or Matured Defaults described in Section 4 of this Amendment. The foregoing waivers shall be automatically withdrawn and rescinded without notice of any kind: (a) if any Borrowing Base Certificate is not delivered to the Agent and the Lenders when the 2 3 same is due; (b) if the Borrower's June 26, 1999 Borrowing Base Certificate, when delivered to the Agent and the Lenders, shows the existence of an Excess; or (c) if the Excess shown on any Borrowing Base Certificate delivered to the Agent and the Lenders, exceeds the expected amount of such Excess as set forth in Section 4. Except as expressly set forth in this Section 5, the Agent's or the Lenders' failure, at any time or times hereafter, to require strict performance by Borrower of any provision of the Credit Agreement, including without limitation, Sections 9.1, 4.3 and 9.6, shall not waive, affect or diminish any right of the Agent and/or the Lenders thereafter to demand strict compliance therewith and performance thereof, and shall not suspend, waive or affect any other Default or Matured Default, whether the same is prior or subsequent thereto and whether of the same or a different kind or character. 6. New Defined Terms. Section 1.1 of the Credit Agreement, Defined Terms, is amended to add the following new definitions which shall read in full as follows: "AMENDMENT #2 CLOSING DATE" shall mean February 26, 1999. "TEMPORARY ADDITIONAL MARGIN" shall mean additional interest at the rate of one eighth of one percent (0.125%), which additional interest rate shall be in effect from February 1, 1999 until the first day of the fiscal quarter following any fiscal quarter at the end of which the Borrower both has a Fixed Charge Coverage Ratio of 1.0 to 1.0 or greater and is otherwise in full compliance with all terms, provisions and covenants of this Agreement. 7. Interest. Paragraphs (a) and (b) of Section 3.1 of the Credit Agreement, Interest, are amended to read in full as follows: (a) So long as no Matured Default has occurred or is continuing, during such periods as such Loan is a Reference Rate Loan, a rate per annum equal to the lesser of (i) the sum of the Reference Rate in effect from time to time plus the Applicable Margin plus (if then in effect) the Temporary Additional Margin, and (ii) the Highest Lawful Rate, payable monthly in arrears on the first day of each month commencing September 1, 1997, and if such Loan is a Revolving Loan, on the Revolving Maturity Date, and if such Loan is a Term Loan, on the Term Maturity Date. With respect to each Reference Rate Loan, the rate of interest accruing shall change concurrently with each change in the Reference Rate as announced by U.S. Bank. (b) So long as no Matured Default has occurred or is continuing, during such periods as such Loan is a Eurodollar Rate Loan, a rate per annum during each Interest Period for such Loan, equal to the lesser of (i) the sum of the Eurodollar Rate for, such Interest Period for such Loan plus the Applicable Margin plus (if then in effect) the Temporary Additional Margin and (ii) the Highest Lawful Rate, payable in arrears on the first day of each month during the applicable Interest Period, on the ninetieth day of such Interest Period if such Interest Period 3 4 exceeds three months, and on the last day of such Interest Period, and if such Loan is a Revolving Loan, also on the Revolving Maturity Date, and if such Loan is a Term Loan, also on the Term Maturity Date. 8. Financial Statements and Other Information. Clauses (b) and (c) of Section 9.1 of the Credit Agreement are amended to read in full as follows: (b) as soon as practicable and in any event within thirty (30) days after the end of each monthly accounting period in each Fiscal Year of the Borrower: (i) consolidated statements of income and retained earnings of the Borrower for such monthly period and for the period from the beginning of the then current Fiscal Year to the end of such monthly period, and a consolidated balance sheet of the Borrower as of the end of such monthly period, setting forth in each case, in comparative form, figures for the corresponding periods in the preceding Fiscal Year, all in reasonable detail and certified as accurate by the chief financial officer or controller of the Borrower, subject to changes resulting from normal year-end adjustments, and (ii) statements of cash flow for such monthly period; and as soon as practicable and in any event within thirty (30) days after the end of each quarterly accounting period in each Fiscal Year of the Borrower (other than the end of the quarterly accounting period which is also the end of the Borrower's Fiscal Year): a compliance certificate of the chief financial officer or controller of the Borrower in the form attached as Exhibit 9C; (c) as soon as practicable and in any event within fifteen (15) days after the end of each month, a Borrowing Base Certificate for the Borrower computed as of the last day of such month, and as soon as practicable and in any event within two (2) days after a request therefor by the Required Lenders, a Borrowing Base Certificate for the Borrower computed as of the date specified by the Required Lenders, in all cases signed by the chief financial officer of the Borrower, together with, to the Agent only: (i) all Accounts owing by an Account Debtor that is a meat packer for the sale of "livestock" (as defined in PASA) if any Account owing by such Account Debtor is at that time unpaid for a period exceeding seven (7) days after the delivery date related thereto; (b) all Accounts owing by an Account Debtor that is not a meat packer or by an Account Debtor that is a meat packer for the sale of inventory other than "livestock" (as defined in PASA) if any Account owing by such Account Debtor is at that time unpaid for a period exceeding twenty-one (21) days after the original invoice date of the original invoice related thereto, (ii) a listing of the Borrower's accounts payable indicating which accounts payable are more than thirty (30) days past due, and (iii) a detailed listing of Inventory and other goods; 9. Financial Covenants and Ratios. Section 9.6 of the Agreement is amended to read in full as follows: 4 5 The Borrower shall maintain: (a) a consolidated Tangible Net Worth of not less than $220,000,000 at all times; (b) a consolidated ratio of total liabilities to Tangible Net Worth of not more than 1.75 to 1.0 at all times; (c) consolidated Working Capital of not less $20,000,000 at all times through March 31, 2000 and not less than $30,000,000 thereafter, (d) a Fixed Charge Coverage Ratio (calculated on a rolling twelve month basis) as of the end of each fiscal quarter of the Borrower, beginning as of June 24, 2000, of not less 1.0 to 1.0 at all times; and (e) a consolidated EBITDA (calculated on a rolling four quarter basis) of not less than: (i) $2,500,000 through December 26, 1998, (ii) ($12,300,000) through March 27, 1999, (iii) ($15,200,000) through June 26, 1999, (iv) ($2,200,000) through September 25, 1999, (v) $10,500,000 through December 25, 1999, and (vi) $34,500,000 through March 25, 2000. 10. Capital Investment Limitations. Section 10.7 of the Agreement is amended to read in full as follows: Without the prior written consent of the Required Lenders, during the period from January 1, 1999 through March 25, 2000, the Borrower shall not purchase, invest in or otherwise acquire additional real estate, equipment or other fixed assets in excess of $17,000,000 for maintenance (other than the replacement of breeding animals in the ordinary course of business not exceeding $10,000,000 during such period), and the Borrower shall not purchase, invest in or otherwise acquire additional real estate, equipment or other fixed assets for purposes other than maintenance. Beginning with the Borrower's fiscal quarter ending in June 2000, the Borrower shall not purchase, invest in or otherwise acquire additional real estate, equipment or other fixed assets (other than the replacement of breeding animals in the ordinary course of business and the replacement of obsolete and worn out Equipment in the ordinary course of business) which would cause its Capital Spending Amount in any one Fiscal Year to exceed the lesser of: (a) the maximum amount that would maintain the Borrower's consolidated Fixed Charge Coverage Ratio for such Fiscal Year at the level required in Section 9.6(d), (b) $43,000,000, or (c) the following specific limits: (i) $36,000,000 during the Borrower's 2001 Fiscal Year, and (ii) $32,000,000 during the Borrower's 2002 Fiscal Year plus the amount (if any) by which the Borrower's capital expenditures during its 2001 Fiscal Year were less than the specific limit for that Fiscal Year. 5 6 11. Payment of Subordinated Debt. Section 10.14 of the Agreement is amended to read in full as follows: The Borrower shall not directly or indirectly, pay, prepay, redeem or purchase, or deposit funds or property for the payment, prepayment, redemption or purchase of the indebtedness of Premium, of Asset Sub or of both, which is subordinated to the payment of any portion of the Liabilities. Without limiting the generality of the foregoing: (a) through the end of the Borrower's 2000 Fiscal Year, the Borrower shall not pay any principal of or interest on the PIK Notes other than the payment of interest through the issuance of additional PIK Notes unless otherwise approved in writing by the Required Lenders, and (b) after the end of the Borrower's 2000 Fiscal Year, the Borrower shall not pay any principal of or interest on the PIK Notes unless no Default or Matured Default exists at the time of such payment or would be created by such payment. 12. Construction of Hog Production Facilities. Section 10.16 of the Credit Agreement, Construction of Hog Facilities, is amended to read in full as follows: The Borrower shall not construct any hog production facilities (whether as part of its Texas expansion program or otherwise) without the prior written consent of the Required Lenders. 13. Effective Date Adjustment Fee. In the event the Amendment #2 Closing Date occurs on a date other than February 1, 1999, the changes made in the definition of Applicable Margin shall be effective on February 1, 1999. In addition, regardless of the date of the Amendment #2 Closing Date, the Borrower agrees to pay to the Agent for the ratable benefit of the Lenders, an effective date adjustment fee in the amount of Twenty Three Thousand Three Hundred Seventy Five Dollars ($23,375.00). The effective date adjustment fee shall be due and payable on the date of this Amendment, shall be fully earned on the date it becomes payable, and at the option of the Agent shall be paid by Agent initiated Revolving Loans. 14. Amendment Fee. In consideration of the other changes in terms made pursuant to this Amendment, the Borrower agrees to pay to the Agent for the ratable benefit of the Lenders, an amendment fee in the amount of One Hundred Thirteen Thousand Five Hundred Fifty and No/100ths Dollars ($113,550.00). The amendment fee shall be due and payable on the date of this Amendment, shall be fully earned on the date it becomes payable, and at the option of the Agent shall be paid by Agent initiated Revolving Loans. 15. Amendment of Exhibits. Exhibit 9B to the Credit Agreement, the Form of Compliance Certificate, is replaced with Exhibit 9C to this Amendment. 16. Representations and Warranties. To induce the Agent and the Lenders to enter into this Amendment, the Borrower represents and warrants to the Agent and the Lenders that except described in this Amendment, each and every representation and warranty set forth in the Credit Agreement is true and correct as of the date hereof, and shall be deemed remade by the Borrower as of the date hereof. 6 7 17. Conditions to Advances; Documentation. The effectiveness of this Amendment shall be conditioned upon the execution and/or delivery of the agreements, instruments and/or documents listed on Exhibit 8D attached hereto. 18. Incorporation of Credit Agreement. The parties agree that this Amendment shall be an integral part of the Credit Agreement, that all of the terms set forth therein are incorporated in this Amendment by reference, and that all terms of this Amendment are incorporated therein as of the date of this Amendment. All of the terms and conditions of the Credit Agreement which are not modified in this Amendment shall remain in full force and effect. To the extent the terms of this Amendment conflict with the terms of the Credit Agreement, the terms of this Amendment shall control. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. PREMIUM STANDARD FARMS, INC., A DELAWARE CORPORATION BY: /s/ Stephen Lightstone ------------------------------------- ITS: Executive Vice President ------------------------------------- CGC ASSET ACQUISITION CORP. A DELAWARE CORPORATION BY: /s/ John Meyer ------------------------------------- ITS: Vice President ------------------------------------- 7 8 U.S. BANCORP AG CREDIT, INC., AS AGENT AND AS A LENDER 950 17TH STREET, SUITE 350 DENVER, COLORADO 80202 BY: /s/ ------------------------------------- ITS: Vice President ------------------------------------- FARM CREDIT SERVICES OF WESTERN MISSOURI, PCA BY: /s/ ------------------------------------- ITS: Senior Vice President ------------------------------------- MERCANTILE BANK NATIONAL ASSOCIATION BY: /s/ Wayne C. Lewis ------------------------------------- ITS: Vice President ------------------------------------- HARRIS TRUST AND SAVINGS BANK BY: /s/ ------------------------------------- ITS: Vice President ------------------------------------- CREDIT AGRICOLE INDOSUEZ By: /s/ Katherine L. Abbott ------------------------------------- ITS: First Vice Presisdent ------------------------------------- By: /s/ W. Leroy Startz ------------------------------------- ITS: First Vice President ------------------------------------- HELLER FINANCIAL, INC. BY: /s/ ------------------------------------- ITS: Senior Vice President ------------------------------------- 8 EX-4.3.D 21 y50886ex4-3_d.txt THIRD AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 4.3(d) THIRD AMENDMENT TO CREDIT AGREEMENT BETWEEN U.S. BANCORP AG CREDIT, INC. AS AGENT FOR ITSELF AND CERTAIN OTHER LENDERS AND PREMIUM STANDARD FARMS, INC. DATED AUGUST 27, 1997 This Third Amendment to Credit Agreement (this "AMENDMENT") is made this 1st day of August, 2000 among PREMIUM STANDARD FARMS, INC., a Delaware corporation ("PREMIUM"), CGC ASSET ACQUISITION CORP., a Delaware corporation ("ASSET SUB" and collectively with Premium, the "BORROWER"), the financial institutions listed on the signature pages hereof (collectively the "LENDERS" and individually a "LENDER") and U.S. BANCORP AG CREDIT, INC., a Colorado corporation (the "AGENT"), in its capacity as Agent for the Lenders under the Credit Agreement (hereinafter defined). RECITALS The Borrower's and the Lenders desire to amend the Credit Agreement dated as of August 27, 1997 among Premium, the Agent and the Lenders (as the same may be amended, replaced, restated and/or supplemented from time to time, the "CREDIT AGREEMENT") by decreasing the amount of and extending the term of the Revolving Loan Commitments. The amount of the Revolving Loan Commitments is being decreased from $90,000,000 in the aggregate to $65,700,000 in the aggregate to accommodate the departure of Caisse Nationale De Credit Agricole and Heller Financial, Inc. from the Lender group. Borrower shall also be required to pay the Restated Term Notes issued to Caisse Nationale De Credit Agricole and Heller Financial, Inc. The term of the Revolving Loan Commitments is being extended for 30 days in anticipation of the syndication of new credit facilities under the Credit Agreement in the amount of $225,000,000 during the month of August. NOW THEREFORE, in consideration of the foregoing and of the terms and conditions contained in the Credit Agreement and this Amendment, and of any loans or extensions of credit or other financial accommodations heretofore, now or hereafter made to or for the benefit of Premium or Asset Sub by the Agent and the Lenders, Premium, Asset Sub, the Agent and the Lenders agree as follows: 1. Definitions. Capitalized terms used and not defined in this Amendment shall have the meanings given to such terms in the Credit Agreement. 2. Replaced Defined Terms. Section 1.1 of the Credit Agreement, Defined Terms, is amended by eliminating the definitions of "A Revolving Loan Commitment", "B Revolving Loan Commitment" and "Revolving Maturity Date", and replacing them in full with the following definitions: 2 "A REVOLVING LOAN COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $43,800,000 as set forth opposite such Lender's name under the heading "A Revolving Loan Commitments" on Exhibit 1G, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, and "A REVOLVING LOAN COMMITMENTS" shall mean collectively, the A Revolving Loan Commitments for all the Lenders. "B REVOLVING LOAN COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $21,900,000 as set forth opposite such Lender's name under the heading "B Revolving Loan Commitments" on Exhibit 1G, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, and "B REVOLVING LOAN COMMITMENTS" shall mean collectively, the B Revolving Loan Commitments for all the Lenders. "REVOLVING MATURITY DATE" shall mean August 31, 2000 or the earlier date of the termination in whole of the Commitments pursuant to Section 4.4 or 11.1. "TERM LOAN COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $21,900,000, as set forth opposite such Lender's name under the heading "Term Loan Commitments" on Exhibit 1G, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, less such Lender's Pro Rata Percentage of principal payments received with respect to the Term Loan, and "Term Loan Commitments" shall mean collectively, the Term Loan Commitments for all the Lenders. 3. Extension of Note Maturity Dates. The Maturity Dates set forth in the A Revolving Credit Notes and the B Revolving Credit Notes issued to the Lenders and dated May 13, 1998 shall be extended from July 31, 2000 to August 31, 2000. The A Revolving Credit Notes and the B Revolving Credit Notes issued to Caisse Nationale De Credit Agricole and Heller Financial, Inc. and dated May 13, 1998 shall be paid in full by Loans from the Lenders on the date of this Amendment. 4. Payment of Certain Restated Term Notes. The Restated Term Notes issued to Caisse Nationale De Credit Agricole and Heller Financial, Inc. and dated May 13, 1998 shall be paid in full by Loans from the Lenders on the date of this Amendment. Effective on the date of this Amendment and upon the payments to them contemplated hereby, Caisse Nationale De Credit Agricole and Heller Financial, Inc. shall not be Lenders under the Credit Agreement. 5. Section 13.18(a) of the Credit Agreement is amended to read in full as follows: (a) All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, telexed, cabled or delivered addressed as follows: 2 3 (i) If to the Agent at: U.S. Bancorp Ag Credit, Inc. 950 Seventeenth Street, Suite 350 Denver, Colorado 80202 Attn: Scott S. Trauth, President Facsimile: (303) 585-4732 with a copy to: Michael D. Killin Campbell Bohn Killin Brittan & Ray, LLC 270 St. Paul Street, Suite 200 Denver, Colorado 80206 Facsimile: (303) 322-5800 (ii) If to the Borrower at: Premium Standard Farms, Inc. CGC Asset Acquisition, Inc. 423 West 8th Street, Suite 200 Kansas City, Missouri 64105 Attn: Chief Financial Officer with a copy to: John Brungardt Blackwell Sanders Peper Martin, LLP 2300 Main Street, Suite 1000 Kansas City, Missouri 64108 (iii) If to any of the Lenders other than the Agent, at the address for such Lender set forth on the applicable signature page of this Agreement; and, as to each party hereto, at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall, when mailed, telecopied, telexed, transmitted, or cabled, become effective when deposited in the mail, confirmed by telex answerback, transmitted by telecopier, or delivered to the cable company, respectively except that notices and communications to the Agent shall not be effective until actually received by the Agent. 6. Exhibit 1F to the Credit Agreement, the Lenders' Commitments, is replaced with Exhibit 1G to this Amendment. 3 4 7. Representations and Warranties. To induce the Agent and the Lenders to enter into this Amendment, the Borrower represents and warrants to the Agent and the Lenders that each and every representation and warranty set forth in the Credit Agreement is true and correct as of the date hereof, and shall be deemed remade by the Borrower as of the date hereof. 8. Conditions to Advances; Documentation. The effectiveness of this Amendment shall be conditioned upon the execution and/or delivery of this Amendment by the Borrowers and the Lenders. 9. Incorporation of Credit Agreement. The parties agree that this Amendment shall be an integral part of the Credit Agreement, that all of the terms set forth therein are incorporated in this Amendment by reference, and that all terms of this Amendment are incorporated therein as of the date of this Amendment. All of the terms and conditions of the Credit Agreement which are not modified in this Amendment shall remain in full force and effect. To the extent the terms of this Amendment conflict with the terms of the Credit Agreement, the terms of this Amendment shall control. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. PREMIUM STANDARD FARMS, INC., A DELAWARE CORPORATION ATTEST: BY:/s/ Dennis D. Rippe BY: /s/ Stephen Lightstone --------------------------- ------------------------------- ITS: Vice President ITS: Executive Vice President ------------------------- ------------------------------ CGC ASSET ACQUISITION CORP. A DELAWARE CORPORATION BY: /s/ Stephen Lightstone ------------------------------- ITS: Executive Vice President ------------------------------- U.S. BANCORP AG CREDIT, INC., AS AGENT AND AS A LENDER 950 17TH STREET, SUITE 350 DENVER, COLORADO 80202 BY: /s/ Dwayne Sharp ------------------------------- ITS: Vice President ------------------------------- 4 5 FARM CREDIT SERVICES OF WESTERN MISSOURI, PCA BY: /s/ ------------------------------- ITS: Senior Vice President ------------------------------- FIRSTAR BANK, N.A. (F/K/A MERCANTILE BANK NATIONAL ASSOCIATION) BY: /s/ Wayne C. Lewis ------------------------------- ITS: Vice President ------------------------------- HARRIS TRUST AND SAVINGS BANK BY: /s/ ------------------------------- ITS: Vice President ------------------------------- 5 EX-4.3.E 22 y50886ex4-3_e.txt FOURTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 4.3(e) FOURTH AMENDMENT TO CREDIT AGREEMENT BETWEEN U.S. BANCORP AG CREDIT, INC., AS AGENT, THE OTHER LENDERS AND PREMIUM STANDARD FARMS, INC. DATED AUGUST 27, 1997 This Fourth Amendment to Credit Agreement (this "AMENDMENT") is made as of the 21st day of August, 2000 among PREMIUM STANDARD FARMS, INC., a Delaware corporation and a wholly owned subsidiary of the Guarantor ("PREMIUM"), CGC ASSET ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of Premium ("ASSET SUB A"), THE LUNDY PACKING COMPANY, a North Carolina corporation, successor by merger to PSF ACQUISITION CORP. and a wholly-owned subsidiary of Premium ("ASSET SUB B"), the following corporations and limited liability company, TOMAHAWK FARMS, INC., a North Carolina corporation, BONELESS HAMS, INC., a North Carolina corporation, LUNDY INTERNATIONAL, INC., a North Carolina corporation, DOGWOOD FARMS, INC., a North Carolina corporation, and DOGWOOD FARMS II, LLC, a North Carolina limited liability company, all to be wholly owned subsidiaries of Asset Sub B (collectively the "LUNDY SUBSIDIARIES" and collectively with Premium, Asset Sub A and Asset Sub B, the "BORROWER"), the financial institutions listed on the signature pages hereof (collectively the "LENDERS" and individually a "LENDER", which terms shall hereafter include each other financial institution that may hereafter become a party to the Credit Agreement in accordance with its terms) and U.S. BANCORP AG CREDIT, INC., a Colorado corporation (the "AGENT"), in its capacity as Agent for the Lenders under the Credit Agreement (hereinafter defined). RECITALS A. Premium, PSF Acquisition Corp. and The Lundy Packing Company ("LUNDY") have entered into an Acquisition Agreement dated as of July 12, 2000 (the "LUNDY ACQUISITION AGREEMENT"), pursuant to which PSF Acquisition Corp. shall be merged with and into Lundy, the separate existence of PSF Acquisition Corp. shall cease, and Lundy (at that time becoming Asset Sub B as referred to herein), shall continue as the surviving corporation under the corporate name The Lundy Packing Company. B. Premium and ContiGroup Companies, Inc., successor by merger to Continental Grain Company, a Delaware corporation ("CGC") have tentatively agreed to enter into an Asset Purchase Agreement which is expected to close within two months after the date hereof (the "SECOND ASSET PURCHASE AGREEMENT"), pursuant to which Premium will definitively agree to purchase certain assets from CGC generally described as the North Carolina pork operations. C. The Credit Agreement dated as of August 27, 1997 among Premium, Asset Sub A, the Agent and the Lenders (as the same has been and may be amended, replaced, restated and/or supplemented from time to time, the "CREDIT AGREEMENT") currently prohibits Premium 2 from consummating the transactions described in paragraphs A and B above and certain other related transactions (collectively the "ACQUISITION TRANSACTIONS"). In addition, Premium has requested that the Agent and the Lenders agree to increase their Revolving Loan Commitments from $90,000,000 in the aggregate to $100,000,000 in the aggregate and to increase their Term Loan Commitments from $30,000,000 in the aggregate to $125,000,000 in the aggregate. In connection with the Lundy Acquisition Agreement, Asset Sub B and the Lundy Subsidiaries will require Term Loans of up to $70,000,000 and will require up to $43,000,000 of Revolving Loans. After the closing of the Lundy Acquisition Agreement Asset Sub B and the Lundy Subsidiaries will require up to $40,000,000 of Revolving Loans to make capital improvements to the facilities acquired in connection therewith (the "LUNDY CAPITAL IMPROVEMENTS"). In connection with the Second Asset Purchase Agreement, Premium will require Term Loans and Revolving Loans of up to $20,000,000. The increased Term Loan Commitments will also be used to refinance the existing balance outstanding thereunder of approximately $13,000,000. Subject to approval of the Lenders of more definitive plans, the Revolving Loans will be used to provide funds in the approximate amount of $24,000,000 during Borrower's fiscal years 2001 and 2002 for the construction of new hog production facilities in Texas on property which is subject to a Deed of Trust in favor of the Agent on behalf of the Lenders and which is subject to a Deed of Trust in favor of the trustee on behalf of the holders of the PIK Notes (the "TEXAS CONSTRUCTION"). Accordingly, Premium and Asset Sub A have requested that the Agent and the Lenders permit Asset Sub B and the Lundy Subsidiaries to become borrowers under the Credit Agreement. Premium and Asset Sub A have further requested certain other changes in the terms of the Credit Agreement. D. The Agent and the Lenders are willing to consent to the Acquisition Transactions, to increase the Revolving Loan Commitments to $100,000,000, to increase the Term Loan Commitments to $125,000,000 (subject to Assignment and Acceptance of 33.335% of those increased Commitments as described herein), to permit Asset Sub B and the Lundy Subsidiaries to become borrowers under the Credit Agreement, and to agree to the other changes in the terms of the Credit Agreement, but only on the terms and conditions herein contained. E. Capitalized terms used and not defined in this Amendment shall have the meanings given to such terms in the Credit Agreement, as amended by this Amendment. NOW THEREFORE, in consideration of the foregoing and of the terms and conditions contained in the Credit Agreement and this Amendment, and of any loans or extensions of credit or other financial accommodations heretofore, now or hereafter made to or for the benefit of Borrower by the Agent and the Lenders, Borrower, the Agent and the Lenders agree as follows: 1. Representation and Warranty as to the Lundy Acquisition Agreement, and Consent to the Lundy Acquisition Agreement. The Borrower represents and warrants to the Agent and the Lenders that the factual information taken as a whole in the materials furnished by or on behalf of the Borrower to the Agent or any Lender for purposes of or in connection 2 3 with the Lundy Acquisition Agreement, does not contain any untrue statement of a material fact or omit to state any material fact necessary to keep the statements contained therein from being misleading as of the date of this Amendment. The Borrower further represents and warrants to the Agent and the Lenders that the financial projections and other financial information furnished to the Agent or any Lender by the Borrower in connection with the Lundy Acquisition Agreement were prepared in good faith on the basis of information and assumptions that the Borrower believed to be reasonable as of the date of such information, provided however, that the Agent and the Lenders acknowledge that financial projections are not a guaranty of future results. In reliance on the foregoing representation and warranties, the Agent and the Lenders consent to the Lundy Acquisition Agreement notwithstanding anything contained in the Credit Agreement prohibiting the Lundy Acquisition Agreement. Without limiting the generality of the foregoing, the Agent and the Lenders acknowledge that Asset Sub B, subject to the satisfaction of conditions as set forth herein, intends to use up to $70,000,000 of Term Loans and up to $43,000,000 of the Revolving Loans in connection with the consummation of the Lundy Acquisition Agreement, and the Agent and the Lenders consent to the same. It is acknowledged and agreed by the Borrower, the Agent and the Lenders that Asset Sub B shall also continue to own directly or indirectly, less than 100% interests in the following partnership and limited liability companies, L&S Farms, a North Carolina general partnership, L&H Farms, LLC, a North Carolina limited liability company, and Quality Pork, LLC, a North Carolina limited liability company (collectively the "NON-BORROWER LUNDY SUBSIDIARIES"). The operations of the Non-Borrower Lundy Subsidiaries shall not be funded with proceeds of the Revolving Loans to Borrower. None of the property of the Non-Borrower Lundy Subsidiaries will be Collateral and notwithstanding any term of the Credit Agreement, as amended hereby, the value of such property of the Non-Borrower Lundy Subsidiaries shall not, directly or indirectly, be included in the determination of the Borrowing Base. 2. Consent to the Second Asset Purchase Agreement. The Agent and the Lenders acknowledge that Premium intends to use Term Loans and Revolving Loans of up to $20,000,000 in connection with the consummation of the Second Asset Purchase Agreement. Subject to the satisfaction of conditions as set forth herein, which include the delivery of an acceptable Asset Purchase Agreement and written representations and warranties in the form set forth in the preceding paragraph 1 hereof the Lenders consent to the same. Borrower acknowledges and agrees, however, that an additional condition to this consent is the Assignment and Acceptance by the Lenders existing at the time of this Amendment, of not less than 33.335% of the Commitments, as increased by this Amendment ($33,335,000 of the Revolving Loan Commitments and $41,668,750 of Term Loan Commitments), to additional Lenders (the "GENERAL SYNDICATION"). The existing Lenders agree to make such assignments on the basis that the new Lenders will join, subject to the satisfaction of conditions as set forth herein, the consent set forth in this paragraph 2. 3. Consent to the Texas Construction. The Agent and the Lenders acknowledge that Premium intends to use up to $24,000,000 of Revolving Loans to fund the Texas Construction. Subject to the satisfaction of conditions as set forth herein, which are: (i) receipt of more definitive plans with regard thereto and approval thereof by the Required Lenders; and 3 4 (ii) the satisfaction of any and all conditions set forth by the Required Lenders in their sole and absolute discretion, the Lenders consent to the Texas Construction. The existing Lenders agree to make assignments under the General Syndication on the basis that the new Lenders will join, subject to the satisfaction of conditions as set forth herein, the consent set forth in this paragraph 3. 4. Refinancing of Existing Debt to the Lenders. On the Date of this Amendment the Agent and the Lenders shall make Equalization Transfers as set forth in Section 2.1(c) with regard to any outstanding Revolving Loans. On the Date of this Amendment the Agent and the Lenders shall make such transfers of funds as are necessary to cause any outstanding Term Loans to be held in accordance with the Lender's Pro Rata Percentages. 5. Amendment of Purpose. Any term of the Credit Agreement notwithstanding, including Section 2.5 of the Credit Agreement, Purpose, the purpose of the Revolving Loans shall be to provide working capital for the Borrower's hog production and processing operations, to provide funds for the Lundy Acquisition Agreement, to provide funds for the Second Asset Purchase Agreement and to fund the Lundy Capital Improvements, but limited as set forth in paragraphs 1 through 4 of this Amendment, and the Purpose of the Term Loans shall be as set forth in Sections 1 through 4 of this Amendment. In all cases the available Term Loan Commitments shall be fully funded and shall be used to pay down the Revolving Loans to the extent Term Loans are not needed for other purposes. 6. Limitation of Commitments Pending General Syndication and Additional Appraisals. Any term of the Credit Agreement notwithstanding, including the definitions of Commitments, LC Commitments, Revolving Loan Commitments and Term Loan Commitments as set forth in Section 1.1 of the Credit Agreement, General Definitions, as amended by this Amendment, unless and until the General Syndication has been completed and the additional appraisals received as set forth in Exhibit 8D, item 25, the total Commitments are and shall be limited to $149,996,250, of which the Revolving Loan Commitments are and shall be limited to $66,665,000 and of which the Term Loan Commitments are and shall be limited to $83,331,250, which, based upon the existing Lenders Pro Rata Percentages as of the time of this Amendment, results in limited Commitments as follows:
Revolving Loan Commitments: - -------------------------- Name of Lender Pro Rata Percentage Maximum $ - -------------- ------------------- --------- U.S. Bancorp Ag Credit, Inc. 30.000750019% $20,000,000 Farm Credit Services of Western Missouri, PCA 23.333083327% $15,555,000 Harris Trust and Savings Bank 23.333083327% $15,555,000 Firstar Bank, N.A. 23.333083327% $15,555,000 ------------- ----------- TOTAL: 100% $66,665,000
4 5
Term Loan Commitments: - --------------------- Name of Lender Pro Rata Percentage Maximum $ - -------------- ------------------- --------- U.S. Bancorp Ag Credit, Inc. 30.000750019% $25,000,000 Farm Credit Services of Western Missouri, PCA 23.333083327% $19,443,750 Harris Trust and Savings Bank 23.333083327% $19,443,750 Firstar Bank, N.A. 23.333083327% $19,443,750 ------------- ----------- TOTAL: 100% $83,331,250
7. Section 1.2 of the Credit Agreement, is amended to add or amend the following capitalized terms which are defined in the preambles to and in paragraphs 1 and 2 of this Amendment: "Asset Sub A", "Asset Sub B", the "Lundy Subsidiaries", "Borrower", "Lenders", "Lender", "Lundy", the "Lundy Acquisition Agreement", the "Lundy Capital Improvements", "CGC", the "Second Asset Purchase Agreement", "Credit Agreement", "Acquisition Transactions", "Texas Construction", the "Non-Borrower Lundy Subsidiaries" and the "General Syndication". 8. New and Amended Defined Terms. Section 1.1 of the Credit Agreement, Defined Terms, is amended to add or amend the following definitions which shall read in full as follows: "AMENDMENT #4 CLOSING DATE" shall mean August 21, 2000. "ANNIVERSARY DATE" shall mean the Amendment #4 Closing Date and each anniversary thereof. "APPLICABLE MARGIN" shall mean with respect to Revolving Loans or Term Loans which are Reference Rate Loans or Eurodollar Rate Loans, or with respect to fees for non-use of the Revolving Loan Commitments, the rates per annum set forth below for the then applicable Financial Performance Level: Revolving Loans:
Financial - --------- Performance Level Base Rate Eurodollar Rate Non-Use Fee - ----------------- --------- --------------- ----------- Level 1 1.00% 2.50% 0.375% Level 2 0.75% 2.25% 0.375% Level 3 0.50% 2.00% 0.250% Level 4 0.25% 1.75% 0.250% Level 5 0.00% 1.50% 0.250%
5 6 Term Loans:
Financial - --------- Performance Level Base Rate Eurodollar Rate - ----------------- --------- --------------- Level 1 1.125% 2.625% Level 2 0.875% 2.375% Level 3 0.625% 2.125% Level 4 0.375% 1.875% Level 5 0.125% 1.625%
The initial Financial Performance Level shall be Level 2. The Agent will review the Borrower's financial performance as of each fiscal quarter end, beginning with fiscal quarter end December 31, 2000, after its receipt of the Borrower's financial statements and compliance certificate for such fiscal quarter, and will confirm the Borrower's determination as to whether the Borrower's Financial Performance Level for such fiscal quarter was Level 1, Level 2, Level 3, Level 4 or Level 5. As so confirmed by the Agent, the Borrower's Financial Performance Level will determine the Applicable Margin effective for Revolving Loans, Term Loans and the fees for non-use of the Revolving Loan Commitments for the three month period beginning on the tenth day of the month following the month in which the Agent receives such quarterly financial statements if the Agent receives such quarterly financial statements prior to the last five (5) Business Days of the month following the end of such fiscal quarter. If the Agent receives such quarterly financial statements during the last five (5) Business Days of the month following the end of such fiscal quarter, any reduction in the Applicable Margin will be delayed until the tenth day of the second month following the month in which the Agent receives such quarterly financial statements, but any increase in the Applicable Margin will be effective retroactively to the tenth day of the month following the month in which the Agent receives such quarterly financial statements. If the Agent does not receive such quarterly statements prior to the end of the month following the end of such fiscal quarter, the Borrower's Financial Performance Level shall be deemed to be Level 1 retroactively beginning with the tenth day of the second month following the end of such fiscal quarter. "BASE RATE" shall mean the greater of (a) the Reference Rate or (b) the Federal Funds Rate plus one half of one percent (.5%). "BORROWING BASE" shall mean an amount determined as follows: 85% of Eligible Accounts as reported on Borrower's monthly and fiscal year end consolidated financial statements; plus 6 7 80% of Eligible Inventory (including breeding stock) as reported on Borrower's monthly and fiscal year end consolidated financial statements valued at the lower of cost or market in accordance with GAAP; minus 100% of all accounts payable and all uncleared checks related to Eligible Accounts and Eligible Inventory. "CASH INTEREST COVERAGE RATIO" shall mean for any period of determination, the ratio of: (a) EBITDA for such period; over (b) the amount of interest paid (including interest paid in cash but excluding interest paid in kind under the PIK Notes) during such period. "EBITDA" shall mean the net combined income of the Borrower before provision for income taxes, interest expense (including without limitation, implicit interest expense on capitalized leases), depreciation (including, without limitation, depreciation of breeding stock), amortization and other noncash expenses or charges, excluding (to the extent included): (a) nonoperating gains (including without limitation, extraordinary or nonrecurring gains, gains from discontinuance of operations and gains arising from the sale of assets other than Inventory) during the applicable period; and (b) similar nonoperating losses during such period. "EURODOLLAR RATE" shall mean, with respect to each day during each Interest Period applicable to a Eurodollar Rate Loan, the following rate adjusted as set forth below: the lower of (x) the average offered rate for deposits in United States dollars (rounded upward, if necessary, to the nearest 1/16 of 1%) for delivery of such deposits on the first day of such Interest Period, for the number of days in such Interest Period, which appears on the Reuters Screen or the Telerate Screen (the selection of the Reuters Screen or the Telerate Screen to be at the discretion of U.S. Bank), as of 11:00 a.m., London time (or such other time as of which such rate appears) three Business Days prior to the first day of such Interest Period, or (y) the rate for such deposits determined by U.S. Bank at such time based on such other published service of general application as shall be selected by U.S. Bank for such purpose; provided, however, if the Reuters Screen, the Telerate Screen or such other service does not report such rates or such rates do not, in the judgment of U.S. Bank, accurately reflect the rates of interest applicable to U.S. Bank in the relevant markets, the rate for such Interest Period shall be determined by U.S. Bank based on the rates at which United States dollar deposits are offered to U.S. Bank in the interbank Eurodollar market at such time for delivery in Immediately Available Funds on the first day of such Interest Period in an amount approximately equal to the Advance by U.S. Bank to which such Interest Period is to apply (rounded upward, if necessary, to the nearest 1/16 of 1%). "Reuters Screen" means the display designated as page 7 8 "LIBO" on the Reuters Monitor Money Rate Screen (or such other page as may replace the LIBO page on such service for the purpose of displaying London interbank offered rates of major banks for United States dollar deposits). "Telerate Screen" means page 3750 on the Telerate Screen (or such other page as may replace page 3750 on such service for the purpose of displaying London interbank offered rates of major banks for United States dollar deposits). The Eurodollar Rate as described above shall be adjusted as follows: The Eurodollar Rate shall be the rate per annum (rounded up to the next whole multiple of 1/100 of 1%) equal to the rate obtained by dividing (a) the Eurodollar Rate, as described above; by (b) a percentage equal to 100% minus the maximum reserve rate in effect from time to time during such Interest Period at which reserves (including any marginal, supplemental or emergency reserves) would be required to be maintained by U.S. Bank under Regulation D against "Eurocurrency Liabilities" (as such term is defined in Regulation D); provided, that the Eurodollar Rate for the applicable Interest Period shall be adjusted automatically on and as of the effective date of any change in such maximum reserve rate. "FINANCIAL PERFORMANCE LEVEL" shall mean the applicable level of the Borrower's financial performance determined in accordance with the table set forth below.
Financial Leverage Ratio --------- -------------- Performance ----------- Level ----- Level 1 Greater than or equal to 3.50 to 1.0 Level 2 Less than 3.50 to 1 but greater than or equal to 3.00 to 1 Level 3 Less than 3.00 to 1 but greater than or equal to 2.50 to 1 Level 4 Less than 2.50 to 1 but greater than or equal to 2.00 to 1 Level 5 Less than 2.00 to 1.0
"LC COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $10,000,000 using the percentage set forth opposite such Lender's name under the heading "Revolving Loan Commitments" on Exhibit 1H, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, less such Lender's Pro Rata Percentage of the LC Obligations, and "LC COMMITMENTS" shall mean collectively, the LC Commitments for all the Lenders. 8 9 "LEVERAGE RATIO" shall mean for any period of determination, the ratio of: (a) the amount of interest bearing debt (including the debt outstanding under the PIK Notes) outstanding at the end of such period; over (b) EBITDA for the prior four fiscal quarters. "MATURED DEFAULT" shall mean the occurrence or existence of any one or more of the following events: (a) the Borrower fails to pay any principal or interest pursuant to any of the Financing Agreements at the time such principal or interest becomes due or is declared due and such failure continues for a period of three (3) Business Days; (b) the Borrower fails to pay any of the Liabilities (other than principal and interest) on or before ten (10) Business Days after the Agent has notified the Borrower of the existence and amount of such Liabilities; (c) the Borrower fails or neglects to perform, keep or observe any of the covenants, conditions, promises or agreements contained in Sections 9.6, 10.1, 10.2, 10.3, 10.4, 10.5 or 10.10; (d) the Borrower fails or neglects to perform, keep or observe any of the covenants, conditions, promises or agreements contained in this Agreement or in any of the other Financing Agreements (other than those covenants, conditions, promises and agreements referred to or covered in (a), (b), (c), or (e) of this definition), and such failure or neglect continues for more than thirty (30) days after the earlier of the date the Agent gives the Borrower written notice thereof or the date the Borrower first learns of such failure or neglect, provided however, that such grace period shall not apply, and a Matured Default shall be deemed to have occurred and to exist immediately if such failure or neglect may not, in the Required Lenders' reasonable determination, be cured by the Borrower during such thirty (30) day grace period; (e) the Borrower fails to comply with the provisions of Section 4.3(a); (f) any warranty or representation at any time made by or on behalf of the Borrower in connection with this Agreement or any of the other Financing Agreements is untrue or incorrect in any material respect when made, or any schedule, certificate, statement, report, financial data, notice, or writing furnished at any time by or on behalf of the Borrower to the Agent or the Lenders is untrue or incorrect in any material respect on the date as of which the facts set forth therein are stated or certified; (g) a judgment in excess of $3,000,000 is rendered against the Borrower and such judgment remains unsatisfied or undischarged and in effect for thirty (30) consecutive days without a stay of enforcement or execution, provided however, that this clause (g) shall not apply to any judgment for which the Borrower is fully insured and with respect to which the insurer has admitted liability in writing for such judgment; (h) all or any part of the Borrower's assets come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors; (i) a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed against the Borrower or the Guarantor and such proceeding is not dismissed within sixty (60) days of the date of its filing, or 9 10 a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by the Borrower or the Guarantor, or the Borrower or the Guarantor makes an assignment for the benefit of creditors; (j) the Borrower or the Guarantor voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated or dies; (k) the Borrower is enjoined, restrained, or in any way prevented by the order of any court or any administrative or regulatory agency or by the termination or expiration of any permit or license, from conducting all or any material part of the Borrower's business affairs; (l) the Borrower or the Guarantor fails to make any payment due or otherwise defaults on any other obligation for borrowed money and the effects of such failure or default are to cause or permit the holder of such obligation or a trustee to cause such obligation to become due prior to its date of maturity and to cause a Material Adverse Effect; (m) the Guarantor purports to terminate its guaranty or to limit the application thereof to then existing Liabilities; (n) the Agent makes an expenditure under Section 13.3 and such amount shall not have been reimbursed to the Agent upon demand therefor; (o) the occurrence of a default, an event of default or a matured default under any other agreement, instrument or document at any time entered into between the Borrower or the Guarantor and the Agent, which default, event of default or matured default has had or in the opinion of the Required Lenders is likely to have a Material Adverse Effect; or (p) a notice is received by the Agent regarding the termination of future optional advances in accordance with North Carolina G.S. Section 45-72. "PROPERTY" shall mean: (a) the land, the improvements, the fixtures and the Equipment of Premium located in Mercer, Putnam and Sullivan Counties, Missouri and in Dallam and Hartley Counties, Texas as legally described on Exhibit 1E to the Credit Agreement, provided however, that the Property specifically includes Premium's processing facility located in Milan, Missouri; (b) the land, the improvements, the fixtures and the Equipment of Asset Sub A located in Gentry, Grundy, Harrison and Worth Counties, Missouri including those acquired from CGC pursuant to the Asset Purchase Agreement, including without limitation, Asset Sub A's feed mill and office located in Davies County; (c) the land, the improvements, the fixtures and the Equipment of Asset Sub B and the Lundy Subsidiaries located in Sampson, Harnett, Hoke and Duplin Counties, North Carolina including those acquired pursuant to the Lundy Acquisition Agreement; and (d) the land, the improvements, the fixtures and the Equipment of Premium located in Pitt and Edgecombe Counties, North Carolina and Crisp County, Georgia, including those acquired from CGC pursuant to the Second Asset Purchase Agreement. "REFERENCE RATE LOAN" shall mean any Loan which bears interest at the Base Rate. 10 11 "REGULATION D" shall mean Regulation D (or any substitute regulations) of the Board of Governors of the Federal Reserve System (or any successor thereto), as amended from time to time. "REQUIRED LENDERS" shall mean at any time, the Lenders having at least fifty one percent (51%) of the aggregate amount of all of the Lenders' Pro Rata Percentages. "REVOLVING LOAN COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $100,000,000 as set forth opposite such Lender's name under the heading "Revolving Loan Commitments" on Exhibit 1H, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, and "REVOLVING LOAN COMMITMENTS" shall mean collectively, the Revolving Loan Commitments for all the Lenders. "REVOLVING MATURITY DATE" shall mean the earlier of: (i) August 21, 2003; (ii) the date that is 30 days prior to the maturity of the PIK Notes (which maturity date is presently September 17, 2003); or (iii) the date of the termination in whole of the Commitments pursuant to Section 4.4 or 11.1. "TERM LOAN COMMITMENT" shall mean as to any Lender, such Lender's Pro Rata Percentage of $125,000,000, as set forth opposite such Lender's name under the heading "Term Loan Commitments" on Exhibit 1H, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, less such Lender's Pro Rata Percentage of principal payments received with respect to the Term Loan, and "Term Loan Commitments" shall mean collectively, the Term Loan Commitments for all the Lenders. "TERM MATURITY DATE" shall mean the earlier of: (i) August 21, 2005; (ii) the date that is 30 days prior to the maturity of the PIK Notes (which maturity date is presently September 17, 2003); or (iii) the date of the termination in whole of the Commitments pursuant to Section 4.4 or 11.1. 9. Deleted Defined Terms. Section 1.1 of the Credit Agreement, Defined Terms, is amended to delete: the defined term "A Revolving Loan" and its definition; the defined term "A Revolving Loan Commitment" and its definition; the defined term "A Revolving Note" and its definition; the defined term "Asset Sub" and its definition; the defined term "B Revolving Loan" and its definition; the defined term "B Revolving Loan Commitment" and its definition; the defined term "B Revolving Note" and its definition; the defined term "Fixed Charge Pricing Ratio" and its definition; the defined term "Fixed Charge Coverage Ratio" and its definition; the defined term "Interest Expense" and its definition; the defined term "Leverage Pricing Ratio" and its definition; and the defined term "Unallocated Cash Flow" and its definition. 10. Amount Requiring Equalization Transfer. Section 2.1(b) of the Credit 11 12 Agreement is amended as follows: The amount of "$3,000,000" shall be amended to read "$10,000,000." 11. Restated Revolving Notes. Section 2.1(h) of the Credit Agreement is amended to read in full as follows: (h) The Borrower shall execute and deliver to the Agent for each Lender to evidence the Revolving Loans made by each Lender under such Lender's Revolving Loan Commitment, a restated revolving credit note (each such note, a "REVOLVING NOTE" and collectively the "REVOLVING NOTES"), which shall be (i) dated the date of the Amendment #4 Closing Date; (ii) in the principal amount of such Lender's maximum Revolving Loan Commitment; and (iii) in substantially the form attached as Exhibit 2E, appropriately completed. Each Lender shall post (iv) the date and principal amount of each Revolving Loan made under such Revolving Note; (v) the rate of interest each such Revolving Loan will bear; and (vi) each payment of principal thereon; provided however, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. 11. Sublimit for LC's. Section 2.2(a) of the Credit Agreement is amended as follows: The amount of "$5,000,000" shall be amended to read "$10,000,000." 12. Term Loans. Section 2.3 of the Credit Agreement is amended to read in full as follows: 2.3 TERM LOAN. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender severally agrees to make a term loan (each a "TERM LOAN" and collectively the "TERM LOAN") to the Borrower: (i) on the Amendment #4 Closing Date for the purpose of repaying existing term indebtedness hereunder and for the purpose of funding the Lundy Acquisition Agreement; and (ii) on any one Business Day prior to October 1, 2000 for the purpose of funding the Second Asset Purchase Agreement, and, if necessary to fully fund the Term Loan Commitment, to pay down outstanding Revolving Loans, in aggregate amounts up to the principal amount of such Lender's Term Loan Commitment and in accordance with each Lenders Pro Rata Percentage. Once repaid, no portion of the Term Loan may be reborrowed. (b) The Borrower shall execute and deliver to the Agent for each Lender to evidence the Term Loan made by each Lender under such Lender's Term Loan Commitment, a promissory note (each such note, a "TERM NOTE" and collectively the "TERM NOTES"), which shall be (i) dated the date of the Amendment #4 Closing Date; (ii) in the principal amount of such Lender's 12 13 maximum Term Loan Commitment; and (iii) in substantially the form attached as Exhibit 2F, appropriately completed. Each Lender shall post (iv) the date and principal amount of the Term Loan made under such Term Note; (v) the rate of interest the Term Loan will bear; and (vi) each payment of principal thereon; provided however, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. The outstanding principal balance of each Term Note shall be payable as set forth therein. 13. General Provisions Regarding Eurodollar Rate Loans. Section 2.4(a) of the Credit Agreement is amended as follows: The minimum amount of a Eurodollar Rate Loan of "$1,000,000" shall be amended to read "$3,000,000" and the maximum amount of Eurodollar Rate Loans outstanding at one time shall be changed from six (6) to five (5) under the Revolving Loan and five (5) under the Term Loan. 14. Persons Authorized to Request Advances. Section 2.4(e) of the Credit Agreement is amended by striking the phrase "William R. Patterson or Dennis W. Harms" and inserting in its place the phrase "Stephen A. Lightstone, John M. Meyer or Dennis D. Rippe." 15. Interest. Section 3.1(a) and Section 3.1(c) of the Credit Agreement is amended by striking the phrase "Reference Rate" and inserting in its place the phrase "Base Rate." 16. Mandatory Payments on the Loans. Section 4.3 of the Credit Agreement is amended to read in full as follows: 4.3 MANDATORY PAYMENTS ON THE LOANS. (a) If at any time the aggregate principal amount of all Revolving Loans, plus the aggregate face amount of all outstanding LC's, exceeds the lesser of the Borrowing Base or the Revolving Loan Commitments, then the Borrower shall within three (3) Business Days, either (i) pay to the Agent for the ratable account of each Lender the amount of such excess as a payment on the Revolving Loans, or (ii) otherwise eliminate such excess by providing to the Agent an updated borrowing base certificate. (b) The Borrower shall pay to the Agent for the ratable account of each Lender as payment on the Term Loans, quarterly payments in the amount of $6,250,000 each, payable on the last day of each quarter, commencing on December 31, 2000. (c) Anything herein or in any other Financing Agreement to the contrary notwithstanding, all principal and interest remaining unpaid on the Revolving Loans on the Revolving Maturity Date, shall be immediately due and payable. Anything herein or in any other Financing Agreement to the contrary notwithstanding, all principal and interest remaining unpaid on the Term Loans 13 14 on the Term Maturity Date, shall be immediately due and payable. 17. Termination of the Commitments. Section 4.4 of the Credit Agreement is amended to read in full as follows: 4.4 TERMINATION OF THE COMMITMENTS. (a) The Agent shall have the right, with the consent of the Required Lenders and without notice to the Borrower, to terminate the Commitments immediately upon a Matured Default. The Revolving Loan Commitments and the LC Commitments shall be deemed immediately terminated and all of the Liabilities relating to the Revolving Loans shall be immediately due and payable, without notice to the Borrower, on the Revolving Maturity Date. The Term Loan Commitments shall be deemed immediately terminated and all of the Liabilities relating to the Term Loans shall be immediately due and payable, without notice to the Borrower, on the Term Maturity Date. In the event any of the Commitments are terminated, the remainder of this Agreement shall remain in full force and effect until the indefeasible full payment and full satisfaction of the Liabilities. Notwithstanding the foregoing, in the event that a Default of the type described in clause (i) of the definition of Matured Default occurs, then this Agreement shall be deemed to be terminated immediately, all of the Liabilities shall automatically become immediately due and payable, and the obligations of the Lenders to make Loans and the Commitments shall automatically terminate in accordance with Section 11.1, provided however, that if such Default is cured within the time period (if applicable) set forth in clause (i) of the definition of Matured Default, then this Agreement shall be deemed to be reinstated as of the date that the Agent is given written notice of a final court order effecting such cure. (b) The Borrower shall have the right, upon at least five Business Days' notice to the Agent to terminate the Commitments in whole, provided however, that subject to Section 2.4(a), any such termination prior to February 21, 2002 shall be accompanied by the payment of an early termination fee equal to one percent (1%) of the Commitments. The Borrower shall not have the right to terminate the Commitments in part. 18. Fees. Section 6 of the Credit Agreement is amended to read in full as follows: 6. FEES. (a) AGENT'S FEES. The Borrower agrees to pay to the Agent, in respect of its administrative duties hereunder: a one time syndication and arranger fee on the Amendment #4 Closing Date; an annual Agent's administration fee on the Amendment #4 Closing Date and on each Anniversary 14 15 Date; and one time fronting fees from time to time in respect of the initial issuance of LC's all in amounts set forth in the Agent's Letter. The annual Agent's administration fee shall be due and payable in advance on the Amendment #4 Closing Date and on each Anniversary Date hereafter through the later of the Revolving Maturity Date or the Term Maturity Date, unless the Borrower has fully terminated the Commitments in accordance with Section 4.4 and there are then no outstanding LC Obligations. Fronting fees shall be payable to the Agent at the issuance of each LC, computed at the rate set forth in the Agent's Letter on the face amount of such LC. Each of the Agent's fees shall be fully earned on the date they become payable and, at the option of the Agent, shall be paid by Agent initiated Loans. The Agent's Letter also covers the annual audit fee referred to in Section 13.6. No Persons other than the Agent shall have any interest in any such Agent's fees. The Borrower also agrees to reimburse the Agent, for the account of U.S. Bank, for fees and expenses incurred in connection with the syndication of the Loans as set forth in the Agent's Letter. (b) INITIAL COMMITMENT FEES. Borrower agrees to pay to the Agent for distribution to the Lenders who are Lenders as of the date of this Amendment, including the Agent, fees equal to the percentage set forth in the Agent's Letter on their Commitments as set forth in Paragraph 6 of the Fourth Amendment to the Credit Agreement as of the Amendment 4 Closing Date. Borrower agrees to pay to the Agent for distribution to the Lenders who become Lenders after the date of this Amendment, fees equal to such percentages on their Commitments after the General Syndication as is agreed to by the Agent with Borrower's written consent, said fees to be payable as of the date the General Syndication is completed. The fees provided for in this Section 6(b) shall be paid within three Business days after the date they are due in accordance herewith. Each of the foregoing fees shall be fully earned as they accrue and, at the option of the Agent, shall be paid by Agent initiated Loans. (c) NON-USE FEE. The Borrower agrees to pay to the Agent for distribution to the Lenders (based on their respective Pro Rata Percentages) a quarterly non-use fee from the Amendment #4 Closing Date to the Revolving Maturity Date, unless the Borrower has fully terminated the Commitments in accordance with Section 4.4 and there are then no outstanding LC Obligations, at the applicable rate per annum set forth in the definition of Applicable Margin under the heading of Non-Use Fee on the daily average unused amount of the Revolving Loan Commitments. The quarterly non-use fee shall be due and payable in arrears on the first day of each January, April, July and October with respect to the prior fiscal quarter. A pro-rated non-use fee shall be due and payable on October 1, 2000, on the Revolving Maturity Date and on any date on which the Borrower terminates the Commitment in full in accordance with 15 16 Section 4.4. Each quarterly non-use fee shall be earned as it accrues and, at the option of the Agent, shall be paid by Agent initiated Loans. (d) LC FEES. The Borrower agrees to pay to the Agent, for distribution to the Lenders (based on their respective Pro Rata Percentages), a quarterly fee, payable in arrears on the first day of each January, April, July and October with respect to the prior fiscal quarter, in respect of each LC issued hereunder, computed at the applicable rate per annum set forth in the definition of Applicable Margin under the heading of Eurodollar Rate for Revolving Loans on the face amount of such LC for the period for which it is issued. A pro-rated LC fee shall be due and payable on October 1, 2000 for the period from the Amendment 4 Closing Date through September 30, 2000 adjusted by the amount of any fees already paid by Borrower in respect to any LCs outstanding on the Amendment 4 Closing Date. Each quarterly letter of credit fee shall be fully earned as it accrues and, at the option of the Agent, shall be paid by Agent initiated Loans. The Borrower shall also pay to the Agent for the account of the Issuer issuing any LC, the normal and customary processing fees charged by such Issuer in connection with the issuance of or drawings under each such LC. (e) CALCULATION OF FEES. The fees payable under this Section 6 which are based on an annual percentage rate shall be calculated by the Agent on the basis of a 360-day year, for the actual days (including the first day but excluding the last day) occurring in the period for which such fee is payable. Each determination by the Agent of fees payable under this Section 6 shall be conclusive and binding for all purposes, absent manifest error. (f) FEES NOT INTEREST. The fees described in this Agreement represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention, or forbearance of money, and the obligation of the Borrower to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Borrower to pay interest, other fees described in this Agreement, and expenses otherwise described in this Agreement. Fees shall be payable when due in Dollars and in immediately available funds. All fees shall be non-refundable. 19. Additional Trademarks. In addition to the trademarks listed in Part 3 of Exhibit 7 to the Credit Agreement, as referred to in Section 7.3 of the Credit Agreement Borrower will acquire the following under the Lundy Acquisition Agreement: Carolinian Trademark, Lundy's Trademark, Tomahawk Farms Trademark and Gold Banner Trademark. 20. Other Names. Section 7.7 of the Credit Agreement is amended to read in full as follows: 16 17 Premium has not, during the preceding five years, been known by or used any other name, except as disclosed on Part 7 of Exhibit 7 to the Credit Agreement. Asset Sub A, Asset Sub B and the Lundy Subsidiaries have not, during the preceding five years, been known by or used any other name. 21. Affiliates. Section 7.8 of the Credit Agreement is amended to read in full as follows: The Borrower has no Affiliates, except for other co-borrowers, directors, officers, agents and employees and other than those Persons disclosed on Exhibit 7H. The legal relationships of the Borrower to each such Affiliate listed on Exhibit 7H are accurately and completely described thereon. 22. Financial Statements and Other Financial Information. Section 9.1 of the Credit Agreement is amended to read in full as follows: 9.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. Except as otherwise expressly provided for in this Agreement, the Borrower shall keep proper books of record and account in which full and true entries will be made of all dealings and transactions of or in relation to the business and affairs of the Borrower, in accordance with GAAP consistently applied, and the Borrower shall cause to be furnished to the Agent and the Lenders, from time to time and in a form reasonably acceptable to the Agent, such information as the Agent may reasonably request, including without limitation, the following: (a) as soon as practicable and in any event within ninety (90) days after the end of each Fiscal Year of the Borrower: (i) audited consolidated statements of income, retained earnings and cash flow of the Borrower for such year, and a consolidated balance sheet of the Borrower for such year, setting forth in each case, in comparative form, corresponding figures as of the end of the preceding Fiscal Year, all in reasonable detail and satisfactory in scope to the Agent and certified to the Borrower by such independent public accountants as are selected by the Borrower and satisfactory to the Agent, whose opinion shall be in scope and substance satisfactory to the Required Lenders, (ii) a management discussion and analysis of operations as included in the annual report (iii) a compliance certificate of the chief financial officer or controller of the Borrower in the form attached as Exhibit 9C, and (iv) detailed month-by-month annual operating and capital budgets for the next (then current) Fiscal Year, commencing with Fiscal Year 2002; (b) as soon as practicable and in any event within forty five (45) days after the end of each fiscal quarter of the Borrower except the last fiscal quarter of each Fiscal Year of the Borrower, a management discussion and analysis of 17 18 operations, and as soon as practicable and in any event within thirty (30) days after the end of each fiscal quarter of the Borrower except the last fiscal quarter of each Fiscal Year of the Borrower, a compliance certificate of the chief financial officer or controller of the Borrower in the form attached as Exhibit 9C; (c) as soon as practicable and in any event within thirty (30) days after the end of each monthly accounting period in each Fiscal Year of the Borrower: (i) consolidated statements of income, retained earnings and cash flow of the Borrower for such monthly period and for the period from the beginning of the then current Fiscal Year to the end of such monthly period, and a consolidated balance sheet of the Borrower as of the end of such monthly period, setting forth in each case, in comparative form, figures for the corresponding periods in the preceding Fiscal Year, all in reasonable detail and certified as materially accurate by the chief financial officer or controller of the Borrower, subject to changes resulting from normal year-end adjustments, and (ii) a Borrowing Base Certificate for the Borrower computed as of the last day of such month, signed by the chief financial officer or controller of the Borrower. 23. Liability Insurance Deductible. Section 9.4 of the Credit Agreement is amended by increasing the amount "$25,000" to "$100,000" 24. Financial Covenants and Ratios. Section 9.6 of the Credit Agreement is amended to read in full as follows: 9.6 FINANCIAL COVENANTS AND RATIOS. The Borrower shall maintain as of the end of each fiscal quarter of Borrower: (a) minimum consolidated Tangible Net Worth of not less than $220,000,000, plus 50% of the positive cumulative fiscal year end audited net income for Fiscal Year 2001 and each Fiscal Year thereafter; (b) minimum consolidated Working Capital of not less than $35,000,000; (c) minimum rolling four quarter EBITDA, as of the end of each of Borrower's fiscal quarters as follows: second quarter 2001 / $70,000,000; third quarter 2001 / $75,000,000; fourth quarter 2001 and first quarter 2002 / $80,000,000; second quarter 2002 / $85,000,000; third quarter 2002 / $90,000,000; fourth quarter 2002 and first quarter 2003 / $105,000,000; and each quarter thereafter / $110,000,000; provided, however, that for each period tested, there shall be subtracted from the target amount the amount of interest paid in kind in that period on the PIK Notes; 18 19 (d) a maximum Leverage Ratio as of the end of each of Borrower's fiscal quarters as follows: second quarter 2001 / 4.2 to 1.0; third quarter 2001 through second quarter 2002 / 4.0 to 1.0; third quarter 2002 / 3.8 to 1.0; fourth quarter 2002 and first quarter 2003 / 3.2 to 1.0; and each quarter thereafter / 3.0 to 1.0; and (e) a minimum Cash Interest Coverage Ratio as of the end of each of Borrower's fiscal quarters as follows: second quarter 2001 through first quarter 2002 / 2.5 to 1.0; second quarter 2002 / 2.4 to 1.0; third quarter 2002 / 2.6 to 1.0; fourth quarter 2002 and first quarter 2003 / 3.1 to 1.0; second quarter 2003 / 3.3 to 1.0; third quarter 2003 / 3.5 to 1.0; and each quarter thereafter / 3.7 to 1.0. 25. Ownership of Subsidiaries. Section 9.17 of the Credit Agreement is amended to read in full as follows: 9.17 OWNERSHIP OF SUBSIDIARIES. Asset Sub A and Asset Sub B shall at all times be wholly owned subsidiaries of Premium except as allowed in Section 10.2(a). The Lundy Subsidiaries shall at all times be wholly owned subsidiaries of Asset Sub B except as allowed in Section 10.2(a). 26. Encumbrances and Indebtedness. Sections 10.1 and 10.4 of the Credit Agreement shall be amended to provide that Borrower shall be allowed to incur, in addition to the indebtedness to be assumed pursuant to the Lundy Acquisition Agreement and in addition to the Encumbrances and Indebtedness presently allowed by said Sections 10.1 and 10.4, secured or unsecured indebtedness owing to Persons other than the Lenders up to the cumulative amount of $10,000,000 for capital expenses, provided, however, such indebtedness, if secured, shall be secured by property other than the Collateral. 27. Consolidations, Mergers, Acquisitions or Change in Ownership. Section 10.2 of the Credit Agreement is amended to read in full as follows: 10.2 CONSOLIDATIONS, MERGERS, ACQUISITIONS OR CHANGE IN OWNERSHIP. (a) No Borrower shall recapitalize or consolidate with, merge with, or otherwise acquire all or substantially all of the assets or properties of any other Person, except that: (i) Premium may enter into any transaction to raise equity capital which transaction does not result in a change of ownership of Premium by CGC as described below, (ii) Premium may merge with any Affiliate of Premium provided that Premium is the survivor of the merger, (iii) subject to the foregoing, any Borrower may merge with any other Borrower, and (iv) any 19 20 Borrower may enter into acquisition transactions (other than the transactions under the Lundy Acquisition Agreement and the Second Asset Purchase Agreement) not exceeding $10,000,000 in aggregate purchase price, provided however, (i) that all of such purchase price is paid in cash or debt permitted under Section 10.4, and provided further, (ii) that Premium demonstrates to the reasonable satisfaction of the Agent that each such acquisition transaction will not result in a violation of Section 9.6, and (iii) that all documentation reasonably required by the Agent to maintain the Lenders in the same debt and collateral structure as provided for herein is properly executed and delivered to the Agent; and (b) CGC shall at all times maintain, directly or indirectly, ownership of not less than 35% of Premium's stock. 28. Disposition of Property. Section 10.6 of the Credit Agreement is amended to read in full as follows: 10.6 DISPOSITION OF PROPERTY. The Borrower shall not sell, lease, transfer or otherwise dispose of any of the Borrower's properties, assets or rights (including Collateral), to any Person in excess of the cumulative amount of $250,000 in any Fiscal Year of Borrower, except (a) in the ordinary course of the Borrower's business, or (b) as permitted in the Security Documents. 29. Capital Investment Limitations. Section 10.7 of the Credit Agreement is amended to read in full as follows: 10.7 CAPITAL INVESTMENT LIMITATIONS. The Borrower shall not purchase, invest in or otherwise acquire additional real estate, equipment or other fixed assets (other than: (i) the replacement of breeding animals in the ordinary course of business, (ii) in accordance with the Lundy Acquisition Agreement and (iii) in accordance with the the Second Asset Purchase Agreement) which would cause its Capital Spending Amount in any one Fiscal Year to exceed: (i) $65,000,000 during the Borrower's 2001 Fiscal Year, (ii) $55,000,000 during the Borrower's 2002 Fiscal Year, and (iii) $30,000,000 during the Borrower's 2003 Fiscal Year and each Fiscal Year thereafter. Provided, however: (i) 100% of the unused amount of the limit for Borrower's 2001 Fiscal Year may be carried forward into the Borrower's 2002 Fiscal Year; (ii) 100% of the unused amount of the limit for Borrower's 2002 Fiscal Year may be carried forward into the Borrower's 2003 Fiscal Year; and (iii) 35% of the unused amount of the limit for Borrower's 2003 Fiscal Year and the Borrower's Fiscal Years thereafter may be carried forward 20 21 into the Borrower's 2003 Fiscal Year and into the following Fiscal Years, respectively. The Lundy Capital Improvements and the $10,000,000 of additional financed capital expenses allowed under Sections 10.1 and 10.4 are subject to the application of this Section 10.7 and shall not be allowed (even though permitted elsewhere) except to the extent compliance with this Section 10.7 is maintained. 30. Loans to Affiliates. Section 10.9 of the Credit Agreement is amended by increasing the amount "$5,000,000" to "$10,000,000" and by amending the last sentence thereof to read as follows: Nothing in this Section 10.9 shall limit the amount of loans from any one Borrower to another Borrower which may be outstanding at any one time. 31. Issuance of Equity; Amendment of Organization Documents. Section 10.11 of the Credit Agreement is amended to read in full as follows: 10.11 ISSUANCE OF EQUITY; AMENDMENT OF ORGANIZATION DOCUMENTS. Premium shall not issue or distribute any of Premium's capital stock or membership interests for consideration or otherwise, except that Premium may enter into any transaction to raise equity capital as long as such transaction does not result in a violation of Section 10.2(b). No other Borrower shall issue or distribute any of its capital stock or membership interests for consideration or otherwise. No Borrower shall amend its articles or certificate of incorporation or organization or bylaws, except upon prior written notice to the Agent, provided however, that any such amendment shall not result in a violation of Sections 9.17 or 10.2(b). The foregoing prohibitions shall not apply to any of the foregoing actions which is necessary to accomplish any transaction that is otherwise permitted under Section 10.2(a). 32. Lease Limitations. Section 10.12 of the Credit Agreement is amended by increasing the amount "$3,600,000" to $10,000,000. 33. Payment of Subordinated Debt. Section 10.14 of the Credit Agreement is amended to read in full as follows: 10.14 PAYMENT OF SUBORDINATED DEBT. The Borrower shall not directly or indirectly, pay, prepay, redeem or purchase, or deposit funds or property for the payment, prepayment, redemption or purchase of the indebtedness of any Borrower, which is subordinated to the payment of any portion of the Liabilities, except that the Borrower may prepay subordinated debt in whole or in part at any time, as long as: (a) there is no 21 22 Default or Matured Default at the time of such prepayment, (b) no Default or Matured Default would occur as a result of such prepayment, and (c) the Borrower has delivered to the Agent and the Lenders not less than five (5) Business Days before the date of any such proposed prepayment, pro forma financial statements demonstrating to the satisfaction of the Required Lenders, that the Borrower will be in compliance with the requirements of Section 9.6 immediately following any such prepayment and at the end of the then current fiscal quarter. 34. Maximum Interest. Section 13.19 of the Credit Agreement is amended by striking the phrase "Reference Rate" and inserting in its place the phrase "Base Rate." 35. Processing Fees for Assignment and Acceptance. Section 13.24 of the Credit Agreement is amended by decreasing the amount "$5,000" to "$3,500". 36. Consent to Disposition of Collateral by Agent. Section 13.30(c) of the Credit Agreement is amended by increasing the amount "$250,000" to "$2,000,000". 37. Remediation of Environmental Concerns. A new Section 13.32 shall be added to the Credit Agreement to read in full as follows: 13.32 REMEDIATION OF ENVIRONMENTAL CONCERNS. The Borrower shall complete the remediation of the environmental concerns raised in the Phase I Environmental Assessment Reports with regard to the Properties of Asset Sub B and the Lundy Subsidiaries according to the attached Exhibit 13B and shall deliver to the Agent copies of all reports and documents related thereto. 38. Exhibit 1G to the Credit Agreement, Lenders' Commitments, is replaced with Exhibit 1H to this Amendment. 39. Exhibit 2C to the Credit Agreement, the Form of Revolving Notes, is replaced with Exhibit 2E to this Agreement. 40. Exhibit 2D to the Credit Agreement, the Form of Term Notes, is replaced with Exhibit 2F to this Amendment. 41. Part 1 of Exhibit 7 to the Credit Agreement, Judgments, Litigation, Claims and Proceedings, is replaced with Exhibit 7C to this Amendment. 42. Part 2 of Exhibit 7 to the Credit Agreement, Events of Default and Other Material Disputes, is replaced with Exhibit 7D to this Amendment. 22 23 43. Part 3 of Exhibit 7 to the Credit Agreement, Licenses, Patents, Copyrights, Trademarks, Trade Names and Applications, is replaced with Exhibit 7E to this Amendment. 44. Part 4 of Exhibit 7 to the Credit Agreement, Security Interests, Liens, Claims and Encumbrances, is replaced with Exhibit 7F to this Amendment. 45. Part 5 of Exhibit 7 to the Credit Agreement, Tax Liability Claims, is replaced with Exhibit 7G to this Amendment. 46. Part 6 of Exhibit 7 to the Credit Agreement, Other Indebtedness, is replaced with Exhibit 7H to this Amendment. 47. Part 7 of Exhibit 7 to the Credit Agreement, Other Names Used by the Borrower, is replaced with Exhibit 7I to this Amendment. 48. Part 8 of Exhibit 7 to the Credit Agreement, Borrower's Affiliates, is replaced with Exhibit 7J to this Amendment. 49. Part 9 of Exhibit 7 to the Credit Agreement, Environmental Matters, is replaced with Exhibit 7K to this Amendment. 50. Part 10 of Exhibit 7 to the Credit Agreement, Bank Accounts, is replaced with Exhibit 7L to this Amendment. 51. Part 11 of Exhibit 7 to the Credit Agreement, EFS Central Filing System Registrations, is replaced with Exhibit 7M to this Amendment. 52. Exhibit 9B to the Credit Agreement, Form of Compliance Certificate, is replaced with Exhibit 9C to this Amendment. 53. Assumption of Indebtedness by Asset Sub B and the Lundy Subsidiaries; Obligations and Covenants. Asset Sub B and the Lundy Subsidiaries hereby assume all indebtedness of Premium and Asset Sub A to the Agent and the Lenders pursuant to, and as a co-borrowers join in the Credit Agreement. Asset Sub B and the Lundy Subsidiaries also agree to pay all indebtedness to the Agent and the Lenders under all promissory notes issued pursuant to the Credit Agreement, and agree that its liability to the Agent and the Lenders with respect to all indebtedness thereunder shall be primary as well as joint and several with Premium and Asset Sub A, all as if Asset Sub B and the Lundy Subsidiaries were original obligors thereof. Asset Sub B and the Lundy Subsidiaries also agree to abide by and observe all of the covenants, terms and conditions to be observed and performed by Borrower as contained in the Credit Agreement, and the agreements, instruments and/or documents related thereto. Asset Sub B and the Lundy Subsidiaries shall and are hereby added as a parties to the Credit Agreement, and as parties to all of the agreements, instruments and/or documents related thereto, and any and all 23 24 references to Borrower set forth in the Credit Agreement, or in any agreement, instrument or document related thereto, including without limitation this Amendment, shall hereafter include and pertain in all respects to Asset Sub B and the Lundy Subsidiaries. Premium and Asset Sub A acknowledge and consent to the foregoing, and agree that their liability to the Agent and the Lenders with respect to all indebtedness under the Credit Agreement shall be primary as well as joint and several with Asset Sub B and the Lundy Subsidiaries. 54. Representations and Warranties. To induce the Agent and the Lenders to enter into this Amendment, the Borrower represents and warrants to the Agent and the Lenders that except as described in this Amendment, each and every representation and warranty set forth in the Credit Agreement is true and correct as of the date hereof, and shall be deemed remade by the Borrower as of the date hereof. 55. Conditions to Advances; Documentation. The effectiveness of this Amendment and the consent of the Lenders to the Second Asset Purchase Agreement shall be conditioned upon the execution and/or delivery of the agreements, instruments and/or documents listed on Exhibit 8D attached hereto, all in form and substance acceptable to the Agent and its legal counsel. 56. Incorporation of Credit Agreement. The parties agree that this Amendment shall be an integral part of the Credit Agreement, that all of the terms set forth therein are incorporated in this Amendment by reference, and that all terms of this Amendment are incorporated therein as of the date of this Amendment. All of the terms and conditions of the Credit Agreement which are not modified in this Amendment shall remain in full force and effect. To the extent the terms of this Amendment conflict with the terms of the Credit Agreement, the terms of this Amendment shall control. 57. Return of Notes. After the new Notes required to be delivered pursuant to this Amendment have been delivered to the Agent and the Lenders, each Lender shall return to the Borrower, the Notes replaced by the new Notes required to be delivered pursuant to this Agreement. Each Lender (including the Agent in its capacity as a Lender) agrees to return such replaced Notes to the Borrower as promptly as practicable after receiving the new Notes required to be delivered pursuant to this Amendment. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. 24 25 PREMIUM STANDARD FARMS, INC., A DELAWARE CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/ Stephen Lightstone ------------------------ ----------------------- ITS: Secretary ITS: Executive Vice President ----------------------- ----------------------- CGC ASSET ACQUISITION CORP., A DELAWARE CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/ Stephen Lightstone ------------------------ ----------------------- ITS: Secretary ITS: Executive Vice President ------------------------ ----------------------- THE LUNDY PACKING COMPANY, A NORTH CAROLINA CORPORATION AND SUCCESSOR BY MERGER TO PSF ACQUISITION CORP. ATTEST: BY: /s/ Gerald Schulte BY: /s/ Stephen Lightstone ------------------------ ----------------------- ITS: Secretary ITS: Executive Vice President ------------------------ ----------------------- TOMAHAWK FARMS, INC., A NORTH CAROLINA CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/ Stephen Lightstone ------------------------ ----------------------- ITS: Secretary ITS: Executive Vice President ------------------------ ----------------------- BONELESS HAMS, INC., A NORTH CAROLINA CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/ Stephen Lightstone ------------------------ ----------------------- ITS: Secretary ITS: Executive Vice President ------------------------ ----------------------- 25 26 LUNDY INTERNATIONAL, INC., A NORTH CAROLINA CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/ Stephen Lightstone ------------------------ ----------------------- ITS: Secretary ITS: Executive Vice President ------------------------ ----------------------- DOGWOOD FARMS, INC., A NORTH CAROLINA CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/ Stephen Lightstone ------------------------ ----------------------- ITS: Secretary ITS: Executive Vice President ------------------------ ----------------------- DOGWOOD FARMS II, LLC, A NORTH CAROLINA LIMITED LIABILITY COMPANY BY: /s/ Stephen Lightstone ------------------------ ITS: Executive Vice President ------------------------ 26 27 U.S. BANCORP AG CREDIT, INC., AS AGENT AND AS A LENDER 950 17TH STREET, SUITE 350 DENVER, COLORADO 80202 BY: /s/ ----------------------- ITS: Vice President ----------------------- FARM CREDIT SERVICES OF WESTERN MISSOURI, PCA BY: /s/ ----------------------- ITS: Vice President ----------------------- FIRSTAR BANK, N.A. (F/K/A MERCANTILE BANK NATIONAL ASSOCIATION) BY: /s/ ----------------------- ITS: Vice President ----------------------- HARRIS TRUST AND SAVINGS BANK BY: /s/ ----------------------- ITS: Vice President ----------------------- 27 EX-4.3.F 23 y50886ex4-3_f.txt FIFTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 4.3(F) FIFTH AMENDMENT TO CREDIT AGREEMENT BETWEEN U.S. BANCORP AG CREDIT, INC., AS AGENT, THE OTHER LENDERS AND PREMIUM STANDARD FARMS, INC. DATED AUGUST 27, 1997 (INCLUDING REVISIONS TO TERMS OF THE FOURTH AMENDMENT TO CREDIT AGREEMENT) This Fifth Amendment to Credit Agreement (this "AMENDMENT") is made as of the 22nd day of September, 2000 among PREMIUM STANDARD FARMS, INC., a Delaware corporation and a wholly owned subsidiary of the Guarantor ("PREMIUM"), CGC ASSET ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of Premium ("ASSET SUB A"), THE LUNDY PACKING COMPANY, a North Carolina corporation, successor by merger to PSF ACQUISITION CORP. and a wholly-owned subsidiary of Premium ("ASSET SUB B"), the following corporations and limited liability company, TOMAHAWK FARMS, INC., a North Carolina corporation, BONELESS HAMS, INC., a North Carolina corporation, LUNDY INTERNATIONAL, INC., a North Carolina corporation, DOGWOOD FARMS, INC., a North Carolina corporation, and DOGWOOD FARMS II, LLC, a North Carolina limited liability company, all to be wholly owned subsidiaries of Asset Sub B (collectively the "LUNDY SUBSIDIARIES"), PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC., a Delaware corporation, and a wholly-owned subsidiary of Premium ("ASSET SUB C" and collectively with Premium, Asset Sub A, Asset Sub B and the Lundy Subsidiaries, the "BORROWER"), the financial institutions listed on the signature pages hereof (collectively the "LENDERS" and individually a "LENDER", which terms shall hereafter include each other financial institution that may hereafter become a party to the Credit Agreement in accordance with its terms) and U.S. BANCORP AG CREDIT, INC., a Colorado corporation (the "AGENT"), in its capacity as Agent for the Lenders under the Credit Agreement (hereinafter defined). RECITALS A. The Lundy Acquisition Agreement, as described in the Fourth Amendment to Credit Agreement dated as of August 21, 2000 (the "FOURTH AMENDMENT") has been completed. B. At the time of the closing of the Fourth Amendment, Premium and ContiGroup Companies, Inc., successor by merger to Continental Grain Company, a Delaware corporation ("CGC") had tentatively agreed to enter into an Asset Purchase Agreement which was described in the Fourth Amendment as the Second Asset Purchase Agreement, pursuant to which Premium planned to purchase certain assets from CGC generally described as the North Carolina pork operations. Premium and CGC have agreed that assets described as the North Carolina pork operations will be acquired through the acquisition of a new subsidiary of CGC which will own said assets. Therefore, instead of the Second Asset Purchase Agreement, PSF Group Holdings, Inc., Premium and CGC have entered into a Stock Purchase Agreement dated as of September 22, 2000 (the "CONTI ACQUISITION AGREEMENT"), pursuant to which one 1 2 hundred percent of the stock of Premium Standard Farms of North Carolina, Inc., which will own the North Carolina pork operations, shall be sold to Premium (at that time becoming Asset Sub C as referred to herein). C. The Credit Agreement dated as of August 27, 1997 among Premium, Asset Sub A, Asset Sub B, the Lundy Subsidiaries, the Agent and the Lenders (as the same has been and may be amended, replaced, restated and/or supplemented from time to time, the "CREDIT AGREEMENT") currently prohibits Premium from consummating the Conti Acquisition Agreement. D. The Agent and the Lenders are willing to consent to the Conti Acquisition Agreement, to permit Asset Sub C to become a borrower under the Credit Agreement, and to agree to the other changes in the terms of the Credit Agreement, but only on the terms and conditions herein contained. E. Capitalized terms used and not defined in this Amendment shall have the meanings given to such terms in the Credit Agreement, as amended by this Amendment. NOW THEREFORE, in consideration of the foregoing and of the terms and conditions contained in the Credit Agreement and this Amendment, and of any loans or extensions of credit or other financial accommodations heretofore, now or hereafter made to or for the benefit of Borrower by the Agent and the Lenders, Borrower, the Agent and the Lenders agree as follows: 1. Representation and Warranty as to the Conti Acquisition Agreement, and Consent to the Conti Acquisition Agreement. The Borrower represents and warrants to the Agent and the Lenders that the factual information taken as a whole in the materials furnished by or on behalf of the Borrower to the Agent or any Lender for purposes of or in connection with the Conti Acquisition Agreement, does not contain any untrue statement of a material fact or omit to state any material fact necessary to keep the statements contained therein from being misleading as of the date of this Amendment. The Borrower further represents and warrants to the Agent and the Lenders that the financial projections and other financial information furnished to the Agent or any Lender by the Borrower in connection with the Conti Acquisition Agreement were prepared in good faith on the basis of information and assumptions that the Borrower believed to be reasonable as of the date of such information, provided however, that the Agent and the Lenders acknowledge that financial projections are not a guaranty of future results. In reliance on the foregoing representation and warranties, the Agent and the Lenders consent to the Conti Acquisition Agreement notwithstanding anything contained in the Credit Agreement prohibiting the Conti Acquisition Agreement. Without limiting the generality of the foregoing, the Agent and the Lenders acknowledge that Premium and/or Asset Sub C, subject to the satisfaction of conditions as set forth herein, intends to use Term Loans and Revolving Loans of up to $20,000,000 in connection with the consummation of the Conti Acquisition Agreement, and the Agent and the Lenders consent to the same. 2. Amendment of Purpose. Any term of the Credit Agreement notwithstanding, 2 3 including Section 2.5 of the Credit Agreement, Purpose, the purpose of the Revolving Loans shall be (i) to provide working capital for the Borrower's hog production and processing operations, (ii) to provide funds for the Conti Acquisition Agreement, but limited as set forth in paragraph 1 of this Amendment, and (iii) to fund the Texas Construction and the Lundy Capital Improvements, but limited as set forth in the Fourth Amendment. Any term of the Credit Agreement notwithstanding, including Section 2.5 of the Credit Agreement, Purpose, the purpose of the Term Loans shall be (i) to provide funds for the Conti Acquisition Agreement, but limited as set forth in paragraph 1 of this Amendment, and (ii) to fund the Texas Construction and the Lundy Capital Improvements, but limited as set forth in the Fourth Amendment. In all cases the available Term Loan Commitments shall be fully funded and shall be used to pay down the Revolving Loans to the extent Term Loans are not needed for other purposes. The parties acknowledge and agree that this is a technical amendment of purpose inasmuch as the Conti Acquisition Agreement is substantially the same transaction as the Second Asset Purchase Agreement and inasmuch as there has been no change with respect to the proposed Texas Construction or the Lundy Capital Improvements. 3. Limitation of Commitments Pending General Syndication and Additional Appraisals. The limitation of Commitments as set forth in Paragraph 6 of the Fourth Amendment shall continue in effect, it being acknowledged that the General Syndication has not yet been completed and the additional appraisals referred to in Exhibit 8E have not yet been received. 4. Section 1.2 of the Credit Agreement, is amended to add or amend the following capitalized terms which are defined in the preambles to this Amendment: "Asset Sub C", "Borrower", "Fourth Amendment" and "Conti Acquisition Agreement". 5. New and Amended Defined Terms. Section 1.1 of the Credit Agreement, Defined Terms, is amended to add or amend the following definitions which shall read in full as follows: "EURODOLLAR RATE" shall mean, with respect to each day during each Interest Period applicable to a Eurodollar Rate Loan, the following rate adjusted as set forth below: the lower of (x) the lower of the average offered rate for deposits in United States dollars (rounded upward, if necessary, to the nearest 1/16 of 1%) for delivery of such deposits on the first day of such Interest Period, for the number of days in such Interest Period, which appears on the Reuters Screen or the Telerate Screen, as of 11:00 a.m., London time (or such other time as of which such rate appears) two Business Days prior to the first day of such Interest Period, or (y) the rate for such deposits determined by U.S. Bank at such time based on such other published service of general application as shall be selected by U.S. Bank for such purpose; provided, however, if the Reuters Screen, the Telerate Screen or such other service does not report such rates or such rates do not, in the judgment of U.S. Bank, accurately reflect the rates of interest applicable to U.S. Bank in the relevant markets, the rate for such Interest 3 4 Period shall be determined by U.S. Bank based on the rates at which United States dollar deposits are offered to U.S. Bank in the interbank Eurodollar market at such time for delivery in Immediately Available Funds on the first day of such Interest Period in an amount approximately equal to the Advance by U.S. Bank to which such Interest Period is to apply (rounded upward, if necessary, to the nearest 1/16 of 1%). "Reuters Screen" means the display designated as page "LIBO" on the Reuters Monitor Money Rate Screen (or such other page as may replace the LIBO page on such service for the purpose of displaying London interbank offered rates of major banks for United States dollar deposits). "Telerate Screen" means page 3750 on the Telerate Screen (or such other page as may replace page 3750 on such service for the purpose of displaying London interbank offered rates of major banks for United States dollar deposits). The Eurodollar Rate as described above shall be adjusted as follows: The Eurodollar Rate shall be the rate per annum (rounded up to the next whole multiple of 1/100 of 1%) equal to the rate obtained by dividing (a) the Eurodollar Rate, as described above; by (b) a percentage equal to 100% minus the maximum reserve rate in effect from time to time during such Interest Period at which reserves (including any marginal, supplemental or emergency reserves) would be required to be maintained by U.S. Bank under Regulation D against "Eurocurrency Liabilities" (as such term is defined in Regulation D); provided, that the Eurodollar Rate for the applicable Interest Period shall be adjusted automatically on and as of the effective date of any change in such maximum reserve rate. "PROPERTY" shall mean: (a) the land, the improvements, the fixtures and the Equipment of Premium located in Mercer, Putnam and Sullivan Counties, Missouri and in Dallam and Hartley Counties, Texas as legally described on Exhibit 1E to the Credit Agreement, provided however, that the Property specifically includes Premium's processing facility located in Milan, Missouri; (b) the land, the improvements, the fixtures and the Equipment of Asset Sub A located in Gentry, Grundy, Harrison and Worth Counties, Missouri including those acquired from CGC pursuant to the Asset Purchase Agreement, including without limitation, Asset Sub A's feed mill and office located in Davies County; (c) the land, the improvements, the fixtures and the Equipment of Asset Sub B and the Lundy Subsidiaries located in Sampson, Harnett, Hoke and Duplin Counties, North Carolina including those acquired pursuant to the Lundy Acquisition Agreement; and (d) the land, the improvements, the fixtures and the Equipment of Asset Sub C located in Pitt and Edgecombe Counties, North Carolina and Crisp County, Georgia, including those acquired from CGC pursuant to the Conti Acquisition Agreement. 6. Restated Revolving Notes. Section 2.1(h) of the Credit Agreement is amended to read in full as follows: (h) The Borrower shall execute and deliver to the Agent for each 4 5 Lender to evidence the Revolving Loans made by each Lender under such Lender's Revolving Loan Commitment, a restated revolving credit note (each such note, a "REVOLVING NOTE" and collectively the "REVOLVING NOTES"), which shall be (i) dated the date of the Amendment #4 Closing Date; (ii) in the principal amount of such Lender's maximum Revolving Loan Commitment; and (iii) in substantially the form attached as Exhibit 2G, appropriately completed. Each Lender shall post (iv) the date and principal amount of each Revolving Loan made under such Revolving Note; (v) the rate of interest each such Revolving Loan will bear; and (vi) each payment of principal thereon; provided however, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. 7. Term Loans. Section 2.3 of the Credit Agreement is amended to read in full as follows: 2.3 TERM LOAN. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender severally agrees to make a term loan (each a "TERM LOAN" and collectively the "TERM LOAN") to the Borrower on any one Business Day for the purpose of funding the Conti Acquisition Agreement, and, if necessary to fully fund the Term Loan Commitment, to pay down outstanding Revolving Loans, in aggregate amounts up to the principal amount of such Lender's Term Loan Commitment and in accordance with each Lenders Pro Rata Percentage. Once repaid, no portion of the Term Loan may be reborrowed. (b) The Borrower shall execute and deliver to the Agent for each Lender to evidence the Term Loan made by each Lender under such Lender's Term Loan Commitment, a promissory note (each such note, a "TERM NOTE" and collectively the "TERM NOTES"), which shall be (i) dated the date of the Amendment #4 Closing Date; (ii) in the principal amount of such Lender's maximum Term Loan Commitment; and (iii) in substantially the form attached as Exhibit 2H, appropriately completed. Each Lender shall post (iv) the date and principal amount of the Term Loan made under such Term Note; (v) the rate of interest the Term Loan will bear; and (vi) each payment of principal thereon; provided however, that any failure of such Lender to so post shall not affect the Borrower's obligations thereunder. The outstanding principal balance of each Term Note shall be payable as set forth therein. 8. General Provisions Regarding Loans. Sections 2.4(a) and 2.4(b) of the Credit Agreement are amended to read in full as follows: (a) Each Revolving Loan to be made by the Agent in accordance with 5 6 the terms of Section 2.1(b) shall be a Reference Rate Loan and shall be made upon prior written notice from the Borrower to the Agent delivered not later than 11:00 a.m. (Denver time) on the same Business Day as the proposed Loan. Other Revolving Loans and Term Loans shall be subject to the following terms. Each Reference Rate Loan shall be made upon prior written notice from the Borrower to the Agent delivered not later than 11:00 a.m. (Denver time) on the first Business Day prior to the proposed Loan. Each Eurodollar Rate Loan shall be made upon prior written notice from the Borrower to the Agent delivered not later than 11:00 a.m. (Denver time) on the third Business Day prior to the proposed Loan. Each Eurodollar Rate Loan shall be in an aggregate amount of not less than $3,000,000 or in integral multiples of $1,000,000 in excess thereof. The Borrower may not have more than five (5) Eurodollar Rate Loans outstanding at any one time under the Revolving Loan and five (5) Eurodollar Rate Loans outstanding at any one time under the Term Loan. Each notice of borrowing with respect to the Loans shall be irrevocable and shall specify (iii) the amount of the proposed borrowing; (iv) the date of the proposed borrowing; (v) the Type of each such Loan; (vi) whether the proposed borrowing is a Revolving Loan or the Term Loan; and (vii) with respect to any Eurodollar Rate Loan, the Interest Period with respect to each such Loan and the expiration date of each such Interest Period. The Borrower shall give the Agent written (including facsimile) notice by the required time of any proposed borrowing. Neither the Agent nor any Lender shall incur any liability to the Borrower in acting upon any facsimile notice referred to above which the Agent believes in good faith to have been given by the Borrower, or for otherwise acting in good faith under this Section 2.4(a). (b) Except with regard to Revolving Loans to be made by the Agent in accordance with the terms of Section 2.1(b), the Agent shall notify each Lender of any notice received by the Agent from the Borrower pursuant to Section 2.4(a) promptly after it is received from the Borrower. Each Lender shall, before 11:00 a.m. (Denver time) on the date for the proposed Loan, make available for the account of the Agent at its address set forth in Section 13.18, in same day funds, its Pro Rata Percentage of such borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 8, on the date for the proposed Loan, the Agent shall make the borrowing available to the Borrower in immediately available funds. Any Loan made by the Agent pursuant to a request believed by the Agent to be an authorized request by the Borrower for a Loan pursuant to Section 2.4(e) shall be deemed to be a Loan for all purposes with the same effect as if the Borrower had in fact requested the Agent to make such Loan. 9. Other Names. Section 7.7 of the Credit Agreement is amended to read in full as follows: Premium has not, during the preceding five years, been known by or used 6 7 any other name, except as disclosed on Part 7 of Exhibit 7 to the Credit Agreement. Asset Sub A, Asset Sub B, the Lundy Subsidiaries and Asset Sub C have not, during the preceding five years, been known by or used any other name. 10. Affiliates. Section 7.8 of the Credit Agreement is amended to read in full as follows: The Borrower has no Affiliates, except for other co-borrowers, directors, officers, agents and employees and other than those Persons disclosed on Exhibit 7J (attached to the Fourth Amendment). The legal relationships of the Borrower to each such Affiliate listed on Exhibit 7J are accurately and completely described thereon. 11. Existence. Section 7.12 of the Credit Agreement is amended to read in full as follows: Each Borrower is a corporation or limited liability company duly incorporated or organized, in existence and in good standing under the laws of the state in which it was incorporated or organized and is duly licensed to do business in all states where the nature and extent of the business transacted by it or the ownership of its assets makes such licensing necessary, except for those jurisdictions in which the failure to be so licensed would not, in the aggregate, have a Material Adverse Effect. 12. Ownership of Subsidiaries. Section 9.17 of the Credit Agreement is amended to read in full as follows: 9.17 OWNERSHIP OF SUBSIDIARIES. Asset Sub A, Asset Sub B and Asset Sub C shall at all times be wholly owned subsidiaries of Premium except as allowed in Section 10.2(a). The Lundy Subsidiaries shall at all times be wholly owned subsidiaries of Asset Sub B except as allowed in Section 10.2(a). 13. Consolidations, Mergers, Acquisitions or Change in Ownership. Section 10.2 of the Credit Agreement is amended by striking the phrase "Second Asset Purchase Agreement" and inserting in its place the phrase "Conti Acquisition Agreement." Section 10.2 of the Credit Agreement is further amended by adding a new subsection (c) to read in full as follows: (c) The recapitalizations, consolidations, mergers and acquisitions permitted in accordance with Section 10.2(a) shall be permitted notwithstanding any terms or conditions to the contrary set forth in Sections 7.8, 7.12 , 8.1(c), 9.2 and 9.10. 7 8 14. Capital Investment Limitations. Section 10.7 of the Credit Agreement is amended by striking the phrase "Second Asset Purchase Agreement" and inserting in its place the phrase "Conti Acquisition Agreement." 15. Amendments and Waivers Requiring Unanimous Consent. Section 13.30(b) of the Credit Agreement is amended to read in full as follows: (b) Notwithstanding clause (a) of this Section 13.30, no amendment or waiver that does not have the consent in writing of the holders of all outstanding Notes or of all Lenders if no Loans are outstanding, shall: (i) change the amount or postpone the date of payment of any scheduled payment or required payment of principal of the Notes or reduce the rate or extend the time of payment of interest on the Notes, or reduce the amount of principal thereof, or modify any of the provisions of the Notes with respect to the payment or prepayment thereof, (ii) give to any Term Note any preference over any other Term Note or give to any Revolving Note any preference over any other Revolving Note, (iii) alter, modify or amend the definition of Required Lenders, (iv) alter, modify or amend the provisions of this Section 13.30, (v) change the amount or term of any of the Commitments or the fees required under Section 6, (vi) alter, modify or amend the provisions of Section 8 of this Agreement, (vii) alter, modify or amend any Lender's right hereunder to consent to any action, make any request or give any notice, (viii) alter, modify or amend Exhibit 1A, (ix) release any Collateral having an aggregate value in excess of twenty percent (20%) of the aggregate book value of all Collateral, unless such release is permitted or contemplated by the Financing Agreements or release any guarantor of the Liabilities; or (x) alter, modify or amend the provisions of Section 2.1(b) or 2.1(g) requiring the consent of all Lenders. Any such amendment or waiver shall apply equally to all Lenders and all the holders of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Borrower, whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived. 16. Remediation of Environmental Concerns. Section 13.32 of the Credit Agreement is amended to read in full as follows: 13.32 REMEDIATION OF ENVIRONMENTAL CONCERNS. (a) The Borrower shall complete the remediation of the environmental concerns raised in the Phase I Environmental Assessment Reports with regard to the Properties of Asset Sub B and the Lundy Subsidiaries according to the attached Exhibit 13B (attached to the Fourth Amendment) and shall deliver to the Agent copies of all reports and documents related thereto. (b) The Borrower shall complete the remediation of the environmental 8 9 concerns raised in the Phase I Environmental Assessment Reports with regard to the Properties of Asset Sub C according to the attached Exhibit 13C and shall deliver to the Agent copies of all reports and documents related thereto. 17. Exhibit 2E to the Credit Agreement, the Form of Revolving Notes, is replaced with Exhibit 2G to this Agreement. 18. Exhibit 2F to the Credit Agreement, the Form of Term Notes, is replaced with Exhibit 2H to this Amendment. 19. Part 4 of Exhibit 7 to the Credit Agreement, Security Interests, Liens, Claims and Encumbrances, is replaced with Exhibit 7N to this Amendment. 20. Part 6 of Exhibit 7 to the Credit Agreement, Other Indebtedness, is replaced with Exhibit 7O to this Amendment. 21. Part 9 of Exhibit 7 to the Credit Agreement, Environmental Matters, is replaced with Exhibit 7P to this Amendment. 22. Part 11 of Exhibit 7 to the Credit Agreement, EFS Central Filing System Registrations, is replaced with Exhibit 7Q to this Amendment. 23. Assumption of Indebtedness by Asset Sub C; Obligations and Covenants. Asset Sub C hereby assumes all indebtedness of Premium, Asset Sub A, Asset Sub B and the Lundy Subsidiaries to the Agent and the Lenders pursuant to, and as a co-borrower joins in the Credit Agreement. Asset Sub C also agrees to pay all indebtedness to the Agent and the Lenders under all promissory notes issued pursuant to the Credit Agreement, and agrees that its liability to the Agent and the Lenders with respect to all indebtedness thereunder shall be primary as well as joint and several with Premium, Asset Sub A, Asset Sub B and the Lundy Subsidiaries, all as if Asset Sub C was an original obligor thereof. Asset Sub C also agrees to abide by and observe all of the covenants, terms and conditions to be observed and performed by Borrower as contained in the Credit Agreement, and the agreements, instruments and/or documents related thereto. Asset Sub C shall be and is hereby added as a party to the Credit Agreement, and as a party to all of the agreements, instruments and/or documents related thereto, and any and all references to Borrower set forth in the Credit Agreement, or in any agreement, instrument or document related thereto, including without limitation this Amendment, shall hereafter include and pertain in all respects to Asset Sub C. Premium, Asset Sub A, Asset Sub B and the Lundy Subsidiaries acknowledge and consent to the foregoing, and agree that their liability to the Agent and the Lenders with respect to all indebtedness under the Credit Agreement shall be primary as well as joint and several with Asset Sub C. 24. Representations and Warranties. To induce the Agent and the Lenders to enter into this Amendment, the Borrower represents and warrants to the Agent and the Lenders that except as described in this Amendment, each and every representation and warranty set forth in 9 10 the Credit Agreement is true and correct as of the date hereof, and shall be deemed remade by the Borrower as of the date hereof. 25. Representations and Warranties Regarding Location of Collateral. Borrower represents and warrants to the Agent and the Lenders that only Asset Sub B, Asset Sub C and the Lundy Subsidiaries presently own Collateral in North Carolina, South Carolina and Georgia, and that Asset Sub B, Asset Sub C and the Lundy Subsidiaries, do not presently own Collateral outside of North Carolina, South Carolina and Georgia. The Borrower acknowledges that any change in this status of location of Collateral shall be subject to the terms of Section 2.14 of the Security Agreement dated as of August 27, 1997 among Premium, Asset Sub A, Asset Sub B, the Lundy Subsidiaries, Asset Sub C, the Agent and the Lenders (as the same has been and may be amended, replaced, restated and/or supplemented from time to time). 26. Conditions to Advances; Documentation. The effectiveness of this Amendment and the consent of the Lenders to the Conti Acquisition Agreement shall be conditioned upon the execution and/or delivery of the agreements, instruments and/or documents listed on Exhibit 8E attached hereto, all in form and substance acceptable to the Agent and its legal counsel. 27. Incorporation of Credit Agreement. The parties agree that this Amendment shall be an integral part of the Credit Agreement, that all of the terms set forth therein are incorporated in this Amendment by reference, and that all terms of this Amendment are incorporated therein as of the date of this Amendment. All of the terms and conditions of the Credit Agreement which are not modified in this Amendment shall remain in full force and effect. To the extent the terms of this Amendment conflict with the terms of the Credit Agreement, the terms of this Amendment shall control. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. PREMIUM STANDARD FARMS, INC., A DELAWARE CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/Stephen Lightstone ------------------------- ------------------------ ITS: Secretary ITS: Executive Vice President ------------------------ ------------------------ CGC ASSET ACQUISITION CORP., A DELAWARE CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/Stephen Lightstone ------------------------- ------------------------ ITS: Secretary ITS: Executive Vice President ------------------------ ------------------------ 10 11 THE LUNDY PACKING COMPANY, A NORTH CAROLINA CORPORATION AND SUCCESSOR BY MERGER TO PSF ACQUISITION CORP. ATTEST: BY: /s/ Gerald Schulte BY: /s/Stephen Lightstone ------------------------- ------------------------ ITS: Secretary ITS: Executive Vice President ------------------------ ------------------------ TOMAHAWK FARMS, INC., A NORTH CAROLINA CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/Stephen Lightstone ------------------------- ------------------------ ITS: Secretary ITS: Executive Vice President ------------------------ ------------------------ BONELESS HAMS, INC., A NORTH CAROLINA CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/Stephen Lightstone ------------------------- ------------------------ ITS: Secretary ITS: Executive Vice President ------------------------ ------------------------ LUNDY INTERNATIONAL, INC., A NORTH CAROLINA CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/Stephen Lightstone ------------------------- ------------------------ ITS: Secretary ITS: Executive Vice President ------------------------ ------------------------ DOGWOOD FARMS, INC., A NORTH CAROLINA CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/Stephen Lightstone ------------------------- ------------------------ ITS: Secretary ITS: Executive Vice President ------------------------ ------------------------ 11 12 DOGWOOD FARMS II, LLC, A NORTH CAROLINA LIMITED LIABILITY COMPANY BY: /s/Stephen Lightstone ------------------------ ITS: Executive Vice President ------------------------ PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC., A DELAWARE CORPORATION ATTEST: BY: /s/ Gerald Schulte BY: /s/Stephen Lightstone ------------------------- ------------------------ ITS: Secretary ITS: Executive Vice President ------------------------ ------------------------ 12 13 U.S. BANCORP AG CREDIT, INC., AS AGENT AND AS A LENDER 950 17TH STREET, SUITE 350 DENVER, COLORADO 80202 BY: /s/ ------------------------ ITS: Vice President ------------------------ FARM CREDIT SERVICES OF WESTERN MISSOURI, PCA BY: /s/ ------------------------ ITS: Senior Vice President ------------------------ FIRSTAR BANK, N.A. (F/K/A MERCANTILE BANK NATIONAL ASSOCIATION) BY: /s/ Wayne C. Lewis ------------------------ ITS: Vice President ------------------------ HARRIS TRUST AND SAVINGS BANK BY: /s/ ------------------------ ITS: Vice President ------------------------ 13 EX-4.3.G 24 y50886ex4-3_g.txt GUARANTY AGREEMENT 1 EXHIBIT 4.3(g) GUARANTY (Corporate) THIS GUARANTY, dated as of May 13,1998 is made and given by PSF GROUP HOLDINGS, INC., a Delaware corporation (the "GUARANTOR"), in favor of U.S. BANCORP AG CREDIT, INC. (f/k/a FBS Ag Credit, Inc.), a Colorado corporation, as agent (the "AGENT") for itself and the other "LENDERS" named in that certain Credit Agreement of even date herewith (as the same may be amended, replaced, restated and/or supplemented from time to time, the "CREDIT AGREEMENT") among the Agent, the Lenders and PREMIUM STANDARD FARMS, INC., a Delaware corporation, and CGC ASSET ACQUISITION CORP., a Delaware corporation (collectively, the "BORROWER"). RECITALS A. The Borrower, the Agent and the Lenders have entered into the First Amendment to Credit Agreement of substantially even date herewith pursuant to which the Agent and the Lenders have agreed to extend to the Borrower certain credit accommodations consisting of a revolving line of credit of $90,000,000 and $30,000,000 of term debt. B. It is a condition precedent to the obligations of the Agent and the Lenders to extend credit accommodations pursuant to the terms of the First Amendment to Credit Agreement that this Guaranty be executed and delivered by the Guarantor. C. The Guarantor is the owner of 100% of the issued and outstanding stock of the Borrower. D. Accordingly, the Guarantor expects to derive benefits from the extension of credit accommodations to the Borrower by the Agent and the Lenders and finds it advantageous, desirable and in its best interests to execute and deliver this Guaranty to the Agent for the ratable benefit of the Lenders. NOW, THEREFORE, in consideration of the credit accommodations to be extended to the Borrower and for other good and valuable consideration, the Guarantor hereby covenants and agrees with the Agent and the Lenders as follows: Section 1. The Guaranty. The Guarantor hereby absolutely, irrevocably and unconditionally guarantees to the Agent and the Lenders the payment when due (whether at a stated maturity or earlier by reason of acceleration or otherwise) and performance of all of the indebtedness, liabilities and obligations of the Borrower to the Agent or the Lenders due or to become due, direct or indirect, absolute or contingent, joint or several, now existing or hereafter at any time created, arising or incurred under or in connection with the Credit Agreement and the notes issued thereunder and any reissuance, renewal, or extension thereof (the "NOTES"), and any other sums now or hereafter owing by the Borrower to the Agent or the Lenders (including without limitation, principal, interest, reimbursement obligations for letters of credit issued by the Agent or which the Agent causes to be issued by one of its affiliates for the account of the Borrower, any commitment or other fees, attorneys' fees, filing and recording costs, out-of-pocket expenses, collection costs and all other liabilities and obligations of the Borrower to the 2 Agent or the Lenders) thereunder, all of the foregoing hereinafter referred to as the "OBLIGATIONS." Section 2. Continuing Guaranty. This Guaranty is an absolute, unconditional, complete and continuing guaranty of payment and performance of the Obligations, and the obligations of the Guarantor hereunder shall not be released, in whole or in part, by any action or thing which might, but for this provision of this Guaranty, be deemed a legal or equitable discharge of a surety or guarantor, other than irrevocable payment and performance in full of the Obligations. No notice of the Obligations to which this Guaranty may apply, or of any renewal or extension thereof need be given to the Guarantor and none of the foregoing acts shall release the Guarantor from liability hereunder. The Guarantor hereby expressly waives (a) demand of payment, presentment, protest, notice of dishonor, nonpayment or nonperformance on any and all forms of the Obligations; (b) notice of acceptance of this Guaranty and notice of any liability to which it may apply; (c) all other notices and demands of any kind and description relating to the Obligations now or hereafter provided for by any agreement, statute, law, rule or regulation; and (d) any and all defenses of the Borrower pertaining to the Obligations except for the defense of discharge by payment. The Guarantor shall not be exonerated with respect to its liabilities under this Guaranty by any act or thing except irrevocable payment and performance of the Obligations, it being the purpose and intent of this Guaranty that the Obligations constitute the direct and primary obligations of the Guarantor and that the covenants, agreements and all obligations of the Guarantor hereunder be absolute, unconditional and irrevocable. The Guarantor shall be and remain liable for any deficiency remaining after foreclosure of any mortgage, deed of trust or security agreement securing all or any part of the Obligations, whether or not the liability of the Borrower or any other Person (as defined below) for such deficiency is discharged pursuant to statute, judicial decision or otherwise. The acceptance of this Guaranty by the Agent or the Lenders is not intended and does not release any liability previously existing of any guarantor or surety of any indebtedness of the Borrower to the Agent. Section 3. Other Transactions. The Agent is expressly authorized (a) to exchange, surrender or release with or without consideration any or all collateral and security which may at any time be placed with it by the Borrower or by any other Person, or to forward or deliver any or all such collateral and security directly to the Borrower for collection and remittance or for credit, or to collect the same in any other manner without notice to the Guarantor, and (b) to amend, modify, extend or supplement the Credit Agreement, the Notes or other agreement with respect to the Obligations, waive compliance by the Borrower or any other Person with the respective terms thereof and settle or compromise any of the Obligations without notice to the Guarantor and without in any manner affecting the absolute liabilities of the Guarantor hereunder. No invalidity, irregularity or unenforceability of all or any part of the Obligations or of any security therefor or other recourse with respect thereto shall affect, impair or be a defense to this Guaranty. The liabilities of the Guarantor hereunder shall not be affected or impaired by any failure, delay, neglect or omission on the part of the Agent to realize upon any of the Obligations of the Borrower to the Agent, or upon any collateral or security for any or all of the Obligations, nor by the taking by the Agent of (or the failure to take) any other guaranty or guaranties to secure the Obligations, nor by the taking by the Agent of (or the failure to take or the failure to perfect its security interest in) collateral or security of any kind. No act or omission of the Agent, whether or not such action or failure to act varies or increases the risk of, or affects the rights or remedies of the Guarantor, shall affect or impair the obligations of the 2 3 Guarantor hereunder. The Guarantor acknowledges that this Guaranty is in effect and binding without reference to whether this Guaranty is signed by any other Person or Persons, that possession of this Guaranty by the Agent shall be conclusive evidence of due delivery hereof by the Guarantor and that this Guaranty shall continue in full force and effect, both as to the Obligations then existing and/or thereafter created, notwithstanding the release of or extension of time to any other guarantor of the Obligations or any part thereof. Section 4. Actions Not Required. The Guarantor hereby waives any and all right to cause a marshalling of the assets of the Borrower or any other action by any court or other governmental body with respect thereto or to cause the Agent to proceed against any security for the Obligations or any other recourse which the Agent may have with respect thereto and further waives any and all requirements that the Agent institute any action or proceeding at law or in equity, or obtain any judgment, against the Borrower or any other Person, or with respect to the Notes, or any collateral security therefor, as a condition precedent to making demand on or bringing an action or obtaining and/or enforcing a judgment against, the Guarantor upon this Guaranty. The Guarantor further acknowledges that time is of the essence with respect to it's obligations under this Guaranty. Any remedy or right hereby granted which shall be found to be unenforceable as to any Person or under any circumstance, for any reason, shall in no way limit or prevent the enforcement of such remedy or right as to any other Person or circumstance, nor shall such unenforceability limit or prevent enforcement of any other remedy or right hereby granted. Section 5. No Subrogation. Notwithstanding any payment or payments made by the Guarantor hereunder or any setoff or application of funds of the Guarantor by the Agent, the Guarantor shall not be entitled to be subrogated to any of the rights of the Agent against the Borrower or any other guarantor or any collateral security or guaranty or right of offset held by the Agent for the payment of the Obligations, nor shall the Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other guarantor in respect of payments made by the Guarantor hereunder. Section 6. Application of Payments. Any and all payments upon the Obligations made by the Guarantor or by any other Person, and/or the proceeds of any or all collateral or security for any of the Obligations, may be applied by the Agent on such items of the Obligations as the Agent may elect. Section 7. Recovery of Payment. If any payment received by the Agent or any of the Lenders and applied to the Obligations is subsequently set aside, recovered, rescinded or required to be returned for any reason (including without limitation, the bankruptcy, insolvency or reorganization of the Borrower or any other obligor), the Obligations to which such payment was applied shall for the purposes of this Guaranty be deemed to have continued in existence, notwithstanding such application, and this Guaranty shall be enforceable as to such Obligations as fully as if such application had never been made. References in this Guaranty to amounts "irrevocably paid" or to "irrevocable payment" refer to payments that cannot be set aside, recovered, rescinded or required to be returned for any reason. Section 8. Borrower's Financial Condition. The Guarantor acknowledges its familiarity with the financial condition of the Borrower and that the Guarantor has executed and 3 4 delivered this Guaranty based on its own judgment and not in reliance upon any statement or representation of the Agent. The Agent shall have no obligation to provide the Guarantor with any advice whatsoever or to inform the Guarantor at any time of the Agents actions, evaluations or conclusions on the financial condition or any other matter concerning the Borrower. Section 9. Remedies. All remedies afforded to the Agent by reason of this Guaranty are separate and cumulative remedies and it is agreed that no one of such remedies, whether or not exercised by the Agent, shall be deemed to be in exclusion of any of the other remedies available to the Agent and shall in no way limit or prejudice any other legal or equitable remedy which the Agent may have hereunder and with respect to the Obligations. Mere delay or failure to act shall not preclude the exercise or enforcement of any rights and remedies available to the Agent. Section 10. Bankruptcy of the Borrower. The Guarantor expressly agrees that its liabilities and obligations under this Guaranty shall not in any way be impaired or otherwise affected by the institution by or against the Borrower or any other Person of any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or any other similar proceedings for relief under any bankruptcy law or similar law for the relief of debtors and that any discharge of any of the Obligations pursuant to any such bankruptcy or similar law or other law shall not diminish, discharge or otherwise affect in any way the obligations of the Guarantor under this Guaranty, and that upon the institution of any of the above actions, such obligations shall be enforceable against the Guarantor. Section 11. Costs and Expenses. The Guarantor will pay or reimburse the Agent and the Lenders on demand for all out-of-pocket expenses (including in each case all reasonable fees and expenses of counsel) incurred by the Agent or any of the Lenders arising out of or in connection with the enforcement of this Guaranty against the Guarantor or arising out of or in connection with any failure of the Guarantor to fully and timely perform the obligations of the Guarantor hereunder. Section 12. Waivers and Amendments. This Guaranty can be waived, modified, amended, terminated or discharged only explicitly in a writing signed by the Agent. A waiver so signed shall be effective only in the specific instance and for the specific purpose given. Section 13. Notices. Any notice or other communication to any party in connection with this Guaranty shall be in writing and shall be sent by manual delivery, telegram, telex, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by telegram, telex or facsimile transmission, from the first business day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed. Section 14. Guarantor Acknowledgements. The Guarantor hereby acknowledges that (a) it has been advised by counsel in the negotiation, execution and delivery of this Guaranty, (b) the Agent has no fiduciary relationship to the Guarantor, the relationship being 4 5 solely that of debtor and creditor, and (c) no joint venture exists between the Guarantor and the Agent. Section 15. Representations and Warranties. The Guarantor hereby represents and warrants to the Agent that: 15(a) The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the power and authority and the legal right to own and operate its properties and to conduct the business in which it is currently engaged. 15(b) The Guarantor has the power and authority and the legal right to execute and deliver, and to perform its obligations under, this Guaranty and has taken all necessary action to authorize such execution, delivery and performance. 15(c) This Guaranty constitutes a legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 15(d) The execution, delivery and performance of this Guaranty will not (i) violate any provision of any law, statute, rule or regulation or any order, writ, judgment, injunction, decree, determination or award of any court, governmental agency or arbitrator presently in effect having applicability to the Guarantor, (ii) violate or contravene any provision of the articles of organization, operating agreement or other governing document of the Guarantor, or (iii) result in a breach of or constitute a default under any indenture, loan or credit agreement or any other agreement, lease or instrument to which the Guarantor is a party or by which it or any of its properties may be bound or result in the creation of any lien thereunder. The Guarantor is not in default under or in violation of any such law, statute, rule or regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, loan or credit agreement or other agreement, lease or instrument in any case in which the consequences of such default or violation could have a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise) of the Guarantor. 15(e) No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority is required on the part of the Guarantor to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, this Guaranty. 15(f) There are no actions, suits or proceedings pending or, to the knowledge of the Guarantor, threatened against or affecting the Guarantor or any of its properties before any court or arbitrator, or any governmental department, board, agency or other instrumentality which, if determined adversely to the Guarantor, would have a material adverse effect on the business, operations, property or condition (financial or otherwise) of the Guarantor or on the ability of the Guarantor to perform its obligations hereunder. 5 6 15(g) The Guarantor expects to derive benefits from the transactions resulting in the creation of the Obligations. The Agent and the Lenders may rely conclusively on the continuing warranty, hereby made, that the Guarantor continues to be benefitted by the Agent' and the Lenders' extensions of credit accommodations to the Borrower and neither the Agent nor any of the Lenders shall have any duty to inquire into or confirm the receipt of any such benefits, and this Guaranty shall be effective and enforceable by the Agent without regard to the receipt, nature or value of any such benefits. Section 16. Continuing Guaranty: Assignments under Credit Agreement. This Guaranty shall (a) remain in full force and effect until irrevocable payment in full of the Obligations and the expiration of the obligations, if any, of the Agent and the Lenders to extend credit accommodations to the Borrower, (b) be binding upon the Guarantor, its successors and assigns and (c) inure to the benefit of, and be enforceable by, the Agent, the Lenders and their respective successors, transferees, and assigns. Without limiting the generality of the foregoing clause (c), the Agent may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement to any other Persons to the extent and in the manner provided in the Credit Agreement and may similarly transfer all or any portion of its rights under this Guaranty to such Persons. Section 17. Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS GUARANTY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF COLORADO, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF. Whenever possible, each provision of this Guaranty and any other statement, instrument or transaction contemplated hereby or relating hereto shall be interpreted in such manner as to be effective and valid under such applicable law, but, if any provision of this Guaranty or any other statement, instrument or transaction contemplated hereby or relating hereto shall be held to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty or any other statement, instrument or transaction contemplated hereby or relating hereto. Section 18. Consent to Jurisdiction. AT THE OPTION OF THE AGENT, THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR COLORADO STATE COURT SITTING IN DENVER, COLORADO; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS GUARANTY, THE AGENT AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE. 6 7 Section 19. Counterparts. This Guaranty may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Section 20. General. All representations and warranties contained in this Guaranty or in any other agreement between the Guarantor and the Agent shall survive the execution, delivery and performance of this Guaranty and the creation and payment of the Obligations. The word "PERSON" as used in this Guaranty means any natural person, corporation, limited liability company, partnership, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity. Captions in this Guaranty are for reference and convenience only and shall not affect the interpretation or meaning of any provision of this Guaranty. IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the date first above written. GUARANTOR: PSF GROUP HOLDINGS, INC., A DELAWARE CORPORATION By: /s/ John Meyer ------------------------------------ Title: CEO --------------------------------- Address: --------------------------------- --------------------------------- ADDRESS FOR THE AGENT: U.S. BANCORP AG CREDIT, INC., AS AGENT 950 SEVENTEENTH STREET SUITE 350 DENVER, COLORADO 80202 ATTN: JAMES A. BOSCO, PRESIDENT 7 EX-5.1 25 y50886ex5-1.txt OPINION OF BLACKWELL SANDERS PEPER MARTIN LLP 1 Exhibit 5.1 BLACKWELL SANDERS PEPER MARTIN LLP 2300 MAIN STREET SUITE 1000 KANSAS CITY, MO 64108 P.O. BOX 419777 KANSAS CITY, MO 64141-6777 TEL: (816) 983-8000 FAX: (816) 983-8080 WEBSITE: www.blackwellsanders.com June 29, 2001 Premium Standard Farms, Inc. PSF Group Holdings, Inc. The Lundy Packing Company Lundy International, Inc. Premium Standard Farms of North Carolina, Inc. 423 West 8th Street, Suite 200 Kansas City, Missouri 64105 Ladies and Gentlemen: We have acted as counsel for Premium Standard Farms, Inc., a Delaware corporation (the "Company"), PSF Group Holdings, Inc., a Delaware corporation ("PSF Group Holdings"), The Lundy Packing Company, a North Carolina corporation ("Lundy Packing"), Lundy International, Inc., a North Carolina corporation ("Lundy International"), and Premium Standard Farms of North Carolina, Inc., a Delaware corporation ("PSF North Carolina," and, together with PSF Group Holdings, Lundy Packing and Lundy International, the "Guarantors") in connection with the preparation and filing by the Company and the Guarantors of a registration statement (the "Registration Statement") on Form S-4 under the Securities Act of 1933, as amended (the "Securities Act"), and any amendments thereto for the registration under the Securities Act of (i) $175,000,000 aggregate principal amount of 9-1/4% Senior Notes due 2011 of the Company (the "Notes") and (ii) the guarantees (the "Guarantees") of the Notes by the Guarantors. The Notes and the Guarantees are to be issued under an Indenture, dated as of June 7, 2001 (the "Indenture"), among the Company, the Guarantors and Wilmington Trust Company, as trustee. In connection therewith, you have requested our opinion as to certain matters referred to below. In our capacity as such counsel, we have familiarized ourselves with the actions taken by: (i) the Company in connection with the registration of the Notes; and (ii) the Guarantors in connection with the registration of the Guarantees. We have examined originals or certified copies of other documents, including the Registration Statement, as we have deemed relevant and necessary as a basis for the opinions hereinafter expressed. In such examination, we have assumed the genuineness of all signatures on original documents and the authenticity of all documents submitted to us as conformed or photostatic copies, and the authenticity of the originals of such latter documents. 2 Premium Standard Farms, Inc., et al. June 29, 2001 Page 2 Based upon and subject to the foregoing, we are of the opinion that (subject to compliance with the pertinent provisions of the Securities Act and, with respect to the Indenture, the Trust Indenture Act of 1939, as amended, and to compliance with such securities or "blue sky" laws of any jurisdiction as may be applicable): 1. When duly executed, authenticated and delivered in accordance with the Indenture, the Notes will constitute valid and binding obligations of the Company, enforceable in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance and similar laws relating to or affecting the enforcement of creditors' rights generally and subject to general principles of equity. 2. The Guarantees constitute valid and binding obligations of the respective Guarantors, enforceable against the Guarantors in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance and similar laws relating to or affecting the enforcement of creditors' rights generally and subject to general principles of equity. We consent to the reference to our firm in the Prospectus included as a part of the Registration Statement under the caption "Legal Matters," and to the inclusion of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Blackwell Sanders Peper Martin LLP EX-10.1 26 y50886ex10-1.txt 1999 EQUITY INCENTIVE PLAN 1 Exhibit 10.1 PSF GROUP HOLDINGS, INC. 1999 EQUITY INCENTIVE PLAN SECTION 1 PURPOSE AND DURATION 1.1 Effective Date. This Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units and Performance Shares. This Plan shall be effective on the date of its adoption by the Board of Directors. 1.2 Purpose of this Plan. This Plan is intended to attract, motivate, and retain (a) employees of the Company and its Affiliates. This Plan also is designed to further the growth and financial success of the Company and its Affiliates by aligning the interests of the Participants, through the ownership of Shares and through other incentives, with the interests of the Company's stockholders. SECTION 2 DEFINITIONS The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context: "1934 Act" means the Securities Exchange Act of 1934, as amended. Reference to a specific section of the 1934 Act or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation. "Affiliate" means any corporation or any other entity (including, but not limited to, any partnership, limited liability company, trust, association and joint venture) that, directly or indirectly, controls, or is controlled by, or is under common control with the Company. "Affiliated SAR" means an SAR that is granted in connection with a related Option, and that automatically will be deemed to be exercised at the same time that the related Option is exercised. "Award" means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units or Performance Shares. "Award Agreement" means the written agreement setting forth the terms and provisions applicable to each Award granted under this Plan. -1- 2 "Board" or "Board of Directors" means the Board of Directors of the Company. "Board Member" means any individual who is a member of the Board of Directors of the Company. "Change in Control" shall have the meaning assigned to such term in Section 12.2. "Code" means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation. "Committee" means the committee appointed by the Board (pursuant to Section 3.1) to administer this Plan. "Company" means PSF Group Holdings, Inc., a Delaware corporation, and any successor thereto. With respect to the definitions of the Performance Goals, the Committee in its sole discretion may determine that "Company" means Premium Standard Farms, Inc., and its consolidated subsidiaries. "Consultant" means any consultant, independent contractor or other person who provides significant services to the Company or its Affiliates, but who is neither an Employee nor a Board Member. "Disability" means a permanent and total disability within the meaning of Code section 22(e)(3), provided that in the case of Awards other than Incentive Stock Options, the Committee in its sole discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Committee from time to time. "Earnings Per Share" means as to any Fiscal Year, the Company's Net Income divided by a weighted average number of Shares outstanding and dilutive equivalent Shares deemed outstanding. "Employee" means any employee of the Company or of an Affiliate, whether such employee is so employed at the time this Plan is adopted or becomes so employed subsequent to the adoption of this Plan. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific section of ERISA or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation. -2- 3 "Exercise Price" means the price at which a Share may be purchased by a Participant pursuant to the exercise of an Option. "Fair Market Value" means, as of any given date, the mean between the highest and lowest reported sales prices of the Shares on the New York Stock Exchange Composite Tape or, if not listed on such exchange, on any other national securities exchange on which the Shares are listed or on the Nasdaq Stock Market. If there is no regular public trading market for such Shares, the Fair Market Value of the Shares shall be determined by an independent third party engaged by the Company. "Fiscal Year" means the fiscal year of the Company. "Freestanding SAR" means a SAR that is granted independently of any Option. "Grant Date" means, with respect to an Award, the date that the Award was granted. "Incentive Stock Option" means an Option to purchase Shares which is designated as an Incentive Stock Option and is intended to meet the requirements of section 422 of the Code. "Individual MBOs" means as to a Participant, the objective and measurable goals set by a "management by objectives" process and approved by the Committee (in its sole discretion). "Initial Public Offering" means the effective date of a registration statement filed by the Company with the Securities and Exchange Commission for a public offering and sale of securities of the Company covering the Company's first underwritten public offering of common stock resulting in increase in stockholder equity of the Company of at least $50,000,000. "Mature Shares" means shares of the common stock of the Company held more than six months by the Participants. "Net Income" means as to any Fiscal Year, the income after taxes of the Company for the Fiscal Year determined in accordance with generally accepted accounting principles; provided, however, that the Committee shall determine whether any significant item(s) shall be included or excluded from the calculation of Net Income with respect to one or more Participants and, if the Committee intends an Award to qualify as "performance-based compensation" under Section 162(m) of the Code, the Committee shall make such determination prior to the latest date permissible under Section 162(m) of the Code. "Nonemployee Board Member" means a Board Member who is not an employee of the Company or of any Affiliate. "Nonqualified Stock Option" means an Option to purchase Shares which is not an Incentive Stock Option. -3- 4 "Option" means an Incentive Stock Option or a Nonqualified Stock Option. "Participant" means an Employee, Consultant or Nonemployee Board Member who has an outstanding Award. "Performance Goals" means the goal(s) (or combined goal(s)) determined by the Committee (in its sole discretion) to be applicable to a Participant with respect to an Award. As determined by the Committee, the Performance Goals applicable to an Award may provide for a targeted level or levels of achievement using predetermined measurements, including, for example, one or more of the following measures: (a) Earnings Per Share, (b) Individual MBOs, (c) Net Income, (d) Plan Measurement Cash Flow, (e) Return on Designated Assets, (f) Return on Revenues, and (g) Satisfaction MBOs. The Performance Goals may differ from Participant to Participant and from Award to Award. "Performance Period" shall have the meaning assigned to such term in Section 8.3. "Performance Share" means an Award granted to a Participant pursuant to Section 8. "Performance Unit" means an Award granted to a Participant pursuant to Section 8. "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and, therefore, the Shares are subject to a substantial risk of forfeiture. As provided in Section 7, such restrictions may be based on the passage of time, the achievement of target levels of performance or the occurrence of other events as determined by the Committee in its sole discretion. "Plan" means the Premium Standard Farms, Inc., 1999 Equity Incentive Plan, as set forth in this instrument and as hereafter amended from time to time. "Plan Management Cash Flow" means as to any Fiscal Year, the income before interest, taxes, depreciation, amortization, expenses related to employee incentive plans, and other specific expenses, all as determined by the Committee; and if the Committee intends for an Award to qualify as "performance-based compensation" under Section 162(m) of the Code, the Committee shall make such determination prior to the latest date permissible under Section 162(m) of the Code. "Restricted Stock" means an Award granted to a Participant pursuant to Section 7. "Retirement" means, in the case of an Employee, a Termination of Service by reason of the Employee's retirement pursuant to any retirement program instituted by the Company or any Affiliate employer or as otherwise agreed to by the Employer or the applicable Affiliate employer. With respect to a Consultant, no Termination of Service shall be deemed to be on account of "Retirement." -4- 5 "Return on Designated Assets" means as to any Fiscal Year, the Net Income of the Company, divided by the average of beginning and ending designated corporate assets. "Return on Revenues" means as to any Fiscal Year, the percentage equal to the Company's Net Income divided by the Company's or the business unit's annual revenue. "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, and any future regulation amending, supplementing or superseding such regulation. "Satisfaction MBOs" means as to any Participant, the objective and measurable individual goals set by a "management by objectives" process and approved by the Committee, which goals relate to the satisfaction of external or internal requirements. "Section 16 Person" means a person who, with respect to the Shares, is subject to section 16 of the 1934 Act. "Shares" means either shares of Class A Common Stock or Class B Common Stock of the Company, as determined by the Board of Directors of the Company in its sole discretion and, further, that any of use of "common stock" in this Plan shall mean either Class A Common Stock or Class B Common Stock, as determined by the Board of Directors of the Company in its sole discretion. "Stock Appreciation Right" or "SAR" means an Award, granted alone or in connection with a related Option, that is designated as a SAR pursuant to Section 6. "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Tandem SAR" means an SAR that is granted in connection with a related Option, the exercise of which shall require forfeiture of the right to purchase an equal number of Shares under the related Option (and when a Share is purchased under the Option, the SAR shall be canceled to the same extent). "Termination of Service" means (a) in the case of an Employee, a cessation of the employee-employer relationship between an employee and the Company or an Affiliate for any reason, including, but not limited to, a cessation by resignation, discharge, death, Disability, Retirement or the disaffiliation of an Affiliate, but excluding any such cessation where there is a simultaneous reemployment by the Company or an Affiliate, and (b) in the case of a Consultant, a cessation of the service relationship between the Consultant and the Company or an Affiliate for any reason, including, but not limited to, a cessation by resignation, discharge, death, -5- 6 Disability, or the disaffiliation of an Affiliate, but excluding any such cessation where there is a simultaneous reengagement of the Consultant by the Company or an Affiliate. SECTION 3 ADMINISTRATION 3.1 The Committee. This Plan shall be administered by the Committee. The Committee shall consist of not less than two (2) Board Members, all of whom are Nonemployee Board Members. The members of the Committee shall be appointed from time to time by, and shall serve at the pleasure of, the Board of Directors. 3.2 Authority of the Committee. It shall be the duty of the Committee to administer this Plan in accordance with its provisions. The Committee shall have all powers and discretion necessary or appropriate to administer this Plan and to control its operation, including, but not limited to, the power to (a) determine which Participants shall be granted Awards, (b) prescribe the terms and conditions of the Awards, (c) interpret this Plan and the Awards, (d) adopt rules for the administration, interpretation and application of this Plan as are consistent therewith, and (e) interpret, amend or revoke any such rules. 3.3 Delegation by the Committee. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or any part of its authority and powers under this Plan to one or more Board Members or officers of the Company; provided, however, that the Committee may not delegate its authority and powers in any way which would jeopardize this Plan's qualification under Rule 16b-3. 3.4 Decisions Binding. All determinations and decisions made by the Committee, the Board and any delegate of the Committee pursuant to Section 3.3 shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted by law. SECTION 4 SHARES SUBJECT TO THIS PLAN 4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the total number of Shares available for grant under this Plan shall not exceed 15,000. Shares granted under this Plan may be either authorized but unissued Shares or treasury Shares, or any combination thereof. 4.2 Lapsed Awards. If an Award is settled in cash, or is canceled, terminates, expires or lapses for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Option, or the termination of a related Option upon exercise of the corresponding -6- 7 Tandem SAR), any Shares subject to such Award thereafter shall be available to be the subject of an Award. 4.3 Adjustments in Awards and Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, Share combination, or other change in the corporate structure of the Company affecting the Shares, the Committee shall adjust the number and class of Shares which may be delivered under this Plan, the number, class and price of Shares subject to outstanding Awards, and the numerical limits of Sections 4.1, 5.1, 6.1, 7.1 and 8.1, in such manner as the Committee (in its sole discretion) shall determine to be advisable or appropriate to prevent the dilution or diminution of such Awards. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number. 4.4 Repurchase Option. The Committee may, in its sole discretion, include in the terms of any Award Agreement, that the Company shall have the option to repurchase Shares of any Participant acquired pursuant to any Award granted under the Plan upon the Termination of Service of such Participant upon such terms as the Committee shall state in the Award. 4.5 Buy-Out Provision. The Committee may at any time offer on behalf of the Company to buy out, for a payment in cash or Shares, an Award previously granted, based on such terms and conditions as the Committee, in its sole discretion, shall establish and communicate to the Participants at the time such offer is made. 4.6 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Award as it may deem advisable or appropriate in its sole discretion, including, but not limited to, restrictions related to applicable Federal securities laws, the requirements of any national securities exchange or system upon which Shares are then listed or traded, and any blue sky or state securities laws. 4.7 Adjustments upon Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, the Board of Directors, in its discretion, may require the successor corporation to either (i) assume each outstanding Award or (ii) substitute an equivalent award by the successor corporation or a Parent or Subsidiary of the successor corporation. If an Award is not assumed or substituted in the event of a merger or sale of assets, the Award shall fully vest and become immediately exercisable and the Committee shall notify the Participant that the Award shall be exercisable for a period of twenty-five (25) days from the date of such notice, and the Award shall terminate upon the expiration of such period unless exercised. For the purposes of this paragraph, the Award shall be considered assumed if, following the merger or sale of assets, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or sale of assets, equal consideration (whether stock, cash, or other securities or property) as received in the merger or sale of assets by holders of each Share of common stock held on the effective date of the transaction (and if holders of Shares were offered a choice of -7- 8 consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award, for each Share subject to the award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of common stock in the merger or sale of assets. 4.8 Lock-up Agreement. In addition to any other restrictions on transfer, a Participant shall not, without the prior written consent of the Board in its discretion, sell, offer to sell, encumber or otherwise dispose of any Shares acquired pursuant to the Plan for at least one hundred eighty (180) days after (a) the closing of the Initial Public Offering or (b) in the event that subsequent to such Initial Public Offering the Shares are not listed and traded upon a recognized securities exchange or quoted on a recognized national market system, the closing of each offering of securities of the Company registered under the Securities Act subsequent to such Initial Public Offering through and including the offering after which the Shares are listed and traded upon such exchange or system. Each Participant will, if requested by the Company, enter into a separate agreement to the effect of this Section 4.8. SECTION 5 STOCK OPTIONS 5.1 Grant of Options. Subject to the terms and provisions of this Plan, Options may be granted to Participants at any time and from time to time as determined by the Committee in its sole discretion. The Committee, in its sole discretion, shall determine the number of Shares subject to each Option; provided, however, that during any Fiscal Year, no Participant shall be granted Options covering more than 3,000 Shares. The Committee may grant Incentive Stock Options, Nonqualified Stock Options, or any combination thereof. 5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement that shall specify the Exercise Price, the expiration date of the Option, the number of Shares to which the Option pertains, any conditions to exercise of the Option and such other terms and conditions as the Committee, in its sole discretion, shall determine. The Award Agreement also shall specify whether the Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option. 5.3 Exercise Price. Subject to the provisions of this Section 5.3, the Exercise Price for each Option shall be determined by the Committee in its sole discretion. 5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock Option, the Exercise Price may be less or more than the Fair Market Value of a Share on the Grant Date. -8- 9 5.3.2 Incentive Stock Options. In the case of an Incentive Stock Option, the Exercise Price shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date; provided, however, that if on the Grant Date, the Employee (together with persons whose stock ownership is attributed to the Employee pursuant to section 424(d) of the Code) owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the Exercise Price shall be not less than one hundred ten percent (110%) of the Fair Market Value of a Share on the Grant Date. 5.3.3 Substitute Options. Notwithstanding the provisions of Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates a transaction described in section 424(a) of the Code (e.g., the acquisition of property or stock from an unrelated corporation), persons who become Participants on account of such transaction may be granted Options in substitution for options granted by such former employer or recipient of services. If such substitute Options are granted, the Committee, in its sole discretion and consistent with section 424(a) of the Code, may determine that such substitute Options shall have an exercise price less than one hundred (100%) of the Fair Market Value of the Shares on the Grant Date. 5.4 Expiration of Options. 5.4.1 Expiration Dates. Except as provided in Section 5.7 regarding Incentive Stock Options, each Option shall terminate upon the earlier of the first to occur of the following events: (a) The date(s) for termination of the Option set forth in the Award Agreement; (b) The date determined under Section 5.8; or (c) The expiration of ten (10) years from the Grant Date. 5.4.2 Committee Discretion. Subject to the limits of Section 5.4.1, the Committee, in its sole discretion, (a) shall provide in each Award Agreement when each Option expires and becomes unexercisable, and (b) may, after an Option is granted, extend the maximum term of the Option (subject to Section 5.7 regarding Incentive Stock Options). 5.5 Exercisability of Options. Options granted under this Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall determine in its sole discretion. After an Option is granted, the Committee, in its sole discretion, may accelerate the exercisability of the Option. If the Committee provides that any Option is -9- 10 exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine. 5.6 Payment. Options shall be exercised by the Participant's delivery of a written notice of exercise to the Secretary of the Company (or its designee), setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. Upon the exercise of any Option, the Exercise Price shall be payable to the Company in full in cash or its equivalent. As soon as practicable after receipt of a written notification of exercise and full payment for the Shares purchased, the Company shall deliver to the Participant (or the Participant's designated broker), Share certificates (which may be in book entry form) representing such Shares. 5.7 Certain Additional Provisions for Incentive Stock Options. 5.7.1 Exercisability. The aggregate Fair Market Value (determined on the Grant Date(s)) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by any Employee during any calendar year (under all plans of the Company and its Subsidiaries) shall not exceed $100,000. 5.7.2 Company and Subsidiaries Only. Incentive Stock Options may be granted only to persons who are employees of the Company or a Subsidiary on the Grant Date. 5.7.3 Expiration. No Incentive Stock Option may be exercised after the expiration of ten (10) years from the Grant Date; provided, however, that if the Option is granted to an Employee who, together with persons whose stock ownership is attributed to the Employee pursuant to section 424(d) of the Code, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the Option may not be exercised after the expiration of five (5) years from the Grant Date. 5.8 Termination of Service. Other than as provided in any specific Award Agreement, no Incentive Stock Option or Nonqualified Stock Option may be exercised after a Participant's Termination of Service either by the Company with cause or by the Participant's resignation with or without cause (all of which shall be determined solely by the Committee) other than by Disability, death or Retirement. Upon a Participant's Termination of Service by the Company without cause (which shall be determined by the Committee) other than by Disability, death or Retirement, no Incentive Stock Option or Nonqualified Stock Option may be exercised after the ninety day anniversary of such Termination of Service. No Incentive Stock -10- 11 Option or Nonqualified Stock Option may be exercised more than one year after the Participant's Termination of Service as a result of a Disability, death or Retirement. 5.9 Restriction on Option Transfer. No Incentive Stock Option or Nonqualified Stock Option may be transferred except that the Committee may permit a transfer, upon the Participant's death, to beneficiaries designated by the Participant as provided in Section 9.6. SECTION 6 STOCK APPRECIATION RIGHTS 6.1 Grant of SARs. Subject to the terms and conditions of this Plan, an SAR may be granted to Participants at any time and from time to time as shall be determined by the Committee, in its sole discretion. The Committee may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof. 6.1.1 Number of Shares. The Committee shall have complete discretion to determine the number of SARs granted to any Participant, provided that during any Fiscal Year, no Participant shall be granted SARs covering more than 3,000 Shares. 6.1.2 Exercise Price and Other Terms. The Committee, subject to the provisions of this Plan, shall have complete discretion to determine the terms and conditions of SARs granted under this Plan; provided, however, that the exercise price of a Freestanding SAR shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date. The exercise price of Tandem or Affiliated SARs shall equal the Exercise Price of the related Option. 6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem SAR granted in connection with an Incentive Stock Option: (a) the Tandem SAR shall expire no later than the expiration of the underlying Incentive Stock Option; (b) the value of the payout with respect to the Tandem SAR shall be for no more than one hundred percent (100%) of the difference between the Exercise Price of the underlying Incentive Stock Option and the Fair Market Value of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the Tandem SAR shall be exercisable only when the Fair Market Value of the Shares subject to the Incentive Stock Option exceeds the Exercise Price of the Incentive Stock Option. 6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be exercised upon the exercise of the related Option. The deemed exercise of an Affiliated SAR shall not necessitate a reduction in the number of Shares subject to the related Option. -11- 12 6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable on such terms and conditions as the Committee, in its sole discretion, shall determine. 6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Committee, in its sole discretion, shall determine. 6.6 Expiration of SARs. An SAR granted under this Plan shall expire upon the date determined by the Committee, in its sole discretion, as set forth in the Award Agreement. Notwithstanding the foregoing, the terms and provisions of Section 5.4 also shall apply to SARs. 6.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (a) The positive difference between the Fair Market Value of a Share on the date of exercise over the Exercise Price; by (b) The number of Shares with respect to which the SAR is exercised. At the sole discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in any combination thereof. SECTION 7 RESTRICTED STOCK 7.1 Grant of Restricted Stock. Subject to the terms and provisions of this Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number of Shares to be granted to each Participant; provided, however, that during any Fiscal Year, no Participant shall receive more than 3,000 Shares of Restricted Stock. 7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be evidenced by an Award Agreement that shall specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine. Unless the Committee, in its sole discretion, determines otherwise, Shares of Restricted Stock shall be held by the Company as escrow agent until the end of the applicable Period of Restriction. 7.3 Transferability. Except as otherwise determined by the Committee, in its sole discretion, Shares of Restricted Stock may not be sold, transferred, gifted, bequeathed, pledged, -12- 13 assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily, until the end of the applicable Period of Restriction. 7.4 Other Restrictions. The Committee, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate in accordance with this Section 7.4. 7.4.1 General Restrictions. The Committee may set restrictions based upon (a) the achievement of specific performance objectives (Company-wide, divisional or individual), (b) applicable Federal or state securities laws, or (c) any other basis determined by the Committee in its sole discretion. 7.4.2 Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock as "performance-based compensation" under Section 162(m) of the Code, the Committee, in its sole discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the latest date permissible to enable the Restricted Stock to qualify as "performance-based compensation" under Section 162(m) of the Code. In granting Restricted Stock that is intended to qualify under Code Section 162(m), the Committee shall follow any procedures determined by it in its sole discretion from time to time to be necessary, advisable or appropriate to ensure qualification of the Restricted Stock under Code Section 162(m) (e.g., in determining the Performance Goals). 7.4.3 Legend on Certificates. The Committee, in its sole discretion, may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. For example, the Committee may determine that some or all certificates representing Shares of Restricted Stock shall bear the following legend: "THE SALE OR OTHER TRANSFER OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE, WHETHER VOLUNTARY, INVOLUNTARY, OR BY OPERATION OF LAW, IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE PREMIUM STANDARD FARMS, INC. 1999 EQUITY INCENTIVE PLAN, AND IN A RESTRICTED STOCK AGREEMENT. A COPY OF THIS PLAN AND SUCH RESTRICTED STOCK AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF PREMIUM STANDARD FARMS, INC." 7.5 Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each Restricted Stock grant made under this Plan shall be released from escrow as soon as practicable after the end of the applicable Period of Restriction. The Committee, in its sole discretion, may accelerate the time at which any restrictions shall lapse and remove any restrictions. After the end of the applicable Period of Restriction, the -13- 14 Participant shall be entitled to have any legend or legends under Section 7.4.3 removed from his or her Share certificate, and the Shares shall be freely transferable by the Participant. 7.6 Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the applicable Award Agreement provides otherwise. 7.7 Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the applicable Award Agreement. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid. 7.8 Return of Restricted Stock to Company. On the date set forth in the applicable Award Agreement, the Restricted Stock for which restrictions have not lapsed shall revert to the Company and thereafter shall be available for grant under this Plan. SECTION 8 PERFORMANCE UNITS AND PERFORMANCE SHARES 8.1 Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Participants at any time and from time to time, as shall be determined by the Committee, in its sole discretion. The Committee shall have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant; provided, however, that during any Fiscal Year, (a) no Participant shall receive Performance Units having an initial value greater than $500,000, and (b) no Participant shall receive more than 3,000 Performance Shares. 8.2 Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is established by the Committee on or before the Grant Date. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date. 8.3 Performance Objectives and Other Terms. The Committee shall set performance objectives in its sole discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units or Performance Shares, or both, that will be paid out to the Participants. The time period during which the performance objectives must be met shall be called the "Performance Period". Each Award of Performance Units or Performance Shares shall be evidenced by an Award Agreement that shall specify the Performance Period, and such other terms and conditions as the Committee, in its sole discretion, shall determine. -14- 15 8.3.1 General Performance Objectives. The Committee may set performance objectives based upon (a) the achievement of Company-wide, divisional or individual goals, (b) applicable Federal or state securities laws, or (c) any other basis determined by the Committee in its discretion. 8.3.2 Section 162(m) Performance Objectives. For purposes of qualifying grants of Performance Units or Performance Shares as "performance-based compensation" under Section 162(m) of the Code, the Committee, in its sole discretion, may determine that the performance objectives applicable to Performance Units or Performance Shares, as the case may be, shall be based on the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the latest date permissible to enable the Performance Units or Performance Shares, as the case may be, to qualify as "performance-based compensation" under Section 162(m) of the Code. In granting Performance Units or Performance Shares which are intended to qualify under Code Section 162(m), the Committee shall follow any procedures determined by it from time to time to be necessary or appropriate in its sole discretion to ensure qualification of the Performance Units or Performance Shares, as the case may be, under Code Section 162(m) (e.g., in determining the Performance Goals). 8.4 Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units or Performance Shares shall be entitled to receive a payout of the number of Performance Units or Performance Shares, as the case may be, earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives have been achieved. After the grant of a Performance Unit or Performance Share, the Committee, in its sole discretion, may reduce or waive any performance objectives for such Performance Unit or Performance Share. 8.5 Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units or Performance Shares shall be made as soon as practicable after the end of the applicable Performance Period. The Committee, in its sole discretion, may pay earned Performance Units or Performance Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units or Performance Shares, as the case may be, at the end of the applicable Performance Period), or in any combination thereof. 8.6 Cancellation of Performance Units/Shares. On the earlier of the date set forth in the Award Agreement or the Participant's Termination of Service (other than by death, Disability or, with respect to an Employee, Retirement), all unearned or unvested Performance Units or Performance Shares shall be forfeited to the Company, and thereafter shall be available for grant under this Plan. In the event of a Participant's death, Disability or, with respect to an Employee, Retirement, prior to the end of a Performance Period, the Committee shall reduce his or her -15- 16 Performance Units or Performance Shares proportionately based on the date of such Termination of Service. SECTION 9 MISCELLANEOUS 9.1 Deferrals. The Committee, in its sole discretion, may permit a Participant to defer receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award. Any such deferral election shall be subject to such rules and procedures as shall be determined by the Committee in its sole discretion. 9.2 No Effect on Employment or Service. Nothing in this Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment or service at any time, with or without cause. For purposes of this Plan, transfer of employment of a Participant between the Company and any of its Affiliates (or between Affiliates) shall not be deemed a Termination of Service. Employment or secure relationship with the Company and its Affiliates is on an at-will basis only, unless otherwise provided by an applicable employment or service agreement between the Participant and the Company or its Affiliate, as the case may be. 9.3 Participation. No Participant shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. 9.4 Indemnification. Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (a) any loss, cost, liability or expense (including attorneys' fees) that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan or any Award Agreement, and (b) from any and all amounts paid by him or her in settlement thereof, with the Company's prior written approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit or proceeding against him or her; provided, however, that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract, as a matter of law or otherwise, or under any power that the Company may have to indemnify them or hold them harmless. 9.5 Successors. All obligations of the Company under this Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company. -16- 17 9.6 Beneficiary Designations. If permitted by the Committee, a Participant under this Plan may name a beneficiary or beneficiaries to whom any vested but unpaid Award shall be paid in the event of the Participant's death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate and, subject to the terms of this Plan and of the applicable Award Agreement, any unexercised vested Award may be exercised by the administrator or executor of the Participant's estate. 9.7 Transferability of Awards. Except as provided otherwise in the Award Agreement, Awards granted under this Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated. 9.8 No Rights as Stockholder. Except to the limited extent provided in Sections 7.6 and 7.7, no Participant (nor any beneficiary thereof) shall have any of the rights or privileges of a stockholder of the Company with respect to any Shares issuable pursuant to an Award (or the exercise thereof), unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Participant (or his or her beneficiary). SECTION 10 AMENDMENT, TERMINATION, AND DURATION 10.1 Amendment, Suspension, or Termination. The Board, in its sole discretion, may amend or terminate this Plan, or any part thereof, at any time and for any reason; provided, however, that if and to the extent required by law or to maintain this Plan's qualification under Rule 16b-3, the Code, or the rules of any national securities exchange (if applicable), any such amendment shall be subject to stockholder approval. The amendment, suspension or termination of this Plan shall not, without the consent of the Participant, alter or impair any rights or obligations under any Award theretofore granted to such Participant. No Award may be granted during any period of suspension or after termination of this Plan. 10.2 Duration of this Plan. This Plan shall become effective on the date specified herein, and subject to Section 10.1 (regarding the Board's right to amend or terminate this Plan), shall remain in effect thereafter; provided, however, that without further stockholder approval, no Incentive Stock Option may be granted under this Plan after the tenth (10th) anniversary of the effective date of this Plan. -17- 18 SECTION 11 TAX WITHHOLDING 11.1 Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or the exercise thereof), the Company shall have the power and the right to deduct or withhold from any amounts due to the Participant from the Company, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state and local taxes (including the Participant's FICA obligation) required to be withheld with respect to such Award (or the exercise thereof). 11.2 Withholding Arrangements. The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part, by delivering to the Company Mature Shares then owned by the Participant having a Fair Market Value equal to the amount required to be withheld. The amount of the withholding requirement shall be deemed to include any amount that the Committee agrees may be withheld at the time any such election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined. The Fair Market Value of the Mature Shares to be withheld or delivered shall be determined as of the date that the taxes are required to be withheld. SECTION 12 CHANGE IN CONTROL 12.1 Change in Control. In the event of a Change in Control of the Company, all Awards granted under this Plan that then are outstanding and not then exercisable or are subject to restrictions, shall, unless otherwise provided for in the Award Agreements applicable thereto, become immediately exercisable, and all restrictions shall be removed, as of the first date that the Change in Control has been deemed to have occurred, and shall remain as such for the remaining life of the Award as provided herein and within the provisions of the related Award Agreements. Notwithstanding the preceding sentence, in the event that the Committee is advised by the Company's independent auditors that the effect of the preceding sentence would be to preclude the ability of the Company to account for an acquisition or merger transaction as a pooling of interests, the Committee may declare the preceding sentence to be inoperable to such extent as the Committee, in its sole discretion, deems advisable. Notwithstanding the preceding sentence, in the event that the Committee is advised by the Company's independent auditors that the effect of the preceding sentence would be to preclude the ability of the Company to account for a transaction as a pooling of interests, the Committee may declare the preceding sentence to be inoperable to such extent as the Committee, in its sole discretion, deems advisable. -18- 19 12.2 Definition. For purposes of Section 12.1 above, a Change in Control of the Company shall be deemed to have occurred if the conditions set forth in any one or more of the following shall have been satisfied, unless such condition shall have received prior approval of a majority vote of the Continuing Directors, as defined below, indicating that Section 12.1 shall not apply thereto: (a) any "person", as such term is used in Sections 13(d) and 14(d) of the 1934 Act (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; (b) during any period of two consecutive years (not including any period prior to the Effective Date of this Plan), individuals ("Existing Directors") who at the beginning of such period constitute the Board of Directors, and any new board member (an "Approved Director") (other than a board member designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (b) or (c) of this Section 12.2) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of a least two-thirds (2/3) of the board members then still in office who either were board members at the beginning of the period or whose election or nomination for election previously was so approved (Existing Directors together with Approved Directors constituting "Continuing Directors"), cease for any reason to constitute at least a majority of the Board of Directors; or (c) the stockholders of the Company approve a merger or consolidation of the Company with any other person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities for the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger in which no "person" (as defined in Section 12.2(a)) acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or -19- 20 (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). SECTION 13 LEGAL CONSTRUCTION 13.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 13.2 Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 13.3 Requirements of Law. The grant of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required from time to time. 13.4 Securities Law Compliance. With respect to Section 16 Persons, Awards under this Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of this Plan, Award Agreement or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable or appropriate by the Committee in its sole discretion. 13.5 Governing Law. This Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware (excluding its conflict of laws provisions). 13.6 Captions. Captions are provided herein for convenience of reference only, and shall not serve as a basis for interpretation or construction of this Plan. Adopted December 1, 1999 -20- EX-10.2 27 y50886ex10-2.txt LONG-TERM INCENTIVE PLAN 1 Exhibit 10.2 [PREMIUM STANDARD FARMS LOGO] PREMIUM STANDARD FARMS LONG TERM INCENTIVE PROGRAM APRIL 1998 - MARCH 2001 2 PREMIUM STANDARD FARMS LONG TERM INCENTIVE PLAN SUMMARY PURPOSE: Encourage Sustained Growth of Company Provide Key Executives with Capital Accumulation Opportunity Encourage Retention & Commitment of Key PSF Executives PERFORMANCE MEASURE: EBITDA PERFORMANCE PERIOD: 3 Years - 4/1/98 through 3/31/01 PERFORMANCE Targeted Earnings of $206M THRESHOLDS: ELIGIBILITY: Senior Managers of PSF who are Responsible for the Leadership & Accountability of the Long Term Growth and Earnings of PSF as determined by PSF Compensation Committee INCENTIVE POOL: 2.6% of Earnings over Incentive Threshold of $103M DISCRETIONARY AWARDS: 1.3% of Earnings over Discretionary Threshold of $103M PARTICIPANT AWARDS: Incentive Pool Award Determined at Plan Inception Discretionary Award Determined at end of Performance Period VESTING: 50% of Incentive Pool at end of 2nd Year (3/31/00) 50% of Incentive Pool at end of 3rd Year (3/31/01) 100% of Discretionary Pool at end of Performance Period (3/31/01) DEFERMENT: At end of Performance Period (3/31/01) Participants have Option to Defer into Deferred Compensation Plan (TBD) ADMINISTRATION: Compensation Committee of PSF shall be Responsible for the Administration & Interpretation of All Plan Provisions 3 PREMIUM STANDARD FARMS LONG TERM INCENTIVE PLAN
Targeted Earnings $206,000,000 EBITDA Accrual Rate-Incentive Pool 2.6% Accrual Rate-Discretionary Pool 1.3% Targeted Pool Incentive $ 2,660,966 Discretionary $ 1,330,683 ------------ Total $ 3,991,250 Incentive Pool/ Thresholds Discretionary Pool $ 000 Cumulative 3 Years $ 103,000 Annualized $ 34,333
- --------------------------------------------------------------------------------------------- POOL ACCRUAL AT 2.0% INCENTIVE POOL DISCRETIONARY TOTAL POOL MEMO: POOL AS % OF BASED ON EARNINGS OF: (000) POOL (000) (000) EARNINGS - --------------------------------------------------------------------------------------------- $ 0M $0 $0 $0 0.0% 25M 0 0 0 0.0% 50M 0 0 0 0.0% 75M 0 0 0 0.0% 103M 0 0 0 0.0% 104M 26 13 39 .03% 125M 568 284 853 .7% 150M 1,214 607 1,821 1.2% 175M 1,860 930 2,790 1.6% 206M 2,661 1,331 3,991 1.9% 225M 3,152 1,576 4,728 2.1% 250M 3,798 1,899 5,696 2.3% 275M 4,443 2,222 6,665 2.4% 300M 5,089 2,545 7,634 2.5% 325M 5,735 2,868 8,603 2.6% 350M 6,381 3,191 9,571 2.7% 375M 7,027 3,514 10,540 2.8% 400M 7,673 3,837 11,509 2.9%
4 PREMIUM STANDARD FARMS PLAN DESCRIPTION - - The Long Term Incentive Program is proposed for selected Premium Standard Farms executives, effective April 1, 1998 through March 31, 2001. - - The new program will encourage the long-term growth of Premium Standard Farms. - The performance focus in the new plan relates to the performance executives can best influence and control; i.e., the Executive's long-term reward opportunity is exclusively based on the earnings growth of the Company. - The size of the long-term reward opportunity has been designed to be competitive with long-term plans offered by both public and private companies. - The Plan has been designed to maximize business teamwork ("I only win if my business wins") while still providing an opportunity for strong individual efforts to be recognized and specifically rewarded. - Finally, the Plan has been designed to require long-term executive commitment as a condition to receiving the substantial long-term opportunity the Plan offers. - - The Performance Thresholds in the Plan have been designed so that: - Some benefits can be earned for performing above a relatively low threshold (generally one half of expected performance). - Market competitive rewards, however, will not be available unless reasonably expected performance objectives are achieved over the course of the long-term performance period. - Superior benefits can be earned by exceeding the performance expectations. - - The chart at the beginning of this booklet illustrates the new long-term model for Premium Standard Farms. - The Incentive Pool rewards the management team as a whole for exceeding their earnings threshold over the performance period. - The Discretionary Pool is a supplemental pool designed to reward individual members of the management team based upon their individual performance during the performance period. 5 PURPOSE OF THE NEW LONG TERM PROGRAM - - Provide key executives a capital accumulation opportunity. - - Provide market competitive long-term incentive rewards for attaining performance objectives, i.e., the long-term earnings growth of the Company. - - Encourage the retention and commitment of key executives. WHO IS ELIGIBLE TO PARTICIPATE IN THE NEW PROGRAM? - - The senior management charged with the leadership and accountability for long-term earnings growth. Executives will be selected for participation in the program by the Premium Standard Farms Compensation Committee. PERFORMANCE MEASURE AND PERFORMANCE PERIOD - - The Long Term Incentive Plan will use one performance measure "EBITDA" and will have a three-year performance period (FY 1998-2001). - - "EBITDA" as a performance measure will consist of the cumulative performance period earnings for the Company as a whole. - The use of a multi-year cumulative measure will moderate the impact of volatile earnings over the course of the cycles of our business. - - "EBITDA" as a performance measure will include both operating and non-operating earnings (before tax depreciation and amortization) and will be determined after accruing for the cost of this long-term plan (post-accrual earnings). 6 FUNDING THE LT BONUS POOLS/PERFORMANCE OBJECTIVES - - Average Annual Earnings (EBITDA) Expectation - The Premium Standard Farms Compensation Committee established a reasonable Average Annual EBITDA Expectation for the succeeding 3 years. - The objective was to establish an expectation for the Company that was reasonably assessed at a 75% chance to attain based upon presently available resources. - - Incentive Pool Earnings Threshold - The Incentive Pool Threshold is set generally at 1/2 of the EBITDA Expectation. - - Discretionary Pool Earnings Threshold - The Discretionary Pool Threshold is set generally at 1/2 of the EBITDA Expectation. FUNDING THE LT BONUS POOLS/PERFORMANCE OBJECTIVES - - Long Term Profit-Sharing PercentAGE - This percentage has been determined at a level that will yield a market competitive long-term incentive fund for the eligible executives assuming earnings expectations are attained, and will provide substantial pay leverage for exceeding or falling short of that expectation. - - Modifying the Earnings Expectation and Thresholds during the Performance Period - Generally, the Earnings Expectation and Thresholds are expected to remain in place for the full performance period without modification. - However, modifications will be made where there are major capital changes: - A major capital infusion will generally result in an increase in the Earnings Expectation and Thresholds. - A major withdrawal of capital from the Company (e.g., a sale of a business segment without reinvesting the sales proceeds in Premium Standard Farms will generally result in a decrease in the Earnings Expectation and Thresholds. 7 - The Compensation Committee of the Board of Directors reserves the right to modify either the earnings expectation or thresholds in the event of an unforeseen and extraordinary event. INCENTIVE POOL - - Each eligible executive is granted a percentage of the Incentive Pool. - This percentage interest is generally granted at the beginning of the performance period. - Some percentage interests were reserved for subsequent grants to newly eligible executives (e.g., newly hired or promoted executives). - Percentage interest of the original pool participants may be reduced if pool reserves are insufficient for subsequent grants to newly eligible executives. Such reduced percentage interest, however, will not reduce the original participant's bonus opportunity because corresponding positive adjustments will be made to the pool's LT Profit-Sharing Percentage. - - The Value of an Incentive Pool equals: - Actual Earnings for the performance period IN EXCESS OF - Incentive Pool Earnings Threshold MULTIPLIED BY - LT Profit-Sharing Percentage - - The Value of an eligible Executive's Incentive Pool Interest equals: - The Incentive Pool Value as determined above MULTIPLIED BY - The Executive's percentage interest in the Incentive Pool DISCRETIONARY POOL - - The Program will have a pool to fund discretionary, performance based, individual bonus amounts. 8 - Unlike the Incentive Pool, executives do not receive a percentage interest in the Discretionary Pool at the beginning of the period. Allocation of this pool will be made after FY2001 on a discretionary basis taking into account individual performance during the period. - - The Value of the Discretionary Pool equals: - Actual Earnings for the Performance Period IN EXCESS OF - Discretionary Pool Earnings Threshold MULTIPLIED BY - LT Profit-Sharing Percentage - - The Value of an Executive's interest in the Discretionary Pool equals: - A portion of the Discretionary Pool value based upon an assessment by the CEO and Compensation Committee of an Executive's individual performance during the performance period. - An executive might receive the same percentage interest in the Discretionary Pool as he has in the Incentive Pool, or he might receive more, less, or none. The allocation is totally at the discretion of the CEO and Compensation Committee. VESTING AND CASH-OUT OF INCENTIVE POOL - - The payout of an Executive's interest in an Incentive Pool will be fully distributed in cash shortly after the end of the performance period (FY2001). - - Vesting of an Executive's Incentive Pool interest is based on continued employment with Premium Standard Farms: - 50% of Incentive Pool at end of 2nd Year (3/31/00) - 50% of Incentive Pool at end of 3rd Year (3/31/01) - 100% of Discretionary Pool at end of Performance Period (3/31/01) 9 - - Full vesting rights are accorded executives who leave the Company due to death, disability or at normal retirement age during the performance period. - Transfers to Continental Grain Company during the performance period: - Retention of a pro-rata interest in the Premium Standard Farms Pool - Grant of a pro-rata interest in the new business unit's Pool - - Special vesting and funding rules apply if the Company is sold or in the event of an initial public offering (IPO) during the performance period.* VESTING AND CASH-OUT OF DISCRETIONARY POOL - - An Executive's interest in the Discretionary Pool is determined after the end of the performance period. - - Payout of an Executive's interest in the Discretionary Pool, if any, will occur the same date as Incentive Pool payout. - - Vesting of an Executive's Discretionary Pool interest is based on current active employment with the Company on the payout date. - - Full vesting rights are accorded an executive who leaves the Company during the performance period due to death, disability or at normal retirement age. - - Special vesting and funding rules apply if the Company is sold or in the event of an IPO during the performance period.* ADMINISTRATION OF LONG TERM INCENTIVE PLANS - - The Compensation Committee of the Board of Directors shall approve the administration of the Long Term Incentive Plan. - The Committee shall have sole responsibility for the interpretation of all plan requirements and the payment of plan benefits. * To be determined by the Premium Standard Farms Compensation Committee EX-10.3 28 y50886ex10-3.txt EXECUTIVE LEVEL SEVERANCE PLAN 1 Exhibit 10.3 PREMIUM STANDARD FARMS, INC. EXECUTIVE LEVEL SEVERANCE PAY PLAN (EFFECTIVE DECEMBER 1, 1999) 2 TABLE OF CONTENTS
Page ESTABLISHMENT OF THE PLAN................................................. 1 PURPOSE OF THE PLAN....................................................... 1 ELIGIBLE EMPLOYEES........................................................ 1 CONDITIONS OF INELIGIBILITY............................................... 2 BASE SEVERANCE PAY........................................................ 2 SUPPLEMENTAL SEVERANCE PAY AND SUPPLEMENTAL SEVERANCE BENEFITS............ 3 PAYMENT OF SEVERANCE PAY.................................................. 4 WAIVER AND RELEASE AGREEMENT.............................................. 4 PLAN ADMINISTRATION....................................................... 5 AMENDMENT/TERMINATION/VESTING............................................. 6 NO ASSIGNMENT............................................................. 6 CONFIDENTIAL INFORMATION.................................................. 6 RECOVERY OF PAYMENTS MADE BY MISTAKE...................................... 6 REPRESENTATIONS CONTRARY TO THE PLAN...................................... 7 NO EMPLOYMENT RIGHTS...................................................... 7 PLAN FUNDING.............................................................. 7 APPLICABLE LAW............................................................ 7 SEVERABILITY.............................................................. 7 PLAN YEAR................................................................. 7 MANDATED PAYMENTS......................................................... 7 MISCELLANEOUS PROVISIONS.................................................. 8
3 PREMIUM STANDARD FARMS, INC. EXECUTIVE LEVEL SEVERANCE PAY PLAN ESTABLISHMENT OF THE PLAN PREMIUM STANDARD FARMS, INC. (hereinafter the "COMPANY") hereby adopts the PREMIUM STANDARD FARMS, INC. EXECUTIVE LEVEL SEVERANCE PAY PLAN (hereinafter the "PLAN"), effective December 1, 1999 for the benefit of eligible employees of the Company. The Plan is an unfunded welfare benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (hereinafter "ERISA") and a severance pay plan within the meaning of United States Department of Labor regulations section 2510.3-2(b). The Plan supersedes any prior Company severance plans, programs or policies covering eligible employees, both formal and informal. PURPOSE OF THE PLAN The purpose of the Plan is to provide an eligible employee with base severance pay, supplemental severance pay and supplemental severance benefits for a specified period of time in the event that his/her employment is involuntarily terminated by the Company other than for good reason, including lack of work, rearrangement of work, reduction in workforce, or position elimination. ELIGIBLE EMPLOYEES The Plan is applicable only to eligible employees of the Company. For all purposes of the Plan, "ELIGIBLE EMPLOYEE" means a person based in the United States in an employee-employer relationship with the Company who on his/her date of termination of employment with the Company is in the Company job classification as Chief Executive Officer, President, or Chief Financial Officer. "Eligible employee" does not include (i) any employee covered by a written employment or other agreement which contains a severance provision or by a written severance agreement, (ii) any independent contractor, (iii) any consultant, (iv) any person performing services for the Company under an independent contractor or consultant agreement, purchase order, supplier agreement or any other form of agreement which the Company enters into for services, (v) any "leased employee" as defined in Section 414(n) of the Internal Revenue Code, (vi) any contract employee, temporary employee, or any employee who on his/her date of termination of employment with the Company is in a Company job classification other than as Chief Executive Officer, President, or Chief Financial Officer. 4 -2- CONDITIONS OF INELIGIBILITY An otherwise eligible employee shall not be eligible for base severance pay, supplemental severance pay and supplemental severance benefits under the Plan if: (a) the eligible employee ceases to be an eligible employee as defined in the Plan; (b) the eligible employee's employment with the Company terminates by reason of death, or discharge for good reason as determined by the Plan Administrator; (c) the eligible employee's employment with the Company terminates through retirement, resignation, or job abandonment; (d) the eligible employee leaves employment with the Company prior to a date authorized in writing by the Company; (e) the eligible employee is on an authorized leave of absence, provided however, that an eligible employee who returns from an authorized leave of absence and who cannot be placed in employment with the Company shall be eligible for base severance pay, supplemental severance pay and supplemental severance benefits under the Plan; (f) the eligible employee is employed in a Company operation or facility which is sold, leased or otherwise transferred and in conjunction with such situation receives an offer of comparable employment. For all purposes of the Plan, "an offer of comparable employment" means an offer of a position providing comparable responsibilities, base salary and benefits to the eligible employee's then current position with the Company, as determined by the Plan Administrator. (g) the eligible employee's employment with the Company is terminated under the terms of any form of group reorganization/restructuring benefit plan or program sponsored by the Company which provides total separation pay equal to or greater than the base and supplemental severance pay provided hereunder; or (h) the Plan is terminated. BASE SEVERANCE PAY Each eligible employee who is eligible for severance pay under the Plan shall be entitled to receive as base severance pay two (2) weeks of pay. 5 -3- For all purposes of the Plan, a "WEEK OF PAY" for an eligible employee shall be determined by using his/her regular annual base salary compensation rate on his/her date of termination of employment with the Company divided by fifty-two (52). SUPPLEMENTAL SEVERANCE PAY AND SUPPLEMENTAL SEVERANCE BENEFITS In addition to the base severance pay which an eligible employee is entitled to receive under the Plan, in exchange for providing the Company with an enforceable Waiver and Release Agreement in a form acceptable to the Company, each eligible employee who is eligible for severance pay under the Plan is eligible to receive as supplemental severance pay and supplemental severance benefits the following: (a) Supplemental Severance Pay: Supplemental severance pay shall be fifty (50) weeks of pay. (b) Supplemental Severance Benefits: An eligible employee is eligible to receive the following supplemental severance benefits: (i) Health benefits coverage continuation: An eligible employee shall be eligible to continue his/her coverage under the Company sponsored health benefits plan at the contribution rate paid by active employees of the Company for the period which ends upon the earlier of (A) fifty-two (52) weeks following his/her date of termination of employment with the Company or (B) the date he/she becomes covered as an employee under another employer's group health plan, program or contract. Thereafter, an eligible employee may elect to exercise his/her applicable COBRA continuation rights to further continue his/her health benefits under the Company sponsored health benefits plan by paying the required COBRA premium rate. All of the terms and conditions of the Company sponsored health benefits plan, as amended from time to time, shall be applicable to an eligible employee (and his/her eligible dependents, if applicable) participating in any form of continuation coverage under the Company sponsored health benefits plan. 6 -4- The Chairman of the Company, acting in the Chairman's sole discretion may, in writing, enhance the amount of supplemental severance pay or supplemental severance benefits which an eligible employee is eligible to receive over the amounts described above and/or make available one or more additional forms of supplemental severance benefit. The consideration for the voluntary Waiver and Release Agreement shall be the supplemental severance pay and supplemental severance benefits which the eligible employee would otherwise not be eligible to receive. PAYMENT OF SEVERANCE PAY Severance pay generally will be paid in a lump sum following the eligible employee's date of termination of employment, however any supplemental severance pay and any supplemental severance benefits which become payable will be paid only after the seven (7) day revocation period for a signed Waiver and Release Agreement has passed. The Company reserves the right in its sole discretion to pay severance pay in installments in accordance with the Company's regular payroll payment schedule. All legally required taxes and any sums owing to the Company shall be deducted from Plan severance pay and supplemental severance benefits payments. If an eligible employee has received his/her supplemental severance pay in one lump sum and is then reemployed by the Company during a period of time during which he/she would have been receiving supplemental severance pay if paid to him/her in installments, he/she shall be required to repay to the Company that portion of the lump sum payment attributable to the period of time from the date his/her reemployment begins to the date he/she would have received his/her last installment payment of supplemental severance pay. In the event that an eligible employee who is receiving payment of supplemental severance pay under the Plan in installments is then reemployed by the Company, the payment of supplemental severance pay under the Plan shall cease as of the date his/her reemployment begins. In addition, the payment and/or availability of supplemental severance benefits under the Plan to an eligible employee shall cease as of the date his/her reemployment with the Company begins. WAIVER AND RELEASE AGREEMENT In order to receive the supplemental severance pay and supplemental severance benefits available under the Plan, an eligible employee must submit a signed Waiver and Release Agreement form to the Plan Administrator on or within forty-five (45) days after his/her date of termination of employment, but not prior to his/her date of termination of employment. The applicable Waiver and Release Agreement form is attached hereto as Attachment I. An eligible employee may revoke his/her signed Waiver and Release Agreement within seven (7) days of his/her signing the Waiver and Release Agreement. 7 -5- Any such revocation must be made in writing and must be received by the Plan Administrator within such seven (7) day period. An eligible employee who timely revokes his/her Waiver and Release Agreement shall not be eligible to receive any supplemental severance pay and supplemental severance benefits under the Plan. An eligible employee who timely submits a signed Waiver and Release Agreement form and who does not exercise his/her right of revocation shall be eligible to receive supplemental severance pay and supplemental severance benefits under the Plan. Eligible employees shall be advised to contact their personal attorney at their own expense to review the Waiver and Release Agreement form if they so desire. PLAN ADMINISTRATION The Company's Chairman and Chief Executive Officer acting together shall serve as the "PLAN ADMINISTRATOR" of the Plan and the "NAMED FIDUCIARY" within the meaning of such terms as defined in ERISA. Notwithstanding the foregoing sentence, in any circumstance involving a claim under the Plan by the Chief Executive Officer, a member of the Board of Directors of the Company shall substitute for the Chief Executive Officer and shall serve along with the Chairman as Plan Administrator for purposes of such claim. Except as otherwise provided herein, the Plan Administrator shall have the discretionary authority to determine eligibility for Plan severance pay and supplemental severance benefits and to construe the terms of the Plan, including the making of factual determinations. The decisions of the Plan Administrator shall be final and conclusive with respect to all questions concerning the administration of the Plan. The Plan Administrator may delegate to other persons responsibilities for performing certain of the duties of the Plan Administrator under the terms of the Plan and may seek such expert advice as the Plan Administrator deems reasonably necessary with respect to the Plan. The Plan Administrator shall be entitled to rely upon the information and advice furnished by such delegatees and experts, unless actually knowing such information and advice to be inaccurate or unlawful. The Plan Administrator shall establish and maintain a reasonable claims procedure, including a procedure for appeal of denied claims. In no event shall an eligible employee or any other person be entitled to challenge a decision of the Plan Administrator in court or in any other administrative proceeding unless and until the claim and appeals procedures established under the Plan have been complied with and exhausted. In the event of a group termination, as determined in the sole discretion of the Plan Administrator, the Plan Administrator shall furnish affected eligible employees with such additional information as may be required by law. 8 -6- AMENDMENT/TERMINATION/VESTING Eligible employees do not have any vested right to severance pay or supplemental severance benefits under the Plan and the Company reserves the right in its sole discretion to amend or terminate the Plan at any time either by resolution of its Board of Directors or in writing signed by the Chief Executive Officer of the Company, provided, however, that eligible employees under the Plan shall be furnished with not less than thirty (30) days prior written notice of the content and effective date of such amendment or termination. NO ASSIGNMENT Severance pay and any supplemental severance benefits payable under the Plan shall not be subject to anticipation, alienation, pledge, sale, transfer, assignment, garnishment, attachment, execution, encumbrance, levy, lien, or charge, and any attempt to cause such severance pay or supplemental severance benefits to be so subjected shall not be recognized, except to the extent required by law. CONFIDENTIAL INFORMATION Eligible employees may have access to trade secrets and other confidential and proprietary information (hereinafter "CONFIDENTIAL INFORMATION") with regard to the business of the Company. Confidential Information includes without limitation, trade secrets, financial results and other information relating to the Company's practices in human resources, personnel, including compensation programs, accounting, marketing, advertising, promotion, selling and distributing, price lists, customer lists, and research. Recognizing that the disclosure or improper use of such Confidential Information will cause serious and irreparable injury to the Company, eligible employees with such access acknowledge that (i) they will not at any time, directly or indirectly, disclose Confidential Information to any third party or otherwise use such Confidential Information for their own benefit or the benefit of others, (ii) payment of severance pay and supplemental severance benefits under the Plan shall cease if an eligible employee discloses or improperly uses such Confidential Information, and (iii) retention of severance pay and supplemental severance benefits under the Plan is conditioned upon the eligible employee not disclosing or improperly using such Confidential Information. RECOVERY OF PAYMENTS MADE BY MISTAKE An eligible employee or other person shall be required to return to the Company any severance pay payment and any supplemental severance benefit payment, or portion thereof, made by a mistake of fact or law. 9 -7- REPRESENTATIONS CONTRARY TO THE PLAN No employee, officer, or director of the Company has the authority to alter, vary, or modify the terms of the Plan except by means of an authorized written amendment to the Plan. No verbal or written representations contrary to the terms of the Plan and its written amendments shall be binding upon the Plan, the Plan Administrator, or the Company. NO EMPLOYMENT RIGHTS The Plan shall not confer employment rights upon any person. No person shall be entitled, by virtue of the Plan, to remain in the employ of the Company and nothing in the Plan shall restrict the right of the Company to terminate the employment of any eligible employee or other person at any time. PLAN FUNDING No eligible employee shall acquire by reason of the Plan any right in or title to any assets, funds, or property of the Company. Any severance pay payments which become payable under the Plan are unfunded obligations of the Company and shall be paid from the general assets of the Company. No employee, officer, director or agent of the Company guarantees in any manner the payment of Plan severance pay or supplemental severance benefits. APPLICABLE LAW The Plan shall be governed and construed in accordance with ERISA and in the event that any reference shall be made to State law, the internal laws of the State of Missouri shall apply. SEVERABILITY If any provision of the Plan is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or other controlling law, the remainder of the Plan shall continue in full force and effect. PLAN YEAR The ERISA plan year of the Plan shall be the twelve month period commencing on January 1 of each year. 10 -8- MANDATED PAYMENTS The severance pay and supplemental severance benefits available under the Plan are the maximum made available by the Company in the event of involuntary termination of employment. To the extent that a federal, State or local law may mandate the Company to make a payment to an eligible employee because of involuntary termination of employment or in accordance with a plant closing law, the severance pay and supplemental severance benefits available under the Plan shall be reduced by the amount of such mandated payment. MISCELLANEOUS PROVISIONS All Company property (i.e., Confidential Information, keys, credit cards, documents and records, printers, laptop computers, pagers, identification cards, equipment, automobile, car/mobile telephones, parking stickers, etc.) must be returned by an eligible employee as of his/her date of termination of employment with the Company in order for such eligible employee to commence receiving severance pay and supplemental severance benefits under the Plan. All pay and other benefits (except Plan severance pay and supplemental severance benefits) payable to an eligible employee as of his/her date of termination of employment with the Company according to the established policies, plans, and procedures of the Company shall be paid in accordance with the terms of those established policies, plans, and procedures. In addition, any benefit continuation or conversion rights which an eligible employee has as of his/her date of termination of employment with the Company according to the established policies, plans, and procedures of the Company shall be made available to him/her. PREMIUM STANDARD FARMS, INC. By /s/ John M. Meyer ---------------------------------------------- John M. Meyer Chief Executive Officer 11 ATTACHMENT I PREMIUM STANDARD FARMS, INC. EXECUTIVE LEVEL SEVERANCE PAY PLAN WAIVER AND RELEASE AGREEMENT (1) In consideration for the supplemental severance pay and supplemental severance benefits to be provided to me under the terms of the PREMIUM STANDARD FARMS, INC. EXECUTIVE LEVEL SEVERANCE PAY PLAN, I, on behalf of myself and my heirs, executors, administrators, attorneys and assigns, hereby waive, release and forever discharge PREMIUM STANDARD FARMS, INC. (hereinafter referred to as the "Company") together with the Company's parent, subsidiaries, divisions and affiliates, whether direct or indirect, its and their joint ventures and joint venturers (including their respective directors, officers, employees, shareholders, partners and agents, past, present, and future), and each of its and their respective successors and assigns (hereinafter collectively referred to as "Releasees"), from any and all known or unknown actions, causes of action, claims or liabilities of any kind which have or could be asserted against the Releasees arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees and/or any other occurrence up to and including the date of this Waiver and Release Agreement, including but not limited to: (a) claims, actions, causes of action or liabilities arising under Title VII of the Civil Rights Act, as amended, the Age Discrimination in Employment Act, as amended ("ADEA"), the Employee Retirement Income Security Act, as amended, the Rehabilitation Act, as amended, the Americans with Disabilities Act, as amended, the Family and Medical Leave Act, as amended, and/or any other federal, state, municipal, or local employment discrimination statutes or ordinances (including, but not limited to, claims based on age, sex, attainment of benefit plan rights, race, religion, national origin, marital status, sexual orientation, ancestry, harassment, parental status, handicap, disability, retaliation, and veteran status); and/or (b) claims, actions, causes of action or liabilities arising under any other federal, state, municipal, or local statute, law, ordinance or regulation; and/or (c) any other claim whatsoever including, but not limited to, claims for severance pay, claims based upon breach of contract, wrongful termination, defamation, intentional infliction of emotional distress, tort, personal injury, invasion of privacy, violation of public policy, negligence and/or any other common law, statutory or other claim whatsoever arising out of or relating to my employment with and/or separation from employment with the Company and/or any of the other Releasees, but excluding the filing of an administrative charge, any claims which I may make under state workers' compensation or unemployment laws, and/or any claims which by law I cannot waive. 12 -2- (2) I also agree never to sue any of the Releasees or become party to a lawsuit on the basis of any claim of any type whatsoever arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees, other than a lawsuit to challenge this Waiver and Release Agreement under the ADEA. (3) I further acknowledge and agree that if I breach the provisions of paragraph (2) above, then (a) the Company shall be entitled to apply for and receive an injunction to restrain any violation of paragraph (2) above, (b) the Company shall not be obligated to continue payment of the supplemental severance pay and availability of supplemental severance benefits to me, (c) I shall be obligated to pay to the Company its costs and expenses in enforcing this Waiver and Release Agreement and defending against such lawsuit (including court costs, expenses and reasonable legal fees), and (d) as an alternative to (c), at the Company's option, I shall be obligated upon demand to repay to the Company all but $100 of the supplemental severance pay and cost of the supplemental severance benefits paid or made available to me. I further agree that the foregoing covenants in this paragraph (3) shall not affect the validity of this Waiver and Release Agreement and shall not be deemed to be a penalty or a forfeiture. (4) I further waive my right to any monetary recovery should any federal, state, or local administrative agency pursue any claims on my behalf arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees. (5) I further waive, release, and discharge Releasees from any reinstatement rights which I have or could have and I acknowledge that I have not suffered any on-the-job injury for which I have not already filed a claim. (6) I further agree that if I breach the Confidential Information provisions of the Plan, then (a) the Company shall be entitled to apply for and receive an injunction to restrain such breach, (b) the Company shall not be obligated to continue payment of the supplemental severance pay and availability of supplemental severance benefits to me, and (c) I shall be obligated to pay to the Company its costs and expenses in enforcing the Confidential Information provisions of the Plan (including court costs, expenses and reasonable legal fees). (7) I acknowledge that I have been given at least forty-five (45) days to consider this Waiver and Release Agreement thoroughly and I was encouraged to consult with my personal attorney, if desired, before signing below. (8) I understand that I may revoke this Waiver and Release Agreement within seven (7) days after its signing and that any revocation must be made in writing and submitted within such seven day period to the Plan Administrator. I further understand that if I revoke this Waiver and Release Agreement, I shall not receive the supplemental severance pay nor the supplemental severance benefits. 13 -3- (9) I also understand that the supplemental severance pay and supplemental severance benefits which I will receive in exchange for signing and not later revoking this Waiver and Release Agreement are in addition to anything of value to which I already an entitled. (10) I FURTHER UNDERSTAND THAT THIS WAIVER AND RELEASE AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS TO DATE. (11) I acknowledge and agree that if any provision of this Waiver and Release Agreement is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Waiver and Release Agreement shall continue in full force and effect. (12) This Waiver and Release Agreement in all respects shall be interpreted, enforced and governed under applicable federal law and in the event reference shall be made to State law, the internal laws of the State of Missouri. (13) I further acknowledge and agree that I have carefully read and fully understand all of the provisions of this Waiver and Release Agreement and that I voluntarily enter into this Waiver and Release Agreement by signing below. _______________________________________________________ (Name of Eligible Employee - Please Print) _______________________________________________________ (Signature of Eligible Employee) _______________________________________________________ (Date) PLEASE RETURN TO: Vice President, Human Resources Premium Standard Farms, Inc. 423 West 8th Street Kansas City, MO 64105 EX-10.4 29 y50886ex10-4.txt VICE PRESIDENT LEVEL SEVERANCE PLAN 1 Exhibit 10.4 PREMIUM STANDARD FARMS, INC. VICE PRESIDENT LEVEL SEVERANCE PAY PLAN (EFFECTIVE DECEMBER 1, 1999) 2 TABLE OF CONTENTS
Page ESTABLISHMENT OF THE PLAN................................................. 1 PURPOSE OF THE PLAN....................................................... 1 ELIGIBLE EMPLOYEES........................................................ 1 CONDITIONS OF INELIGIBILITY............................................... 2 BASE SEVERANCE PAY........................................................ 3 SUPPLEMENTAL SEVERANCE PAY AND SUPPLEMENTAL SEVERANCE BENEFITS............ 3 PAYMENT OF SEVERANCE PAY.................................................. 4 WAIVER AND RELEASE AGREEMENT.............................................. 4 PLAN ADMINISTRATION....................................................... 5 AMENDMENT/TERMINATION/VESTING............................................. 6 NO ASSIGNMENT............................................................. 6 CONFIDENTIAL INFORMATION.................................................. 6 RECOVERY OF PAYMENTS MADE BY MISTAKE...................................... 7 REPRESENTATIONS CONTRARY TO THE PLAN...................................... 7 NO EMPLOYMENT RIGHTS...................................................... 7 PLAN FUNDING.............................................................. 7 APPLICABLE LAW............................................................ 7 SEVERABILITY.............................................................. 7 PLAN YEAR................................................................. 8 MANDATED PAYMENTS......................................................... 8 MISCELLANEOUS PROVISIONS.................................................. 8
3 PREMIUM STANDARD FARMS, INC. VICE PRESIDENT LEVEL SEVERANCE PAY PLAN ESTABLISHMENT OF THE PLAN PREMIUM STANDARD FARMS, INC. (hereinafter the "COMPANY") hereby adopts the PREMIUM STANDARD FARMS, INC. VICE PRESIDENT LEVEL SEVERANCE PAY PLAN (hereinafter the "PLAN"), effective December 1, 1999 for the benefit of eligible employees of the Company. The Plan is an unfunded welfare benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (hereinafter "ERISA") and a severance pay plan within the meaning of United States Department of Labor regulations section 2510.3-2(b). The Plan supersedes any prior Company severance plans, programs or policies covering eligible employees, both formal and informal. PURPOSE OF THE PLAN The purpose of the Plan is to provide an eligible employee with base severance pay, supplemental severance pay and supplemental severance benefits for a specified period of time in the event that his/her employment is involuntarily terminated by the Company other than for good reason, including lack of work, rearrangement of work, reduction in workforce, or position elimination. ELIGIBLE EMPLOYEES The Plan is applicable only to eligible employees of the Company. For all purposes of the Plan, "ELIGIBLE EMPLOYEE" means a person based in the United States in an employee-employer relationship with the Company who on his/her date of termination of employment with the Company is in the Company job classification as a Vice President. "Eligible employee" does not include (i) any employee covered by a written employment or other agreement which contains a severance provision or by a written severance agreement, (ii) any independent contractor, (iii) any consultant, (iv) any person performing services for the Company under an independent contractor or consultant agreement, purchase order, supplier agreement or any other form of agreement which the Company enters into for services, (v) any "leased employee" as defined in Section 414(n) of the Internal Revenue Code, (vi) any contract employee, temporary employee, or any employee who on his/her date of termination of employment with the Company is in a Company job classification other than as a Vice President. 4 -2- CONDITIONS OF INELIGIBILITY An otherwise eligible employee shall not be eligible for base severance pay, supplemental severance pay and supplemental severance benefits under the Plan if: (a) the eligible employee ceases to be an eligible employee as defined in the Plan; (b) the eligible employee's employment with the Company terminates by reason of death, or discharge for good reason as determined by the Chief Executive Officer of the Company; (c) the eligible employee's employment with the Company terminates through retirement, resignation, or job abandonment; (d) the eligible employee leaves employment with the Company prior to a date authorized in writing by the Company; (e) the eligible employee is on an authorized leave of absence, provided however, that an eligible employee who returns from an authorized leave of absence and who cannot be placed in employment with the Company shall be eligible for base severance pay, supplemental severance pay and supplemental severance benefits under the Plan; (f) the eligible employee is employed in a Company operation or facility which is sold, leased or otherwise transferred and in conjunction with such situation receives an offer of comparable employment. For all purposes of the Plan, "an offer of comparable employment" means an offer of a position providing comparable responsibilities, base salary and benefits to the eligible employee's then current position with the Company, as determined by the Chief Executive Officer. (g) the eligible employee's employment with the Company is terminated under the terms of any form of group reorganization/restructuring benefit plan or program sponsored by the Company which provides total separation pay equal to or greater than the base and supplemental severance pay provided hereunder; or (h) the Plan is terminated. 5 -3- BASE SEVERANCE PAY Each eligible employee who is eligible for severance pay under the Plan shall be entitled to receive as base severance pay two (2) weeks of pay. For all purposes of the Plan, a "WEEK OF PAY" for an eligible employee shall be determined by using his/her regular annual base salary compensation rate on his/her date of termination of employment with the Company divided by fifty-two (52). SUPPLEMENTAL SEVERANCE PAY AND SUPPLEMENTAL SEVERANCE BENEFITS In addition to the base severance pay which an eligible employee is entitled to receive under the Plan, in exchange for providing the Company with an enforceable Waiver and Release Agreement in a form acceptable to the Company, each eligible employee who is eligible for severance pay under the Plan is eligible to receive as supplemental severance pay and supplemental severance benefits the following: (a) Supplemental Severance Pay: Supplemental severance pay shall be thirty-four (34) weeks of pay. (b) Supplemental Severance Benefits: An eligible employee is eligible to receive the following supplemental severance benefits: (i) Health benefits coverage continuation: An eligible employee shall be eligible to continue his/her coverage under the Company sponsored health benefits plan at the contribution rate paid by active employees of the Company for the period which ends upon the earlier of (A) thirty-six (36) weeks following his/her date of termination of employment with the Company or (B) the date he/she becomes covered as an employee under another employer's group health plan, program or contract. Thereafter, an eligible employee may elect to exercise his/her applicable COBRA continuation rights to further continue his/her health benefits under the Company sponsored health benefits plan by paying the required COBRA premium rate. 6 -4- All of the terms and conditions of the Company sponsored health benefits plan, as amended from time to time, shall be applicable to an eligible employee (and his/her eligible dependents, if applicable) participating in any form of continuation coverage under the Company sponsored health benefits plan. The Chief Executive Officer of the Company, acting in the Chief Executive Officer's sole discretion may, in writing, enhance the amount of supplemental severance pay or supplemental severance benefits which an eligible employee is eligible to receive over the amounts described above and/or make available one or more additional forms of supplemental severance benefit. The consideration for the voluntary Waiver and Release Agreement shall be the supplemental severance pay and supplemental severance benefits which the eligible employee would otherwise not be eligible to receive. PAYMENT OF SEVERANCE PAY Severance pay generally will be paid in a lump sum following the eligible employee's date of termination of employment, however any supplemental severance pay and any supplemental severance benefits which become payable will be paid only after the seven (7) day revocation period for a signed Waiver and Release Agreement has passed. The Company reserves the right in its sole discretion to pay severance pay in installments in accordance with the Company's regular payroll payment schedule. All legally required taxes and any sums owing to the Company shall be deducted from Plan severance pay and supplemental severance benefits payments. If an eligible employee has received his/her supplemental severance pay in one lump sum and is then reemployed by the Company during a period of time during which he/she would have been receiving supplemental severance pay if paid to him/her in installments, he/she shall be required to repay to the Company that portion of the lump sum payment attributable to the period of time from the date his/her reemployment begins to the date he/she would have received his/her last installment payment of supplemental severance pay. In the event that an eligible employee who is receiving payment of supplemental severance pay under the Plan in installments is then reemployed by the Company, the payment of supplemental severance pay under the Plan shall cease as of the date his/her reemployment begins. In addition, the payment and/or availability of supplemental severance benefits under the Plan to an eligible employee shall cease as of the date his/her reemployment with the Company begins. 7 -5- WAIVER AND RELEASE AGREEMENT In order to receive the supplemental severance pay and supplemental severance benefits available under the Plan, an eligible employee must submit a signed Waiver and Release Agreement form to the Plan Administrator on or within forty-five (45) days after his/her date of termination of employment, but not prior to his/her date of termination of employment. The applicable Waiver and Release Agreement form is attached hereto as Attachment I. An eligible employee may revoke his/her signed Waiver and Release Agreement within seven (7) days of his/her signing the Waiver and Release Agreement. Any such revocation must be made in writing and must be received by the Plan Administrator within such seven (7) day period. An eligible employee who timely revokes his/her Waiver and Release Agreement shall not be eligible to receive any supplemental severance pay and supplemental severance benefits under the Plan. An eligible employee who timely submits a signed Waiver and Release Agreement form and who does not exercise his/her right of revocation shall be eligible to receive supplemental severance pay and supplemental severance benefits under the Plan. Eligible employees shall be advised to contact their personal attorney at their own expense to review the Waiver and Release Agreement form if they so desire. PLAN ADMINISTRATION The Company's Vice President, Human Resources shall serve as the "PLAN ADMINISTRATOR" of the Plan and the "NAMED FIDUCIARY" within the meaning of such terms as defined in ERISA. Notwithstanding the foregoing sentence, in any circumstance involving a claim under the Plan by the Vice President, Human Resources, the Chief Executive Officer of the Company shall substitute for the Vice President, Human Resources as Plan Administrator for purposes of such claim. Except as otherwise provided herein, the Plan Administrator shall have the discretionary authority to determine eligibility for Plan severance pay and supplemental severance benefits and to construe the terms of the Plan, including the making of factual determinations. The decisions of the Plan Administrator shall be final and conclusive with respect to all questions concerning the administration of the Plan. The Plan Administrator may delegate to other persons responsibilities for performing certain of the duties of the Plan Administrator under the terms of the Plan and may seek such expert advice as the Plan Administrator deems reasonably necessary with respect to the Plan. The Plan Administrator shall be entitled to rely upon the information and advice furnished by such delegatees and experts, unless actually knowing such information and advice to be inaccurate or unlawful. The Plan Administrator shall establish and maintain a reasonable claims procedure, including a procedure for appeal of denied claims. In no event shall an eligible employee or any other person be entitled to challenge a decision of the Plan Administrator in court or in any other 8 -6- administrative proceeding unless and until the claim and appeals procedures established under the Plan have been complied with and exhausted. In the event of a group termination, as determined in the sole discretion of the Plan Administrator, the Plan Administrator shall furnish affected eligible employees with such additional information as may be required by law. AMENDMENT/TERMINATION/VESTING Eligible employees do not have any vested right to severance pay or supplemental severance benefits under the Plan and the Company reserves the right in its sole discretion to amend or terminate the Plan at any time either by resolution of its Board of Directors or in writing signed by the Chief Executive Officer of the Company, provided, however, that eligible employees under the Plan shall be furnished with not less than thirty (30) days prior written notice of the content and effective date of such amendment or termination. NO ASSIGNMENT Severance pay and any supplemental severance benefits payable under the Plan shall not be subject to anticipation, alienation, pledge, sale, transfer, assignment, garnishment, attachment, execution, encumbrance, levy, lien, or charge, and any attempt to cause such severance pay or supplemental severance benefits to be so subjected shall not be recognized, except to the extent required by law. CONFIDENTIAL INFORMATION Eligible employees may have access to trade secrets and other confidential and proprietary information (hereinafter "CONFIDENTIAL INFORMATION") with regard to the business of the Company. Confidential Information includes without limitation, trade secrets, financial results and other information relating to the Company's practices in human resources, personnel, including compensation programs, accounting, marketing, advertising, promotion, selling and distributing, price lists, customer lists, and research. Recognizing that the disclosure or improper use of such Confidential Information will cause serious and irreparable injury to the Company, eligible employees with such access acknowledge that (i) they will not at any time, directly or indirectly, disclose Confidential Information to any third party or otherwise use such Confidential Information for their own benefit or the benefit of others, (ii) payment of severance pay and supplemental severance benefits under the Plan shall cease if an eligible employee discloses or improperly uses such Confidential Information, and (iii) retention of severance pay and supplemental severance benefits under the Plan is conditioned upon the eligible employee not disclosing or improperly using such Confidential Information. 9 -7- RECOVERY OF PAYMENTS MADE BY MISTAKE An eligible employee or other person shall be required to return to the Company any severance pay payment and any supplemental severance benefit payment, or portion thereof, made by a mistake of fact or law. REPRESENTATIONS CONTRARY TO THE PLAN No employee, officer, or director of the Company has the authority to alter, vary, or modify the terms of the Plan except by means of an authorized written amendment to the Plan. No verbal or written representations contrary to the terms of the Plan and its written amendments shall be binding upon the Plan, the Plan Administrator, or the Company. NO EMPLOYMENT RIGHTS The Plan shall not confer employment rights upon any person. No person shall be entitled, by virtue of the Plan, to remain in the employ of the Company and nothing in the Plan shall restrict the right of the Company to terminate the employment of any eligible employee or other person at any time. PLAN FUNDING No eligible employee shall acquire by reason of the Plan any right in or title to any assets, funds, or property of the Company. Any severance pay payments which become payable under the Plan are unfunded obligations of the Company and shall be paid from the general assets of the Company. No employee, officer, director or agent of the Company guarantees in any manner the payment of Plan severance pay or supplemental severance benefits. APPLICABLE LAW The Plan shall be governed and construed in accordance with ERISA and in the event that any reference shall be made to State law, the internal laws of the State of Missouri shall apply. SEVERABILITY If any provision of the Plan is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or other controlling law, the remainder of the Plan shall continue in full force and effect. 10 -8- PLAN YEAR The ERISA plan year of the Plan shall be the twelve month period commencing on January 1 of each year. MANDATED PAYMENTS The severance pay and supplemental severance benefits available under the Plan are the maximum made available by the Company in the event of involuntary termination of employment. To the extent that a federal, State or local law may mandate the Company to make a payment to an eligible employee because of involuntary termination of employment or in accordance with a plant closing law, the severance pay and supplemental severance benefits available under the Plan shall be reduced by the amount of such mandated payment. MISCELLANEOUS PROVISIONS All Company property (i.e., Confidential Information, keys, credit cards, documents and records, printers, laptop computers, pagers, identification cards, equipment, automobile, car/mobile telephones, parking stickers, etc.) must be returned by an eligible employee as of his/her date of termination of employment with the Company in order for such eligible employee to commence receiving severance pay and supplemental severance benefits under the Plan. All pay and other benefits (except Plan severance pay and supplemental severance benefits) payable to an eligible employee as of his/her date of termination of employment with the Company according to the established policies, plans, and procedures of the Company shall be paid in accordance with the terms of those established policies, plans, and procedures. In addition, any benefit continuation or conversion rights which an eligible employee has as of his/her date of termination of employment with the Company according to the established policies, plans, and procedures of the Company shall be made available to him/her. PREMIUM STANDARD FARMS, INC. By /s/ John M. Meyer ---------------------------------------------- John M. Meyer Chief Executive Officer 11 ATTACHMENT I PREMIUM STANDARD FARMS, INC. VICE PRESIDENT LEVEL SEVERANCE PAY PLAN WAIVER AND RELEASE AGREEMENT (1) In consideration for the supplemental severance pay and supplemental severance benefits to be provided to me under the terms of the PREMIUM STANDARD FARMS, INC. VICE PRESIDENT LEVEL SEVERANCE PAY PLAN, I, on behalf of myself and my heirs, executors, administrators, attorneys and assigns, hereby waive, release and forever discharge PREMIUM STANDARD FARMS, INC. (hereinafter referred to as the "Company") together with the Company's parent, subsidiaries, divisions and affiliates, whether direct or indirect, its and their joint ventures and joint venturers (including their respective directors, officers, employees, shareholders, partners and agents, past, present, and future), and each of its and their respective successors and assigns (hereinafter collectively referred to as "Releasees"), from any and all known or unknown actions, causes of action, claims or liabilities of any kind which have or could be asserted against the Releasees arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees and/or any other occurrence up to and including the date of this Waiver and Release Agreement, including but not limited to: (a) claims, actions, causes of action or liabilities arising under Title VII of the Civil Rights Act, as amended, the Age Discrimination in Employment Act, as amended ("ADEA"), the Employee Retirement Income Security Act, as amended, the Rehabilitation Act, as amended, the Americans with Disabilities Act, as amended, the Family and Medical Leave Act, as amended, and/or any other federal, state, municipal, or local employment discrimination statutes or ordinances (including, but not limited to, claims based on age, sex, attainment of benefit plan rights, race, religion, national origin, marital status, sexual orientation, ancestry, harassment, parental status, handicap, disability, retaliation, and veteran status); and/or (b) claims, actions, causes of action or liabilities arising under any other federal, state, municipal, or local statute, law, ordinance or regulation; and/or (c) any other claim whatsoever including, but not limited to, claims for severance pay, claims based upon breach of contract, wrongful termination, defamation, intentional infliction of emotional distress, tort, personal injury, invasion of privacy, violation of public policy, negligence and/or any other common law, statutory or other claim whatsoever arising out of or relating to my employment with and/or separation from employment with the Company and/or any of the other Releasees, but excluding the filing of an administrative charge, any claims which I may make under state workers' compensation or unemployment laws, and/or any claims which by law I cannot waive. 12 -2- (2) I also agree never to sue any of the Releasees or become party to a lawsuit on the basis of any claim of any type whatsoever arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees, other than a lawsuit to challenge this Waiver and Release Agreement under the ADEA. (3) I further acknowledge and agree that if I breach the provisions of paragraph (2) above, then (a) the Company shall be entitled to apply for and receive an injunction to restrain any violation of paragraph (2) above, (b) the Company shall not be obligated to continue payment of the supplemental severance pay and availability of supplemental severance benefits to me, (c) I shall be obligated to pay to the Company its costs and expenses in enforcing this Waiver and Release Agreement and defending against such lawsuit (including court costs, expenses and reasonable legal fees), and (d) as an alternative to (c), at the Company's option, I shall be obligated upon demand to repay to the Company all but $100 of the supplemental severance pay and cost of the supplemental severance benefits paid or made available to me. I further agree that the foregoing covenants in this paragraph (3) shall not affect the validity of this Waiver and Release Agreement and shall not be deemed to be a penalty or a forfeiture. (4) I further waive my right to any monetary recovery should any federal, state, or local administrative agency pursue any claims on my behalf arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees. (5) I further waive, release, and discharge Releasees from any reinstatement rights which I have or could have and I acknowledge that I have not suffered any on-the-job injury for which I have not already filed a claim. (6) I further agree that if I breach the Confidential Information provisions of the Plan, then (a) the Company shall be entitled to apply for and receive an injunction to restrain such breach, (b) the Company shall not be obligated to continue payment of the supplemental severance pay and availability of supplemental severance benefits to me, and (c) I shall be obligated to pay to the Company its costs and expenses in enforcing the Confidential Information provisions of the Plan (including court costs, expenses and reasonable legal fees). (7) I acknowledge that I have been given at least forty-five (45) days to consider this Waiver and Release Agreement thoroughly and I was encouraged to consult with my personal attorney, if desired, before signing below. (8) I understand that I may revoke this Waiver and Release Agreement within seven (7) days after its signing and that any revocation must be made in writing and submitted within such seven day period to the Plan Administrator. I further understand that if I revoke this Waiver and Release Agreement, I shall not receive the supplemental severance pay nor the supplemental severance benefits. 13 -3- (9) I also understand that the supplemental severance pay and supplemental severance benefits which I will receive in exchange for signing and not later revoking this Waiver and Release Agreement are in addition to anything of value to which I already an entitled. (10) I FURTHER UNDERSTAND THAT THIS WAIVER AND RELEASE AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS TO DATE. (11) I acknowledge and agree that if any provision of this Waiver and Release Agreement is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Waiver and Release Agreement shall continue in full force and effect. (12) This Waiver and Release Agreement in all respects shall be interpreted, enforced and governed under applicable federal law and in the event reference shall be made to State law, the internal laws of the State of Missouri. (13) I further acknowledge and agree that I have carefully read and fully understand all of the provisions of this Waiver and Release Agreement and that I voluntarily enter into this Waiver and Release Agreement by signing below. _______________________________________________________ (Name of Eligible Employee - Please Print) _______________________________________________________ (Signature of Eligible Employee) _______________________________________________________ (Date) PLEASE RETURN TO: Vice President, Human Resources Premium Standard Farms, Inc. 423 West 8th Street Kansas City, MO 64105 EX-10.5 30 y50886ex10-5.txt SPECIAL EXECUTIVE RETIREMENT PLAN 1 EXHIBIT 10.5 PREMIUM STANDARD FARMS INC. SPECIAL EXECUTIVE RETIREMENT PLAN EFFECTIVE JANUARY 1, 2000 2 TABLE OF CONTENTS ARTICLE I - DEFINITIONS......................................................................1 1.01 ACTUARIAL EQUIVALENT...............................................................1 1.02 ACTUARIAL VALUE....................................................................1 1.03 BENEFICIARY........................................................................1 1.04 BOARD..............................................................................1 1.05 CHANGE IN CONTROL..................................................................1 1.06 BOARD..............................................................................1 1.07 CLAIMANT...........................................................................2 1.08 CODE...............................................................................2 1.09 COMMITTEE..........................................................................2 1.10 COMPANY............................................................................2 1.11 EARLY RETIREMENT AGE...............................................................2 1.12 EMPLOYER(S)........................................................................2 1.13 ERISA..............................................................................3 1.14 FINAL AVERAGE EARNINGS.............................................................3 1.15 NORMAL RETIREMENT AGE..............................................................3 1.16 PARTICIPANT........................................................................3 1.17 PLAN...............................................................................3 1.18 PRIMARY BENEFIT....................................................................3 1.19 RETIREMENT PLAN OFFSET AMOUNT......................................................3 1.20 SERP BENEFIT.......................................................................3 1.21 SOCIAL SECURITY OFFSET AMOUNT......................................................3 SOCIAL SECURITY OFFSET AMOUNT.............................................................3 1.22 YEARS OF BENEFIT SERVICE...........................................................4 1.23 YEARS OF VESTING SERVICE...........................................................4 ARTICLE II - ELIGIBILITY.....................................................................4 2.01 SELECTION BY COMMITTEE.............................................................4 ARTICLE III - VESTING........................................................................4 3.01 VESTING IN BENEFITS................................................................4 3.02 CHANGE IN CONTROL..................................................................4
i 3 ARTICLE IV - BENEFITS........................................................................4 4.01 NORMAL RETIREMENT..................................................................4 4.02 EARLY RETIREMENT...................................................................4 4.03 FORM OF BENEFITS...................................................................5 4.04 COMMITTEE DISCRETION...............................................................5 4.05 WITHHOLDING AND PAYROLL TAXES......................................................5 4.06 BENEFITS ON DEATH..................................................................5 4.07 COMMENCEMENT OF BENEFITS...........................................................6 ARTICLE V - TERMINATION AND AMENDMENT........................................................6 5.01 TERMINATION........................................................................6 5.02 AMENDMENT..........................................................................6 ARTICLE VI - OTHER BENEFITS AND AGREEMENT....................................................7 6.01 COORDINATION WITH OTHER BENEFITS...................................................7 ARTICLE VII - ADMINISTRATION OF THE PLAN.....................................................7 7.01 COMMITTEE DUTIES...................................................................7 7.02 AGENTS.............................................................................7 7.03 BINDING EFFECT OF DECISIONS........................................................7 7.04 INDEMNITY OF COMMITTEE.............................................................7 7.05 EMPLOYER INFORMATION...............................................................7 ARTICLE VIII - CLAIMS PROCEDURES.............................................................7 8.01 PRESENTATION OF CLAIM..............................................................7 8.02 NOTIFICATION OF DECISION...........................................................8 8.03 REVIEW OF A DENIED CLAIM...........................................................8 8.04 DECISION ON REVIEW.................................................................8 8.05 LEGAL ACTION.......................................................................9 ARTICLE IX - MISCELLANEOUS...................................................................9 9.01 UNSECURED GENERAL CREDITOR.........................................................9 9.02 EMPLOYER'S LIABILITY...............................................................9 9.03 NONASSIGNABILITY...................................................................9 9.04 NOT A CONTRACT OF EMPLOYMENT.......................................................9 9.05 FURNISHING INFORMATION.............................................................9
ii 4 9.06 TERMS..............................................................................9 9.07 CAPTIONS...........................................................................10 9.08 GOVERNING LAW......................................................................10 9.09 VALIDITY...........................................................................10 9.10 NOTICE.............................................................................10 9.11 SUCCESSORS.........................................................................10 9.12 SPOUSE'S INTEREST..................................................................10 9.13 INCOMPETENT........................................................................10 9.14 COURT ORDER........................................................................10 9.15 DISTRIBUTION IN THE EVENT OF TAXATION..............................................11
iii 5 PREMIUM STANDARD FARMS INC. SPECIAL EXECUTIVE RETIREMENT PLAN EFFECTIVE JANUARY 1, 2000 PURPOSE The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated employees of Premium Standard Farms Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE I - DEFINITIONS 1.01 "Actuarial Equivalent" shall mean a benefit of equivalent value, as calculated by an actuary selected by the Company, computed on the basis of the following actuarial assumptions: Interest: the annual interest rate on 30-year Treasury securities as specified by the Secretary of the Treasury or his delegate for the month preceding the month in which the Participant's distribution commences. Mortality: the 1983 Group Annuity Mortality Table using a blend of 50% of the male table and 50% of the female table. 1.02 "Actuarial Value" shall mean the lump sum cash value, as calculated by an actuary selected by the Company, computed on the basis of the following actuarial assumptions: Interest: the annual interest rate on 30-year Treasury securities as specified by the Secretary of the Treasury or his delegate for the month preceding the month in which the Participant's distribution commences. Mortality: the 1983 Group Annuity Mortality Table using a blend of 50% of the male table and 50% of the female table. 1.03 "Beneficiary" shall mean the surviving spouse of a deceased Participant. 1.04 "Board" shall mean the board of directors of the Company. 1.05 "Change in Control" shall mean the first to occur of any of the following events, unless such event shall have received prior approval of a majority vote of the Continuing Directors, as defined below, indicating that such event shall not constitute a Change in Control: (i) Any "person" (as that term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company), is or becomes the 6 "beneficial owner" (as defined in Rule 13(d)(3) under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities. (ii) During any period of two consecutive years (not including any period prior to the Effective Date of this Plan), individuals ("Existing Directors") who at the beginning of such period constitute the Board of Directors, and any new board member (an "Approved Director") (other than a board member designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (i), (iii) or (iv) of this Section 1.05) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the board members then still in office who either were board members at the beginning of the period or whose election or nomination for election previously was so approved (Existing Directors together with Approved Directors constituting "Continuing Directors"), cease for any reason to constitute at least a majority of the Board of Directors; or (iii) The stockholders of the Company approve a merger or consolidation of the Company with any other person, other than (a) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities for the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (b) a merger in which no "person" (as defined in Section 1.05(i)) acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). 1.06 "Board" shall mean the board of directors of the Company. 1.07 "Claimant" shall have the meaning set forth in Section 8.1. 1.08 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.09 "Committee" shall mean the Compensation Committee of the Board. 1.10 "Company" shall mean Premium Standard Farms Inc., a Delaware corporation. 1.11 "Early Retirement Age" shall mean age 55 with five years of Vesting Service. 1.12 "Employer(s)" shall mean the Company and any subsidiaries of the Company that have been selected by the Board to participate in the Plan. 2 7 1.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 1.14 "Final Average Earnings" shall mean the average of the Participant's final three full calendar years' base salary, including any amounts deferred to a qualified or nonqualified retirement plan or contributed by the Participant to a cafeteria plan. 1.15 "Normal Retirement Age" shall mean age 62. 1.16 "Participant" shall mean any employee who is selected to participate in the Plan by the Board and listed on Exhibit A as amended hereto from time to time. The Board shall have the sole and exclusive authority to select and delete Participants and to determine each Participant's Primary Benefit. 1.17 "Plan" shall mean this Special Executive Retirement Plan. 1.18 "Primary Benefit" shall mean a monthly benefit equal to 1/12th of: (i) the percentage of Final Average Earnings times Years of Benefit Service set forth opposite the Participant's name on Exhibit A. The Maximum Primary Benefit shall be a monthly benefit equal to 1/12th of 66.7% of Final Average Earnings. 1.19 "Retirement Plan Offset Amount" shall mean the increase in benefit actually paid to or on behalf of a Participant because of such Participant's service with an Employer under any defined benefit retirement plans of the Company or ContiGroup Companies, Inc. or its affiliates, including the Actuarial Equivalent of any benefit not paid as a monthly annuity. A Participant's Retirement Plan Offset Amount shall include any distributions (other than distributions of salary deferrals) previously made to the Participant. 1.20 "SERP Benefit" shall mean the benefit payable to a Participant determined under Section 4.01. 1.21 "Social Security Offset Amount" shall mean one-half (1/2) of a Participant's anticipated monthly social security benefit payable beginning at the earliest age permitted (currently 62), multiplied by a fraction, the numerator of which shall be the Participant's Years of Benefits Service and the denominator of which is the Participant's years of service for purposes of calculating his social security benefit, subject to the following rules: (i) If a Participant elects to commence benefits under this Plan prior to age 62, his Social Security Offset Amount shall be reduced by 6% by each full year by which the date on which he commences benefits precedes the date on which he attains Normal Retirement Age. (ii) If a Participant elects to commence benefits under this Plan at any age in a lump sum, his Social Security Offset Amount shall be one-half (1/2) the Actuarial Value of his expected social security benefits, including any benefits previously paid assuming 3 8 that his benefits commenced at the earliest age permitted (currently, age 62) and were not thereafter adjusted for cost of living adjustments. (iii) If a Participant elects to commence benefits under this Plan in an annuity form at or following the time he has commenced receipt of social security benefits, his Social Security Offset Amount shall be one-half (1/2) the actual monthly benefit received at that time and shall not be adjusted thereafter for cost of living adjustments or the subsequent death of the Participant. (iv) If a surviving spouse is entitled to a benefit pursuant to Section 4.06, the Social Security Offset Amount shall be computed as though the Participant was still living at age 62. 1.22 "Years of Benefit Service" shall mean full years of employment with the Company. 1.23 "Years of Vesting Service" shall mean full years of employment with the Company, excluding for this purpose years of employment prior to January 1, 2000. ARTICLE II - ELIGIBILITY 2.01 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a select group of management and highly compensated employees of the Employers. From that group, the Committee shall select, in its sole discretion, employees to participate in the Plan. ARTICLE III - VESTING 3.01 VESTING IN BENEFITS. Each Participant shall be 100% vested in his SERP Benefit upon the completion of five (5) Years of Vesting Service. 3.02 CHANGE IN CONTROL. Notwithstanding Section 3.01 or any other provision in this Plan that could be interpreted to the contrary, in the event of a Change in Control, a Participant's SERP Benefit shall immediately become 100% vested (if it is not already vested in accordance with Section 3.01 above). ARTICLE IV - BENEFITS 4.01 NORMAL RETIREMENT. A Participant who has completed five (5) Years of Vesting Service and who has terminated employment with the Company shall be entitled to receive a SERP Benefit at Normal Retirement Age. The SERP Benefit payable to a Participant at Normal Retirement Age shall be an annuity for the life of the Participant equal to his Primary Benefit minus the sum of (i) his Retirement Plan Offset Amount and (ii) his Social Security Offset Amount. 4.02 EARLY RETIREMENT. A Participant who attains Early Retirement Age and who has terminated employment shall be entitled to retire and receive a reduced SERP Benefit equal to his SERP Benefit reduced by one half of one percent (.5%) for each month by which the date on which he commences benefits precedes the date on which he attains his Normal Retirement Age. 4 9 4.03 FORM OF BENEFITS. Payments of vested SERP Benefits shall be made in the form and at the time elected by the Participant. The Participant shall make an election as to the form and timing of payments no later than 60 days prior to the end of the second calendar year preceding his retirement or other termination of employment on forms and in accordance with procedures announced from time to time by the Committee. Such election may be revoked or amended any time prior to the last date for making an election according to the preceding sentence. The forms of benefit available under the Plan shall be: (i) lump sum, which shall be the Actuarial Value of the SERP Benefit; (ii) joint and 50% survivor annuity, which shall be a monthly income payable for the lifetime of the Participant and continuing thereafter in an amount one-half as large to the Participant's surviving spouse for the lifetime of such spouse and shall be the Actuarial Equivalent of the SERP Benefit; (iii) joint and 100% survivor annuity, which shall be a monthly income payable for the lifetime of the Participant and continuing thereafter in an equal amount to the Participant's surviving spouse for the lifetime of such spouse and shall be the Actuarial Equivalent of the SERP Benefit; and (iv) an annuity for the life of the Participant only. If the Participant has elected a joint and survivor annuity and has no spouse at the time benefits become payable, the election shall be void and the benefits shall be paid as an annuity for the life of the Participant only. Should the spouse die after benefits have become payable, no survivor annuity shall be paid to any subsequent spouse of the Participant. 4.04 COMMITTEE DISCRETION. The Committee, in its sole discretion and consistent with its established procedures and rules, may consider other forms of vested SERP Benefit payments, or the timing of vested SERP Benefit payments, as it deems necessary and prudent under the circumstances. 4.05 WITHHOLDING AND PAYROLL TAXES. The Employer, to the extent required by applicable law, shall withhold from any and all benefits made under this Article 4, all federal, state and local income, employment and other taxes required to be withheld by the Employer in connection with the benefits hereunder, in amounts to be determined in the sole discretion of the Employer. 4.06 BENEFITS ON DEATH. If a Participant dies prior to commencing benefits under this Plan and is married on the date of his death, a spousal death benefit shall be payable under this Plan. The spousal death benefit under this Plan shall be equal to an annuity based on 50% of the Participant's SERP Benefit, commencing immediately but no earlier than the date that the Participant would have attained age 55, and reduced by one-half of one percent (.5%) for each month by which the date benefits commence precedes the date that the Participant would have attained age 62. Any spousal death benefits payable under this Plan shall be paid in the form of an annuity for the spouse's single life. If a Participant has no surviving spouse, the benefits remaining under the Plan shall be forfeited. 5 10 4.07 COMMENCEMENT OF BENEFITS. Payment of a benefit to a Participant may not begin earlier than the later of: (i) the Participant's Early Retirement Age, or (ii) The Participant's termination of employment. ARTICLE V - TERMINATION AND AMENDMENT 5.01 TERMINATION. The Company reserves the right to terminate the Plan at any time by the action of the Board. The termination of the Plan shall not adversely affect any Participant or his or her Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination, provided, however, that the Employer shall have the right to accelerate payments by paying the Actuarial Value of such payments. For all other Participants, upon the termination of the Plan, the Employer shall have the right to pay the Actuarial Value of a Participant's vested SERP Benefit in a lump sum. 5.02 AMENDMENT. The Company may, at any time, amend or modify the Plan in whole or in part by the action of its Board; provided, however, that no amendment or modification shall be effective to decrease or restrict a Participant's then vested SERP Benefit. The amendment or modification of the Plan shall not affect any Participant or his or her Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the Actuarial Value of such payments in a lump sum or the Actuarial Equivalent in some other accelerated form of payment. 6 11 ARTICLE VI - OTHER BENEFITS AND AGREEMENT 6.01 COORDINATION WITH OTHER BENEFITS. Except as provided herein and except as otherwise expressly provided under any other plan or program for employees of the Employers, the benefits provided under this Plan to a Participant are in addition to the benefits available to such Participant under any other such plan or program. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE VII - ADMINISTRATION OF THE PLAN 7.01 COMMITTEE DUTIES. This Plan shall be administered by the Committee, or such committee or individual as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. 7.02 AGENTS. In the administration of this Plan, the Committee may employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 7.03 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 7.04 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the members of the Committee against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members. 7.05 EMPLOYER INFORMATION. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the retirement, disability, death or termination of employment of its Participants, and such other pertinent information as the Committee may reasonably require. ARTICLE VIII - CLAIMS PROCEDURES 8.01 PRESENTATION OF CLAIM. Any Participant or Beneficiary (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. The claim must state with particularity the determination desired by the Claimant. All other claims must be made 7 12 within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 8.02 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim within 90 days (unless special circumstances require additional time), and shall notify the Claimant in writing: (i) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (ii) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant; (1) the specific reason(s) for the denial of the claim, or any part of it; (2) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (3) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and (4) an explanation of the claim review procedure set forth in Section 8.03 below. 8.03 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (i) may review pertinent documents; (ii) may submit written comments or other documents; and/or (iii) may request a hearing, which the Committee, in its sole discretion, may grant. 8.04 DECISION ON REVIEW. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (i) specific reasons for the decision; 8 13 (ii) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (iii) such other matters as the Committee deems relevant. 8.05 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this Article 8 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE IX - MISCELLANEOUS 9.01 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. Any and all of an Employer's assets shall be, and remain, the general, unpledged, unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 9.02 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits shall be defined only by the Plan. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan. 9.03 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 9.04 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, with or without cause, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 9.05 FURNISHING INFORMATION. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 9.06 TERMS. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and wherever any words are used herein in the singular or in the plural, they shall be construed as 9 14 though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 9.07 CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 9.08 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Missouri without regard to its conflict of laws principles. 9.09 VALIDITY. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts thereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 9.10 NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the participant. 9.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's Beneficiary. 9.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 9.13 INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 9.14 COURT ORDER. The Committee is authorized to make any payments directed by court order in any action in which the Plan or Committee has been named as a party. 10 15 9.15 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any portion of a Participant's benefit under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee for a distribution of that portion of his or her benefit that has become taxable. Upon the approval of such a petition a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid vested benefit under the Plan). If the petition is approved, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is approved. Such a distribution shall affect and reduce the benefits to be paid under this Plan. IN WITNESS WHEREOF, Premium Standard Farms Inc. has signed this Plan document as of January 1, 2001. "COMPANY' PREMIUM STANDARD FARMS INC. By: /s/ -------------------------------- Title: ----------------------------- 11 16 Exhibit A PREMIUM STANDARD FARMS, INC. SERP PARTICIPANTS
Name Position Percent ---- -------- ------- John Meyer CEO 4% Robert Manly President 4% Stephen Lightstone CFO 4% Michael Townsley Sr. VP Sales and Marketing 2% David James VP MO & NC Farm Operations 2% Don Killingsworth VP Industrial Procurement 2% Dennis Rippe VP Controller, Corp. Asst. Secretary 2% Daniel Harris VP Information Technology 2% David Klein VP Human Resources 2% Calvin Held VP Milan Plant Processing Operations 2% David Townsend VP Environmental Affairs 2% Charles Arnot VP Communications and Public Affairs 2% Collette Schultz-Kaster VP Food Safety and Technical Services 2% Jere Null VP Lundy Plant Processing Operations 2%
EX-10.6.A 31 y50886ex10-6_a.txt PREMIUM STANDARD FARMS DEFERRED COMPENSATION PLAN 1 Exhibit 10.6(a) PREMIUM STANDARD FARMS DEFERRED COMPENSATION PLAN 2 TABLE OF CONTENTS SECTION 1. ESTABLISHMENT................................................ 1 SECTION 2. DEFINITIONS.................................................. 1 SECTION 3. ELIGIBILITY FOR PARTICIPATION................................ 3 SECTION 4. DEFERRAL OF LTIP COMPENSATION................................ 4 SECTION 5. ELECTIONS OF TIMING AND FORM OF PAYMENT...................... 4 SECTION 6. INVESTMENT OF DEFERRAL AND VESTING ACCOUNTS.................. 8 SECTION 7. DESIGNATION OF BENEFICIARIES................................. 9 SECTION 8. MERGER, CONSOLIDATION AND SALE OF ASSETS...................... 9 SECTION 9. RIGHTS OF PARTICIPANTS....................................... 10 SECTION 10. ADMINISTRATION.............................................. 10 SECTION 11. CLAIMS AND APPEALS.......................................... 10 SECTION 12. AMENDMENTS AND TERMINATION.................................. 11 SECTION 13. APPLICABLE LAWS............................................. 12 SECTION 14. INCOMPETENCY................................................ 12 SECTION 15. EXPENSES.................................................... 12 SECTION 16. NOTICES..................................................... 12 SECTION 17. WITHHOLDING AND DEDUCTIONS.................................. 12 SECTION 18. INVALIDITY OF PROVISIONS.................................... 13 SECTION 19. TAX ADVANTAGES NOT GUARANTEED............................... 13 SECTION 20. RETURN OF COMPANY CONTRIBUTIONS............................. 13 3 PREMIUM STANDARD FARMS DEFERRED COMPENSATION PLAN SECTION 1. ESTABLISHMENT PREMIUM STANDARD FARMS hereby establishes, effective as of January 1, 2001, a deferred compensation and retirement plan for executives as described herein, which shall be known as the "PREMIUM STANDARD FARMS DEFERRED COMPENSATION PLAN" (hereinafter called the "Plan"). The Plan is intended to constitute an unfunded plan maintained primarily to provide deferred compensation to a select group or management or highly compensated employees. SECTION 2. DEFINITIONS 2.1 DEFINITIONS. Whenever used herein, the following terms shall have the meanings set forth below: (a) The term "BOARD" means the Board of Directors of the Company. (b) The term "BENEFICIARY" means the persons or entities designated pursuant to Section 7 who are to receive, upon a Participant's death, payment of the amounts credited to the Participant's Deferral Account as of the date of his death. (c) The term "CHANGE OF CONTROL" occurs where: (1) any "person" (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) other than: (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Securities Exchange Commission Rule 13(d)(3)), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; or (2) during any period of two consecutive years (not including any period prior to the Effective Date of this Plan), individuals who at the beginning of such period constitute the Board of Directors ("existing directors"), and any new board member ("approved director") (other than a board member designated by a person who has entered into an agreement with the Company to effect a transaction described in subsection (1), (2) or (3) of this subsection (c) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the board 1 4 members then still in office who either were board members at the beginning of the period or whose election or nomination for election previously was so approved (existing directors together with approved directors constituting "continuing directors"), cease for any reason to constitute at least a majority of the Board of Directors; or (3) the stockholders of the Company approve a merger or consolidation of the Company with any other person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities for the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger in which no "person" (as defined in subsection (1)) acquires more than thirty percent (30% of the combined voting power of the Company's then outstanding securities. (4) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). (d) The term "COMMITTEE" means the Compensation Committee of, and appointed by, the Board. (e) The term "COMPANY" means PREMIUM STANDARD FARMS Inc., a Delaware corporation, and any successor thereto that agrees to assume the liabilities associated with this Plan, as described in Section 8. (f) The term "DEFERRAL ACCOUNT" means the account maintained by the Trustee under the Trust, on behalf of a Participant, to which the Company deposits and the Trustee credits at the direction of the Company the LTIP Compensation the Participant elects to defer pursuant to his LTIP Compensation Deferral Election. Although this Plan may refer to a Deferral Account as "the Participant's Deferral Account" or as "his Deferral Account," the amounts credited to such Deferral Account shall at all times be subject to the terms and conditions of the agreement and declaration establishing the Trust, and thus subject to the claims of the Company's general creditors. (g) The term "EXECUTIVE" means an employee of the Company who is: (1) in a select group of management or highly paid employees; 2 5 (2) exempt from the minimum wage and maximum hour requirements of the Fair Labor Standards Act, as described in 29 U.S.C. Section 213(a) and regulations promulgated thereunder; and (3) a "highly compensated employee" within the meaning of Internal Revenue Code Section 414(q). With respect to a newly hired employee, if the employee's annualized projected Compensation for his first calendar year of employment exceed the limit described in Section 414(q)(1)(B)(i), he shall be considered a "highly compensated employee" for such first calendar year of employment, for purposes of this Plan. (h) The term "LTIP COMPENSATION" with respect to an active Participant or eligible Executive means the active Participant's or eligible Executive's Long Term Incentive Plan compensation, as determined by Company, for the period to which his relevant LTIP Compensation Deferral Election relates. (i) The term "LTIP COMPENSATION DEFERRAL ELECTION" means the election made by an active Participant or eligible Executive, pursuant to Section 4.1 to defer receipt of all or a portion of his LTIP Compensation which becomes fixed and determined (after the date of the Deferral Election) and payable to him in the calendar year to which the election relates. (j) The term "PARTICIPANT" means a person who has amounts currently deposited and credited to a Deferral Account, maintained by the Trustee on his behalf pursuant to the terms of the Plan. An active Participant is a Participant who is actively employed by the Company as an Executive and who is actively participating in the Plan. (k) The term "TRUST" means, with regard to LTIP Compensation deposited by the Company and credited by the Trustee on behalf of a Participant pursuant to his LTIP Compensation Deferral Election, the PREMIUM STANDARD FARMS DEFERRED COMPENSATION PLAN GROUP TRUST. (l) The term "TRUSTEE" means A.G. Edwards Trust Company or the bank or trust company designated as its successor trustee under the agreement and declaration establishing the Trust. 2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, any masculine terminology used herein shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3. ELIGIBILITY FOR PARTICIPATION 3.1 ELIGIBILITY. An employee of the Company shall be eligible to participate in the Plan with respect to a calendar year if: 3 6 (a) He qualifies as an Executive with respect to such year; and (b) The Committee has selected such Executive to participate with respect to such year. The initial Participants in the Plan are listed on the attached Schedule A. The Committee may add additional Participants or remove existing Participants from time to time by written action. 3.2 INACTIVE PARTICIPANTS. If at a future date an active Participant no longer meets the requirements for participation in this Plan for reasons other than termination of employment, the Participant shall become an inactive Participant, retaining all of the rights accorded Participants by this Plan, except the right to make additional deferrals of LTIP Compensation pursuant to Section 4. Such an individual shall remain an inactive Participant unless and until he again becomes an active Participant by again qualifying as an Executive entitled to participate in this Plan. SECTION 4. DEFERRAL OF LTIP COMPENSATION 4.1 DEFERRAL OF LTIP COMPENSATION. At the times and in the manner specified below, an active Participant or an eligible Executive may make an irrevocable election in writing to defer all or a portion of his LTIP Compensation until a specified date in the future. (a) TIMING AND NATURE OF LTIP COMPENSATION DEFERRAL ELECTION. An active Participant or eligible Executive described in the preceding paragraph may make a LTIP Compensation Deferral Election, prior to December 31 of any calendar year, to defer receipt of any percentage in whole numbers (e.g., 1%, 7%, etc.) of his LTIP Compensation which is not then fixed or determined but which is expected to be fixed and determined, and paid, in the following calendar year. (b) ELECTIONS BY NEWLY ELIGIBLE EXECUTIVES. Notwithstanding anything in this Section 4.1 to the contrary, when an Executive first becomes an eligible Executive, he may make the election described in subsection (a) above, as applicable (to be applied to the LTIP Compensation, if any, earned by and payable to him with respect to the calendar year in which he is first an eligible Executive), within 30 days after the date he first becomes an eligible Executive, provided that at the time the election is made the amount of the LTIP Compensation payable to him with respect to such calendar year has not been fixed and determined. (c) CREDITING OF DEFERRED AMOUNTS. As soon as practicable after LTIP Compensation subject to a LTIP Compensation Deferral Election would, but for the provisions of this Plan, be payable to an active Participant or eligible Executive, the Company shall deposit with the Trustee, and direct the Trustee to credit to his Deferral Account, the amount of the LTIP Compensation the active Participant or eligible Executive elected to defer. 4 7 SECTION 5. ELECTIONS OF TIMING AND FORM OF PAYMENT 5.1 ELECTING THE TIME OF PAYMENT. (a) GENERAL RULE. An active Participant or eligible Executive shall, in his LTIP Compensation Deferral Election, elect to commence receipt of payment of the deferred amount (and earnings thereon): (1) 30 days after termination of employment; (2) on a specified deferral ending date which is at least two years after the calendar year in which the LTIP Compensation would have been paid but for the deferral election; (3) the earlier of the dates specified in (1) and (2) above; (4) the earlier of the date specified in (1) above, or the date 30 days after a Change of Control; or (5) the earlier of (i) the date specified in (3) above, or (ii) the date 30 days after a Change of Control. In addition, upon application made to the Committee not later than the last day of the calendar year that ends at least two years prior to the beginning of the calendar year in which such amounts first become payable, and with the approval in its sole discretion of the Committee, a Participant may elect to receive payment of deferred LTIP Compensation (and earnings thereon) at one of the times reflected in (1) through (5) above, notwithstanding the initial election as to the time of payment reflected in the pertinent LTIP Compensation Deferral Election; provided however, that the change in election as to the timing of the payment must provide for payment at a later time than the time for payment elected in the initial LTIP Compensation Deferral Election. EXAMPLE: Participant A completes a LTIP Compensation Deferral Election on December 31, 2000, for deferral of a portion of his LTIP Compensation payable in 2001 which has not been fixed or determined as of the date of the election. Participant A elects to receive his deferred LTIP Compensation on July 1, 2005. The election is permissible because his deferral ending date is a date certain that is more than two years after the 2001 calendar year, which is the year in which the LTIP Compensation would have been paid but for the deferral election. Participant B similarly completes a LTIP Compensation Deferral Election form, but elects to receive her deferred Compensation 30 days after termination of her employment. The election is permissible. 5 8 Participant C similarly completes a LTIP Compensation Deferral Election form and, like Participant A, selects a deferral ending date of July 1, 2004. But Participant C further elects to receive his deferred LTIP Compensation on the earlier of (i) 30 days after his termination of employment, and (ii) the July 1, 2004, deferral ending date. The election is permissible. Participant D similarly completes a LTIP Compensation Deferral Election form and, like Participant A, selects a deferral ending date of July 1, 2004. But Participant D further elects to receive his deferred LTIP Compensation on the earlier of (i) 30 days after his termination of employment, (ii) the July 1, 2004, deferral ending date, or (iii) 30 days after a Change of Control. The election is permissible. (b) EXCEPTIONS. Notwithstanding anything in subsection (a) above, or in any other provision of the Plan, the following additional rules apply to the time at which amounts are payable by this Plan: (1) DEATH OF PARTICIPANT. The balance of a Participant's Deferral Account shall be paid to the Participant's Beneficiary as soon as practicable after the Participant's death. (2) DISABILITY OF PARTICIPANT. The balance of a Participant's Deferral Account shall be paid to the Participant upon the Participant's total and permanent disability. For this purpose, a "total and permanent disability" is a physical or mental condition that entitles the Participant to Social Security disability benefits. Payment shall be made to the Participant as soon as practicable after the Participant files with the Committee proof of his disability determination by the Social Security Administration. (3) HARDSHIP. In the event of an unforeseen financial hardship or financial emergency occurring in the personal affairs of the Participant, the Committee, upon application by the Participant, may accelerate the payment of all or a portion of the balance of his Deferral Account. A great financial hardship or unforeseen emergency will be deemed to have occurred if the payment of benefits is for or on account of: (i) unemployment of the Participant, or employment at a salary fifty percent (50%) or less than the sum of his prior Compensation and LTIP Compensation with the Company, (ii) expenses for medical care previously incurred by the Participant, his spouse, or any of his other dependents, 6 9 (iii) costs directly related to the Participant's purchase of his principal residence (excluding mortgage payments), (iv) bankruptcy of the Participant, (v) payment of tuition, related educational fees, and room and board expenses, for the next 12 months of post-secondary education for the Participant, his spouse, or other dependents, (vi) payments necessary to prevent the eviction of the Participant from his principal residence or the foreclosure on the mortgage on that residence, or (vii) other events of a similar magnitude. The accelerated payment made pursuant to this subsection shall not exceed the amount the Committee, in its complete discretion, determines is necessary to satisfy the great financial hardship or unforeseen emergency. (4) ACCELERATION OF PAYMENT DATE SUBJECT TO SUBSTANTIAL RESTRICTION. The Committee, upon application by the Participant, may accelerate the payment of up to ninety-five percent (95%) of the balance of the Participant's Deferral Account, subject to a forfeiture by the Participant of a portion of his Deferral Account. The amount of the forfeiture shall be equal to five percent (5%) of the amount of the payment accelerated by the Committee. (5) TERMINATION OF THE PLAN AND TRUST. All amounts credited to Participants' respective Deferral Accounts shall be payable immediately upon termination of the Plan and Trust as described in Section 12.2. (d) FINAL PAYMENT FROM TRUST. The final payment from the Trust to a Participant or Beneficiary may be adjusted to account for prior overpayments or underpayments attributable to estimates of earnings allocable to prior distributions of deferred LTIP Compensation. 5.2 ELECTING THE FORM OF PAYMENT. (a) GENERAL RULE. Each active Participant or eligible Executive shall, in his LTIP Compensation Deferral Elections, elect the form in which the Plan shall pay his deferred LTIP Compensation (and earnings thereon). Such an active Participant or eligible Executive may elect that such amounts be paid: (1) in a single lump sum; or 7 10 (2) in ten substantially equal annual installments, adjusted annually for earnings on the unpaid balance. In addition, upon application to the Committee not later than the last day of the calendar year that ends at least two years prior to the beginning of the calendar year in which such amounts first become payable, and with the approval in its sole discretion of the Committee, a Participant may elect to receive payment of deferred LTIP Compensation (and earnings thereon) in any of the forms listed above, notwithstanding the initial election as to form as reflected in the pertinent LTIP Compensation Deferral Election. (b) EXCEPTIONS. Notwithstanding anything in subsection (a) above, or any other provision of the Plan, the following additional rules apply to the form in which amounts are payable by this Plan: (1) DEATH OF PARTICIPANT. A Participant may designate, in his Beneficiary designation on file with the Committee, the form in which payments on account of his death should be made to his Beneficiary. The Participant may elect to have such payments made in any of the forms described in subsections (1) or (2) of subsection (a) above. In the event the Participant fails to designate a form of death benefits, death benefits shall be paid in a single lump sum. (2) DISABILITY OF PARTICIPANT. Upon application to the Committee at least 60 days prior to the calendar year in which such amounts first become payable, and with the approval of the Committee in its sole discretion, a Participant may elect to receive payments made pursuant to subsection 5.1(b)(2) in any of the forms described in subsections (1) or (2) of subsection (a) above. If the Participant fails to timely make an election concerning the form of payment, payment shall be made in a single lump sum. (3) HARDSHIP AND ACCELERATED PAYMENTS. Payments made pursuant to subsection 5.1(b)(3) or (4) shall be made in a single lump sum. (4) TERMINATION OF THE PLAN AND TRUST. Upon termination of the Plan and Trust, a Participant's Deferral Account shall be paid in a single lump sum, irrespective of any elections made pursuant to subsection 5.2(a). See also Section 12.2. SECTION 6. INVESTMENT OF DEFERRAL AND VESTING ACCOUNTS The Deferral Account maintained by the Trustee on behalf of a Participant shall be credited with earnings (and losses) resulting from investment by the Trustee. Participants may request that amounts deposited and credited to their respective Deferral Accounts be invested in particular investments, chosen from a set of options established by the Committee. The 8 11 Participants' requests shall not be binding, however, and the Committee, in its sole discretion, may elect to: (a) instruct the Trustee to decline to honor Participant's requests, (b) direct the Trustee to invest amounts deposited and credited to Deferral Accounts in another manner, or (c) permit the Trustee to invest amounts deposited and credited to Deferral Accounts in the manner the Trustee considers most appropriate or, where the Committee provides such guidelines, in accordance with general investment guidelines established by the Committee and communicated in writing to the Trustee. SECTION 7. DESIGNATION OF BENEFICIARIES 7.1 GENERAL RULE. A Participant may designate a Beneficiary or Beneficiaries who are to receive upon his death the payments that otherwise would have been paid to him. Such Beneficiary designation may include an election concerning the form in which death benefits are to be paid by the Plan to the Beneficiary or Beneficiaries. All designations shall be in writing and shall be effective only if and when delivered to the Committee or its designee during the lifetime of the Participant. 7.2 SPECIAL RULE FOR MARRIED PARTICIPANTS. Notwithstanding Section 7.1, the spouse of a married Participant shall be deemed to be the Participant's sole primary Beneficiary. The Participant may designate a primary Beneficiary other than his spouse only if the spouse consents in writing, on a form the Committee or its designee shall provide, and the spouse's signature is notarized. Spousal consent is not required if the Participant is legally separated or cannot locate his spouse. 7.3 CHANGING BENEFICIARY DESIGNATIONS. Subject to Section 7.2, a Participant may, from time to time during his lifetime, change his Beneficiary or Beneficiaries by a written instrument delivered to the Committee or its designee. The term "Beneficiary" may include a trust, so long as the trust survives the Participant's death. A Participant's designation of his spouse as a Primary Beneficiary shall automatically lapse upon his divorce or legal separation from the spouse. 7.4 FAILURE TO DESIGNATE A BENEFICIARY. In the event that a Participant is not survived by a Beneficiary, or if for any reason a Beneficiary designation shall be ineffective in whole or in part, the distribution that otherwise would have been paid to such Participant shall be paid to his estate, and in such event the term "Beneficiary" shall include his estate. SECTION 8. MERGER, CONSOLIDATION AND SALE OF ASSETS 8.1 MERGER. In the event the Company consolidates with, merges into, or transfers all or substantially all of its assets to another entity (hereinafter referred to as a "Successor Employer"), the Company and such Successor Employer may agree that the Successor Employer shall assume the Company's obligations under this Plan in whole or in part. In no event shall such merger, consolidation or transfer extinguish the Company's or the Successor Employer's obligations to Participants and their Beneficiaries under this Plan. In the event the Successor Employer elects to terminate the Plan and Trust, all amounts credited to Participants' 9 12 respective Deferral Accounts shall be paid to the Participants or their Beneficiaries in a single sum as soon as practicable. 8.2 ACQUISITION BY ANOTHER EMPLOYER. In the event the Company is sold to another corporation or other party(ies) ("New Company"), the Company may agree with such New Company that the New Company shall assume the obligations under this Plan in whole or in part. In no event shall such sale extinguish the Company's or New Company's obligations to Participants and their Beneficiaries under this Plan. In the event the New Company elects to terminate the Plan and Trust, all amounts credited to Participants' respective Deferral Accounts shall be paid to the Participants or their Beneficiaries in a single sum as soon as practicable. SECTION 9. RIGHTS OF PARTICIPANTS Notwithstanding the depositing and crediting of amounts to the Deferral Account maintained by the Trustee on behalf of a Participant, the right of the Participant, or his Beneficiary, to receive a distribution under this Plan shall be an unsecured claim against the general assets of the Company. Participants and Beneficiaries shall have the status of general unsecured creditors of the Company. This Plan constitutes a mere promise by the Company to make benefit payments in the future. The Deferral Account maintained by the Trustee on behalf of a Participant may not in any way be encumbered or assigned by a Participant or his Beneficiary. Nothing in this Plan shall give any Participant the right to be retained as an Executive or an employee of the Company, affect the right of the Company to remove any Executive or employee, or give any Executive or employee (or his Beneficiary) the right to receive a particular amount of LTIP Compensation from the Company. SECTION 10. ADMINISTRATION 10.1 ADMINISTRATIVE COMMITTEE. The Committee shall administer the Plan. The Committee may appoint an administrative committee (the "Administrative Committee") to assist it in the administration of the Plan. The Administrative Committee may act on behalf of the Committee with respect to all matters concerning the Plan, except for those matters the Committee specifically reserves, in this Plan or otherwise, for its own action. The Board or the Committee may remove, replace, or appoint members of the Administrative Committee at any time. 10.2 POWERS OF ADMINISTRATIVE COMMITTEE. The Committee shall have the power to interpret the Plan and to determine all questions that arise under it. Such power includes, for example, the administrative discretion necessary to determine whether an individual meets the Plan's written eligibility requirements, and to interpret any other term contained in this document. All payments of benefits under the Plan shall be made by the Company or by the Trustee in accordance with the terms of this Plan and the agreement and declaration establishing the Trust. The decision of the Committee upon all matters within the scope of its authority shall be final and binding on all parties, shall be subject to the most deferential standard on review, and shall not be affected by any actual or alleged conflict of interest. No member of the Committee or the Administrative Committee may act, in his capacity as a member of the Committee or 10 13 Administrative Committee, with respect to a matter concerning his eligibility or benefits under the Plan. SECTION 11. CLAIMS AND APPEALS 11.1 CLAIMS FOR BENEFITS; INITIAL PROCESSING. Claims for benefits under the Plan normally will be approved or denied by the Committee within 30 calendar days after they are received by the Committee or its designee. If an extension of time is required to process the claim, the extension will not exceed 30 calendar days, and the claimant shall be provided notice of any extension. The notice shall explain the reason for the extension and when a decision will be made. Claims not resolved prior to the end of the extension may be deemed denied. 11.2 CLAIM DENIAL. If a claim for benefits is denied (or deemed denied), the Committee or its designee shall provide the claimant with written notice reflecting the reasons for the denial, with a specific reference to the Plan provisions upon which the decision was based. The notice shall also reflect any additional information that may be necessary for the claimants claim to be approved. 11.3 APPEALING A DENIED CLAIM. A claimant may appeal the denial of a claim by writing the Committee and stating that he wishes to appeal. In order to be considered, the appeal must be received by the Committee or its designee no more than 30 calendar days after notice of the denial is provided (or, if no notice is provided, then after the earliest date on which the claimant is entitled to deem the claim denied). 11.4 PROCESSING APPEALS. If a claimant appeals a denial of a claim, the Board shall review the claim and any additional information furnished by the claimant. The Board shall decide the appeal within 30 calendar days after it is received, but in unusual circumstances may delay resolution of the appeal for an additional 30 calendar days. The claimant shall be notified of any delay within 30 calendar days after the appeal is received by the Committee or its designee. After the appeal is decided, the Board shall notify the claimant in writing of its decision, and explain how the appeal was decided and what Plan provisions were relied upon. SECTION 12. AMENDMENTS AND TERMINATION 12.1 AMENDMENT. The Company in its absolute discretion, without notice, may at any time and from time to time, modify or amend, in whole or in part, any or all of the provisions of the Plan. No such modification or amendment may, without the consent of a Participant (or his Beneficiary in the case of his death) reduce the right of a Participant (or his Beneficiary, as the case may be) to the payment of any amount deposited and credited to his Deferral Account under the Plan as of the date of such modification or amendment. 12.2 SUSPENSION AND TERMINATION. The Company in its absolute discretion, without notice, at any time may suspend or terminate the Plan. In addition, the Committee may suspend or terminate an active Participant's further participation in the Plan at any time. Other than earnings on a Participant's Deferral Account credited under Section 6, no additional LTIP Compensation may be deferred by any Participant following suspension or termination of the Plan, or to such an Account of an inactive Participant following termination of his or her participation in the Plan. Upon termination of a Participant's participation in the Plan, distribution 11 14 of a Participant's Plan benefit shall be made in the manner and at the time described under the Plan's normal provisions. Upon suspension of the Plan, distribution of a Participant's Plan benefit shall be made in the manner and at the time described under the Plan's provisions, and the Trust shall not terminate until all monies on deposit thereunder are either paid to Participants and their Beneficiaries, or returned to the Employer, as provided for under the agreement and declaration establishing the Trust. In the event the Company, a Successor Employer described in Section 8.1, or a New Employer described in Section 8.2 elects to terminate the Plan, all amounts then on deposit with and credited to Participants' respective Deferral Accounts shall, notwithstanding anything herein to the contrary, be paid as soon as practicable to the Participants (or their Beneficiaries, as the case may be) in a lump sum. SECTION 13. APPLICABLE LAWS The Plan shall be construed, administered, and governed in all respects under and by the laws of the State of Missouri, to the extent federal law does not apply. SECTION 14. INCOMPETENCY Every person receiving or claiming payments under this Plan shall be conclusively presumed to be mentally competent until the date on which the Committee or its designee receives written notice, in a form and manner acceptable to the Committee, that such person is incompetent and that a guardian, conservator, or other person legally vested with the care of his estate has been appointed. In the event a guardian or conservator of the estate of any person receiving or claiming payments under this Plan shall be appointed by a court of competent jurisdiction, benefit payments may be made to such guardian or conservator, provided that proper proof of appointment and continuing qualification are furnished in a form and manner acceptable to the Committee or its designee. Any such payment so made shall be a complete discharge of any liability therefor. SECTION 15. EXPENSES Costs of administration of the Plan and Trust, and all taxes imposed on the Plan or Trust shall be paid by the Company. Participants' Deferral Accounts shall not be reduced for these amounts. SECTION 16. NOTICES Any notice or election required or permitted to be given hereunder shall be in writing, in the form prescribed by the Committee, and shall be deemed to be filed with the Committee: (a) On the date it is personally delivered to the Committee (or its designee), or 12 15 (b) Five business days after it is sent by registered or certified mail, addressed to the Committee (or its designee) at the Company's address. SECTION 17. WITHHOLDING AND DEDUCTIONS All payments made under the Plan by the Company or the Trustee to any Participant or Beneficiary, shall be subject to applicable withholding and to such other deductions that are required by applicable law, and to the delivery to the Committee (or its designee) or the Trustee of any documents, applications or other information deemed necessary by the Committee or the Trustee, in their sole discretion, as a condition precedent to payment. SECTION 18. INVALIDITY OF PROVISIONS If any provision of the Plan is held or found to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provision had not been included. Similarly, in the event any provision of the Plan is held or found to be ineffective or unenforceable with respect to allowing for the deferral of income taxation as intended by the Plan, such provision shall be severed from the provisions of the Plan that are so effective or enforceable, and such latter provisions shall be considered to constitute a separate arrangement. 19. TAX ADVANTAGES NOT GUARANTEED Neither the Company, the Committee, the Administrative Committee, nor any other person guarantees that any particular Participant or Beneficiary will achieve the tax advantages contemplated by this Plan, and neither the Company, the Committee, the Administrative Committee or any other person indemnifies or holds harmless a Participant or Beneficiary with respect to liability, whether or not unintended or unforeseen, for income taxes, excise taxes, interest and/or penalties, or any other liability, arising from or incurred in connection with this Plan. In the event any benefits payable hereunder to a Participant or Beneficiary are subjected to taxation prior to the date such benefits are payable under the terms of the Plan, the payment of such benefits shall be accelerated so that, to the extent practicable, the Participant or Beneficiary receives such benefits in the taxable year in which such amounts are subjected to taxation. 20. RETURN OF COMPANY CONTRIBUTIONS Nothing in this Plan nor the agreement and declaration establishing the Trust shall be construed to prevent the return to the Company of amounts contributed to the Trust by the Company due to a mistake of fact or law, including (but not limited to) erroneous calculations or erroneous determinations of eligibility. 13 16 IN WITNESS WHEREOF, the Company hereby adopts this PREMIUM STANDARD FARMS DEFERRED COMPENSATION PLAN this 29th day of December, 2000. PREMIUM STANDARD FARMS BY: /s/ David Klein __________________________________ TITLE: Vice President, Human Resources __________________________________ ATTEST: /s/ John Meyer ____________________________ 14 17 APPENDIX A Initial eligible Executives are: JOHN MEYER STEVE LIGHTSTONE ROBERT MANLEY CHARLIE ARNOT DAVE KLEIN MIKE TOWNSLEY JERRY SCHULTE DAVID JAMES MARK WARREN CINDY BRABANDER DON KILLINGSWORTH CALVIN HELD DENNIS RIPPE DAVE TOWNSEND DAN HARRIS COLLETTE SCHULTZ-KASTER MARK TRULL EX-10.6.B 32 y50886ex10-6_b.txt AMENDMENT NO.1 PSF DEFERRED COMPENSATION PLAN 1 Exhibit 10.6(b) AMENDMENT NUMBER ONE TO THE PREMIUM STANDARD FARMS DEFERRED COMPENSATION PLAN Premium Standard Farms ("the Company") maintains a nonqualified deferred compensation plan, known as the Premium Standard Farms Deferred Compensation Plan ("the Plan") for the benefit of certain key executives. Section 12.1 of the Plan provides that the Company may amend the Plan at any time, subject to restrictions described in that Section. In accordance with the authority granted by that Section, the Company hereby amends the Plan by substituting the following new subsection 2.1(g) for the subsection currently in effect: (g) The term "EXECUTIVE" means an employee or officer of the Company or an employee of a corporation, trade or business that is a member of the Company's "controlled group" of corporations, trades or businesses (within the meaning of Sections 414(b) or (c) of the Internal Revenue Code): (1) who is in a select group of management executives or highly paid management employees of the Company; (2) who is exempt from the minimum wage and maximum hour requirements of the Fair Labor Standards Act, as described in 29 U.S.C. Section 213(a) and regulations promulgated thereunder; and (3) whose annual salary from all employers within the Company's "controlled group" of corporations, trades or businesses exceeds the amount described in Section 414(q)(1)(B)(i) (as adjusted periodically by the Secretary of the Treasury) of the Internal Revenue Code for such year. With respect to a newly hired employee or executive, if the employee's or executive's annualized projected Compensation for his first calendar year as an employee or executive exceeds the limit described in Section 414(q)(1)(B)(i), he shall be deemed to satisfy this subsection (3) for such first calendar year, for purposes of this Plan. 2 The changes made by this Amendment merely conform the Plan document to the Company's original intent and therefore are effective as of the effective date of the Plan. However, in no event shall this Amendment be applied to allow an eligible Executive (as defined in the Plan after the adoption of this Amendment) to defer LTIP Compensation (as defined in the Plan) already paid to the Executive as of the adoption of this Amendment. IN WITNESS WHEREOF, the Company hereby adopts this Amendment Number One to the Premium Standard Farms Deferred Compensation Plan this 8th day of June, 2001. PREMIUM STANDARD FARMS BY: /s/ David Klein _______________________________ TITLE: Vice President, Human Resources _______________________________ ATTEST: /s/ John Meyer _______________________ EX-10.7 33 y50886ex10-7.txt CONSULTING AGREEMEMT 1 EXHIBIT 10.7 CONSULTING AND ADVISORY AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of August 25, 2000, by and between The Lundy Packing Company, a North Carolina corporation (together with its subsidiaries and affiliates, the "Company") and Annabelle Fetterman (the "Consultant"). WHEREAS, pursuant to the terms of that certain Acquisition Agreement by and among the Company, Premium Standard Farms, Inc. and PSF Acquisition Corp., dated as of July 12, 2000 (the "Acquisition Agreement"), it was agreed that the Company and the Consultant would enter into this Agreement; and WHEREAS, the Company desires to retain the services of the Consultant and the Consultant desires to perform certain services for the Company. NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties hereto agree as follows: 1. Services. The Consultant agrees to provide various consulting and advisory services to the Company as determined by the Company from time to time, including but not limited to: a. Working with the Company to develop and implement policies and procedures with respect to the business and operations of the Company; b. Attending meetings and participating in conference calls or other forms of communication to share the Consultant's ideas, experience and expertise with the Company; c. Assisting in the development, maintenance and enhancement of positive relations between the Company and both the governmental authorities and the broader communities in which the Company operates; d. Promoting the interests of the Company in connection with public relations efforts; and e. Providing any other services the Company believes will be beneficial in furthering its goals. Such services will be provided at times reasonably agreed to by the Company and the Consultant. 2. Compensation. 2.1 Consulting Fee. The Consultant shall be compensated in accordance with the compensation structure set forth on Schedule 1 attached hereto. 2 2.2 Reimbursement of Expenses. The Company shall reimburse the Consultant for all reasonable and necessary expenses properly incurred or paid by the Consultant in connection with, or related to, the performance of services under this Agreement, including but not limited to travel, lodging and reasonable entertainment expenses. However, the Consultant shall not incur expenses in excess of $1000 during any one month period without the prior written consent of the Company. The Consultant shall submit to the Company itemized statements on a monthly basis together with receipts, in a form satisfactory to the Company, of all such expenses incurred. The Company shall pay to the Consultant amounts shown on each such statement within thirty (30) days of receiving Consultant's itemized statement. 2.3 Benefits. The Consultant shall not be entitled to any benefits, coverage or privileges, including, without limitation, social security, unemployment, medical or pension payments, made available to employees of the Company; provided, however, that, the Company shall provide medical insurance coverage to Consultant during the term of this Agreement except as otherwise provided herein on terms substantially equivalent to those offered by the Company to its employees. The Company agrees that the Consultant's right to continuation of health care coverage under "COBRA" will commence upon the termination of coverage hereunder. 2.4 Taxes. No income tax or payroll tax of any kind shall be withheld or paid by the Company on behalf of the Consultant for any payment under this Agreement. The Consultant agrees to be responsible for all taxes and similar payments arising out of any of her activities contemplated by this Agreement, including, without limitation, federal, state and local income tax, social security tax (FICA), self-employment taxes, unemployment insurance taxes and all other taxes, fees and withholding. The Company shall not be obligated to pay to the Consultant any amounts hereunder until the Consultant shall provide to the Company the Consultant's federal tax identification number and any other necessary information required by the Company to comply with applicable tax and other laws. 3. Term and Termination. 3.1 Term. The term of this Agreement shall be three years, commencing on the date of this Agreement and ending on August 25, 2003; provided, however, that, this Agreement may be earlier terminated as set forth in Section 3.2 below. 3.2 Termination. (a) Termination For Cause. This Agreement may be terminated by the Company prior to the expiration of the term for "Cause" as defined below, or by the Consultant by resignation. For purposes of this Section 3.2(a), "Cause" shall mean (i) any public disparagement of the Company, (ii) Consultant's conviction of a felony or any crime involving moral turpitude; (iii) the willful engaging by Consultant in conduct injurious to the Company, monetarily or otherwise; (iv) the willful failure by Consultant to perform the services referenced in Section 1 hereof; or (v) a material breach of this Agreement, including any breach of the confidentiality and non-competition obligations contained in Sections 5 and 6. In the event of termination for Cause or resignation by the Consultant, the Consultant shall be entitled to retain all amounts previously paid hereunder and shall be entitled to (i) the portion of the consulting fee set forth on Schedule 1 attached hereto earned but not yet paid prior to the effective date of such 2 3 early termination; (ii) expenses properly incurred but not yet paid prior to the effective date of such early termination; and (iii) the medical insurance coverage set forth in Section 2.3 above up to and including the effective date of such early termination. Such payments shall constitute full settlement of any and all claims of the Consultant of every description against the Company and Company shall have no obligation or liability to make additional payments to Consultant hereunder. (b) Termination Without Cause. This Agreement may be terminated by the Company prior to the expiration of the term without Cause. In the event of termination without Cause or upon the death or disability of the Consultant, the Consultant shall be entitled to (i) full immediate payment of all earned but not yet paid, and all unearned consulting fee as set forth on Schedule 1 attached hereto, for the full term of this Agreement; and (ii) the medical insurance coverage set forth in Section 2.3 above, for the full term of this Agreement. Such payments shall constitute full settlement of any and all claims of the Consultant of every description against the Company and Company shall have no other obligation or liability to Consultant hereunder. 4. Cooperation. The Consultant shall use her best efforts in the performance of her obligations under this Agreement. The Company shall provide such access to its information and property as may be reasonably required to permit the Consultant to perform her obligations under this Agreement. The Consultant shall cooperate with the Company's personnel, shall not interfere with the conduct of the Company's business and shall observe all rules, regulations and security requirements of the Company concerning the safety of persons and property. 5. Proprietary Information. 5.1 For purposes of this Agreement, "Proprietary Information" shall include all information (whether or not patentable and whether or not copyrightable) owned, possessed or used by the Company, including, without limitation, any data, formula, vendor information, customer information, apparatus, equipment, trade secret, process, research, report, technical data, know-how, software, software documentation, hardware design, technology, marketing or business plan, forecast, unpublished financial statement, budget, license, price, cost and employee list that is communicated to, learned of, developed or otherwise acquired by the Consultant in the course of her service as a consultant to the Company. 5.2 The Consultant acknowledges that her relationship with the Company is one of high trust and confidence and that in the course of providing service to the Company she will have access to and contact with Proprietary Information. The Consultant agrees that she will not, during the term of this Agreement or at any time thereafter, disclose to others, or use for her benefit or the benefit of others, any Proprietary Information. 5.3 The Consultant's obligations under this Section 5 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by the Consultant of this Section 5, (ii) is disclosed to Consultant by a third party 3 4 unaffiliated with the Company who is not subject to an obligation of confidentiality to the Company, or (iii) is approved for release by written authorization of the Company. 5.4 Upon termination of this Agreement or at any other time upon request by the Company, the Consultant shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials) containing or based upon Proprietary Information. 6. Restrictive Covenant. As a material part of this Agreement, and in consideration of the agreements contained in the Acquisition Agreement, the Consultant agrees she shall not at any time during the term of this Agreement: 6.1 work for, consult for, be an independent contractor for, be employed by or be an officer, director, shareholder or partner of, or otherwise own any interest in, any entity competing with the Company, including the hog production or processing businesses, within the states of North Carolina, Florida and New York; 6.2 solicit, directly or indirectly, any of the Company's existing or prospective customers for any business or entity competing with the Company; and 6.3 solicit, induce, or attempt to induce any current employee of the Company to leave the Company's employ or hire any such employee. If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time, or over too great a range of activities, or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 7. Independent Contractor Status. The Consultant and the Company understand and intend that the Consultant shall perform all services under this Agreement as an independent contractor and not as an employee of the Company. The manner of and means by which the Consultant executes and performs her obligations hereunder are to be determined by the Consultant in her reasonable discretion. The Consultant is not authorized to assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of, the Company or to bind the Company in any manner, unless, in each instance, the Consultant shall receive the prior written approval of the Company to so assume, obligate or bind the Company. 8. Existing Agreements. The Company and the Consultant agree that this Agreement shall in all respects replace any existing agreements related to employment between the Consultant and the Company. The Consultant hereby releases, acquits, and forever discharges the Company of and from any and all liability, claims, demands, obligations, actions, causes of action and damages of any kind or 4 5 nature whatsoever, whether known or unknown, anticipated or unanticipated, suspected or unsuspected, past, present, or future, arising out of or relating in any way to such prior agreements related to employment. 9. Wrongful Use of Company's Name. After termination of the Consultant's services hereunder, the Consultant shall not indicate on any stationery, business card, advertising, or other business materials that she is, or was, formerly a consultant for the Company or of any division or subsidiary of the Company, except in the bona fide submission of resumes and the filling out of applications in the course of seeking employment. 10. Injunction. In view of the Consultant's access to Proprietary Information granted hereunder, and in consideration of the compensation set forth in Section 1 hereof and in consideration of the value of such property to the Company, the Consultant acknowledges that the non-disclosure covenants and the restrictive covenants set forth in Sections 5 and 6, are reasonable and necessary to protect and maintain the proprietary and other legitimate business interests of the Company, and that the enforcement thereof would not prevent the Consultant from earning a livelihood. In the event of a breach or threatened breach by the Consultant of any such covenant, the Consultant acknowledges that the Company would be irreparably harmed and that the full extent of injury resulting therefrom would be impossible to calculate and Company therefore would not have an adequate remedy at law. Accordingly, the Consultant acknowledges that temporary and permanent injunctive relief would be appropriate remedies against such breach or threatened breach, without bond or security; provided, that nothing herein shall be construed as limiting any other legal or equitable remedies the Company might have. 11. Notices. All notices, requests and consents hereunder shall be in writing. Notices, requests and consents to the parties shall be effectively given and delivered if personally delivered, facsimiled (if confirmation of such transmission is received) or sent to the parties at their respective addresses indicated herein by registered or certified mail, postage prepaid, or by reputable overnight mail courier service: If to the Company: The Lundy Packing Company 423 West 8th Street, Suite 200 Kansas City, Missouri 64105 Attn: John Meyer If to Consultant: Annabelle Fetterman Either party by notice to the other may from time to time change the proper address for any such notice, request or consent. 5 6 12. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement, including without limitation any existing employment agreements between the Company and the Consultant, which are terminated hereby. 13. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Consultant. 14. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of North Carolina. 15. Assignment. This Agreement is personal to the Consultant and may not be assigned by the Consultant. This Agreement may be assigned by the Company to any party with the consent of the Consultant, which consent shall not be unreasonably withheld, and the assignee shall be entitled to enforce against the Consultant the non-compete and non-disclosure covenants of the Consultant herein contained. The Consultant further agrees to execute, for the benefit of any proposed assignee, a document acknowledging the agreement of the Consultant to: (a) be bound by the non-compete and non-disclosure covenants set forth herein subsequent to any proposed assignment; and (b) consent to the enforcement of such covenants by such assignee against the Consultant. 16. Waiver. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 17. Severability. In the event that any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK 6 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. CONSULTANT /s/ Annabelle L Fetterman Annabelle Fetterman THE LUNDY PACKING COMPANY By: /s/ J Meyer Name: John M. Meyer Title: CEO 7 8 Schedule 1 COMPENSATION For the first year of this Agreement, the Consultant shall receive an annual fee of $200,000 payable in accordance with the compensation policies of the Company. Compensation for the remaining term of the Agreement shall consist of one lump sum payment of $250,000, payable on the first anniversary of the date of this Agreement. EX-10.8 34 y50886ex10-8.txt SERVICES AGREEMENT 1 Exhibit 10.8 SERVICES AGREEMENT This Services Agreement ("Agreement") made and entered as of the _____ day of October, 1998 (the "Effective Date") between PREMIUM STANDARD FARMS, INC., a Delaware corporation ("PSF") and CONTINENTAL GRAIN COMPANY, a Delaware corporation ("Continental"). WHEREAS, on the Effective Date, Continental acquired 51% of the issued and outstanding shares of PSF Group Holdings, Inc. ("Holdings"); WHEREAS, PSF is a wholly-owned subsidiary of Holdings; WHEREAS, Continental is willing to provide certain professional and administrative services to PSF and PSF desires Continental to provide such services to PSF; WHEREAS, the senior management team for Continental's Pork Division has now joined the management team of PSF, and Continental is in need of certain management services, and PSF is willing to provide such management services, with regard to the pork production operations now or hereafter owned by Continental, which currently include: Bell Farms swine operations located in Harveyville, Kansas ("Bell Farms"), Carolina Farms swine operation located in Tarboro, North Carolina ("Carolina Farms"), ContiTraining Center swine operations located in Robinson, Kansas ("CTC"), F&R Swine swine operations located in Dwight, Kansas ("F&R Swine"), Southern Maid Farms swine operations located in Cordele, Georgia ("Southern Maid") and 3-W Farms swine operations located in Nodaway, Iowa ("3-W Farms"). Bell Farms, Carolina Farms, CTC, F&R Swine, Southern Maid and 3-W Farms are hereinafter referred to individually and collectively as the "Continental Pork Operations"; NOW, THEREFORE, in consideration of the promises and mutual covenants herein set forth, the parties agree as follows: 1. Provision of Services by Continental to PSF. Subject to the terms and conditions of this Agreement, during the term of the Agreement, Continental agrees to provide to PSF the following services (individually, a "Continental Service" and collectively, "Continental Services"). (a) Purchasing. Continental agrees to make the purchasing and risk management staff of its industrial operations available to PSF for assistance in evaluating lowest cost purchases of commodities and feed ingredients, transportation and logistics and futures coverage. Continental agrees to use reasonable efforts, when possible, to aggregate purchases for PSF with purchases for itself and its subsidiaries in combined purchase orders in order to achieve volume price discounts whenever mutually advantageous. (b) Legal Services. Continental agrees to provide legal services to PSF to internally manage PSF's legal and regulatory affairs. Such services shall be provided by the lawyers and legal staff employed by Continental. Page 1 of 10 2 (c) Environmental Services. Continental agrees to make management employees of its environmental department available to PSF to provide strategic and operational environmental consulting to the PSF operations. (d) Treasury Services. Continental agrees to provide services of its Treasurer's Department with regard to strategic planning for long term debt and financing, as well as the implementation of such strategy. (e) Human Resources. Continental agrees to make available to PSF the services of a human resources manager and the personnel department to assist in the areas of personnel, benefit administration and payroll. (f) Financial and Administrative Services. Continental agrees to make available to PSF the services of its controllers office to transition and coordinate policies and procedures. (g) Payroll Services. i. Hourly. Continental and PSF have identified approximately 55 Continental hourly employees ("Transferred Hourly Employees") who became employees of PSF as of the Effective Date. Continental shall administer the payroll and benefits for the Transferred Hourly Employees and report the same under the FEIN of PSF from the Effective Date through December 31, 1998. As of January 1, 1999, PSF shall assume the responsibility for payroll and benefits for the Transferred Hourly Employees. ii. Salaried. Continental and PSF have identified certain Continental salaried employees identified on SCHEDULE 1(G)(II) ("Transferred Salaried Employees") who became employees of PSF as of the Effective Date. Continental shall administer the payroll and benefits for the Transferred Salaried Employees and continue to report the same under the FEIN of Continental through December 31, 1998. As of January 1, 1999, PSF shall assume the responsibility for payroll and benefits for the Transferred Salaried Employees. (h) Strategic Planning. Continental will make available appropriate members of its senior management to assist in developing, implementing and controlling the Company's business obligations and strategies to further profitable growth, including but not limited to the formation of strategic alliances. 2. Provision of Services by PSF to Continental. Subject to the terms and conditions of this Agreement, during the term of this Agreement, PSF agrees to provide the following services to the Continental Pork Operations (as such definition may change from time to time) (individually, a "PSF Service" and collectively, "PSF Services"): Page 2 of 10 3 (a) Management. PSF agrees to provide management and human resources services to Continental with respect to the Continental Pork Operations. (b) Production. PSF agrees to provide hog and feed production services to Continental in the areas of genetics, breeding, feed conversion, quality assurance, nutrition, herd health, transportation and marketing. (c) Environmental Services. PSF agrees to make management employees of its environmental department available to Continental to provide strategic and operational consulting to the Continental Pork Operations. 3. Availability; Conflict; Service Providers. (a) Notwithstanding anything herein to the contrary, Continental may, in its sole discretion, decline to provide any Continental Service or Continental Services hereunder if: (b) Availability. Facilities or personnel of Continental are not reasonably available to provide such Continental Service or Continental Services on a non-discriminatory basis; (c) Interference. Providing such Continental Service or Continental Services would interfere (other than in an insignificant manner) with Continental's conduct of its businesses; (d) Disadvantage or Conflict. Continental, in its good faith reasonable judgment, believes that providing such Continental Service or Continental Services could reasonably result in significant tax disadvantages for Continental, could reasonably conflict with any applicable law, regulation, ordinance or policies (provided that such policies apply generally to substantially all of Continental's subsidiaries receiving similar services from Continental) or could reasonably result in a conflict of interest; or (e) Violation. Providing such Continental Service or Continental Services would violate any agreement with any third party provided, however, that Continental shall not and shall cause its subsidiaries not to enter into any agreement which is intended to frustrate the provisions of this Agreement. The Continental Services to be provided by Continental hereunder may be provided by employees of Continental or any of its subsidiaries, or by third parties selected by Continental. (f) Notwithstanding anything herein to the contrary, PSF may, in its sole discretion, decline to provide any PSF Service or PSF Services hereunder if: iv. Availability. Facilities or personnel of PSF are not reasonably available to provide such PSF Service or PSF Services on a non-discriminatory basis; Page 3 of 10 4 v. Interference. Providing such PSF Service or PSF Services would interfere (other than in an insignificant manner) with PSF's conduct of its businesses; vi. Disadvantage or Conflict. PSF, in its good faith reasonable judgment, believes that providing such PSF Service or PSF Services could reasonably result in significant tax disadvantages for PSF, could reasonably conflict with any applicable law, regulation, ordinance or policies (provided that such policies apply generally to substantially all of PSF's subsidiaries receiving similar services from PSF) or could reasonably result in a conflict of interest; or vii. Violation. Providing such PSF Service or PSF Services would violate any agreement with any third party provided, however, that PSF shall not and shall cause its subsidiaries not to enter into any agreement which is intended to frustrate the provisions of this Agreement. The PSF Services to be provided by PSF hereunder may be provided by employees of PSF or any of its subsidiaries, or by third parties selected by PSF. 4. Term. The term of this Agreement commences on the Effective Date and shall terminate upon the earliest to occur of: (a) the date upon which Continental no longer beneficially owns directly or indirectly any interest in the capital stock of PSF; and (b) the mutual written consent of the parties. Upon termination of this Agreement, each party shall promptly pay any and all accrued but unpaid fees pursuant to Section 5 hereof. 5. Price. (a) Continental Services. The fee for Continental Services shall be the sum of $800,000 annually plus reasonable travel expenses, payable in equal monthly installments. The fee shall be reviewed and amended or confirmed in writing on or before March 31st of each year during the term of this Agreement or otherwise amended upon mutual written agreement of the parties. In addition, the payroll, benefits and payroll taxes relative to the Transferred Hourly Employees and the Transferred Salaried Employees shall be priced at actual cost paid or incurred by Continental. (b) PSF Services. The fee for PSF Services shall be $.75 per cwt of hogs marketed, plus reasonable travel expenses, payable on a monthly basis. The fee shall be reviewed and amended or confirmed in writing on or before March 31st of each year during the term of this Agreement or otherwise amended upon mutual written agreement of the parties. (c) Third Party Services. Continental Services which are provided by third parties shall be invoiced at actual cost. Page 4 of 10 5 6. Billing and Payment. (a) Continental Billing. Continental shall invoice PSF for Continental Services rendered by Continental to PSF on a monthly basis in advance of the first day of each month. Continental Services rendered by a third party shall be invoiced to PSF upon or, if reasonably possible, prior to payment by Continental to such third party. (b) PSF Billing. PSF shall invoice Continental for PSF Services rendered by PSF to Continental on a monthly basis in advance of the first day of each month. (c) Payment Due. Invoices shall be due and payable within 30 days of the date of such invoice, provided that PSF shall pay Continental in full for the amount of any third party costs within ten days of the date of such invoice. 7. Limitation on Authority. (a) Continental shall have no responsibility to provide any services to PSF which are not expressly set forth in this Agreement, unless subsequently agreed in writing by the parties hereto. Further, Continental shall have no responsibility for compliance by PSF or any of its facilities or equipment with the requirements of any ordinances, laws, rules or regulations (including those relating to the disposal of solid, liquid and gaseous wastes) of the city, county, state or federal government, or any public authority or official thereof having jurisdiction over it, except to notify PSF promptly, or to forward to PSF promptly, any complaints, warnings, or notices of summons received by Continental relating to such matters. PSF represents, that, to the best of its knowledge, that PSF, its facilities and equipment, comply with all such requirements, and authorizes Continental to disclose the ownership and assets of PSF to any such officials. PSF shall indemnify and hold harmless Continental, its affiliates, successors, assigns, agents, representatives, and employees from all loss, cost, expense and liability whatsoever which may be imposed on them or any of them by reason of any present or future violation or alleged violation of such laws, ordinances, rules or regulations; (b) In the event it is alleged or charged that PSF, its facilities or equipment or any act or failure to act by PSF, fails to comply with, or is in violation of, any of the requirements of any constitutional provision, statute, ordinance, law or regulation of any governmental body or any order or ruling of any public authority or official thereof having or claiming to have jurisdiction thereover, and Continental in its sole and absolute discretion considers that the action or position of PSF with respect thereto may result in damage or liability to Continental, Continental shall have the right to cancel this Agreement at any time by written notice to PSF of its election so to do, which cancellation shall be effective upon the service of such notice. Such cancellation shall not release the indemnities of PSF set forth in this Agreement and shall not terminate any liability or obligation of PSF to Page 5 of 10 6 Continental for any payment, reimbursement or other sum of money then due and payable to Continental hereunder; (c) PSF shall have no responsibility to provide any services to Continental which are not expressly set forth in this Agreement, unless subsequently agreed in writing by the parties hereto. Specifically, PSF shall have no responsibility for compliance by Continental or any of its facilities or equipment with the requirements of any ordinances, laws, rules or regulations (including those relating to the disposal of solid, liquid and gaseous wastes) of the city, county, state or federal government, or any public authority or official thereof having jurisdiction over it, except to notify Continental promptly, or to forward to Continental promptly, any complaints, warnings or notices of summons received by PSF relating to such matters. Continental represents, to the best of its knowledge, that Continental, its facilities and equipment, comply with all such requirements, and authorizes PSF to disclose the ownership and assets of Continental to any such officials. Continental shall indemnify and hold harmless PSF, its affiliates, successors, assigns, agents, representatives, and employees from all loss, cost, expense and liability whatsoever which may be imposed on them or any of them by reason of any present or future violation or alleged violation of such laws, ordinances, rules or regulations; and (d) In the event it is alleged or charged that Continental, its facilities or equipment or any act or failure to act by Continental, fails to comply with, or is in violation of, any of the requirements of any constitutional provision, statute, ordinance, law or regulation of any governmental body or any order or ruling of any public authority or official thereof having or claiming to have jurisdiction thereover, and PSF in its sole and absolute discretion considers that the action or position of Continental with respect thereto may result in damage or liability to PSF, PSF shall have the right to cancel this Agreement at any time by written notice to Continental of its election so to do, which cancellation shall be effective upon the service of such notice. Such cancellation shall not release the indemnities of Continental set forth in this Agreement and shall not terminate any liability or obligation of Continental to PSF for any payment, reimbursement or other sum of money then due and payable to PSF hereunder. 8. Limitation on Remedies. IN NO EVENT SHALL CONTINENTAL OR PSF, THEIR RESPECTIVE SUBSIDIARIES AND AFFILIATES (INCLUDING THEIR DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) BE LIABLE FOR ANY DIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF ANTICIPATED PROFITS, IN CONNECTION WITH OR ARISING OUT OF THE SERVICES PROVIDED UNDER OR RELATING TO THIS AGREEMENT. Notwithstanding the forum in which any claim or action may be brought or asserted, each party's liability for acts or omissions arising from or relating to its obligation to provide the services under this Agreement shall be limited to repayment, as general damages, of payments received for services rendered pursuant to this Agreement unless such act or omission resulted from the gross negligence or willful Page 6 of 10 7 misconduct by such party, in which case liability shall be limited to the amount reasonably necessary to procure a substitute provider of such service or services. For purposes of this Section, "services" shall be deemed to refer interchangeably to Continental Services or PSF Services. 9. Indemnification. (a) PSF shall hold harmless and indemnify Continental (and its directors, officers, employees, stockholders, successors and assigns) from and against any and all claims, costs, liabilities, losses, damages, deficiencies, judgments, assessments, fines, settlements, costs and expenses (including interest, penalties and fees, expenses and disbursements of attorneys, experts, personnel and consultants incurred by any such indemnified party in any action or proceeding between PSF and such indemnified party and any third party, or otherwise ("Losses")) occasioned by, arising out of, based upon or otherwise in respect or in connection with this Agreement or the performance by PSF of its obligations hereunder, including without limitation employment related claims, including workers compensation and Title VII claims, and any Loss resulting from any accident or other occurrence that causes a Loss, personal injury or death to any person or property; provided, that in the event a final, non-appealable judgment by a court of competent jurisdiction establishes that such a Loss was caused by the intentional misconduct or gross negligence of such indemnified party, then such indemnified party shall reimburse PSF for any indemnification amounts received by it for such Loss pursuant to this Section 9(a). (b) Continental shall hold harmless and indemnify PSF (and its directors, officers, employees, stockholders, successors and assigns) from and against any and all claims, costs, liabilities, losses, damages, deficiencies, judgments, assessments, fines, settlements, costs and expenses (including interest, penalties and fees, expenses and disbursements of attorneys, experts, personnel and consultants incurred by any such indemnified party in any action or proceeding between Continental and such indemnified party and any third party, or otherwise ("Losses")) occasioned by, arising out of, based upon or otherwise in respect or in connection with this Agreement or the performance by Continental of its obligations hereunder, including without limitation employment related claims, including workers compensation and Title VII claims, and any Loss resulting from any accident or other occurrence that causes a Loss, personal injury or death to any person or property; provided, that in the event a final, non-appealable judgment by a court of competent jurisdiction establishes that such a Loss was caused by the intentional misconduct or gross negligence of such indemnified party, then such indemnified party shall reimburse Continental for any indemnification amounts received by it for such Loss pursuant to this Section 9(b). Page 7 of 10 8 10. General Provisions. (a) Notices. All communications to any party hereunder shall be in writing and shall be delivered in person or sent by facsimile, telegram, telex, by registered or certified mail (postage prepaid, return receipt requested) or by reputable overnight courier to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10) (and shall be deemed to have been given as of the date so delivered or sent): If to PSF, to: Premium Standard Farms, Inc. 423 W. 8th Street, Suite 200 Kansas City, MO 64105 Attn: John M. Meyer If to Continental, to: Continental Grain Company 277 Park Avenue New York, NY 10172 Attn: Paul J. Fribourg (b) Definitions. As used herein, unless the context otherwise requires, "Subsidiaries" means, as to any specified person, any corporation or other entity of which at least a majority of the securities or other ownership interests having ordinary voting power for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by such specified person. "Travel Expenses" means reasonable costs of travel for business related for the providers of each of the Continental Services and the PSF Services which includes economy airfare, lodging, local travel, meals and miscellaneous expenses as would be approved for such individual's business travel pursuant to the travel policies of its employer. (c) Force Majeure. A party shall not be deemed to have materially breached this Agreement to the extent that performance of its obligations or attempts to cure any breach are delayed or prevented by reason of any act of God, fire, natural disaster, accident, act of government, shortage of materials or supplies, or any other cause beyond the reasonable control of such party (a "Force Majeure"); provided that the party whose performance is delayed or prevented promptly notifies the other party of the Force Majeure cause of such prevention or delay; and provided further, that if the prevention or delay of such party's performance of this Agreement continues for more than sixty (60) days, then the other party may terminate this Agreement by giving written notice of termination. Page 8 of 10 9 (d) Independent Contractors. The parties shall operate as, and have the status of, independent contractors and shall not act as or be an agent, partner, co-venturer or employee of the other party. Neither party shall have any right or authority to assume or create any obligations or to make any representations or warranties on behalf of any other party, whether express or implied, or to bind the other party in any respect whatsoever. (e) Amendment and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties. No waiver of this Agreement or of any provision hereof shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. Any waiver of any right or default hereunder shall be effective only in the instance given and shall not operate as or imply a waiver of any other or similar right or default on any subsequent occasion. (f) Assignment. Except as permitted under Section 3(d), neither party shall be entitled to assign its rights or delegate its obligations under this Agreement to any third party without the prior written consent of the other party. Except as permitted under Section 3(a)(iv) or 3(b)(iv), any attempted or purported assignment or delegation without such required consent shall be void. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective permitted successors and assigns. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. (h) Severability. If any provision of this Agreement (or portion thereof) is determined by a court of competent jurisdiction to be invalid, illegal, or otherwise unenforceable, then such provision shall, to the extent permitted by the court, not be voided but shall instead be construed to give effect to its intent to the maximum extent permissible under applicable law and the remainder of this Agreement shall remain in full force and effect according to its terms. (i) Sections and Headings. The headings contained herein are for the convenience of reference only and are not intended to define, limit, expand, or describe the scope or intent of any clause or provision of this Agreement. (j) Entire Agreement. This Agreement, together with all schedules hereto, constitutes the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior negotiations and understandings among the parties, both oral and written, regarding such subject matter. (k) Counterparts. This Agreement may be signed in counterparts and all signed copies of this Agreement shall together constitute one original of this Agreement. (l) No Third Party Beneficiaries. Nothing contained in this Agreement, express or implied, is intended to or shall confer upon anyone other than the parties hereto Page 9 of 10 10 (and their permitted successors and assigns and persons entitled to the benefit of Section 9) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement effective as of the day and year first written above. CONTINENTAL GRAIN COMPANY By: /s/ Michael Zimmerman -------------------------------------- Its: Senior Vice President ------------------------------------- PREMIUM STANDARD FARMS, INC. By: /s/ John Meyer -------------------------------------- Its: CEO ------------------------------------- Page 10 of 10 EX-10.9 35 y50886ex10-9.txt CONSULTING AGREEMENT 1 Exhibit 10.9 EXHIBIT D CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement"), is entered into as of this 9th day of December, 1999, by and among ContiGroup Companies, Inc. ("ContiGroup") and Premium Standard Farms, Inc. ("PSF"). ContiGroup and PSF and shall be collectively referred to herein as the "Parties," and individually as "Party." WHEREAS, ContiGroup has expended substantial time of its management and employees on behalf of PSF in negotiating the terms of a Consent Judgment in State ex rel. Jeremiah W. (Jay) Nixon v. Premium Standard Farms, et al., Circuit Court of Jackson County Missouri, Case No. 99CV-0745, in ensuring that PSF complies with such Consent Judgment, in other environmental issues relating to PSF and in ongoing strategic business issues, including but not limited to, identifying and negotiating with potential acquisition candidates on behalf of PSF; NOW, THEREFORE, in consideration of the agreements and obligations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 1. In accordance with the resolution dated December 9, 1999 of the Board of Directors of PSF, PSF shall pay the sum of five million dollars ($5,000,000) to ContiGroup over a period of five (5) years beginning December 20, 1999 (the "Payment"), in accordance with the following Payment Schedule: 2 Payment Schedule
Installment Payment No. Amount Due Date ----------------------- ------ -------- 1 $1,000,000 December 20, 1999 2 $1,000,000 December 1, 2000 3 $1,000,000 December 3, 2001 4 $1,000,000 December 2, 2002 5 $1,000,000 December 1, 2003
2. PSF shall effectuate each installment of the Payment by wire transferring such funds to: Citibank NA New York, New York ABA# 021000089 ContiGroup Companies, Inc. Account # 09266841 3. This Agreement shall bind and inure to the benefit of the parties hereto, their present and former partners, officers, directors, employees, attorneys, predecessors, shareholders successors, parents, affiliates, members, subsidiaries, heirs, executors, administrators, assigns, and each of them. 4. Each Party represents and warrants that it is fully authorized to enter into, execute and perform its obligations under this Agreement. 5. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New York, regardless of laws relating to the conflict of laws. 6. Any claim arising out of or relating to this Agreement, including any claim arising out of or relating to any exhibits hereto, may be instituted in any federal court of the Southern District of New York or in any state court in New York County, State of New York, and each Party agrees not to assert, by way of motion, as a defense or otherwise, in any such claim, any claim or argument that it is not subject personally to the jurisdiction of such court, that the claim 2 3 is brought in an inconvenient forum, that the venue of the claim is improper or that this Agreement or the subject matter hereof or thereof may not be enforced in or by such court. Each Party further irrevocably submits to the jurisdiction of such court in any such claim. Any and all service of process or any other notice in any such claim shall be effective against any Party if given personally or by registered or certified mail, return receipt requested, or by any other means of mail that requires a signed receipt, postage prepaid, mailed to such Party as herein provided. Nothing herein contained shall be deemed to affect the right of any Party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other Parry in any other jurisdiction. 7. This Agreement may be signed in multiple counterparts that, taken together, shall be deemed to constitute one Agreement. 8. This Agreement constitutes the entire agreement among and between the Parties hereto with respect to the subject matter hereof and this Agreement supersedes all prior agreements or representations, written or oral, with respect thereto. No parol or other evidence shall be offered to explain, contradict or clarify the terms of this Agreement or the circumstances under which it was entered. 9. This Agreement may be amended, superseded or canceled, and the terms hereof may be waived, only by a written instrument signed by the Parties hereto. This Agreement and the terms hereof may not be waived or amended orally. 10. If any provision or portion of any provision of this Agreement shall be held invalid or unenforceable, the remaining portion of such provision and the remaining provisions of this Agreement shall not be affected thereby. If the application of any provision or any portion of any provision of this Agreement to any person or circumstance shall be held invalid or 3 4 unenforceable, the application of such provision or portion of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby. IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first above written. CONTIGROUP COMPANIES, INC. By: /s/ Mark R. Baker --------------------------------- Name: Title: Executive Vice President PREMIUM STANDARD FARMS, INC. By: /s/ John Meyer --------------------------------- Name: Title: CEO 4 EX-10.10 36 y50886ex10-10.txt STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.10 EXECUTION COPY STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 22, 2000 BY AND AMONG PREMIUM STANDARD FARMS, INC. PSF GROUP HOLDINGS, INC. AND CONTIGROUP COMPANIES, INC. 2 TABLE OF CONTENTS ARTICLE 1 Purchase; Purchase Price; Closing............................1 1.1 Purchase of Stock............................................1 1.2 Purchase Price...............................................1 1.3 Closing......................................................2 1.4 Access to Records............................................2 ARTICLE 2 Representations and Warranties of Buyer......................2 2.1 Organization and Qualification...............................2 2.2 Capitalization...............................................2 2.3 Authority Relative to this Agreement.........................3 2.4 Securities Act Matters.......................................3 2.5 Parent Financial Statements..................................4 2.6 Undisclosed Liabilities......................................4 ARTICLE 3 Representations and Warranties of the Company................4 3.1 Organization, Qualification and Corporate Power..............5 3.2 Authorization of Transaction.................................5 3.3 Capitalization...............................................6 3.4 Financial Statements.........................................6 3.5 Receivables..................................................6 3.6 Absence of Certain Developments..............................7 3.7 Undisclosed Liabilities......................................8 3.8 Books and Records............................................9 3.9 Taxes........................................................9 3.10 Real Property Leases.........................................9 3.11 Real Property Owned or Under Option.........................10 3.12 Compliance, Utilities and Other Matters.....................11 3.13 Assets......................................................13 3.14 Inventory...................................................14 3.15 Contracts and Commitments...................................15 3.16 Litigation..................................................17 3.17 Compliance with Law.........................................17 3.18 Intellectual Property.......................................18 3.19 Environmental and Land Use Matters..........................18 3.20 Seller Products; Product Liability..........................22 3.21 Securities Act Matters......................................23 3.22 Disclosure..................................................23 ARTICLE 4 Additional Agreements.......................................24 4.1 Employees...................................................24 4.2 Severance Period............................................24 4.3 Warn Act....................................................25 4.4 Employee Benefit Plans......................................25 4.5 Vacation....................................................25
3 4.6 Worker's Compensation Claims................................25 4.7 Further Assurances..........................................25 ARTICLE 5 Conditions to Closing.......................................25 5.1 Conditions to Obligations of Each Party to Close............25 5.2 Additional Conditions to the Buyer's Obligations............26 5.3 Additional Conditions to the Seller's Obligations...........27 ARTICLE 6 Survival of Representations; Indemnification................28 6.1 Survival of Representations.................................28 6.2 Indemnification by Seller...................................29 6.3 Notice and Defense of Claims................................30 6.4 Calculation of Covered Liabilities; Insurance Proceeds......32 6.5 Limitation on Indemnification..............................33 6.6 Exclusive Remedy following Closing..........................33 ARTICLE 7 General Provisions..........................................34 7.1 Public Statements...........................................34 7.2 Mediation...................................................34 7.3 Notices.....................................................34 7.4 Interpretation..............................................36 7.5 Amendment...................................................36 7.6 Severability................................................36 7.7 Miscellaneous...............................................36 7.8 Counterparts................................................36 7.9 Cumulative Remedies.........................................36 7.10 Attorneys' Fees.............................................36 7.11 Construction................................................36 7.12 Brokers, etc................................................37
4 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT dated as of September 22, 2000 (this "AGREEMENT"), by and among Premium Standard Farms, Inc., a Delaware corporation (the "BUYER"), PSF Group Holdings, Inc., a Delaware corporation (the "PARENT"), and ContiGroup Companies, Inc., a Delaware corporation (the "SELLER"). Capitalized terms used and not elsewhere defined in this Agreement have the respective meanings assigned to such terms in Appendix I hereto. RECITALS WHEREAS, Seller is engaged in the hog production business in the States of North Carolina and Georgia d/b/a/ "CAROLINA FARMS" and "SOUTHERN MAID" (collectively, the "CAROLINA FARMS"); WHEREAS, all of the assets used in connection with the Carolina Farms are now owned by Premium Standard Farms of North Carolina, Inc., a Delaware corporation (the "COMPANY"); WHEREAS, Seller owns one thousand (1,000) shares of the Company's common stock, no par value (the "PURCHASED SHARES"), with such shares constituting all of the issued and outstanding capital stock of the Company; WHEREAS, Buyer currently provides services to Seller in managing and operating the Carolina Farms and has provided such services for several years; WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer the Purchased Shares. NOW THEREFORE, the parties hereby agree as follows: ARTICLE 1 Purchase; Purchase Price; Closing 1.1 Purchase of Stock. On the Closing Date, Seller shall sell, convey, transfer and assign, upon the terms and subject to the conditions set forth in this Agreement, to Buyer, free and clear of all liens, security interests, charges, restrictions, encumbrances and claims of every kind, and Buyer shall purchase from Seller, all but not less than all of the Purchased Shares. In consideration of the sale of the Purchased Shares to Buyer, Buyer agrees to pay to Seller the Purchase Price. 1.2 Purchase Price. The aggregate purchase price for the Purchased Shares shall be THIRTY-TWO MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($32,300,000) (the "PURCHASE PRICE"), and shall be payable at the Closing one-half in cash and one-half in common stock of Parent as follows: 1 5 (a) by the wire transfer of immediately available funds in the amount of SIXTEEN MILLION ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($16,150,000) into an account designated by Seller; (b) by the delivery of 9,219 shares of the Class B common stock, par value $.01 per share, of Parent (the "PARENT COMMON SHARES"). 1.3 Closing. The closing of the transactions contemplated by this Agreement (the "CLOSING") shall be held, subject to the satisfaction or waiver by the appropriate parties of the conditions set forth herein, at the offices of Blackwell Sanders Peper Martin LLP, 2300 Main Street, Suite 1000, Kansas City, Missouri, at 9 a.m. local time on September 22, 2000, or at such other place and time as the parties may mutually agree (the "CLOSING DATE"). 1.4 Access to Records. After the date hereof, Seller and its Agents shall have reasonable access during regular business hours to all books, records, files and documents relating to the Company to enable Seller to prepare and file tax returns, prepare for litigation or obtain or confirm any information relating to the Company, in each case subject to Seller's agreement to maintain the confidentiality of any of the same. Buyer shall maintain all such books and records in the United States and, for a period of seven years from the date hereof, and shall not destroy or dispose of any such books and records without first providing to Seller adequate notice of such intended destruction or disposal and the reasonable opportunity for Seller, at its expense, to copy or move any such books or records prior to their destruction or disposal. ARTICLE 2 Representations and Warranties of Buyer and Parent Except as otherwise set forth in written disclosure schedules delivered to Seller prior to or contemporaneously with the execution hereof (copies of which are attached hereto), the Buyer and Parent hereby represent and warrant to the Seller each of the following items 2.1 through 2.6. The representation and warranties set forth below are limited and/or qualified by and may not be relied upon by Seller to the extent of: (i) the knowledge of Seller acquired in the course of its ownership of the capital stock of Parent and its participation in the management of Buyer and/or Parent, and (ii) the knowledge of any of Seller's current directors, officers, employees, managers and/or agents who are or were directors, officers, employees, managers and/or agents of Buyer and/or Parent and who are or were assigned to or engaged in substantial activities related to or who performed substantial responsibilities, duties or assignments with respect to, the management or operation of Buyer and/or Parent. 2.1 Organization and Qualification. Each of the Buyer and Parent has been duly incorporated and is validly existing as a corporation and in good standing under the laws of the State of Delaware and has the requisite corporate power to carry on its business as now conducted. 2.2 Capitalization. Parent's entire authorized capital stock consists of (a) 250,000 shares of Class A common stock, par value $.01 per share (the "CLASS A STOCK"), of which 100,000 shares are issued and outstanding, (b) 300,000 shares of Class B common stock, 2 6 par value $.01 per share (the "CLASS B STOCK"), of which 104,081.64 shares are issued and outstanding, and (c) 10,000 shares of preferred stock, par value $.01 per share (the "PREFERRED STOCK"), none of which are issued and outstanding. All of the issued and outstanding shares of Class A Stock and Class B Stock have been duly authorized and are validly issued, fully paid and nonassessable. Except as disclosed in Schedule 2.2, there are no outstanding or authorized options, rights, warrants, calls, convertible securities, rights to subscribe, conversion rights or other agreements or commitments to which Parent is a party or which are binding upon Parent providing for the issuance or transfer by Parent of additional shares of capital stock of Parent and Parent has not reserved any shares of Common Stock for issuance, nor are there any outstanding stock appreciation rights, phantom equity or similar rights, agreements, arrangements or commitments based upon the book value, income or other attribute of Parent. 2.3 Authority Relative to this Agreement. Each of the Buyer and Parent has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement by the Buyer and Parent, and the consummation by the Buyer and Parent of the transactions contemplated hereby, have been duly authorized by the board of directors of the Buyer and Parent, and no other corporate proceedings on the part of the Buyer or Parent are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Buyer and Parent and constitutes a valid and binding obligation of each such company, enforceable in accordance with its terms. Except as disclosed in Schedule 2.3, neither the Buyer nor Parent is subject to or obligated under any provision of (a) its certificate or articles of incorporation or bylaws, (b) any contract, (c) any license, franchise or permit or (d) any law, regulation, order, judgment or decree, which would be breached or violated by the execution, delivery and performance of this Agreement and the consummation by it of the transactions contemplated hereby. No authorization, consent or approval of, or filing with, any public body, court or authority is necessary on the part of the Buyer or Parent for the consummation by the Buyer and Parent of the transactions contemplated by this Agreement. 2.4 Securities Act Matters. (a) Each of the Parent Common Shares to be issued as contemplated by this Agreement has been duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable and free of preemptive rights. (b) Neither Buyer nor Parent (nor any Person acting on their behalf) has, directly or indirectly, offered any Parent Common Shares to be issued hereunder for sale to, or solicited any offers to buy any such shares from, or otherwise approved or negotiated with respect thereto with, anyone other than Seller, and neither Buyer nor Parent (nor any Person acting on their behalf) has taken or will take any action that would cause the offer, issuance or sale of any such shares hereby to violate the provisions of Section 5 of the Securities Act of 1933, as amended, or any applicable state securities laws and regulations. 3 7 2.5 Parent Financial Statements. Seller has previously been provided true and complete copies of the audited financial statements, including the notes thereto, of Parent for the period ended March 27, 1999, and the year ended March 31, 2000 (the "PARENT FINANCIAL STATEMENTS"). The Parent Financial Statements present fairly, in all material respects, the financial position and results of operations of Parent as of such dates in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout the periods covered thereby. 2.6 Undisclosed Liabilities. Except as disclosed in Schedule 2.6, Parent does not have any material liabilities or obligations (known or unknown, absolute, accrued or contingent) except: (a) liabilities which are reflected and reserved against on the Parent Financial Statements in accordance with GAAP, (b) liabilities incurred in the ordinary course of business and consistent with past practice since the date of the Parent Financial Statements (none of which relates to any breach of contract, breach of warranty, tort, infringement or violation of Law), (c) future performance obligations (none of which relates to any breach of Contract, breach of warranty, tort, infringement or violation of Law), (d) liabilities and obligations arising out of or related to Buyer's acquisition of The Lundy Packing Company and its affiliates and (e) liabilities and obligations arising out of or related to Buyer's execution of Fourth and Fifth Amendments to its Credit Agreement with U.S. Bancorp Ag Credit. ARTICLE 3 Representations and Warranties of Seller Except as otherwise set forth in written disclosure schedules (the "SCHEDULES") delivered to Buyer prior to or contemporaneously with the execution hereof (copies of which are attached hereto), the Seller hereby represents and warrants to the Buyer each of the following items 3.1 through 3.22, which apply to and relate solely to the Company and Carolina Farms and not to Seller in general or other divisions, subsidiaries or affiliates of Seller. The Schedules are numbered to correspond to the various sections of this Article 3 setting forth certain exceptions to the representations contained in this Article 3 and other Schedules attached are numbered to correspond to their respective section of this Agreement. To the extent any of the representations and warranties set forth in this Article 3 or elsewhere in this Agreement (to include attached Schedules) are qualified to "Seller's knowledge," or a similar phrase, such qualification means and the knowledge of Seller is limited to the knowledge of Jeffrey L. Bradshaw ("SELLER'S OPERATING MANAGER"), Rudolph W. Kellerman and David Moore as of the date of this Agreement or the date so indicated in the representation or warranty. The representation and warranties set forth below are also limited and/or qualified by and may not be relied upon by Buyer to the extent of: (i) the knowledge of Buyer acquired in the course of providing services to Seller and otherwise, (ii) the knowledge of any of Buyer's current directors, officers, employees, managers and/or agents who were formerly directors, officers, employees, managers and/or agents of Seller and who were assigned to or engaged in substantial activities related to or performed substantial responsibilities, duties or assignments with respect to Carolina Farms, (iii) knowledge considered in the "public domain" and the general and other knowledge of Buyer related to the industry in which Carolina Farms operates and the changing governmental and 4 8 regulatory oversight and environment relative thereto, including, without limitation, Buyer's knowledge with respect to lagoons, land application fields, the spraying and/or other disposal of solid and liquid waste therefrom and the existing and/or potential liability and/or costs and expenses associated with and arising from each and all of the foregoing, and (iv) information obtained from Phase I or greater environmental audits conducted with respect to the Owned Real Property, the Leased Real Property, the Facilities and/or other improvements by Buyer or on behalf of Buyer, or for Seller and provided to Buyer as a disclosure item in connection with this transaction. As used herein with respect to Seller or the Company, the term "material" or any variation thereof shall be interpreted in this Agreement by reference to the assets, operations, business and financial condition of the Company taken as a whole. As used herein, the term "substantial" or any variation thereof means and shall be interpreted in this Agreement to mean significant and/or considerable; and when used in connection with compliance and/or conformity, shall be interpreted and applied using a reasonable person standard. As used in this Agreement, the term "Person" or any variation thereof means and shall be interpreted in this Agreement to include firms, companies, associations, general partnerships, limited partnerships, limited liability companies, trusts, business trusts, corporations and legal entities, including public and quasi-public bodies, as well as individuals. 3.1 Organization, Qualification and Corporate Power. Each of the Company and the Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company is duly qualified to do business as a foreign corporation and in good standing in the jurisdictions specified in Schedule 3.1, which are all the jurisdictions where a failure to be so qualified or licensed would have a material adverse effect on the Carolina Farms. The Company has full corporate power and authority and, except as provided in Schedules attached hereto or otherwise in this Agreement, all material authorizations, licenses and permits necessary to carry on the business of the Carolina Farms and to own and use the properties owned and used by it in connection with the same as such business is now being conducted and as such properties are now being used. 3.2 Authorization of Transaction. The execution, delivery and performance of this Agreement and the transactions contemplated by this Agreement have been duly authorized by the board of directors of the Seller. No other corporate approval on the part of the Seller or the Company is necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby. The Seller has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller enforceable in accordance with its terms and conditions. Except as disclosed in Schedule 3.2, other Schedules or elsewhere in this Agreement, neither the execution and the delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) conflict in a material manner with, result in a breach of, constitute a default under, result in the acceleration of, or require the payment of any 5 9 amounts under, or create in any party the right to accelerate, terminate, modify or cancel (A) any written restriction, lien, encumbrance, indenture, contract, lease, sublease, agreement or mortgage for borrowed money, instrument of indebtedness or other obligation or liability to which Seller or the Company is a party or by which it is bound or to which any of its assets is subject (or result in the creation of any lien or encumbrance upon any of the Purchased Shares or the Company's assets) or (B) any provision of the certificate of incorporation or bylaws or other organizational documents of Seller or the Company, or (ii) violate any Law to which Seller or the Company is subject, the violation of which would adversely affect Buyer, the Company and/or the transactions contemplated by this Agreement. No notice to, filing with or authorization, consent or approval of, any public body, court or authority is necessary by the Seller for the consummation by the Seller of the transactions contemplated by this Agreement. 3.3 Capitalization. The Company's entire authorized capital stock consists of 5,000 shares of common stock, no par value, of which 1,000 shares are issued and outstanding. No shares of capital stock of the Company are held in treasury by the Company. Seller owns beneficially and of record all of the outstanding shares of capital stock of the Company and such capital stock is owned free and clear of all liens, security interests, charges, voting trusts, restrictions, encumbrances and claims of every kind. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and were offered, issued, sold and delivered by the Company in compliance with all applicable state and federal laws concerning the issuance of securities. There are no outstanding or authorized options, rights, warrants, calls, convertible securities, rights to subscribe, conversion rights or other agreements or commitments to which the Company is a party or which are binding upon the Company providing for the issuance or transfer by the Company of additional shares of capital stock of the Company and the Company has not reserved any shares of Common Stock for issuance, nor are there any outstanding stock appreciation rights, phantom equity or similar rights, agreements, arrangements or commitments based upon the book value, income or other attribute of the Company. 3.4 Financial Statements. Schedule 3.4 contains the unaudited pro forma balance sheet of the Carolina Farms dated as of August 26, 2000 (the "PRO FORMA BALANCE SHEET") and the related unaudited statement of income for the five months then ended (the "FINANCIAL STATEMENTS"). The Financial Statements have been delivered to Buyer and fairly present the financial position and results of operations of the Carolina Farms as of such date and unless otherwise indicated thereon or in a separate management letter accompanying the Financial Statements, the same are substantially in accordance with generally accepted accounting principles consistently applied for the period covered thereby, subject to normal year-end adjustments and the absence of footnotes. August 26, 2000 is sometimes referred to herein as the "BALANCE SHEET DATE." 3.5 Receivables. All accounts and notes receivable reflected on the Pro Forma Balance Sheet, and all of the Company's accounts and notes receivable existing as of the Closing Date, unless otherwise indicated thereon or in a separate management letter (a) have arisen in the ordinary course of business of Carolina Farms and the Company, (b) are subject only to a reserve for bad debts computed substantially in accordance with generally accepted accounting principles consistently applied and reasonably estimated to reflect the probable results of 6 10 collection and (c) have been collected or, subject to such reserve and to Seller's knowledge, recognizing Seller can not predict the future collectibility of any such accounts and/or notes receivables, should be collectible in the ordinary course of business of the Company in the aggregate recorded amounts thereof in accordance with their terms. Schedule 3.5 lists any obligor which together with all of its affiliates owed accounts and notes receivable reflected on the Pro Forma Balance Sheet in an aggregate amount of $50,000 or more. 3.6 Absence of Certain Developments. Except as disclosed on Schedule 3.6, on other Schedules or elsewhere in this Agreement, since the Balance Sheet Date, with respect to the Company and Carolina Farms and not Seller's business generally or other parts of Seller's business, to the Seller's knowledge, there has not been, unless indicated below or on Schedules attached to this Agreement or shown in any update of the Financial Statements delivered to Buyer by Seller: (a) any material adverse change in the condition of the assets, liabilities, financial condition, operations or current business of the Company and Carolina Farms, except for changes expressly contemplated by this Agreement; (b) any sale, assignment or transfer of any of the Assets of the Company or Carolina Farms with a value of over $50,000 per asset, other than routine sales of inventory in the ordinary course of business; (c) any cancellation or compromise of any material indebtedness by, or waiver or compromise of any right of material value to, the Company and Carolina Farms, whether or not in the ordinary course of business; (d) any acceleration, termination, amendment, modification or cancellation or threat thereof by any party to any contract, lease, license or other agreement or instrument to which Seller or the Company is a party or by which it is bound so as to materially and adversely affect the properties, assets, liabilities or business of the Company and Carolina Farms; (e) any capital expenditure or the execution of any lease or any incurring of liability therefor by Seller or the Company, in both instances requiring payments by the Company or Carolina Farms in excess of $10,000 per month per incurrence or $50,000 per month in the aggregate; (f) any material delay in payment of or failure to pay any material obligation of the Company or Carolina Farms, other than in the ordinary course of business consistent with past practice; (g) any failure to operate the business of the Company or Carolina Farms in the ordinary course so as to use reasonable efforts to preserve the material aspects of the business intact and to preserve for Buyer the goodwill of the Company's and Carolina Farms' material suppliers, customers and others having business relations with such entity; 7 11 (h) any change in material accounting methods or practices by the Company or Carolina Farms affecting its assets, liabilities or business except as reflected on the Financial Statements or in a separate management letter; (i) any damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting the properties, business or prospects of the Company or Carolina Farms; (j) any mortgage, pledge or other encumbrance of any asset of the Company or Carolina Farms, other than mortgages, pledges or other encumbrances incurred in connection with credit facilities entered into in the ordinary course of business, liens for current property taxes not yet due and payable and mortgages, pledges or other encumbrances which are to be released as of the Closing Date; (k) any indebtedness incurred by the Company or Carolina Farms for borrowed money or any commitment to borrow money entered into by the Company or Carolina Farms, or any loans or other investments made or agreed to be made by the Company or Carolina Farms, in both instances other than in connection with credit facilities (to include, without limitation, trade payables) entered into in the ordinary course of business; (l) any incurrence of liabilities involving in each instance $100,000 or more except in the ordinary course of business and consistent with past practice; (m) any payment, discharge or satisfaction of any material liability, the effect of which would materially and negatively change the Financial Statements, other than the payment, discharge or satisfaction of liabilities in the ordinary course of business and consistent with past practice; or (n) any other transaction material to the Company or Carolina Farms, other than in the ordinary course of business and consistent with past practice. 3.7 Undisclosed Liabilities. Except as disclosed in Schedule 3.7, to the knowledge of Seller, the Company does not have any material liabilities or obligations except (a) liabilities which are reflected and reserved against on the Pro Forma Balance Sheet in accordance with generally accepted accounting principles, (b) liabilities incurred in the ordinary course of business and consistent with past practice since the date of the Pro Forma Balance Sheet (none of which relates to a breach of Contract, breach of warranty, tort, infringement or violation of Law which, if determined adverse to the Company, should result in a significant liability to the Company) and (c) future performance obligations (none of which relates to a breach of Contract, breach of warranty, tort, infringement or violation of Law which, if determined adverse to the Company, should result in a significant liability to the Company) under Contracts described in Schedule 3.15 or which are of the type described in Schedule 3.15 but which because of the dollar amount or other qualifications are not required to be listed on Schedule 3.15. 8 12 3.8 Books and Records. With respect to the Company and Carolina Farms, the Seller has made and kept books and records and accounts, which, in reasonable detail, accurately and fairly reflect the material activities of such entity. With respect to such operations, the Seller has not engaged in any material transaction, maintained any bank account or used any corporate funds except for transactions, bank accounts and funds which have been and are reflected in the normally maintained books and records of such entity. 3.9 Taxes. (a) As used herein, the term "TAX" means any federal, state, local or foreign income, gross receipts, profits, franchise, withholding, payroll, employment, stamp, excise, occupation, sales, use, transfer, revenue, value added, real or personal property, social security, retirement, unemployment, license, capital, net worth, profits or similar tax, charge, fee, levy or other assessment, together with any interest, penalties or additions in respect therefor whether computed on a separate, consolidated, unitary, combined or any other basis. (b) Except as disclosed in Schedule 3.9, on other Schedules or otherwise in this Agreement, and excepting ad valorem real and personal property tax liabilities assumed or required to be paid by Buyer, no state of facts exists, or upon the Closing, shall exist, that would constitute grounds for the assessment against Buyer, by reason of transferee liability or otherwise, of any liability for any Tax of any sort or any obligation under any tax-sharing, tax allocation or similar agreement to which Seller or the Company is a party attributable to any period ending on or before the Closing Date relating to the Carolina Farms or the transactions contemplated by this Agreement, which Tax would have been payable by Seller (not Buyer) but for this transaction and the closing hereof. 3.10 Real Property Leases. (a) Set forth in Schedule 3.10 is a complete and accurate list and a brief description of all real property leased or subleased by the Company (as lessee or sublessee) (the "LEASED REAL PROPERTY"). With respect to each lease so set forth, and except as otherwise indicated in Schedule 3.10: (i) the lease has been validly executed and delivered by Seller or the Company and, to Seller's knowledge, by the other parties thereto and is in full force and effect; (ii) neither Seller, the Company nor to Seller's knowledge any other party to the lease, is in material breach or default, and to Seller's knowledge no event has occurred which, with notice or lapse of time, would constitute such a material breach or default and permit termination, modification or acceleration under the lease; (iii) the consummation of the transactions under this Agreement, including the assignment of the lease to the Company, will not cause a termination of the lease; (iv) to the Seller's knowledge, no party to the lease has repudiated any material provision thereof; (v) to Seller's knowledge there are no disputes or oral agreements in effect as to the lease, and there are no delayed payment programs in effect as to the lease; (vi) all improvements leased thereunder have been maintained substantially in accordance with the lease, applicable Laws and normal industry practice, and such improvements are 9 13 generally suitable for the purposes for which they are being used and to Seller's knowledge, neither Seller nor the Company has received any notice from any governmental authority that any of the buildings and improvements is in material violation of any applicable Laws; and (vii) neither Seller nor the Company has assigned, sublet, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold, except encumbrances, if any, which are to be released on or before the Closing Date. (b) To the knowledge of Seller, except as disclosed in Schedule 3.10, each component of the Leased Real Property is in good condition, working order and repair, except for maintenance, repairs and replacements conducted or required in the ordinary course of the operation of the Leased Real Property, maintenance, repairs and replacements that do not adversely affect in a material manner the operation of the Leased Real Property as the same are now operated, and ordinary wear and tear. (c) Except as disclosed in Schedule 3.10, to Seller's knowledge, no Person authorized to act on behalf of Seller or the Company has entered into any Contract, arrangement or understanding with respect to the future ownership, development, use, occupancy or operation of the Leased Real Property which (i) would be binding on the Company, and (ii) would have a material, adverse effect on the Company, the leased property and/or its future ownership, development, use or operation thereof by Buyer, other than options, rights of first refusal or other similar arrangements in favor of the Seller under the leases and subleases relating to the Leased Real Property, copies of which have been previously delivered to the Buyer. (d) neither Seller nor the Company has received notice of any pending condemnation or eminent domain proceedings that affect in a material manner the Leased Real Property or, to the Seller's knowledge, there are no threatened or contemplated condemnation or eminent domain proceedings that affect in a material manner the Leased Real Property, and neither Seller nor the Company has received any notice, oral or written, of the intention of any governmental entity or other Person to take or use all or any material part thereof under the power of eminent domain. 3.11 Real Property Owned or Under Option. Schedule 3.11 lists and describes in reasonable detail and contains a legal description of all real property owned by the Company (the "OWNED REAL PROPERTY"). With respect to each parcel of real property listed in Schedule 3.11, except as otherwise indicated in Schedule 3.11 and in the special exceptions to title set forth on title insurance commitments for each of the Owned Real Property, the documents noted in such title commitments and surveys of each of the Owned Real Property (collectively, the "PERMITTED OWNED REAL PROPERTY ENCUMBRANCES"), copies of which are attached and/or have been delivered to Buyer: (a) the Company has good and marketable fee simple title to the Owned Real Property, free and clear of all mortgages, pledges, security interests, encumbrances, covenants charges or other liens, easements and other restrictions, other than installments 10 14 of real property taxes and special assessments not yet delinquent or which are to be assumed by Buyer at Closing; (b) neither Seller nor the Company has received any notice of pending condemnation or eminent domain proceedings that affect in a material manner the Owned Real Property or, to the Seller's knowledge, there are no threatened or contemplated condemnation or eminent domain proceedings that affect in a material manner the Owned Real Property, and neither Seller nor the Company has received any notice, oral or written, of the intention of any governmental entity or other Person to take or use all or any material part thereof under the power of eminent domain; (c) there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party or parties the right of use or occupancy of any portion of the Owned Real Property, except for possible incidental and temporary use, none of which, if any, would be binding on the Company following Closing; (d) there are no outstanding options or rights of first refusal to purchase any of the Owned Real Property, or any portion thereof or interest therein; (e) there are no Persons (other than the Seller) in possession of any of the Owned Real Property; (f) each component of the Owned Real Property is in good operating condition and repair, except for ordinary wear and tear, maintenance, repairs and replacements conducted or required in the ordinary course of the operation of the Owned Real Property and maintenance, repairs and replacements that do not adversely affect in a material manner the operation of any of the Owned Real Property as the same are now operated; and (g) the Leased Real Property described in Schedule 3.11 and the Owned Real Property comprise all of the real property used by the Seller and the Company in connection with the Carolina Farms. 3.12 Compliance, Utilities and Other Matters. Except as disclosed in Schedule 3.12, with respect to the Owned Real Property and the Leased Real Property (as indicated below), to the Seller's knowledge and except as shown on or would be revealed by (i) the special exceptions to title set forth on the title insurance commitments, the documents referenced in such title commitments and/or the surveys with respect to the Owned Real Property, and (ii) with respect to the Leased Real Property, if any, the leases themselves: (a) the buildings and improvements on the Owned Real Property are located within the boundary lines of the parcels of land as shown on the surveys and/or described in the deeds with respect to each (excluding boundary line fences and driveways and utility lines extending into public rights of way), are not in material violation of setback requirements known to Seller's Operating Manager and which were applicable at the time such buildings and improvements were constructed, to Seller's knowledge are not in violation of zoning laws and ordinances, the violation of which would or could prohibit 11 15 the current use of such properties, and do not encroach on any easement which burdens the land to an extent that they prevent the use of such easements for their beneficial purposes or could warrant a removal of the encroachment and the incurrence of a significant expense in connection therewith; (b) the Company currently has vehicular access to the Owned Real Property and the Leased Real Property adequate for their current uses and to Seller's knowledge, such access will not be terminated upon consummation of the transactions contemplated by this Agreement; (c) all buildings and improvements thereon have received all material approvals of governmental authorities (including licenses and permits) known to Seller to be reasonably necessary in connection with the current ownership or operation thereof and to Seller's knowledge, such buildings and improvements in general have been operated and maintained in substantial compliance with all material and applicable laws, rules and regulations; and (d) all buildings and improvements thereon are supplied with utilities and other similar services or have available utilities and other similar services (e.g., on-site wells) reasonably adequate, to Seller's knowledge, for the present operation of such buildings and improvements; and (e) to Seller's knowledge and (i) taking into account the changing nature of and the vagaries in application and enforcement of Environmental Laws and Environmental Permits relative to land application of effluents and lagoons and the numerous variables affecting land application of effluents and lagoons, all or any of which variables can change at any time, do frequently change without advance notice or opportunity to make appropriate adjustments and are expected to change, and (ii) excepting conditions that may in the future be caused by "Acts of God," each of the hog production facilities of Seller and the Company located on Owned Real Property is situated on farm land or currently has access to farm land (including land application fields) which should be reasonably sufficient in terms of size and current soil condition under normal weather conditions (normal weather conditions does not include hurricanes, tropical storms or other similar low pressure weather disturbances, tornadoes, flooding, drought or drought like conditions, earthquakes, variations in rainfall, temperatures or winds that do not in and of themselves change the "norm", and any matters deemed "Acts of God") to permit adequate land application of normal and customary effluents (including land application spraying) from the hog production operation as now conducted by Seller and the Company to the extent allowed under all known, material Environmental Permits and Land Use Approvals (each as defined below) currently applicable to such operations, as such Environmental Permits and Land Use Approvals are now applied and enforced with respect to such operations, and, subject to abnormal weather conditions as described in the parenthetical above and all of the assumptions, limitations, qualifications and/or conditions set forth above, to the Seller's knowledge, there should be reasonably sufficient lagoon capacity to store all effluents, as such improvements are currently operated, during periods of normal frequency and duration 12 16 when land application is not permitted under such Environmental Permits and Land Use Approvals, as such Environmental Permits and Land Use Approvals are now applied and enforced with respect to such operations and assuming no moratorium on land application or other governmental or regulatory interference or interference by or disruption by some other Person, whether or not lawful, and assuming such periods have intervening periods of sufficient length to allow full restoration of the lagoons to normal levels. 3.13 Assets. (a) Except as set forth in Schedule 3.13, other Schedules and elsewhere in this Agreement, the Company has good and marketable title to the non-inventory tangible personal property assets reflected on the Pro Forma Balance Sheet (collectively, the "TANGIBLE PERSONAL PROPERTY ASSETS") and none of the Tangible Personal Property Assets is subject to any lien, security interest, encumbrance or other adverse claim, except for liens which in the aggregate are not material in amount, do not materially detract from the value of the property or assets subject thereto or interfere with the present use and have not arisen other than in the ordinary course of business, or which are to be discharged on or before the Closing Date. (b) Except as set forth in Schedule 3.13, the Tangible Personal Property Assets constitute all of the material tangible personal property assets used or held for use in connection with or material to the current business operations of Carolina Farms and the Company. The Tangible Personal Property Assets used in the business of Carolina Farms and the Company that are owned by any Person other than the Company are leased or licensed to the Company under current leases or license arrangements that are valid and with respect to all leases and licenses of Tangible Personal Property Assets that are material to the operation of the business of Carolina Farms as now conducted, they will remain in full force and effect following consummation of the transactions contemplated hereby, unless otherwise provided in the lease or license and assuming continued performance thereunder by Buyer and the Company. To the Seller's knowledge, the Tangible Personal Property Assets that are material to the operation of the business of Carolina Farms as now conducted are in all material respects in good operating condition and repair, taking into account normal wear and tear and the purposes for which such assets are currently used and subject to maintenance, repairs and replacements conducted or required in the ordinary course of the use thereof and maintenance, repairs and replacements that do not adversely affect in a material manner the use of such assets. (c) To Seller's knowledge, and subject to the limitations, qualifications and conditions set forth elsewhere in this Agreement and on Schedules attached hereto with respect to such personal property assets or the real property assets (including, without limitation, those set forth in Section 3.12(e) above and those at the beginning of this Article 3), all of which are applicable under this paragraph, and assuming no abnormal conditions or events, or unusual, unexpected or unanticipated circumstances, and assuming the enforcement and application of all Laws, Permits and Approvals, including Environmental Laws, Permits and Approvals, as the same are now normally and typically applied to the use and/or operation of such assets, (i) the Tangible Personal Property 13 17 Assets that are material to the operation of the business of Carolina Farms as now conducted are in all material respects reasonably suitable and adequate for the purposes for which such assets are currently used, subject, however, to normal wear and tear, maintenance, repairs and replacements conducted or required in the ordinary course of the use thereof and maintenance, repairs and replacements that do not adversely affect in a material manner the use of such assets and (ii) there are no actual, current and/or presently existing conditions (as opposed to future conditions, or potential, possible or probable conditions, or contingent conditions) known to Seller's Operating Manager directly affecting the Tangible Personal Property Assets and that are material to the operation of the business of Carolina Farms and the Company as now conducted, individually or in the aggregate, which should interfere in any adverse, material respect with the normal use and operation thereof as currently used or operated, or their adequacy for such use or operation. 3.14 Inventory. (a) As used herein, the term "INVENTORY" means all swine livestock (including hogs, piglets and piglets in gestation), genetic lines related thereto and any associated biological materials (to the extent the Company has rights therein), all inventories of swine feed (including pre-purchased grain and feed ingredients), injectable and other treatments and similar materials for swine, and any other raw materials, work-in-process and finished goods, wherever located (including items in transit) related to swine. (b) Except as set forth in Schedule 3.14, other Schedules and elsewhere in this Agreement, the Company has good and marketable title to the Inventory reflected on the Pro Forma Balance Sheet and none of such Inventory is subject to any lien, security interest, encumbrance or other adverse claim, except for liens which in the aggregate are not material in amount, do not materially detract from the value of the Inventory subject thereto or interfere with the present use and have not arisen other than in the ordinary course of business, or which are to be discharged on or before the Closing Date. (c) To Seller's knowledge, substantially all of the Inventory, wherever located (including items in transit), owned by the Company and used or held for use in connection with the Carolina Farms (i) is currently usable or saleable in all material respects in the ordinary course of business as now conducted by Seller and the Company and taking into account market conditions, useful life of the Inventory and any other matters customarily affecting the use and sale of Inventory, (ii) is sufficient but not excessive, in the opinion of Seller's Operating Manager, in kind or amount for the conduct of the business of Carolina Farms and the Company as it is presently being conducted, taking into account market conditions, useful life of the Inventory and any other matters customarily affecting Inventory levels, (iii) meets, in all material respects and on average, after taking into account quality problems that are normal, customary and typical in the industry, applicable quality control standards of the Seller and the Company and all published and, to the Seller's knowledge, applicable governmental quality control standards, if any and (iv) is carried on the books of the Company at an amount which 14 18 reflects valuations not in excess of the lower of cost or market determined substantially in accordance with generally acceptable accounting principles applied on a consistent basis, unless otherwise indicated on the books of the Company. (d) To Seller's knowledge, with respect to livestock Inventory, unless otherwise indicated on a Schedule 3.14 attached hereto, (i) breeding females and boars are PIC genetic stock, (ii) the average sow parity is not greater than 4, (iii) all Seller documented outbreaks of PRRS, TGE and pseudo-rabies within the past one (1) year are identified in Schedule 3.14 and (iv) Seller has followed normal and customary industry standards to ensure that the administration of medications to the livestock Inventory is in all material respects substantially in accordance with valid, applicable Federal and state laws and regulations and no medication has been knowingly and willfully administered which is not labeled for swine and which use would be in violation of any valid, applicable Federal or state laws and regulations. 3.15 Contracts and Commitments. (a) Except for those contracts set forth in Schedule 3.15, neither Seller nor the Company is a party to any material written or oral contract, agreement, commitment, lease, license, instrument, guaranty, bid or proposal related to the Carolina Farms or the Company (a "CONTRACT") which is: (i) a mortgage, indenture, note, installment obligation or other instrument relating to the borrowing of money other than trade payables incurred in the ordinary course of business; (ii) a guarantee or any other evidence of liability for any indebtedness of any other Person of any obligation other than non-material promises or undertakings to or for the benefit of employees and those incurred in the ordinary course of the day-to-day operations of the business relating to non-material matters; (iii) a letter of credit, bond or other indemnity (including letters of credit, bonds or other indemnities as to which the Company is the beneficiary but excluding endorsements of instruments for collection in the ordinary course of the operation of such entity); (iv) a currency or interest rate swap, collar or hedge agreement; (v) an offset, countertrade or barter agreement; (vi) an agreement for the sale or lease by Seller or the Company to any Person of the Company's assets other than dispositions of Inventory in the ordinary course of the operation of its business and dispositions of Tangible Personal Property Assets no longer useful to its business and infrequent and 15 19 incidental disposition of non-material Tangible Personal Property Assets that occur in the ordinary course of the operation of its business; (vii) an agreement requiring the payment by the Company of more than $50,000 under such agreement in any 12-month period for the purchase or lease of any machinery, equipment or other capital assets; (viii) a distributor, representative, broker or advertising Contract that is not terminable by the Company at will or by giving notice of 30 days or less, without liability; (ix) except as provided in Article IV of this Agreement, a collective bargaining agreement, employment, severance or consulting agreement or agreement providing for severance payments or other additional rights or benefits (whether or not optional) in the event of the sale or change in control of Seller or the Company other than non-material severance payments made by Seller to its employees in the normal and ordinary course of business upon their termination of employment; (x) a joint venture or partnership agreement other than with Buyer; (xi) an agreement with any Person to sell, distribute or otherwise market any products of the Company, including to government contracts or subcontracts, other than short term contracts made in the ordinary course of business consistent with past practice; (xii) a futures contract, option contract, derivative contract, or any forward purchase contract in excess of 30 days; (xiii) an agreement related to the production or use of breeding stock other than agreements and undertakings made from time to time by employees of Seller or the Company in the course of their daily work, which agreements and undertakings are made for the purpose of dealing with issues and problems encountered in the ordinary course of business and for which on-site decisions are typically made; (xiv) an agreement related to swine management, grow-out, finishing or feeding of swine or otherwise related to the production or use of swine livestock other than agreements and undertakings made from time to time by employees of Seller in the course of their daily work, which agreements and undertakings are made for the purpose of dealing with issues and problems encountered in the ordinary course of business and for which on-site decisions are typically made; (xv) an agreement requiring the payment to the Company by any other Person of more than $50,000 under such agreement in any 12-month period for the purchase of goods or services; 16 20 (xvi) an agreement requiring the payment by the Company to any Person of more than $50,000 under such agreement in any 12-month period for the purchase of goods or services; or (xvii) an agreement imposing non-competition or exclusive dealing obligations on the Company. (b) The Seller has delivered or made available to the Buyer correct and complete copies of each written agreement listed in Schedule 3.15, as amended to date. Each Contract listed in Schedule 3.15 is a valid, binding and enforceable obligation of the Company and, to Seller's knowledge, the other party or parties thereto, and is in full force and effect. Except as set forth in Schedule 3.15, (i) to Seller's knowledge, neither Seller, the Company nor any other party thereto, is in material breach of any term of any Contract listed in Schedule 3.15 or has repudiated any term of any such Contract, (ii) to Seller's knowledge, no event, occurrence or condition exists that, with the lapse of time, the giving of notice, or both, would become a material default under any such Contract by Seller, the Company or any other party thereto, (iii) neither Seller nor the Company has waived or released any of its material rights under any such Contract, the waiver or release of which adversely affects, in a significant manner, the rights and benefits of the Company under such Contract. 3.16 Litigation. Except as set forth in Schedule 3.16, there is no action (of which Seller has knowledge), order, writ, injunction (of which Seller has knowledge), judgment or decree outstanding that has a material adverse effect on the Company or the Carolina Farms or any material claim, suit, litigation, proceeding, labor dispute, arbitral action, governmental audit or investigation of which Seller has received notice that could have such an effect (collectively, "ACTIONS") pending or, to Seller's knowledge, threatened or anticipated (a) against, related to or affecting the Company or the Carolina Farms, (b) seeking to delay, limit or enjoin the transactions contemplated by this Agreement, (c) that involve the risk of criminal liability to Seller, the Company or their respective officers or directors arising out of the Carolina Farms, or (d) in which Seller, or the Company is a plaintiff with respect to matters arising out of the Carolina Farms. Except as set forth in Schedule 3.16, with respect to the Carolina Farms, neither Seller nor the Company is in default with respect to or subject to any judgment, order, writ, injunction or decree of any court or governmental agency of which Seller or the Company has notice, and there are no unsatisfied judgments against Seller or the Company except as shown on the Financial Statements or other Schedules attached to this Agreement. 3.17 Compliance with Law. Except as set forth in Schedule 3.17, to Seller's knowledge, with respect to the Carolina Farms: (a) neither the Seller nor the Company has violated in any material respect and is in material compliance with all applicable Laws, and any final, non-appealable judgment, decision, decree or order of any court or governmental agency, department or authority relating to the business or operations of Carolina Farms, including, without limitation, all applicable energy, public utility, zoning, building and health Laws and all 17 21 applicable Laws promulgated by the United States Department of Agriculture and the United States Food and Drug Administration, except for such violations of Laws as would not reasonably be expected to materially and adversely affect the material assets, liabilities, operations, business or financial condition of the Company and Carolina Farms; (b) the Company holds all material governmental licenses and permits (the "PERMITS") reasonably necessary for the operation of Carolina Farms as currently conducted; (c) neither Seller nor the Company has received any written notice to the effect and Seller's Operating Manager has not been advised that Seller or the Company is not in substantial compliance with any such Laws, and Seller's Operating Manager has no reason to anticipate that any of its existing practices or policies are likely to result in material or substantial violations of any such Laws as now applied and enforced against Carolina Farms, except for such violations of Laws as would not reasonably be expected to materially and adversely affect the assets, liabilities, operations, business or financial condition of the Company and Carolina Farms; and (d) the Seller has filed in a timely manner all material reports, documents and other materials it was required to file (and the information contained therein was, to Seller's knowledge, substantially correct and complete in all material respects) under all Laws (including rules and regulations thereunder) other than filings which have not had and should not have a material adverse effect on the assets, liabilities, business, operations or financial condition of the Company and Carolina Farms. 3.18 Intellectual Property. The Seller makes no representation and warranties with respect to intellectual property, if any, being transferred to Buyer under this agreement. The corporate and/or trade names used by Seller in connection with Carolina Farms have not been protected by Seller. 3.19 Environmental and Land Use Matters. (a) As used herein, the term "ENVIRONMENTAL LAW" means any past or present applicable Law and well established principles of common law affirmed and consistently applied in the State of North Carolina by the North Carolina Supreme Court (as to the Facilities located in North Carolina) and affirmed and consistently applied in the State of Georgia by a similar state court in the State of Georgia (as to the Facility located in Georgia) with respect to the regulation and protection of the environment, human health, safety, and natural resources, including any Law relating to Hazardous Materials, drinking water, surface water, groundwater, wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid waste, waste water, storm water run-off, odors, air emissions, waste emissions, lagoons, land application areas or wells. Without limiting the generality of the foregoing, the term shall encompass each of the following statutes and the regulations duly promulgated thereunder, and any similar applicable state or local Laws, each as amended, (i) the Comprehensive Environmental Response, Compensation, 18 22 and Liability Act of 1980 ("CERCLA"), (ii) the Solid Waste Disposal Act ("SWDA"), (iii) the Hazardous Materials Transportation Act ("HMTA"), (iv) the Toxic Substances Control Act, (v) the Clean Water Act, (vi) the Clean Air Act, (vii) the Safe Drinking Water Act, (viii) the National Environmental Policy Act of 1969, (ix) the Federal Insecticide, Fungicide and Rodenticide Act, the Resource Conservation and Recovery Act ("RCRA") and (xi) the provisions of the Occupational Safety and Health Act of 1970 and their State or local counterparts or equivalents, all as amended from time to time. (b) As used herein, the term "FACILITIES" means the Owned Real Property listed on Schedule 3.19(b), and no other. (c) As used herein, the term "ENVIRONMENTAL PERMIT" means any registration, application, filing, certification, notice, final, non-appealable order, license, permit, approval, consent, qualification, authorization and/or waiver of any governmental authority issued under or with respect to an Environmental Law. (d) As used herein, the term "HAZARDOUS MATERIALS" means each and every element, compound, chemical mixture, contaminant, pollutant, materials, waste or other substance that is defined, determined or identified as hazardous or toxic under any Environmental Law or the Release of which is regulated or prohibited under any Environmental Law. Without limiting the generality of the foregoing, the term shall include (i) "hazardous substances" as defined in the CERCLA, and regulations promulgated thereunder, (ii) "hazardous waste" as defined in the SWDA and regulations promulgated thereunder, (iii) "hazardous materials" as defined in HMTA and regulations duly promulgated thereunder, (iv) "hazardous substances" and "pollutants" as defined in the Clean Water Act, and regulations promulgated thereunder, (v) any pollutant regulated under the Clean Air Act, and regulations promulgated thereunder, (vi) petroleum and petroleum products and byproducts, (vi) asbestos and (vii) polychlorinated biphenyls. (e) As used herein, the term "RELEASE" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, storing, escaping, leaching, dumping, discarding, burying, abandoning or disposing into the environment, and shall include both acute and chronic releases, but shall exclude the escape and/or emission of nitrogen, ammonia and other gases, nutrients and substances into the air from or in connection with lagoons, land application fields and/or any spraying associated with either. For purposes of this Section 3.19, continued migration shall constitute a Release. (f) Except as set forth in Schedule 3.19(f), the Seller and the Company have complied in all material respects with all Environmental Laws in connection with its ownership, use, maintenance and operation of the Facilities, except for violations of Environmental Laws which would not reasonably be expected to materially adversely affect the business, operations or financial condition of the Carolina Farms or the Company. 19 23 (g) Except as set forth in Schedule 3.19(g) and excepting the disposal of solid and/or liquid waste from its hog operations conducted at the Facilities to the extent such disposal is substantially in accordance with the normal and customary business practices of Seller and the Company for such activities, which practices are known by Buyer and are recognized by Buyer as being in accordance with current industry practice, to Seller's knowledge, neither the Seller nor the Company has any material liability under any Environmental Law with respect to the Facilities, including any such liability arising with respect to the Release or proposed Release of any Hazardous Materials, whether on property owned or controlled by the Seller, the Company or elsewhere, except for violations of Environmental Laws which would not reasonably be expected to adversely affect in a material manner the business, operations or financial condition of the Company and Carolina Farms; (h) Except as set forth in Schedule 3.19(h), to Seller's knowledge, the Company is not required to obtain any material Environmental Permits to conduct the business of the Carolina Farms as it is presently being conducted, including those relating to (i) the Release or threatened Release of Hazardous Materials or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, whether by the Seller, the Company or any third party on its behalf. Schedule 3.19(h) contains a complete and correct list of all material Environmental Permits, all of which are in full force and effect and, to the extent any of such Environmental Permits are not personal to Seller as opposed to running with the Facilities, all such Environmental Permits will remain in full force and effect following consummation of the transactions contemplated hereby. To Seller's knowledge, the Facilities are in substantial compliance with all Environmental Permits and Environmental Laws, and neither Seller nor the Company has received any notice from any governmental authority or any other Person indicating that the Facilities are not now in compliance or requesting information that may reasonably result in issuance of notice that the Facilities are not now in compliance. To Seller's knowledge, Schedule 3.19(h) further contains a complete and correct list of all periodic or other reports concerning the Facilities or operations at the Facilities submitted to any governmental agency by Seller or the Company within the past one year, including but not limited to NPDES, EPCRA, CERCLA, hazardous waste, air emissions reports, and any action plans. (i) To Seller's knowledge, except as set forth in Schedule 3.19(i), no underground storage tanks or underground storage receptacles for Hazardous Materials are located on the Facilities and there have been no uncorrected or non-mitigated material releases of Hazardous Substances in, on, under or from the Facilities. Except as set forth in Schedule 3.19(i), to Seller's knowledge, and (i) taking into account the changing nature of and the vagaries in application and enforcement of Environmental Laws and Environmental Permits relative to hog operations and the disposal of solid and/or liquid waste from hog operations, including, without limitation, those relative to land application of effluents and lagoons, and the numerous variables affecting hog operations and the disposal of solid and/or liquid waste from hog operations, all or any of which variables can change at any time, do frequently change without advance notice or opportunity to make appropriate adjustments and are expected to change, and (ii) 20 24 excepting conditions that may in the future be caused by abnormal weather conditions (e.g., hurricanes, tropical storms or other similar low pressure weather disturbances, tornadoes, flooding, drought or drought like conditions, earthquakes and variations in rainfall, temperatures or winds that do not in and of themselves change the "norm") and/or "Acts of God," no conditions 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 substantial liability of the Company (whether based in contract, tort, implied or express warranty, criminal or civil statute or otherwise) under any Environmental Law or (iii) obligate the Company or, with the passage of time, could cause the Company to be obligated, to incur substantial cost in connection with the clean up, remediation, abatement or other restoration to a former condition, by themselves or jointly with others, of 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 except as provided above, on Schedules attached hereto and elsewhere in this Agreement, neither Seller nor the Company has received any notice of, and Seller's Operating Manager is not otherwise aware of any material conditions which interfere with or prevent continued material compliance or give rise to any such material liability or obligation. (j) Intentionally Deleted. (k) Neither Seller nor the Company has (i) knowingly 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, except as listed on Schedule 3.19(k). (l) Except as set forth in Schedule 3.19(l), there are no consent decrees, consent orders, settlement agreements, judgments, judicial or administrative orders or agreements (other than licenses and permits) with or liens by any governmental authority, quasi-governmental entity or other Person relating to any Environmental Law which regulate, obligate or bind the Company with respect to the Facilities and which are not generally applicable to all Persons owning and/or operating properties similar to the Facilities. (m) To Seller's knowledge, true and correct copies of all Phase I or greater written environmental reports, audits or assessments conducted for Seller by independent, unrelated third Persons and related to the Facilities have been made available to Buyer for copying and/or inspection. (n) To Seller's knowledge, except as set forth on Schedule 3.19(n), 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 (excluding animal waste in lagoons or sprayed on lands and fertilizers applied to lands in the 21 25 ordinary course of business) or (ii) currently operated or formerly used landfills at the Facilities. (o) To Seller's knowledge, (i) the Facilities are either grandfathered or have all applicable material special exceptions, special use permits, conditional use permits, variances, zoning permits, certificates of occupancy, consents and approvals ("LAND USE APPROVALS") as reasonably 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, to the extent the same are not personal to Seller and run with the Facilities, Seller does not know of any reason why such Land Use Approvals should not remain in full force and effect following consummation of the transactions contemplated hereby, assuming the continuation of current uses and Buyer's performance thereunder; (ii) the Facilities are either grandfathered or in compliance in all material respects with all Land Use Approvals and zoning and land use laws, rules, regulations, ordinances and judicial and administrative consents and orders ("LAND USE REQUIREMENTS") currently applicable to the Facilities as they are currently being operated and as such Land Use Requirements are now being applied and enforced in the locales where the Facilities are located; (iii) the Facilities are being operated substantially in compliance with all current nutrient management and waste management plans; (iv) with respect to the Facilities, neither Seller nor the Company has received any written notice from any Governmental Authority of any (a) material violation of any Land Use Requirements which has not been remedied, (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) subject to the limitations, qualifications and conditions set forth elsewhere in this Agreement and on Schedules attached hereto with respect to the Purchased Assets (including, without limitation, those set forth in Section 3.12(e), 3.13(c), 3.19(i) and those at the beginning of this Article 3), all of which are applicable under this paragraph, and assuming no abnormal conditions or events, or unusual, unexpected or unanticipated circumstances, and assuming the enforcement and application of all Land Use Approvals and Land Use Requirements as the same are now normally and typically applied to the use and/or operation of such assets, no current conditions exist which interfere with, prevent, or, with the passage of time, will interfere with or prevent continued compliance of the Facilities with the Land Use Requirements as they now exist or the operation of the Facilities as currently being operated, including, without limitation, any non-conforming use designations, other than as disclosed in Schedule 3.19(o) and any changes in Land Use Approvals and/or Land Use Requirements. 3.20 Seller Products; Product Liability. Except as set forth on Schedule 3.20, to Seller's knowledge, there are no binding and final, non-appealable statements, citations or decisions by any governmental authority having jurisdiction over Seller's activities with respect to Carolina Farms stating that any product produced, processed, manufactured, marketed or distributed at any time by the Seller or the Company in connection with the Carolina Farms ("SELLER PRODUCTS") is defective or unsafe or fails to meet in any material respect any final rules and regulations of such governmental authority. 22 26 3.21 Securities Act Matters. Seller is an "accredited investor" as defined under the Securities Act of 1933, as amended (the "SECURITIES ACT"). Seller is acquiring the Parent Common Shares hereunder solely for investment purposes for its own account as principal and not with a view to resale or distribution except pursuant to an effective registration statement filed under the Securities Act or an applicable exemption from such registration. Seller acknowledges that Parent's offering and sale of Parent Common Shares hereunder will not be registered under the Securities Act or any other securities laws, and that accordingly restrictions will apply to the Seller's 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. Seller 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. Seller agrees that it will not directly or indirectly offer, transfer, sell, pledge, hypothecate or otherwise dispose of any Parent Common Shares (or solicit any offer to buy, purchase or otherwise acquired, or to take a pledge of, any such shares) except in compliance with the Securities Act and applicable state securities laws and regulations. Seller acknowledges that it and its representatives have had an opportunity to examine the financial and business affairs of Buyer and Parent and an opportunity to ask questions of and receive answers from management, and that it and its representatives have such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in Buyer and Parent in making an informed investment decision with respect thereto. 3.22 Disclosure. The representations and warranties and statements of fact made by the Seller in this Agreement, in the Disclosure Schedule and in certificates and other written statements or agreements specifically identified in this Agreement and listed as a certificate or other written statement or agreement which has been delivered or to be delivered pursuant to this Agreement or in connection with the transactions contemplated herein are, to Seller's knowledge, substantially accurate, correct and complete in all material respects on the date of this Agreement and Seller has no reason to believe that the same will not be substantially accurate, correct and complete in all material respects at Closing, except to the extent that the Seller has advised Buyer otherwise in writing prior to Closing, and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein or therein not misleading in a material manner. Notwithstanding anything to the contrary in Article 3, the representations and warranties and statements of fact relate solely to Carolina Farms and the Company and with respect to Section 3.19, the Facilities, and unless otherwise specifically stated (i) exclude activities and matters relating to or caused by previous owners of or other Persons with respect to any of the Owned Real Property and/or Leased Real Property, unless known by Seller, (ii) apply solely to the current operations of Carolina Farms and the Company and the current use of the Facilities and other improvements and do not apply to and/or relate to proposed or future events, conditions or circumstances, (iii) exclude any representations, warranties or statements of fact with respect to proposed or future governmental laws, rules, regulations, ordinances, permits and/or licenses and/or a change in the application and enforcement of existing governmental laws, rules, regulations, ordinances, permits and/or licenses and (iv) excludes future matters relating to Carolina Farms, the Company, the Facilities and/or other improvements arising from or resulting from conditions caused by abnormal weather conditions (e.g., hurricanes, tropical storms or other 23 27 similar low pressure weather disturbances, tornadoes, flooding, drought or drought like conditions, earthquakes and variations in rainfall, temperatures or winds that do not in and of themselves change the "norm") and/or "Acts of God"; it being understood and agreed that with respect to governmental laws, rules, regulations, ordinances, permits and/or licenses, the nature of the industry in which Carolina Farms and the Company operate is constantly changing and under review and is expected to experience significant changes in the near future, and that with respect to the other matters referenced and similar matters, the Facilities and other improvements are located in areas prone to such occurrences and/or such occurrences occur in the normal course of events. ARTICLE 4 Additional Agreements 4.1 Employees. Except as set forth in Schedule 4.1, on or before the Closing Date, the employment by Seller of all employees of Seller at Carolina Farms shall terminate and except as specifically provided in the Employee Services Agreement referred to below, such employees shall cease to participate in any employee benefit plans maintained by or for the benefit of Seller (provided, that upon such termination of employment, Seller shall fully vest all such employees with respect to savings plans and pension benefits). On or before the Closing Date, the Company shall offer comparable employment to all persons whose employment was so terminated (all such persons who accept the Company's offer of employment being referred to as the "CAROLINA FARMS EMPLOYEES"). For purposes of this Section 4.1, "comparable" shall be defined as employment on substantially the same terms and conditions (including location of employment), with substantially the same duties and responsibilities, at substantially the same rate of pay, and with substantially the same fringe benefits as in effect on the Closing Date while such individuals were employed by Seller. Those Carolina Farms Employees who accept employment with the Company shall become employees of the Company effective as of the Closing Date. As soon as practicable after the Closing Date, Seller and the Company shall execute an Employee Services Agreement substantially in the form of the agreement attached as Schedule 4.1(A) whereby Seller will administer the payroll and benefits for the Carolina Farms Employees through December 31, 2000, subject to reimbursement by the Company for payments made thereunder and costs and expenses incurred in connection therewith. 4.2 Severance Period. As soon as practicable after the Closing Date, but effective as of the Closing and for at least one year thereafter (the "SEVERANCE PERIOD"), Buyer shall cause the Company to adopt and maintain a severance plan which provides identical benefits to each Carolina Farms Employee as the Salaried Severance Plan and Hourly Employee Severance Practices (as defined on Schedule 4.2); provided, however, that neither Buyer nor the Company shall be obligated to pay severance benefits to those Carolina Farms Employees who (i) voluntary terminate employment with the Company during the Severance Period and (ii) thereafter immediately accept employment with Seller or any of its Affiliates. From and after the Severance Period, Buyer shall cause the Company to provide severance benefits to the Carolina Farms Employees consistent with Buyer's own severance plans and policies. For purposes of computing severance benefits for the Carolina Farms Employees from and after the Closing Date, the employment of Carolina Farms Employees with Seller and/or the Company prior to the 24 28 Closing Date together with employment with the Company after the Closing Date shall be aggregated and treated as if it were employment with the Company. Seller shall reimburse Buyer and the Company for severance benefits paid in accordance with this Section 4.2 to the extent specified in Schedule 4.2(A). 4.3 Warn Act. Buyer acknowledges that it has not informed Seller of any planned or contemplated decisions or actions by Buyer that would require the service of notice under the Warn Act. Buyer agrees that it shall not take any action which causes the notice provisions of the Warn Act to be applicable to the transactions contemplated by this Agreement. 4.4 Employee Benefit Plans. Buyer shall cause the Company's employee benefit plans which are welfare plans (as defined in Section 3(1) of ERISA) to (i) provide that employment by Seller and/or the Company prior to the Closing Date shall be treated as employment by the Company after the Closing Date for purposes of determining eligibility for participation (including waiver of any pre-existing conditions), and (ii) provide that any expenses incurred by Carolina Farms Employees during 2000 on or before the Closing Date shall be taken into account during the plan year of such welfare plans in which the Closing Date occurs for purposes of satisfying deductible or coinsurance requirements or satisfying maximum out-of-pocket thresholds to the same extent as if such expenses had been incurred by such employees after the Closing Date. 4.5 Vacation. Buyer shall cause the Company to honor the Seller's existing policy and vacation entitlement of each Carolina Farms Employee through March 31, 2001. Records maintained by the Seller with respect to earned, used and available vacation for each Carolina Farms Employee shall be provided to Buyer at Closing. In consideration of Buyer and the Company honoring the existing vacation policy, Seller shall neither pay Carolina Farms Employees for earned and unused vacation nor debit employees for used and unearned vacation. Buyer and the Company assume the obligation for settlement of vacation by employee in the event of separation from employment from and after Closing. 4.6 Worker's Compensation Claims. Buyer and the Company shall be responsible and liable for any claim arising under any state worker's compensation or similar law which is based upon any occurrence on or after the Closing Date. 4.7 Further Assurances. Each of the parties shall execute such documents and take such further action as may be reasonably requested to carry out the provisions of this Agreement and the transactions contemplated herein. Each party shall use reasonable efforts to fulfill or obtain the fulfillment of the conditions to Closing set forth in Article 5 hereof. ARTICLE 5 Conditions to Closing 5.1 Conditions to Obligations of Each Party to Close. The respective obligations of each party to enter into and complete the Closing shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: 25 29 (a) there shall have been no law, statute, rule or regulation, domestic or foreign, enacted or promulgated which would make consummation of the transactions contemplated by this Agreement illegal; and (b) No injunction or other order entered by a United States (state or federal) court of competent jurisdiction shall have been issued and remain in effect which would prohibit the Buyer or the Seller from consummating the transactions contemplated hereby. 5.2 Additional Conditions to the Buyer's Obligations. The obligations of the Buyer to enter into and complete the Closing are subject to the satisfaction of the following conditions on or before the Closing Date: (a) The representations and warranties of the Seller contained in this Agreement , as qualified herein, will be true and correct in all material respects (provided that any representation and warranty that is subject to materiality, material adverse effect or similar qualification shall not be so qualified for determining the existence of any breach thereof under this provision) as of the date hereof and at and as of the Closing Date, as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties; (b) The Seller shall have performed each obligation and agreement and complied with each covenant to be performed and complied with by it under this Agreement prior to the Closing Date; (c) All consents by third parties including, without limitation, any required consents of the landlords under any leases, or any consents by governmental or regulatory agencies that are reasonably required for the consummation of the transactions contemplated hereby, or that are reasonably required in order for the Buyer to own, operate or control the Carolina Farms will have been obtained and will be, in all material respects, in full force and effect; (d) The Seller shall have obtained, at Buyer's cost and expense, 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 Buyer, showing that the Company has good and marketable fee simple title to the Owned Real Property, free and clear of all Encumbrances other than Permitted Real Property Encumbrances. In connection therewith, Seller 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. (e) The Buyer shall have received a written opinion of its financial advisor dated not more than seven days before the Closing Date, in form and substance satisfactory to 26 30 Buyer, to the effect that, based upon the information and procedures specified therein, the Purchase Price for the Carolina Farms is fair to the Buyer from a financial point of view. (f) Each director and officer of the Company shall have submitted his or her resignation effective as of Closing. (g) The Seller will have delivered to the Buyer the following: (i) a certificate representing all of the Purchased Shares, endorsed by the Seller in blank, or with stock transfer powers executed by the Seller in blank attached; (ii) a certificate executed on behalf of the Seller by any of its executive vice presidents, stating that the conditions set forth in Sections 5.2(a) through 5.2(c) hereof have been satisfied; (iii) certified copies of the resolutions duly adopted by the Seller's board of directors approving the execution, delivery, and performance of this Agreement; (iv) a copy of the Company's certificate of incorporation certified by the Secretary of State of the State of Delaware; (v) good standing certificates for the Company from the jurisdiction of its organization and from every jurisdiction in which it is required to qualify to do business as a foreign corporation, dated not earlier than 10 days prior to the Closing Date; (vi) copies of all third party and governmental consents (or other evidence satisfactory to the Buyer) that Seller or the Company is required to obtain in order to effect the transactions contemplated by this Agreement; and (vii) such other documents as the Buyer may reasonably request in connection with the transactions contemplated hereby. 5.3 Additional Conditions to the Seller's Obligations. The obligations of the Seller to enter into and complete the Closing are subject to the satisfaction of the following conditions on or before the Closing Date; (a) The representations and warranties of Buyer set forth in this Agreement, as qualified herein, will be true and correct in all material respects (provided that any representation and warranty that is subject to materiality, material adverse effect or similar qualification shall not be so qualified for determining the existence of any breach thereof under this provision) as of the date hereof and at and as of the Closing Date, as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties; 27 31 (b) The Buyer shall have performed each obligation and agreement and complied with each covenant required to be performed and complied with by them under this Agreement prior to the Closing Date; (c) At Closing, the Buyer will have delivered to the Seller the following: (i) a duly executed stock certificate representing the Parent Common Shares and that portion of the purchase price to be paid in cash; (ii) a certificate executed on behalf of the Buyer by its president or any vice president, stating that the conditions set forth in Sections 5.3(a) and 5.3(b) hereof have been satisfied; (iii) certified copies of the resolutions duly adopted by the Buyer's board of directors approving the execution, delivery, and performance of this Agreement; (iv) copies of all third party and governmental or regulatory consents (or other evidence satisfactory to the Seller) that the Buyer is required to obtain in order to effect the transactions contemplated by this Agreement; (v) such other documents as the Seller may reasonably request in connection with the transactions contemplated hereby. ARTICLE 6 Survival of Representations; Indemnification 6.1 Survival of Representations. Except for the representations and warranties set forth in (i) Section 3.3 (the "COMPANY CAPITALIZATION REPRESENTATIONS") and Section 3.19 (the "ENVIRONMENTAL REPRESENTATIONS") with respect to Seller and (ii) Section 2.2 and 2.5 (the "BUYER CAPITALIZATION REPRESENTATIONS") with respect to Buyer, the representations and warranties contained in this Agreement (including the Schedules hereto) and any certificate or document delivered pursuant hereto shall terminate at Closing or upon termination of this Agreement pursuant to Article V. All Environmental Representations and Buyer Capitalization Representations shall survive the Closing hereunder for a period of only 270 calendar days (the "CLAIMS PERIOD"), the first day following Closing being the first day of said 270 day period. At the end of the Claims Period, the Environmental Representations (to include, without limitation, the Specified Conditions and/or any Asserted Liability or Environmental Law Violation thereunder or in connection therewith) and the Buyer Capitalization Representations shall terminate. Upon termination of the representations and warranties contained in this Agreement (including the Schedules hereto) and any certificate or document delivered pursuant hereto, whether such termination occurs at Closing (as provided in the first sentence of this Section) or at the end of the Claims Period with respect to Environmental Representations and Buyer Capitalization Representations (as provided in the third sentence of this Section), no demand, claim, cause of action, counter-claim, third-party claim, Action, proceeding, writ, summons and/or process, whether civil or criminal or at law, in equity or otherwise, can or shall be 28 32 brought, made, advanced, prosecuted, instituted and/or issued with respect to any of the representations and warranties contained in this Agreement (including the Schedules hereto) and/or any certificate or document delivered pursuant hereto, by or on behalf of any of the parties to this Agreement, or any combination of them, and/or any other person or combination of persons, including, without limitation, any successors or assigns of the parties hereto and/or any of their respective subsidiaries, affiliates, partners, shareholders, directors, officers, employees, agents, managers, contractors and/or creditors or other debt holders, against any of the parties to this Agreement, or any combination of them, including, without limitation, any successors or assigns of the parties hereto and/or any of their respective subsidiaries, affiliates, partners, shareholders, directors, officers, employees, agents, managers and/or contractors; and no person or combination of persons shall be a third-party beneficiary or other beneficiary, whether direct or indirect, of any of the representations and warranties contained in this Agreement (including the Schedules hereto) and/or any certificate or document delivered pursuant hereto. Notwithstanding the foregoing, if prior to the close of business on the last day of the Claims Period, an Indemnified Party shall have been properly notified of a claim for indemnity hereunder and such claim shall not have been finally resolved or disposed of at such date, such claim shall continue to survive and shall remain a basis for indemnity hereunder until such claim is finally resolved or disposed of in accordance with the terms hereof. 6.2 Indemnifications by Seller and by Buyer and Parent. (a) Subject to the limitations contained in this Article 6, including, without limitation, the Applicable Capitalization Cap, Seller will indemnify and hold harmless Buyer, its subsidiaries, affiliates, partners, directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of the foregoing (collectively, the "BUYER INDEMNIFIED PARTIES") from and against, and pay, advance or reimburse the Buyer Indemnified Parties for, any and all Covered Liabilities based upon, arising out of or otherwise in respect of any inaccuracy contained in, omission from or breach of any of the Company Capitalization Representations. (b) Subject to the limitations contained in this Article 6, including, without limitation, the Claims Period and the Applicable Environmental Cap, Seller will indemnify and hold harmless the Buyer Indemnified Parties from and against, and pay, advance or reimburse the Buyer Indemnified Parties for, any and all Covered Liabilities based upon, arising out of or otherwise in respect of: (i) any inaccuracy contained in, omission from or breach of any of the Environmental Representations; or (ii) any matter or condition identified or described on Schedule 6.2 attached hereto (the "SPECIFIED CONDITIONS") (A) concerning which, any governmental entity or other Person (other than Buyer or its controlled affiliates) has commenced or threatened to commence a claim, written demand, notice or order (an "ASSERTED LIABILITY") alleging that the Facilities are in violation of an Environmental Law (a "ENVIRONMENTAL LAW VIOLATION") or (B) that is 29 33 reasonably likely to give rise to an Asserted Liability or Environmental Law Violation. (c) Subject to the limitations contained in this Article 6, including, without limitation the Claims Period and the Applicable Buyer Cap, Buyer and Parent, jointly and severally, will indemnify and hold harmless Seller, its subsidiaries, affiliates, partners, directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "SELLER INDEMNIFIED PARTIES") from and against, and pay, advance or reimburse the Seller Indemnified Parties for, any and all Covered Liabilities based upon, arising out of or otherwise in respect of any inaccuracy contained in, omission from or breach of any of the Buyer Capitalization Representations. (d) The term "COVERED LIABILITIES" used in this Article 6 shall mean losses, liabilities, claims, fines, damages, Actions, obligations, payments (including those arising out of any demand, assessment, settlement, judgment or compromise relating to any Action), costs (including costs of mitigation) and expenses (including interest and penalties due and payable with respect thereto and reasonable attorneys' and accountants' fees and 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). (e) The claims for indemnity by Buyer Indemnified Parties pursuant to this Section 6.2 are referred to as "BUYER CLAIMS" and the claims for indemnity by Seller Indemnified Parties pursuant to this Section 6.2 are referred to as "SELLER CLAIMS." The indemnities provided for in this Section 6.2 are not limited to matters asserted by third parties against any Indemnified Party, but includes Covered Liabilities actually incurred or sustained by any Indemnified Party in the absence of third party claims. 6.3 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, 30 34 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 6.3(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 to acknowledge to the Indemnified Party that it is obligated to indemnify the Indemnified Party in accordance with this Section 6.3(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 6.3(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 6.5 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 31 35 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 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 from the date of receipt of notice of the Claim 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. 6.4 Calculation of Covered Liabilities; Insurance Proceeds. To the extent that any Buyer Claim or Seller Claim is covered by insurance held by such Buyer Indemnified Party or Seller Indemnified Party, such Indemnified Party shall be entitled to indemnification pursuant to Section 6.2 only with respect to the amount of the Covered Liabilities that are in excess of the cash proceeds received by such Indemnified Party pursuant to such insurance. If such Indemnified Party receives such cash insurance proceeds prior to the time such Claim is paid, then the amount payable by the Indemnifying Party pursuant to such Claim shall be reduced by the amount of such proceeds. If such Indemnified Party receives such cash insurance proceeds after such Claim has been paid, then upon the receipt by the Indemnified Party of any cash proceeds pursuant to such insurance up to the amount of Covered Liabilities incurred by such Indemnified Party with respect to such Claim, such Indemnified Party shall promptly repay any portion of such amount which was previously paid by the Indemnifying Party to such Indemnified Party in satisfaction of such Claim. Buyer and Seller shall each secure from their respective insurance carriers waiver of subrogation agreements under which such insurance carriers waive the right of subrogation against the respective parties hereto. 32 36 6.5 Limitation on Indemnification. (a) Notwithstanding anything to the contrary contained in this Agreement in any of the Schedules attached hereto and/or in any of the certificates or documents delivered in connection herewith, and except as provided in Section 6.5(b) and (d), Seller's total obligation and liability under this Agreement, including, without limitation, its indemnification obligation and liability under this Article 6, to either and/or both of the other parties to this Agreement and/or any successors or assigns of the other parties hereto and/or any of their respective subsidiaries, affiliates, partners, shareholders, directors, officers, employees or agents on account of or as a result of any of the Environmental Representations, including, without limitation, any Specified Conditions and/or any Asserted Liability or Environmental Law Violation thereunder or in connection therewith, shall not exceed under any circumstances, individually or in the aggregate, the sum of ONE MILLION AND NO/100 DOLLARS ($1,000,000) (the "APPLICABLE ENVIRONMENTAL CAP"). (b) Notwithstanding anything to the contrary contained in this Agreement, in any of the Schedules attached hereto and/or in any of the certificates or documents delivered in connection herewith, and except as provided in Section 6.5(a) and (d), Seller's total obligation and liability under this Agreement, including, without limitation, its indemnification obligation and liability under this Article 6, to either and/or both of the other parties to this Agreement and/or any successors or assigns of the other parties hereto and/or any of their respective subsidiaries, affiliates, partners, shareholders, directors, officers, employees or agents on account of or as a result of any of the Company Capitalization Representations shall not exceed under any circumstances, individually or in the aggregate, the sum of SIXTEEN MILLION ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($16,150,000) (the "APPLICABLE CAPITALIZATION CAP"). (c) Notwithstanding anything to the contrary contained in this Agreement, in any of the Schedules attached hereto and/or in any of the certificates or documents delivered in connection herewith, Buyer's and Parent's total obligation and liability under this Agreement, including, without limitation, its indemnification obligation and liability under this Article 6, to Seller and/or any successors or assigns of Seller and/or any of its subsidiaries, affiliates, partners, shareholders, directors, officers, employees or agents on account of or as a result of any of the Buyer Capitalization Representations, shall not exceed under any circumstances, individually or in the aggregate, the sum of ONE MILLION AND NO/100 DOLLARS ($1,000,000) (the "APPLICABLE BUYER CAP"). (d) Notwithstanding anything to the contrary contained in this Agreement, the obligation of Seller to indemnify Buyer pursuant to Sections 6.2(a), and its liability with respect thereto, shall not be limited in any way by the Claims Period. 6.6 Exclusive Remedy following Closing. Except for any 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 33 37 provisions in this Article 6 shall be the exclusive remedy of Buyer and Seller 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, if any, 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 6, if any, be deemed to have elected such remedy exclusively or to have waived any other remedy, whether at law or in equity, available to it. ARTICLE 7 General Provisions 7.1 Public Statements. Except as required by applicable law, neither the Buyer, on the one hand, nor the Seller, on the other hand, shall make any public announcement or statement with respect to this Agreement without the approval of the Seller or the Buyer, respectively. Moreover, the parties hereto agree to consult with each other prior to issuing each public announcement or statement with respect to this Agreement. 7.2 Mediation. The parties agree to submit any claim, controversy or dispute arising out of or relating to this Agreement or the transactions contemplated hereby to non-binding mediation prior to bringing such claim, controversy or dispute to arbitration or to a court. The mediation shall be conducted either through an individual mediator or a mediator appointed by a mediation services organization or body, experienced in the mediation of disputes of similar type, agreed upon by the parties and, failing such agreement within a reasonable period of time after either party has notified the other of its desire to seek mediation of any claim, controversy or dispute (not to exceed fifteen (15) days) through the American Arbitration Association in accordance with its rules governing mediation, at a location in Chicago, Illinois chosen by the party seeking mediation. The costs and expenses of mediation, including compensation of the mediator, shall be borne by the parties equally. If the parties are unable to resolve the claim, controversy or dispute within ninety (90) days after conferring with the mediator, then either party may submit such claim, controversy or dispute to a court in accordance with the terms of this Agreement. 7.3 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, sent by telex, telecopy, facsimile or overnight courier, or mailed by registered or certified mail (postage prepaid and return receipt requested), to the party to whom the same is so delivered, sent or mailed at the following addresses (or at such other address for a party as shall be specified by like notice): 34 38 (a) if to the Buyer or Parent: Premium Standard Farms, Inc. 423 West 8th Street Suite 200 Kansas City, Missouri 64105 Attention: John Meyer Telecopy: (816) 472-5837 with a copy to: Jeffrey T. Haughey Blackwell Sanders Peper Martin LLP 2300 Main Street Suite 1000 Kansas City, Missouri 64108 Telecopy: (816) 983-8080 (b) if to the Seller: ContiGroup Companies, Inc. 277 Park Avenue New York, New York 10172 Attention: Vart Adjemian Telecopy: (212) 207-5043 with copies to: William S. Cherry, Jr. Poyner & Spruill LLP 3600 Glenwood Avenue Raleigh, North Carolina 27612 Telecopy: (919) 783-1075 and ContiBeef LLC 5408 Idylwild Trail Boulder, Colorado 80301 Attention: Suzanne Griffin Telecopy: (303) 516-5928 Notices delivered personally or by telex, telecopy or facsimile shall be deemed delivered as of actual receipt, mailed notices shall be deemed delivered three days after mailing and overnight courier notices shall be deemed delivered one day after the date of sending. 35 39 7.4 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. References to Sections and Articles refer to sections and articles of this Agreement unless otherwise stated. 7.5 Amendment. This Agreement may not be amended except by an instrument signed by each of the parties hereto. 7.6 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants, and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated and the parties shall negotiate in good faith to modify the Agreement to preserve such party's anticipated benefits under the Agreement. 7.7 Miscellaneous. This Agreement (together with all other agreements, documents and instruments referred to herein): (a) constitute the entire agreement and supersede all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other Person any rights or remedies hereunder; (c) shall not be assigned by operation of law or otherwise, except that the Buyer may assign all or any portion of its rights under this Agreement (i) to any wholly-owned subsidiary, but no such assignment shall relieve the Buyer of its obligations hereunder and (ii) by operation of law or otherwise to any of their respective successors; and (d) shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Delaware, without giving effect to the principles of conflict of laws thereof. 7.8 Counterparts. This Agreement may be executed via facsimile or otherwise 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. 7.9 Cumulative Remedies. All rights and remedies of either Party hereto are cumulative of each other and of every other right or remedy such Party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 7.10 Attorneys' Fees. If any Party to this Agreement brings an action to enforce its rights under this Agreement, the prevailing Party shall be entitled to recover its costs and expenses, including without limitation reasonable attorneys' fees, incurred in connection with such action, including any appeal of such action, which shall be set by the judge and not a jury. 7.11 Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent and no rule of strict construction shall be applied against any Party. The use of the word "including" in this Agreement means "including without limitation" and is intended by the parties to be by way of example rather than limitation. 36 40 7.12 Brokers, etc. Seller and Buyer each covenant with the other that no brokers have been involved in this transaction and that no brokerage fee, finder's fee or other similar fee is due and owing to any person on account of this transaction. Buyer and Seller each agree to indemnify the other for any claims made with respect to broker's, finder's or other similar fees owing on account of this transaction. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 37 41 IN WITNESS WHEREOF, the Buyer and the Seller have caused this Agreement to be executed on the date first written above by their respective officers thereunder duly authorized. PREMIUM STANDARD FARMS, INC. By: /s/ Stephen Lightstone Name: Stephen A. Lightstone Title: Executive Vice President PSF GROUP HOLDINGS, INC. By: /s/ Stephen Lightstone Name: Stephen A. Lightstone Title: Executive Vice President CONTIGROUP COMPANIES, INC. By: /s/ Mark Baker Name: Mark R. Baker Title: Executive Vice President 38 42 APPENDIX "Actions" has the meaning assigned to such term in Section 3.16. "Agreement" has the meaning assigned to such term in the preamble to this Agreement. "Asserted Liability" has the meaning assigned to such term in Section 6.2(a)(ii). "Applicable Buyer Cap" has the meaning assigned to such term in Section 6.5. "Applicable Capitalization Cap" has the meaning assigned to such term in Section 6.5. "Applicable Environmental Cap" has the meaning assigned to such term in Section 6.5. "Balance Sheet Date" has the meaning assigned to such term in Section 3.4. "Benefit Plan" means any employee benefit plan, arrangement, policy or commitment (whether or not an employee benefit plan within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended), including any employment, consulting or deferred compensation agreement, executive compensation, bonus, incentive, pension, profit-sharing, savings, retirement, stock option, stock purchase or severance pay plan, any life, health, disability or accident insurance plan or any holiday or vacation practice as to which Seller or any commonly controlled entity has or in the future could have any direct or indirect, actual or contingent liability. "Buyer" has the meaning assigned to such term in the preamble to this Agreement. "Buyer Capitalization Representations" has the meaning assigned to such term in Section 6.1. "Buyer Claims" has the meaning assigned to such term in Section 6.2(e) "Buyer Indemnified Parties" has the meaning assigned to such term in Section 6.2(a). "Carolina Farms" has the meaning assigned to such term in the Recitals. "Carolina Farms Employees" has the meaning assigned to such term in Section 4.1. "CERCLA" has the meaning assigned to such term in Section 3.19(a). "Claim" has the meaning assigned to such term in Section 6.3. "Claim Notice" has the meaning assigned to such term in Section 6.3(a). "Claims Period" has the meaning assigned to such term in Section 6.1. "Class A Stock" has the meaning assigned to such term in Section 2.2. i 43 "Class B Stock" has the meaning assigned to such term in Section 2.2. "Closing" has the meaning assigned to such term in Section 1.3. "Closing Date" shall mean the date on which the Closing takes place. "Commonly Controlled Entity" means any entity which is under common control with the Seller within the meaning of Code section 414(b), (c), (m), (o) or (t). "Company" has the meaning assigned to such term in the preamble to this Agreement. "Company Capitalization Representations" has the meaning assigned to such term in Section 6.1. "Contract" has the meaning assigned to such term in Section 3.15(a). "Covered Liabilities" has the meaning assigned to such term in Section 6.2(c). "Environmental Law" has the meaning assigned to such term in Section 3.19(a). "Environmental Permit" has the meaning assigned to such term in Section 3.19(c). "Environmental Representations" has the meaning assigned to such term in Section 6.1. "Environmental Law Violation" has the meaning assigned to such term in Section 6.2(a)(ii). "Facilities" has the meaning assigned to such term in Section 3.19(b). "Final Determination" has the meaning assigned to such term in Section 6.3(e). "Financial Statements" has the meaning assigned to such term in Section 3.4. "GAAP" has the meaning assigned to such term in Section 2.5. "Hazardous Materials" has the meaning assigned to such term in Section 3.19(d). "HMTA" has the meaning assigned to such term in Section 3.19(a). "Indemnified Party" has the meaning assigned such term in Section 6.3(a). "Indemnifying Party" has the meaning assigned such term in Section 6.3(a). "Inventory" has the meaning assigned to such term in Section 3.14(a). "Land Use Approvals" has the meaning assigned to such term in Section 3.19(o). "Land Use Requirements" has the meaning assigned to such term in Section 3.19(o). ii 44 "Laws" means all applicable statutes, laws, rules, regulations, permits, decrees, injunctions, judgments, orders, rulings, determinations, writs, decrees and awards. "Leased Real Property" has the meaning assigned to such term in Section 3.10(a). "Owned Real Property" has the meaning assigned to such term in Section 3.11. "Parent" has the meaning assigned to such term in the preamble to this Agreement. "Parent Common Shares" has the meaning assigned to such term in Section 1.5(b). "Parent Financial Statements" has the meaning assigned to such term in Section 2.5. "Permits" has the meaning assigned to such term in Section 3.18(b). "Permitted Owned Real Property Encumbrances" has the meaning assigned to such term in Section 3.11. "Person" has the meaning assigned to such term in the preamble to Article 3. "Post-Closing Covenants" has the meaning assigned to such term in Section 6.6. "Preferred Stock" has the meaning assigned to such term in Section 2.2. "Pro Forma Balance Sheet" has the meaning assigned to such term in Section 3.4. "Purchase Price" has the meaning assigned to such term in Section 1.2. "Purchased Shares" has the meaning assigned to such term in the preamble to this Agreement. "RCRA" has the meaning assigned to such term in Section 3.19(a). "Release" has the meaning assigned to such term in Section 3.19(e). "Schedules" has the meaning assigned to such term in the preamble to Article 3. "Securities Act" has the meaning assigned to such term in Section 3.21. "Seller" has the meaning assigned to such term in the preamble to this Agreement. "Seller Claims" has the meaning assigned to such term in Section 6.2(e). "Seller Indemnified Parties" has the meaning assigned to such term in Section 6.2(b). "Seller Products" has the meaning assigned to such term in Section 3.20. iii 45 "Seller's Operating Manager" has the meaning assigned to such term in the preamble to Article 3. "Severance Period" has the meaning assigned to such term in Section 4.2. "Specified Conditions" has the meaning assigned to such term in Section 6.2(a)(ii). "SWDA" has the meaning assigned to such term in Section 3.19(a). "Tangible Personal Property Assets" has the meaning assigned to such term in Section 3.13(a). "Tax" has the meaning assigned to such term in Section 3.9(a). "Third-Party Claim" has the meaning assigned to such term in Section 6.3(b). iv 46 LIST OF SCHEDULES Schedule 2.2 - Parent Capitalization Schedule 2.3 - Buyer and Parent Authority Schedule 3.1 - Seller Jurisdictions Authorized to do Business re Carolina Farms Schedule 3.2 - Agreements Breached by this Transaction Schedule 3.4 - Pro Forma Balance Sheet Schedule 3.5 - Accounts Receivables greater than or equal to $50,000 Schedule 3.6 - New Developments since Balance Sheet Date Schedule 3.7 - Undisclosed Liabilities Schedule 3.9 - Transferee Tax Liability Schedule 3.10 - Leased Real Property and Exceptions Schedule 3.11 - Owned Real Property Schedule 3.12 - Compliance: Owned and Leased Real Property Schedule 3.13 - Encumbrances on Personal Property Schedule 3.14 - Livestock Inventory Schedule 3.15 - Contracts and Commitments Schedule 3.16 - Litigation Schedule 3.17 - Compliance with Laws Schedule 3.19(b) - Facilities Schedule 3.19(f) - Environmental Compliance Schedule 3.19(g) - Environmental Liability Schedule 3.19(h) - Environmental Permits Schedule 3.19(i) - Underground Storage Tanks and Unmitigated Releases Schedule 3.19(j) - Waste Disposal Sites i 47 Schedule 3.19(k) - Environmental Indemnifications Schedule 3.19(l) - Environmental Orders Schedule 3.19(n) - Landfills and Debris Located at Facilities Schedule 3.19(o) - Change in Land Use Approvals or Requirements Schedule 3.20 - Product Liability Schedule 4.1 - Employees Schedule 4.1(A) - Employee Services Agreement Schedule 4.2 - Severance Plans Schedule 4.2(A) - Seller Reimbursement Schedule 6.2 - Specified Conditions ii EX-10.11 37 y50886ex10-11.txt MARKET HOG CONTRACT GROWER AGREEMENT 1 Exhibit 10.11 MARKET HOG CONTRACT GROWER AGREEMENT THIS MARKET HOG CONTRACT GROWER AGREEMENT ("AGREEMENT") is entered into as of May 13, 1998, by and between CONTINENTAL GRAIN COMPANY, a Delaware corporation, whose address for purposes of this Agreement is 222 S. Riverside Plaza, 9th Floor, Chicago, Illinois 60606 (hereinafter referred to as "CONTRACT GROWER") and CGC Asset Acquisition Corp., a Delaware corporation, whose address for purposes of this Agreement is 423 West 8th Street, Suite 200, Kansas City, Missouri 64105 ("PSF"). WHEREAS, Contract Grower became a stockholder of PSF in connection with the Stock Purchase Agreement, dated as of December 23, 1997 between Contract Grower and PSF Holdings, L.L.C. (the "STOCK PURCHASE AGREEMENT"), as defined therein; WHEREAS, Contract Grower owns the land described on Exhibit A (the "PREMISES"); WHEREAS, PSF owns all of the buildings and improvements located on the Premises (collectively, the "FACILITIES"); and WHEREAS, PSF and Contract Grower desire to enter into an agreement whereby Contract Grower, as an independent contractor, will utilize the Premises to breed, grow and care for pigs, all of which are owned by PSF pursuant to terms hereinafter set forth. NOW, THEREFORE, for and in consideration of the mutual covenants hereinafter contained, it is agreed by and between PSF and Contract Grower as follows: 1. Contract Grower will provide the Premises and operate thereon an environmentally controlled swine confinement operation with buildings, equipment and other properties specified herein to be provided by PSF. The Premises include the following PSF minimum requirements: A. The Premises have all utilities (including but not limited to, water, electricity, propane and/or natural gas) separate from any other properties owned by Contract Grower and all such utilities are billed separately for such property. B. The Premises have all material easements and permits on real estate for waste disposal, as defined by local, state and federal laws and requirements. C. The Premises have a separate legal and recorded means of ingress and egress. D. The Premises have waste water management system in accordance with all material federal, state and local laws and regulations. Contract Grower represents that it has title to the Premises in fee simple, free and clear of all materials, liens or encumbrances, except for any liens or encumbrances created hereby. Upon 2 PSF's request, Contract Grower shall cause to be recorded in the Public Registry of the Counties in which the Premises are located, a Memorandum of this Agreement such Memorandum to be in a customary form and content and otherwise reasonably satisfactory to PSF. 2. Contract Grower, as an independent contractor, agrees to breed, grow and care for pigs placed in the Facilities, and agrees to take proper care consistent with the highest standards of animal husbandry to breed and raise pigs to market weight. Contract Grower will follow all the rules of management practices established from time to time by PSF. Contract Grower's obligations shall include, but not be limited to, the following: A. The loading and unloading of pigs in the manner and at the time reasonably requested by PSF and all other labor incident to and related to the breeding, growing and care of the pigs, or otherwise necessary for Contract Grower to perform under this Agreement, including, without limitation, all payroll taxes and fringe benefits associated therewith. B. Management of the unit and accurate preparation and submission, in a timely manner, of all production and inventory records as reasonably deemed necessary by PSF. Contract Grower agrees to notify PSF promptly in writing of any and all errors, adjustments, or discrepancies in those records other than of an immaterial nature. PSF shall have the right to withhold or delay payment to Contract Grower if records are not submitted in a timely manner or if material discrepancies exist in Contract Grower's records. 3. PSF agrees to provide Contract Grower with the use of all Facilities necessary to breed, grow and care for pigs to market weights. 4. PSF shall be responsible on a timely basis: A. For repair and maintenance of the Facilities and Premises by making all necessary repairs. B. Proper disposal of all waste in accordance with all material federal, state and local regulations. 5. PSF agrees to furnish Contract Grower on a timely basis with the following: A. Sufficient supply of artificial inseminate, boars and gilts to operate the Facilities in accordance with the specifications of PSF. B. All utilities, including telephone, water, gas, heat, electricity, trash disposal and all other utilities and services of any kind and nature used in and about the Premises. C. Necessary feed and feed drugs. D. Vaccination and injectable drugs. 2 3 E. Other animal health products. F. Supplies. G. Professional consultation, and procedures of PSF's approved program. H. All insurance related to risk of loss of the swine. I. All transportation costs for the swine to and from the Facilities. 6. Title to the pigs and all items furnished by PSF pursuant to this Agreement shall at all times be and remain in PSF, and all such swine and items, or any portion of them, may be sold and/or moved by PSF to such places and at such times as PSF shall decide. Contract Grower agrees, if requested by PSF, to execute a UCC-1 notice filing acknowledging PSF's ownership of Facilities, swine, feed and medical supplies inventory supplied by PSF to Contract Grower. PSF shall be permitted to place signs at or near the location of pigs, providing notice of ownership. 7. During the term of this Agreement, Contract Grower: A. agrees to use commercially reasonable efforts not to allow any livestock in the Facilities other than livestock owned by PSF; and B. agrees to use commercially reasonable efforts not to allow any other livestock on the Premises, except for cattle used for grazing such property to meet the requirements of Contract Grower's waste management plan for the Premises. Contract Grower further agrees to use the supplies furnished by PSF only for the feeding and caring of PSF's pigs, and for no other purpose. Contract Grower further agrees not to use any feed, medication, disinfectant, insecticides, or other chemicals not approved by PSF. 8. Contract Grower agrees that Contract Grower will not permit any swine to be placed, for grazing, confinement, feeding, or any other purpose, on any lands owned, leased or occupied by Contract Grower within a one-mile radius of the Facilities. It is understood that this requirement relates to PSF's sanitation requirements for swine production and that breach of this covenant shall be a material breach of this Agreement by Contract Grower. 9. Payment to the Contract Grower for services rendered pursuant to this Agreement shall be made and delivered as follows: A. A budgeted monthly fee in an amount equal to all labor provided by Contract Grower at the Facilities, including payroll taxes, fringe benefits, bonuses and incentives, workers compensation, interest, etc. in such amount as reasonably estimated by the Contract Grower and approved by PSF ("BUDGETED MONTHLY LABOR COST"). The Budgeted Monthly Labor Cost shall be reconciled on a quarterly basis with the actual labor costs. Should such actual labor costs exceed the Budgeted Monthly Labor Costs, PSF shall promptly (but in no event later than 45 days following the end of 3 4 each PSF fiscal quarter) pay such excess costs to Contract Grower. If the actual costs are less than the Budgeted Monthly Labor Cost, Contract Grower shall credit such difference to future amounts payable to PSF hereunder. B. A monthly fee in an amount equal to all other costs incurred by Contract Grower pursuant to this Agreement, in the performance of its duties hereunder or otherwise arising from or in connection with the Premises (including property taxes) in such amount, as reasonably estimated by Contract Grower and approved by the PSF (the "BUDGETED MONTHLY SERVICE COSTS"). The Budgeted Monthly Service Costs, PSF shall promptly (but in no event later than 45 days following the end of each PSF fiscal quarter) pay such excess costs to Contract Grower. If such actual costs are less than the Budgeted Monthly Service Costs, Contract Grower shall credit such difference to future amounts payable to PSF hereunder. 10. PSF shall hold harmless and indemnify Contract Grower (and its directors, officers, employees, stockholders, successors and assigns) from and against any and all claims, costs, liabilities, losses, damages deficiencies, judgments, assessments, fines, settlements, costs and expenses (including interest, penalties and fees, expenses and disbursements of attorneys, experts, personnel and consultants incurred by any such indemnified party in any action or proceeding between PSF and such indemnified party or between such indemnified party and any third party, or otherwise) ("LOSSES")) occasioned by, arising out of, based upon or otherwise in respect or in connection with this Agreement or the performance by Contract Grower of its obligations hereunder or the ownership of the Premises (prior to the termination of this Agreement in accordance herewith), including without limitation employment related claims, including workers compensation and Title VII claims, and any Loss resulting from any accident or other occurrence on the Premises that causes a Loss, personal injury or death to any person or property; provided, that in the event a final, non-appealable judgment by a court of competent jurisdiction establishes that such a Loss was caused by the intentional misconduct or gross negligence of such indemnified party, then such indemnified party shall reimburse PSF for any indemnification amounts received by it for such Loss pursuant to this Section 10. PSF agrees that it will at its own expense procure and maintain general liability insurance with a responsible company or companies authorized to do business in the state in which the Premises are located in amounts not less than $5,000,000 for any one person injured at the Premises for any one accident and with the limits of $5,000,000 for property damage, protecting the Contract Grower against any Loss on account of injury to any person or to any property belonging to any person or persons, by reason of any casualty, accident or other happening on the Premises during the term of this Agreement. Contract Grower shall be shown and designated as loss payees under such policies or such other designation as may be requested by Contract Grower consistent with this paragraph. 11. This Agreement shall terminate upon the earliest to occur of: A. the date upon which Contract Grower no longer beneficially owns directly or indirectly any interest in the capital stock of PSF; 4 5 B. the date upon which the Missouri Corporate Farming Laws (as defined in the Stock Purchase Agreement) would not be violated by PSF's ownership of the Premises or by PSF's farming (as defined under the Missouri Corporate Farming Laws) in the State of Missouri; and C. the mutual written consent of the parties; provided, however, that notwithstanding such termination, Section 10 shall continue in full force and effect. Upon termination of this Agreement, PSF shall promptly pay any and all accrued but unpaid fees pursuant to Section 9 hereof. Upon termination of this Agreement, PSF shall have the option to purchase the Premises from Contract Grower for $1.00 (the "OPTION"). The Option is assignable by PSF; provided, that, PSF provides prompt written notice of such assignment to Contract Grower. PSF (or its assignee) may exercise the Option by delivery of written notice to Contract Grower of its exercise of the Option on or before the 30th day following termination of this Agreement. The closing of the purchase and sale pursuant to the Option (the "LAND SALE CLOSING") shall occur as soon as practicable following termination of this Agreement. At the Land Sale Closing, PSF (or its assignee) shall deliver to Contract Grower $1.00 in cash, plus an amount reasonably estimated to equal to the real property taxes accrued on the Premises from the date of termination of this Agreement to the date of the Land Sale Closing. At the Land Sale Closing the parties shall execute such documents and take such actions as are reasonably necessary or appropriate to effectuate the intent of the foregoing; provided that Contract Grower shall not be obligated to make any representations or warranties regarding the Premises. PSF shall pay all of Contract Grower's transaction expenses (including reasonable fees and expenses of counsel) incurred in connection with the exercise of the Option and shall pay all transfer taxes associated with the transfer of the Premises to PSF. Notwithstanding anything to the contrary contained herein, the Option shall terminate twenty-one (21) years after the later to occur of (a) the death of all of the current members of the Boards of Directors of the parties hereto and (b) the death of the lineal descendants of such members that are living as of the date hereof. 12. Contract Grower shall be in default of this Agreement for any of the following reasons: A. Breach of any material term or condition of this Agreement and failure to cure such breach within thirty (30) days written notice of such breach by PSF. B. Contract Grower willfully encumbers, mortgages, sells or transfers any hogs owned by PSF, except as directed by, or with the consent of, PSF. C. Contract Grower has made a material misrepresentation in this Agreement that has a material adverse effect on Contract Grower's ability to perform 5 6 hereunder and such breach is not cured within 30 days after receipt of written notice from PSF of such breach. 13. In the event of default, as set forth in the above Section 12, PSF, its agents, employees or assigns at its own option, without prejudice to any other legal rights and remedies it may have, shall be fully authorized to take possession of the animals and any unused feed or other supplies furnished by PSF, and care for the swine in the Facilities or appoint a third party to do so. In such event, Contract Grower shall forfeit all unpaid fees hereunder, and expressly waives, releases and relinquishes any right of action against PSF for PSF's repossession of the animals, unused feed and other supplies furnished by PSF and from any and all other claims (other than pursuant to Section 10, to the extent arising prior to such event of default) against PSF, its agents, employees or assigns, whatsoever. Thereafter, PSF, its agents, employees or assign shall and may peaceably use and enjoy the Premises for the remainder of the term of this Agreement free from molestation, eviction or disturbance by the Contract Grower, subject to all applicable laws and regulations. 14. ANY CONTROVERSY OR CLAIM ARISING BETWEEN THE PARTIES, INCLUDING, BUT NOT LIMITED TO, DISPUTES RELATING TO THIS AGREEMENT, THE ARBITRABILITY OF ANY DISPUTE OR THIS AGREEMENT, OR OF ANY BREACH OF THIS AGREEMENT, WHETHER SUCH CONTROVERSY OR CLAIM ARISES BEFORE, DURING, OR AFTER TERMINATION OF THE AGREEMENT, SHALL BE SETTLED BY BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION BY A PANEL OF THREE ARBITRATORS. THIS AGREEMENT TO ARBITRATE SHALL CONTINUE IN FULL FORCE AND EFFECT DESPITE THE EXPIRATION, RESCISSION OR TERMINATION OF THIS AGREEMENT. BY ENTERING INTO THIS AGREEMENT, THE PARTIES WAIVE THE RIGHT TO HAVE THEIR DISPUTE TRIED AND ADJUDICATED BY A COURT OF LAW. WITHOUT INCONSISTENCY WITH THIS AGREEMENT TO ARBITRATE, EITHER PARTY MAY SEEK FROM A COURT ANY PROVISIONAL REMEDY THAT MAY BE NECESSARY TO PREVENT IRREPARABLE HARM, PENDING THE ESTABLISHMENT OF THE ARBITRAL PANEL OR ITS DETERMINATION OF THE MERITS OF THE CONTROVERSY. RISK OF LOSS TO THE FEEDER PIGS AND HOGS WILL BE DEEMED IRREPARABLE HARM. THE SEEKING OF ANY PROVISIONAL REMEDY BY EITHER PARTY SHALL BE SUPPLEMENTAL TO, AND NOT IN PLACE OF PSF'S CONTRACTUAL RIGHT TO RETAKE POSSESSION PURSUANT TO SECTION 13 HEREOF. UPON OBJECTION BY ANY PARTY, MULTI-PARTY ARBITRATION SHALL NOT BE UTILIZED. THE PARTIES HEREIN AGREE TO RESOLVE ALL DISPUTES BY SUCH ARBITRATION AT THE AMERICAN ARBITRATION ASSOCIATION OFFICE IN NEW YORK, NEW YORK. IN REACHING THEIR CONCLUSIONS, THE ARBITRATORS SHALL APPLY TO THIS AGREEMENT THE LAWS WHICH A NEW YORK COURT WOULD APPLY. THE ARBITRATORS SHALL HAVE THE AUTHORITY TO AWARD ACTUAL MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE DATE DUE), SPECIFIC PERFORMANCE, AND TEMPORARY INJUNCTIVE RELIEF, BUT THE ARBITRATORS SHALL NOT HAVE THE AUTHORITY TO AWARD EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES, AND THE PARTIES 6 7 EXPRESSLY WAIVE ANY CLAIMED RIGHT TO SUCH DAMAGES. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATORS MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. THE COST OF SUCH ARBITRATION SHALL BE DIVIDED EQUALLY AMONG THE PARTIES TO THE ARBITRATION. EACH PARTY SHALL BEAR THE COST OF THEIR OWN EXPENSES AND ATTORNEY'S FEES. FAILURE TO ARBITRATE ALL SUCH CLAIMS OR CONTROVERSIES SHALL BE DEEMED A BREACH OF THIS AGREEMENT. 15. Contract Grower and PSF may not assign this Agreement (except in each case to their respective controlled affiliates and subsidiaries) without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed. 16. Each party acknowledges that this Agreement is the complete understanding between the parties and no representation or promise inconsistent with any provisions of this Agreement has been made to it by any employee, agent or representative of the other party. Any and all currently existing agreements, representations or understandings between Contract Grower and PSF with respect to the Premises and the operation of the Facilities, except for the Stockholders Agreement dated the date hereof among Contract Grower, PSF Holdings, L.L.C. and PSF and any agreements or instruments contemplated thereby, whether written or verbal, are hereby revoked in their entirety and superseded by this Agreement. Any additions, amendments or modifications to this Agreement must be made in writing and signed by both parties hereto. 17. The various right, powers, options, elections and remedies of either party provided in this Agreement shall be construed as cumulative and no one of them is exclusive of the others, or exclusive of any rights, remedies or priorities allowed either party by law, and shall in no way affect or impair the right of either party to pursue any other equitable or legal remedy to which either party may be entitled as long as any default remains in any way unremedied, unsatisfied or undischarged. 18. Notices as provided for in this Agreement shall be given to the respective parties hereto at the addresses designated in the Preamble of this Agreement and shall be sent by certified mail. Any party who wishes to change addresses shall give notice of the change as provided herein. 19. Each and every covenant and agreement herein contained shall extend to and be binding upon the respective successors, heirs, administrators, executors and assigns of the parties hereto. 20. All representations, warranties, covenants and agreements of the parties contained in this Agreement shall survive the execution of this document for the term of this Agreement. 21. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. No waiver of any provision of this Agreement will be deemed to be, or will constitute a waiver of any similar or other provision. 7 8 22. This Agreement is deemed to be made under, and shall be construed according to the laws of the State of New York applicable to agreements made and to be performed entirely with such State. 23. Each of the parties hereto represents it has authority to enter into this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate at the time and place first above written. CONTRACT GROWER: CONTINENTAL GRAIN COMPANY By: /s/John Meyer ------------------------------ Title: Vice President --------------------------- MAIL ADDRESS Continental Grain Company P.O. Box 5543 Chicago, IL 60680-5543 CGC ASSET ACQUISITION CORP. By: /s/ William Patterson ------------------------------ Title: Vice President --------------------------- MAIL ADDRESS c/o Premium Standard Farms, Inc. 423 West 8th Street, Suite 200 Kansas City, MO 64105 Attention: Chief Executive Officer Social Security No./Tax I.D. No. 8 9 As an inducement for CGC to enter into the foregoing Agreement, the undersigned hereby, jointly and severally, irrevocably and unconditionally guarantees the payment and performance of all obligations of CGC Asset Acquisition Corp. pursuant to the Agreement. Date May 13, 1998 PREMIUM STANDARD FARMS, INC. By: /s/ William Patterson ----------------------------------- Name: William R. Patterson Title: Vice President Date May 8, 1998 PSF GROUP HOLDINGS, INC. By: /s/John Meyer ----------------------------------- Name: John Meyer Title: CEO 9 EX-12.1 38 y50886ex12-1.txt STATEMENT RE COMPUTATION OF RATIO OF EARNINGS 1 Exhibit 12.1 PSF GROUP HOLDINGS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PRO FORMA FOR FOR THE PERIOD FISCAL YEARS ENDED THE FISCAL YEAR MAY 13, 1998 TO ENDED MARCH 27, 1999 MARCH 25, 2000 MARCH 31, 2001 MARCH 31, 2001 (DOLLARS IN THOUSANDS) Earnings(loss) from continuing operations(a) (52,922) (6,986) 37,140 32,213 ------- ------ ------ ------ Fixed Charges Interest Expense 17,883 21,265 24,141 27,952 Debt Expense and Amortization 180 280 743 743 Interest Factor of Rental Expense 223 292 402 462 ------- ------ ------ ------ Total Fixed Charges 18,286 21,837 25,286 29,157 ------- ------ ------ ------ Earnings (b) (34,636) 14,851 62,426 61,370 ======= ====== ====== ====== Ratio of Earnings to Fixed Charges (c) (d) 2.47 2.10
(a) earnings(loss) from continuing operations consists of net income(loss) before income taxes adjusted for minority interest and undistributed earnings or losses from equity investees. (b) earnings include net income(loss) before income taxes and fixed charges. Fixed charges consist of all interest on indebtedness, amortization of debt expense, and the portion of rental expense which represents an interest factor in these rentals at an assumed rate of 11%. (c) For the period ended March 27, 1999 the company's earnings were insufficient to cover fixed charges by $52.9 million. (d) For the fiscal year ended 2000 the company's earnings were insufficient to cover fixed charges by $7.0 million. EX-21.1 39 y50886ex21-1.txt SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANTS 1. Subsidiaries of PSF Group Holdings, Inc. a. Premium Standard Farms, Inc., a Delaware corporation* 2. Subsidiaries of Premium Standard Farms, Inc. a. The Lundy Packing Company, a North Carolina corporation* b. Premium Standard Farms of North Carolina, Inc., a Delaware corporation* 3. Subsidiaries of Premium Standard Farms of North Carolina, Inc. a. Lundy International, Inc., a North Carolina corporation* 4. Subsidiaries of The Lundy Packing Company a. L&H Farms, LLC, a North Carolina limited liability company** 5. Subsidiaries of Lundy International, Inc. a. L&S Farms, a North Carolina general partnership*** * a wholly-owned subsidiary of the respective Registrant ** a 50% owned subsidiary of the respective Registrant *** a 60% owned subsidiary of the respective Registrant EX-23.2 40 y50886ex23-2.txt CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23.2 Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Kansas City, Missouri, June 29, 2001 EX-23.3 41 y50886ex23-3.txt CONSENT OF KPMG LLP 1 Exhibit 23.3 The Board of Directors Premium Standard Farms, Inc. We consent to the use of our report included herein. KPMG LLP Raleigh, North Carolina June 28, 2001 EX-25.1 42 y50886ex25-1.txt FORM T-1 1 Exhibit 25.1 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)[ ] WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) PREMIUM STANDARD FARMS, INC. (Exact name of obligor as specified in its charter) Delaware 43-1755411 (State of incorporation) (I.R.S. employer identification no.) 423 West 8th Street, Suite 200 Kansas City, MO 64105 (Address of principal executive offices) (Zip Code) [9 1/4% Senior Notes due 2011] (Title of the indenture securities) ================================================================================ 2 ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 28th day of June, 2001. WILMINGTON TRUST COMPANY [SEAL] Attest: /s/ Patricia A. Evans By: /s/ James P. Lawler ---------------------- --------------------------------------- Assistant Secretary Name: James P. Lawler Title: Vice President 2 3 EXHIBIT A AMENDED CHARTER WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON MAY 9, 1987 4 AMENDED CHARTER OR ACT OF INCORPORATION OF WILMINGTON TRUST COMPANY WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY. SECOND: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. THIRD: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, 5 to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner 2 6 become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real 3 7 and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. FOURTH: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per 4 8 share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. 5 9 (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article FOURTH), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article FOURTH), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article FOURTH, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article FOURTH), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article FOURTH, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock 6 10 or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article FOURTH and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article FOURTH that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. FIFTH: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in 7 11 number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the By-Laws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the 8 12 defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. SIXTH: - The Directors shall choose such officers, agents and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. SEVENTH: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. EIGHTH: - This Act shall be deemed and taken to be a private Act. NINTH: - This Corporation is to have perpetual existence. TENTH: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. ELEVENTH: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. TWELFTH: - The Corporation may transact business in any part of the world. THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). FOURTEENTH: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. FIFTEENTH: - (a) (1) In addition to any affirmative vote required by law, and except as 9 13 otherwise expressly provided in sections (b) and (c) of this Article FIFTEENTH: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article FIFTEENTH shall mean any transaction which is referred to in any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article FIFTEENTH shall not be applicable to any particular business combination and such business combination shall 10 14 require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation or By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article FIFTEENTH: (1) A "person" shall mean any individual, firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. 11 15 (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article FIFTEENTH on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,000,000 or more. (e) Nothing contained in this Article FIFTEENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. SIXTEENTH: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of Incorporation. SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. 12 16 (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 17 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON FEBRUARY 20, 2000 14 18 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I STOCKHOLDERS' MEETINGS Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each share of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II DIRECTORS Section 1. The authorized number of directors that shall constitute the Board of Directors shall be fixed from time to time by or pursuant to a resolution passed by a majority of the Board within the parameters set by the Charter of the Bank. No more than two directors may also be employees of the Company or any affiliate thereof. Section 2. Except as provided in these Bylaws or as otherwise required by law, there shall be no qualifications for election or service as directors of the Company. In addition to any other provisions of these Bylaws, to be qualified for nomination for Election or appointment to the Board of Directors each person must have not attained the age of sixty-nine years at the time of such election or appointment, provided however, the Nominating and Corporate Governance Committee may waive such qualification as to a particular candidate otherwise qualified to serve as a director upon a good faith determination by such committee that such a waiver is in the best interests of the Company and its stockholders. The Chairman of the Board of Directors shall not be qualified to continue to serve as a director upon the termination of his or her services in that office for any reason. Section 3. The class of Directors so elected shall hold office for three years or until 19 their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or divisions of the Company as it may deem advisable. ARTICLE III COMMITTEES 2 20 Section 1. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 21 Section 2. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. Section 3. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 4. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. 4 22 Section 5. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE IV OFFICERS Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors. In the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be 5 23 practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V STOCK AND STOCK CERTIFICATES Section 1. Shares of stock shall be transferrable on the books of the Company and a 6 24 transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificates of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI SEAL Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII FISCAL YEAR Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII EXECUTION OF INSTRUMENTS OF THE COMPANY Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have 7 25 full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. ARTICLE IX COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X INDEMNIFICATION Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director or officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director 8 26 or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI AMENDMENTS TO THE BY-LAWS Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 9 27 EXHIBIT C SECTION 321(b) CONSENT Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: June 28, 2001 By: /s/ James P. Lawler ------------------------------- Name: James P. Lawler Title: Vice President 28 EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - ---------------------------------------------------------- ------------------ Name of Bank City in the State of DELAWARE , at the close of business on March 31, 2001. ------------
ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins................................................195,465 Interest-bearing balances.............................................................................. 0 Held-to-maturity securities................................................................................. 17,881 Available-for-sale securities.............................................................................1,294,541 Federal funds sold and securities purchased under agreements to resell......................................505,993 Loans and lease financing receivables: Loans and leases, net of unearned income. . . . . . . 4,687,583 LESS: Allowance for loan and lease losses. . . . . . 70,510 LESS: Allocated transfer risk reserve. . . . . . . . 0 Loans and leases, net of unearned income, allowance, and reserve.................................4,617,073 Assets held in trading accounts...................................................................................0 Premises and fixed assets (including capitalized leases)....................................................127,356 Other real estate owned...................................................................................... 523 Investments in unconsolidated subsidiaries and associated companies...........................................1,748 Customers' liability to this bank on acceptances outstanding......................................................0 Intangible assets: a. Goodwill.......................................................................................... 249 b. Other intangible assets......................................................................... 4,883 Other assets............................................................................................... 161,175 Total assets..............................................................................................6,926,887
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LIABILITIES Deposits: In domestic offices.......................................................................................5,420,816 Noninterest-bearing . . . . . . . . 1,004,202 Interest-bearing. . . . . . . . . . 4,416,614 Federal funds purchased and Securities sold under agreements to repurchase................................. 247,037 Trading liabilities (from Schedule RC-D)..........................................................................0 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases:..............631,250 Bank's liability on acceptances executed and outstanding..........................................................0 Subordinated notes and debentures.................................................................................0 Other liabilities (from Schedule RC-G)..................................................................... 117,530 Total liabilities.........................................................................................6,416,633 EQUITY CAPITAL Perpetual preferred stock and related surplus.....................................................................0 Common Stock....................................................................................................500 Surplus (exclude all surplus related to preferred stock).....................................................62,118 a. Retained earnings.......................................................................................440,962 b. Accumulated other comprehensive income................................................................... 6,674 Total equity capital........................................................................................510,254 Total liabilities, limited-life preferred stock, and equity capital.......................................6,926,887
2 EX-25.2 43 y50886ex25-2.txt STATEMENT OF ELIGIBILITY AND QUALIFICATION ON T-1 1 EXHIBIT 25.2 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) PREMIUM STANDARD FARMS, INC. (Exact name of obligor as specified in its charter) Delaware 43-1755411 (State of incorporation) (I.R.S. employer identification no.) PSF GROUP HOLDINGS, INC. (Exact name of obligor as specified in its charter) Delaware 43-1818535 (State of incorporation) (I.R.S. employer identification no.) THE LUNDY PACKING COMPANY OF NORTH CAROLINA (Exact name of obligor as specified in its charter) 2 North Carolina 56-0507254 (State of incorporation) (I.R.S. employer identification no.) LUNDY INTERNATIONAL, INC. (Exact name of obligor as specified in its charter) North Carolina 56-1312631 (State of incorporation) (I.R.S. employer identification no.) PREMIUM STANDARD FARMS OF NORTH CAROLINA, INC. (Exact name of obligor as specified in its charter) Delaware 06-1594088 (State of incorporation) (I.R.S. employer identification no.) 423 West 8th Street, Suite 200 Kansas, City, MO 64105 (Address of principal executive offices) (Zip Code) [Guarantees of the 9 1/4% Senior Notes due 2011] (Title of the indenture securities) ================================================================================ ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. 2 3 B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 28th day of June, 2001. WILMINGTON TRUST COMPANY [SEAL] Attest: /s/ Patricia A. Evans By: /s/ James P. Lawler ----------------------------- --------------------------------- Assistant Secretary Name: James P. Lawler Title: Vice President 3 4 EXHIBIT A AMENDED CHARTER WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON MAY 9, 1987 5 AMENDED CHARTER OR ACT OF INCORPORATION OF WILMINGTON TRUST COMPANY WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY. SECOND: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. THIRD: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, 6 to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner 2 7 become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real 3 8 and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. FOURTH: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per 4 9 share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. 5 10 (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article FOURTH), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article FOURTH), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article FOURTH, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article FOURTH), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding- up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article FOURTH, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock 6 11 or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article FOURTH and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article FOURTH that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. FIFTH: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in 7 12 number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the By-Laws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the 8 13 defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. SIXTH: - The Directors shall choose such officers, agents and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. SEVENTH: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. EIGHTH: - This Act shall be deemed and taken to be a private Act. NINTH: - This Corporation is to have perpetual existence. TENTH: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. ELEVENTH: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. TWELFTH: - The Corporation may transact business in any part of the world. THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). FOURTEENTH: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. FIFTEENTH: - (a) (1) In addition to any affirmative vote required by law, and except as 9 14 otherwise expressly provided in sections (b) and (c) of this Article FIFTEENTH: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article FIFTEENTH shall mean any transaction which is referred to in any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article FIFTEENTH shall not be applicable to any particular business combination and such business combination shall 10 15 require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation or By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article FIFTEENTH: (1) A "person" shall mean any individual, firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. 11 16 (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article FIFTEENTH on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,000,000 or more. (e) Nothing contained in this Article FIFTEENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. SIXTEENTH: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of Incorporation. SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. 12 17 (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 18 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON FEBRUARY 20, 2000 19 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I STOCKHOLDERS' MEETINGS Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each share of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II DIRECTORS Section 1. The authorized number of directors that shall constitute the Board of Directors shall be fixed from time to time by or pursuant to a resolution passed by a majority of the Board within the parameters set by the Charter of the Bank. No more than two directors may also be employees of the Company or any affiliate thereof. Section 2. Except as provided in these Bylaws or as otherwise required by law, there shall be no qualifications for election or service as directors of the Company. In addition to any other provisions of these Bylaws, to be qualified for nomination for Election or appointment to the Board of Directors each person must have not attained the age of sixty-nine years at the time of such election or appointment, provided however, the Nominating and Corporate Governance Committee may waive such qualification as to a particular candidate otherwise qualified to serve as a director upon a good faith determination by such committee that such a waiver is in the best interests of the Company and its stockholders. The Chairman of the Board of Directors shall not be qualified to continue to serve as a director upon the termination of his or her services in that office for any reason. Section 3. The class of Directors so elected shall hold office for three years or until 20 their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or divisions of the Company as it may deem advisable. 2 21 ARTICLE III COMMITTEES Section 1. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 22 Section 2. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. Section 3. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 4. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. 4 23 Section 5. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE IV OFFICERS Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors. In the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be 5 24 practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V STOCK AND STOCK CERTIFICATES Section 1. Shares of stock shall be transferrable on the books of the Company and a 6 25 transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificates of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI SEAL Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII FISCAL YEAR Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII EXECUTION OF INSTRUMENTS OF THE COMPANY Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have 7 26 full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. ARTICLE IX COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X INDEMNIFICATION Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director or officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director 8 27 or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI AMENDMENTS TO THE BY-LAWS Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 9 28 EXHIBIT C SECTION 321(b) CONSENT Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: June 28, 2001 By: /s/ James P. Lawler -------------------------------------- Name: James P. Lawler Title: Vice President 29 EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. REPORT OF CONDITION Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - ---------------------------------------------------------- ------------------ Name of Bank City in the State of DELAWARE, at the close of business on March 31, 2001. --------- ASSETS
Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins.................................. 195,465 Interest-bearing balances............................................................ 0 Held-to-maturity securities................................................................... 17,881 Available-for-sale securities................................................................. 1,294,541 Federal funds sold and securities purchased under agreements to resell........................ 505,993 Loans and lease financing receivables: Loans and leases, net of unearned income........ 4,687,583 LESS: Allowance for loan and lease losses....... 70,510 LESS: Allocated transfer risk reserve........... 0 Loans and leases, net of unearned income, allowance, and reserve..................... 4,617,073 Assets held in trading accounts............................................................... 0 Premises and fixed assets (including capitalized leases)...................................... 127,356 Other real estate owned....................................................................... 523 Investments in unconsolidated subsidiaries and associated companies........................... 1,748 Customers' liability to this bank on acceptances outstanding.................................. 0 Intangible assets: a. Goodwill.......................................................................... 249 b. Other intangible assets........................................................... 4,883 Other assets.................................................................................. 161,175 Total assets.................................................................................. 6,926,887
CONTINUED ON NEXT PAGE 30 LIABILITIES Deposits: In domestic offices........................................................................... 5,420,816 Noninterest-bearing................ 1,004,202 Interest-bearing................... 4,416,614 Federal funds purchased and Securities sold under agreements to repurchase.................... 247,037 Trading liabilities (from Schedule RC-D)...................................................... 0 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases: 631,250 Bank's liability on acceptances executed and outstanding...................................... 0 Subordinated notes and debentures............................................................. 0 Other liabilities (from Schedule RC-G)........................................................ 117,530 Total liabilities............................................................................. 6,416,633 EQUITY CAPITAL Perpetual preferred stock and related surplus................................................. 0 Common Stock.................................................................................. 500 Surplus (exclude all surplus related to preferred stock)...................................... 62,118 a. Retained earnings.......................................................................... 440,962 b. Accumulated other comprehensive income..................................................... 6,674 Total equity capital.......................................................................... 510,254 Total liabilities, limited-life preferred stock, and equity capital........................... 6,926,887
2 EX-99.1 44 y50886ex99-1.txt FORM OF LETTER 1 EXHIBIT 99.1 LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS REGARDING THE OFFER TO EXCHANGE $ 175,000,000 PRINCIPAL AMOUNT OF 9 1/4% SENIOR NOTES DUE 2011 OF PREMIUM STANDARD FARMS, INC. To Registered Holders and The Depository Trust Company Participants: We are enclosing herewith the materials listed below relating to the offer by Premium Standard Farms, Inc. (the "Company") to exchange the Company's new 9 1/4% Senior Notes due 2011 (the "New Notes"), pursuant to an offer registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of the Company's issued and outstanding 9 1/4% Senior Notes due 2011 (the "Old Notes") upon the terms and subject to the conditions set forth in the Company's Prospectus, dated , 2001, and the related Letter of Transmittal (which together constitute the "Exchange Offer"). Enclosed herewith are copies of the following documents: 1. Prospectus dated , 2001; 2. Letter of Transmittal; 3. Notice of Guaranteed Delivery; 4. Instructions to Registered Holder or DTC Participant from Beneficial Owner; and 5. Letter which may be sent to your clients for whose account definitive registered notes or book-entry interests representing Old Notes in your name or in the name of your nominee, to accompany the instruction form referred to above, for obtaining such client's instruction with regard to the Exchange Offer. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2001, UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. To participate in the Exchange Offer, a beneficial holder must either (i) cause to be delivered to Wilmington Trust Company (the "Exchange Agent"), at the address set forth in the Letter of Transmittal, definitive registered notes representing Old Notes in proper form for transfer together with a properly executed Letter of Transmittal or (ii) cause a DTC Participant to tender such holder's Old Notes to the Exchange Agent's account maintained at the Depository Trust Company ("DTC") for the benefit of the Exchange Agent through DTC's Automated Tender Offer Program ("ATOP"), including transmission of a computer-generated message that acknowledges and agrees to be bound by the terms of the Letter of Transmittal. By complying with DTC's ATOP procedures with respect to the Exchange Offer, the DTC Participant confirms on behalf of itself and the beneficial owners of tendered Old Notes all provisions of the Letter of Transmittal applicable to it and such beneficial owners as fully as if it completed, executed and returned the Letter of Transmittal to the Exchange Agent. You will need to contact those of your clients for whose account you hold definitive registered notes or book-entry interests representing Old Notes and seek their instructions regarding the Exchange Offer. Pursuant to the Letter of Transmittal, each holder of Old Notes will represent to the Company and the Guarantors that: (i) the New Notes or book-entry interests therein to be acquired by such holder and any beneficial owner(s) of such Old Notes or interests therein ("Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by such holder and any Beneficial Owner(s) in the ordinary course of 1 2 business of the holder and any Beneficial Owner(s), (ii) the holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the New Notes, (iii) if the holder or Beneficial Owner is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if the holder or Beneficial Owner is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Sections 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v) the holder and each Beneficial Owner acknowledge and agree that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or is participating in the Exchange Offer for the purpose of distributing the New Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the New Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (vi) the holder and each Beneficial Owner understand that a secondary resale transaction described in clause (v) above and any resales of New Notes or interests therein obtained by such holder in exchange for Old Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (vii) neither the holder nor any Beneficial Owner(s) is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. Upon a request by the Company, a holder or beneficial owner will deliver to the Company a legal opinion confirming its representation made in clause (vii) above. If the tendering holder of Old Notes is a broker-dealer (whether or not it is also an "affiliate") or any Beneficial Owner(s) that will receive New Notes for its own or their account pursuant to the Exchange Offer, the tendering holder will represent on behalf of itself and the Beneficial Owner(s) that the Old Notes to be exchanged for the New Notes were acquired as a result of market-making activities or other trading activities, and acknowledge on its own behalf and on the behalf of such Beneficial Owner(s) that it or they will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, such tendering holder will not be deemed to admit that it or any Beneficial Owner is an "underwriter" within the meaning of the Securities Act. The enclosed "Instructions to Registered Holder or DTC Participant from Beneficial Owner" form contains an authorization by the beneficial owners of Old Notes for you to make the foregoing representations. You should forward this form to your clients and ask them to complete it and return it to you. You will then need to tender Old Notes on behalf of those of your clients who ask you to do so. The Company will not pay any fee or commission to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company will pay or cause to be paid any transfer taxes payable on the transfer of Old Notes to it, except as otherwise provided in the section "The Exchange Offer -- Transfer Taxes" of the enclosed Prospectus. Additional copies of the enclosed material may be obtained from the Exchange Agent. Very truly yours, PREMIUM STANDARD FARMS, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.2 45 y50886ex99-2.txt FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.2 LETTER OF TRANSMITTAL TO TENDER UNREGISTERED 9 1/4% SENIOR NOTES DUE 2011 (INCLUDING THOSE IN BOOK-ENTRY FORM) OF PREMIUM STANDARD FARMS, INC. PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 2001 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2001 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY. The Exchange Agent for the Exchange Offer is: WILMINGTON TRUST COMPANY By Overnight Delivery or Registered or Certified Mail: By Hand in New York: By Hand in Delaware: Wilmington Trust Company Wilmington Trust Company Wilmington Trust Company Rodney Square North c/o Computershare Trust 1105 Rodney Square North 1100 Rodney Square North Company of New York Wilmington, DE Wilmington, DE 19890 Wall Street Plaza Attn: Corporate Trust, 1st Attn: Corporate Trust 88 Pine Street, 19th Floor Floor New York, NY 10005 Facsimile Transmission Number: (For Eligible Institutions Only) (302) 651-1079 Confirm Receipt of Facsimile by Telephone: (302) 651-8869
Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight delivery service. Delivery of this letter of transmittal to an address or transmission of instructions via facsimile other than as set forth above will not constitute a valid delivery. If you wish to exchange unregistered 9 1/4% Senior Notes due 2011 (The "Old Notes"), for an equal aggregate principal amount of registered 9 1/4% Senior Notes due 2011 (The "New Notes"), pursuant to the exchange offer, you must validly tender (and not withdraw) old Notes to the exchange agent prior to the expiration date. SIGNATURES MUST BE PROVIDED. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THIS LETTER OF TRANSMITTAL This Letter of Transmittal is to be completed by holders of Old Notes either if Old Notes are to be forwarded herewith or if tenders of Old Notes are to be made by book-entry transfer to an account maintained by Wilmington Trust Company (the "Exchange Agent") at The Depository Trust Company pursuant to the procedures set forth in "The Exchange Offer -- Procedures for Tendering" in the Prospectus (as defined). 1 2 Holders of Old Notes whose certificates for such Old Notes are not immediately available or who cannot deliver their certificates and ail other required documents to the Exchange Agent on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. 2 3 - -------------------------------------------------------------------------------------------------------- DESCRIPTION OF TENDERED OLD NOTES - -------------------------------------------------------------------------------------------------------- AGGREGATE NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) AS IT CERTIFICATE PRINCIPAL AMOUNT APPEARS ON THE 9 1/4% SENIOR NOTES DUE 2011 NUMBER(S) OF OLD NOTES (PLEASE FILL IN, IF BLANK) OF OLD NOTES TENDERED - -------------------------------------------------------------------------------------------------------- -------------------------------------- TOTAL PRINCIPAL AMOUNT OF OLD NOTES TENDERED - --------------------------------------------------------------------------------------------------------
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution --------------------------------------------------------------------------- Account Number ---------------------------------------------------------------------------- Transaction Code Number ---------------------------------------------------------------------------- [ ] CHECK HERE AND ENCLOSE A COPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) Window Ticket Number (if any) Date of Execution of Notice of Guaranteed Delivery Name of Institution which Guaranteed Delivery If Guaranteed Delivery is to be made By Book-Entry Transfer: Name of Tendering Institution Account Number ---------------------------------------------------------------------------- Transaction Code Number ---------------------------------------------------------------------------- 3 4 [ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ----------------------------------------------------------------- Address: ----------------------------------------------------------------- 4 5 Ladies and Gentlemen: 1. The undersigned hereby tenders to Premium Standard Farms, Inc., a Delaware corporation (the "Company"), the Old Notes, described above pursuant to the Company's offer of $1,000 principal amount of the New Notes, in exchange for each $1,000 principal amount of the Old Notes, upon the terms and subject to the conditions contained in the Prospectus dated , 2001 (the "Prospectus"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the "Exchange Offer"). 2. The undersigned hereby represents and warrants that it has full authority to tender the Old Notes described above. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the tender of Old Notes. 3. The undersigned understands that the tender of the Old Notes pursuant to all of the procedures set forth in the Prospectus will constitute an agreement between the undersigned and the Company as to the terms and conditions set forth in the Prospectus. 4. Unless the box under the heading "Special Registration Instructions" is checked, the undersigned hereby represents and warrants that: (i) the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the undersigned and any beneficial owner of the Old Notes (a "Beneficial Owner"); (ii) neither the undersigned nor any Beneficial Owner is engaging in or intends to engage in a distribution of such New Notes; (iii) neither the undersigned nor any Beneficial Owner has an arrangement or understanding with any person to participate in the distribution of such New Notes; (iv) if the undersigned or any Beneficial Owner is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations; (v) if the undersigned or any Beneficial Owner is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Sections 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985; (vi) the undersigned and each Beneficial Owner acknowledges and agrees that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is participating in the Exchange Offer for the purpose of distributing the New Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the New Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters; (vii) the undersigned and each Beneficial Owner understands that a secondary resale transaction described in clause (vi) above and any resales of New Notes or interests therein obtained by such holder in exchange for Old Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission; and (viii) neither the holder nor any Beneficial Owner is an "affiliate," as such term is defined under Rule 405 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), of the Company. Upon request by the Company, the undersigned or Beneficial Owner will deliver to the Company a legal opinion confirming it is not such an affiliate. 5 6 5. The undersigned may, IF AND ONLY IF UNABLE TO MAKE ALL OF THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ITEM 4 ABOVE, elect to have its Old Notes registered in the shelf registration described in the Registration Rights Agreement, dated as of June 4, 2001, among the Company, the Guarantors and Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc., as placement agents, in the form filed as an exhibit to the registration statement of which the Prospectus is a part. Such election may be made by checking the box under "Special Registration Instructions" on page . By making such election, the undersigned agrees, jointly and severally, as a holder of transfer restricted securities participating in a shelf registration, to indemnify and hold harmless the Company, its agents, employees, directors and officers and each Person who controls the Company, within the meaning of Section 15 of the Securities Act or Section 20 (a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any and all losses, claims, damages and liabilities whatsoever (including, without limitation, the reasonable legal and other expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) arising out of or based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the shelf registration statement filed with respect to such Old Notes or the Prospectus or in any amendment thereof or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with information relating to the undersigned furnished to the Company in writing by or on behalf of the undersigned expressly for use therein. Any such indemnification shall be governed by the terms and subject to the conditions set forth in the Registration Rights Agreement, including, without limitation, the provisions regarding notice, retention of counsel, contribution and payment of expenses set forth therein. The above summary of the indemnification provision of the Registration Rights Agreement is not intended to be exhaustive and is qualified in its entirety by reference to the Registration Rights Agreement. 6. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such New Notes, however, by so acknowledging and delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. If the undersigned is a broker-dealer and Old Notes held for its own account were not acquired as a result of market-making or other trading activities, such Old Notes cannot be exchanged pursuant to the Exchange Offer. 7. Any obligation of the undersigned hereunder shall be binding upon the successors, assigns, executors, administrators, trustees in bankruptcy and legal and personal representatives of the undersigned. 8. Unless otherwise indicated herein under "Special Delivery Instructions," the certificates for the New Notes will be issued in the name of the undersigned. 6 7 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTION 1) To be completed ONLY IF the New Notes are to be issued or sent to someone other than the undersigned or to the undersigned at an address other than that provided above. Mail [ ] Issue [ ] (check appropriate boxes) certificates to: Name: - -------------------------------------------------------------------------------- (PLEASE PRINT) Address: - -------------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- (INCLUDING ZIP CODE) SPECIAL REGISTRATION INSTRUCTIONS (SEE ITEM 5) To be completed ONLY IF (i) the undersigned satisfies the conditions set forth in Item 5 above, (ii) the undersigned elects to register its Old Notes in the Shelf Registration described in the Registration Rights Agreement and (iii) the undersigned agrees to indemnify certain entities and individuals as set forth in the Registration Rights Agreement and summarized in Item 5 above. [ ] By checking this box the undersigned hereby (i) represents that it is unable to make all of the representations and warranties set forth in Item 4 above, (ii) elects to have its Old Notes registered pursuant to the shelf registration described in the Registration Rights Agreement and (iii) agrees to indemnify certain entities and individuals identified in, and to the extent provided in, the Registration Rights Agreement and summarized in Item 5 above. 7 8 SIGNATURE To be completed by all exchanging noteholders. Must be signed by registered holder exactly as name appears on Old Notes. If signature is by trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. X - -------------------------------------------------------------------------------- X - -------------------------------------------------------------------------------- SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE Dated: - -------------------------------------------------------------------------------- Names(s): - -------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Capacity: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) Area Code and Telephone No.: - -------------------------------------------------------------------------- SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1) - -------------------------------------------------------------------------------- (NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES) - -------------------------------------------------------------------------------- (ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF FIRM) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (PRINTED NAME) - -------------------------------------------------------------------------------- (TITLE) Dated: - -------------------------------------------------------------------------------- PLEASE READ THE FOLLOWING INSTRUCTIONS, WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL INSTRUCTIONS 1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must be guaranteed by an eligible guarantor institution that is a member of or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an "Eligible Institution") unless the box entitled "Special Registration Instructions" or "Special Delivery 8 9 Instructions" above has not been completed or the Old Notes described above are tendered for the account of an Eligible Institution. 2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes, together with a properly completed and duly executed Letter of Transmittal (or copy thereof), should be mailed or delivered to the Exchange Agent at the address set forth above. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. 3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by a person other than a registered holder of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate bond powers, signed by such registered holder exactly as such registered holder's name appears on such Old Notes. If this Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. 4. MISCELLANEOUS. All questions as to the validity, form, eligibility (including time of receipt), acceptance, and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding on all parties. The Company reserves the absolute right to reject any or all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities, or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent, nor any other person shall be under any duty to give notification of defects in such tenders or shall incur any liability for failure to give such notification. Tenders of Old Notes will not he deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holder thereof as soon as practicable following the Expiration Date. 9 EX-99.3 46 y50886ex99-3.txt FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.3 NOTICE OF GUARANTEED DELIVERY TO TENDER UNREGISTERED 9 1/4% SENIOR NOTES DUE 2011 (INCLUDING THOSE IN BOOK-ENTRY FORM) OF PREMIUM STANDARD FARMS, INC. PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 2001 As set forth in the Prospectus (as defined), this form or one substantially equivalent hereto must be used to accept the Exchange Offer (i) if certificates for unregistered 9 1/4% Senior Notes due 2011 (the "Old Notes") of Premium Standard Farms, Inc., a Delaware corporation (the "Company"), are not immediately available, (ii) time will not permit a holder's Old Notes or other required documents to reach Wilmington Trust Company (the "Exchange Agent") on or prior to the Expiration Date (as defined) or (iii) the procedure for book-entry transfer cannot be completed on a timely basis. This form may be delivered by facsimile transmission, registered or certified mail, by hand or by overnight delivery service to the Exchange Agent. See "The Exchange Offer -- Procedures for Tendering" in the Prospectus. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2001 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY. The Exchange Agent for the Exchange Offer is: WILMINGTON TRUST COMPANY By Overnight Delivery or Registered or Certified Mail: By Hand in New York: By Hand in Delaware: Wilmington Trust Company Wilmington Trust Company Wilmington Trust Company Rodney Square North c/o Computershare Trust 1105 Rodney Square North 1100 Rodney Square North Company of New York Wilmington, DE Wilmington, DE 19890 Wall Street Plaza Attn: Corporate Trust, 1st Attn: Corporate Trust 88 Pine Street, 19th Floor Floor New York, NY 10005 Facsimile Transmission Number: (For Eligible Institutions Only) (302) 651-1079 Confirm Receipt of Facsimile by Telephone: (302) 651-8869
Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight delivery service. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 1 2 Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus dated , 2001 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related Letter of Transmittal, receipt of which is hereby acknowledged, the aggregate principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "Exchange Offer -- Guaranteed Delivery Procedures." Name(s) of Registered Holder(s): - --------------------------------------------------------------------------- Aggregate Principal Amount Tendered: - ----------------------------------------------------------------------- Certificate No.(s) (if available): - ------------------------------------------------------------------------------ (Total Principal Amount Represented by Old Notes Certificate(s)): - -------------------------------------------------------------------------------- If Old Notes will be tendered by book-entry transfer, provide the following information: DTC Account Number: - -------------------------------------------------------------------------------- Date: - -------------------------------------------------------------------------------- * Must be in denominations of $1,000 and any integral multiple thereof. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. PLEASE SIGN HERE X - -------------------------------------------------------------------------------- X - -------------------------------------------------------------------------------- SIGNATURE(S) OF OWNER(S) OR AUTHORIZED SIGNATORY DATE - --------------------------------------------------- Area Code and Telephone Number: - -------------------------------------------------------------------------- Must be signed by the holder(s) of the Old Notes as their name(s) appear(s) on certificates for Old Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. 2 3 PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Capacity: - -------------------------------------------------------------------------------- Address(es): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED. 3 4 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member of or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Signature Program or a firm or other identity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker, municipal securities dealer, government securities broker, government securities dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or learning agency; or (v) a savings association that is a participant in a Securities Transfer Association recognized program (each of the foregoing being referred to as an "Eligible Institution"), hereby guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, the Old Notes to the Exchange Agent's account at The Depository Trust Company, pursuant to the procedures for book-entry transfer set forth in the Prospectus, within three New York Stock Exchange, Inc. trading days after the date of execution of this Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Old Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. Name of Firm: ------------------------------------- Authorized Signature: ------------------------------ Address: -------------------------------------------- Title: ----------------------------------------------- - ----------------------------------------------------- Zip Code: ------------------------------------------ - ----------------------------------------------------- Area Code and Telephone No.: -------------------- Dated: ----------------------------------------------
Note: Do not send certificates for old notes with this form. 4 EX-99.4 47 y50886ex99-4.txt FORM OF INSTRUCTIONS 1 EXHIBIT 99.4 INSTRUCTIONS TO REGISTERED HOLDER OR DTC PARTICIPANT FROM BENEFICIAL OWNER FOR 9 1/4% SENIOR NOTES DUE 2011 OF PREMIUM STANDARD FARMS, INC. The undersigned hereby acknowledges receipt of the Prospectus dated , 2001 (the "Prospectus"), of Premium Standard Farms, Inc., a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal") that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meanings assigned to them in the Prospectus and the Letter of Transmittal. This will instruct you as to the action to be taken by you relating to the Exchange Offer with respect to the 9 1/4% Senior Notes due 2011 (the "Old Notes") held by you for the account of the undersigned. The principal amount of the Old Notes held by you for the account of the undersigned is (fill in amount): $ ----------------- principal amount of Old Notes. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [ ] To TENDER the following principal amount of Old Notes held by you for the account of the undersigned (insert amount of Old Notes to be tendered, if any): $ ------------------- principal amount of Old Notes. [ ] NOT to TENDER any Old Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized: (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the New Notes or book-entry interests therein to be acquired by the undersigned (the "Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by the undersigned in the ordinary course of business of the undersigned, (ii) the undersigned is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the New Notes, (iii) if the undersigned is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.1C2.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if the undersigned is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Sections 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v) the undersigned acknowledges and agrees that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is participating in the Exchange Offer for the purpose of distributing the New Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the New Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (vi) the undersigned understands that a secondary resale transaction described in clause (v) above and any resales of New Notes or interests therein obtained by such holder in exchange for Old Notes or interests therein 1 2 originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (vii) the undersigned is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. Upon a request by the Company, a holder or beneficial owner will deliver to the Company a legal opinion confirming its representation made in clause (vii) above. If the undersigned is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account pursuant to the Exchange Offer, the undersigned represents that the Old Notes to be exchanged for the New Notes were acquired by it as a result of market-making activities or other trading activities, and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned does not and will not be deemed to admit that is an "underwriter" within the meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Old Notes. SIGN HERE Name of Beneficial Owner(s): ------------------------------------------------------- Signature(s): ---------------------------------------------------------------------- Name(s): ------------------------------------------------------------------------ (PLEASE PRINT) Address: ------------------------------------------------------------------------- Telephone Number: ---------------------------------------------------------------- Taxpayer Identification or Social Security Number: --------------------------------------- Date: --------------------------------------------------------------------------- 2 EX-99.5 48 y50886ex99-5.txt FORM OF LETTER TO CLIENTS 1 EXHIBIT 99.5 LETTER TO CLIENTS REGARDING THE OFFER TO EXCHANGE $175,000,000 PRINCIPAL AMOUNT OF 9 1/4% SENIOR NOTES DUE 2011 OF PREMIUM STANDARD FARMS, INC. To Our Clients: We are enclosing herewith a Prospectus, dated , 2001, of Premium Standard Farms, Inc. (the "Company") and a related Letter of Transmittal (which together constitute the "Exchange Offer") relating to the offer by the Company to exchange the Company's new 9 1/4%. Senior Notes due 2011 (the "New Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of the Company's issued and outstanding 9 1/4% Senior Notes due 2011 (the "Old Notes") upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2001, UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. We are the Registered Holder or DTC participant through which you hold an interest in the Old Notes. A tender of such Old Notes can be made only by us pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender your beneficial ownership of Old Notes held by us for your account. Pursuant to the Letter of Transmittal, each holder of Old Notes must make certain representations and warranties that are set forth in the Letter of Transmittal and in the attached form that we have provided to you for your instructions regarding what action we should take in the Exchange Offer with respect to your interest in the Old Notes. We request instructions as to whether you wish to tender any or all of your Old Notes held by us for your account pursuant to the terms and subject to the conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal that are to be made with respect to you as beneficial owner. Your instructions to us should be forwarded as promptly as possible in order to permit us to tender Old Notes on your behalf in accordance with the provisions of the Exchange Offer. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2001. Old Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. If you wish to have us tender any or all of your Old Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the attached instruction form. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Old Notes held by us and registered in our name for your account or benefit. 1 EX-99.6 49 y50886ex99-6.txt GUIDELINES 1 EXHIBIT 99.6 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU) TO GIVE THE PAYER.--Social security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. All "Section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service.
- ------------------------------------------------------------ GIVE THE NAME AND SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ------------------------------------------------------------ 1. Individual The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, the first individual on the account(l) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable savings The grantor- trust account (grantor is also trustee(l) trustee) b. So-called trust account that is The actual owner(l) not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - ------------------------------------------------------------ 6. Sole proprietorship The owner(3) 7. A valid trust, estate, or pension The legal entity(4) trust 8. Corporate The corporation 9. Association, club, religious, The organization charitable, educational, or other tax-exempt organization 10. Partnership The partnership 11. A broker or registered nominee The broker or nominee 12. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local or government, school district, or prison) that receives agricultural program payments - ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. if only one person on a joint account has a social security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number (if you have one). (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. 1 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 -- (CONTINUED) OBTAINING A NUMBER If you don't have a taxpayer identification number, obtain Form SS-5, Application for a Social Security Card, at the local Social Security Administration office, or Form SS-4, Application for Employer Identification Number, by calling 1 (800) TAX-FORM, and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from withholding include: - An organization exempt from tax under Section 501(a), an individual retirement account (IRA), or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2). - The United Sates or a state thereof, the District of Columbia, a possession of the United States, or a political subdivision or wholly-owned agency or instrumentality of any one or more of the foregoing. - An international organization or any agency or instrumentality thereof. - A foreign government or any political subdivision, agency or instrumentality thereof. Payees that may be exempt from backup withholding include: - A corporation. - A financial institution. - A dealer in securities or commodities required to register in the United States, the District of Colombia, or a possession of the United States. - A real estate investment trust. - A common trust fund operated by a bank under Section 584(a). - An entity registered at all times during the tax year under the Investment Company Act of 1940. - A middleman known in the investment community as a nominee or custodian. - A futures commission merchant registered with the Commodity Futures Trading Commission. - A foreign central bank of issue. - A trust exempt from tax under Section 664 or described in Section 4947. Payments of dividends and patronage dividends generally exempt from backup withholding include: - Payments to nonresident aliens subject to withholding under Section 1441. - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. - Section 404(k) payments made by an ESOP. Payments of interest generally exempt from backup withholding include: - Payments of tax-exempt interest (including exempt-interest dividends under Section 852). - Payments described in Section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under Section 1451. - Payments made by certain foreign organizations. Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting are also exempt from backup withholding. For details, see Sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 605ON and the regulations thereunder. EXEMPT PAYEES SHOULD COMPLETE A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. Furnish your taxpayer identification number, write "Exempt" in Part II, sign and date the form and return it to the payer. PRIVACY ACT NOTICE.--Section 6109 requires you to provide your correct taxpayer identification number to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your return and may also provide this information to the Department of Justice for civil and criminal litigation, and to cities, states, and the District of Columbia to carry out their tax laws. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE 2 -----END PRIVACY-ENHANCED MESSAGE-----