-----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, HGHTJviBD8cxupHLsWucyjzC+lEJ12NgwbNtX0HVCthWIcsFjIY62SQTERPJDv21 FQNxn/a007IArxlAFM9hHg== 0000950109-01-506017.txt : 20020413 0000950109-01-506017.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950109-01-506017 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011231 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL SUGAR CO /NEW/ CENTRAL INDEX KEY: 0000831327 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 740704500 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10307 FILM NUMBER: 1825995 BUSINESS ADDRESS: STREET 1: ONE IMPERIAL SQ STE 200 STREET 2: P O BOX 9 CITY: SUGAR LAND STATE: TX ZIP: 77487 BUSINESS PHONE: 2814919181 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL HOLLY CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL SUGAR CO /TX/ DATE OF NAME CHANGE: 19880606 10-K405 1 d10k405.txt FORM 10-K FOR YEAR ENDED 09/30/2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended September 30, 2001 Commission File No. 1-10307 IMPERIAL SUGAR COMPANY (Exact name of registrant as specified in its charter) Texas 74-0704500 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Imperial Square, 8016 Highway 90-A, P.O. Box 9, Sugar Land, Texas 77487-0009 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 491-9181 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered - ------------------- ------------------- None Not applicable
Securities registered pursuant to Section 12(g) of the Act: Common Stock, without par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [_] There were 10,000,000 shares of the registrant's common stock outstanding on December 28, 2001. The aggregate market value of the voting stock held by non-affiliates of the registrant on December 28, 2001, based on the last reported trading price of the registrant's common stock on the OTC Bulletin Board on that date, was approximately $50 million. For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for registrant's 2002 Annual Shareholders Meeting are incorporated by reference into Part III of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I ITEM 1 Business............................................................................. 1 ITEM 2. Properties........................................................................... 12 ITEM 3 Legal Proceedings.................................................................... 12 ITEM 4 Submission of Matters to a Vote of Security Holders.................................. 12 Executive Officers of the Registrant................................................. 13 PART II ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters................ 15 ITEM 6. Selected Financial Data.............................................................. 17 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk............................ 26 ITEM 8. Financial Statements and Supplementary Data.......................................... 28 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 28 PART III ITEM 10. Directors and Executive Officers of the Registrant................................... 29 ITEM 11. Executive Compensation............................................................... 29 ITEM 12. Security Ownership of Certain Beneficial Owners and Management....................... 29 ITEM 13. Certain Relationships and Related Transactions....................................... 29 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................... 30
----------------- Forward-Looking Statements Statements regarding market prices and margins, future operating results, sugarbeet acreage, operating efficiencies, future government action, cost savings, the future status of financing arrangements, our liquidity and ability to finance our operations, proposed sales of assets or businesses, and other statements that are not historical facts contained in this report on Form 10-K are forward-looking statements. We identify forward-looking statements in this report by using the following words and similar expressions: . expect . project . estimate . believe . anticipate . plan . intend . could . should . may . predict . budget.
Forward-looking statements involve risks, uncertainties and assumptions, including, without limitation, market factors, energy costs, the effect of weather and economic conditions, farm and trade policy, our ability to realize planned cost savings, the available supply of sugar, available quantity and quality of sugarbeets, court decisions and actions, the results of negotiations, actual or threatened acts of terrorism or armed hostilities and other factors detailed elsewhere in this report and in our other filings with the SEC. Many of such factors are beyond our ability to control or predict. Management cautions against placing undue reliance on forward-looking statements or projecting any future results based on such statements or present or future earnings levels. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All forward-looking statements in this Form 10-K are qualified in their entirety by the cautionary statements contained in this section and elsewhere in this report. i PART I ITEM 1. Business Overview Imperial Sugar Company is the largest processor and marketer of refined sugar in the United States and is a leading distributor of sugar, sauces, seasonings, drink mixes and desserts to the foodservice industry. On August 29, 2001, Imperial Sugar and substantially all of its subsidiaries emerged from protection under the U.S. Bankruptcy Code, under which they filed for relief on January 16, 2001. Under our plan of reorganization, our old common stock was canceled, our bondholders and some of our creditors received 98% of the stock of our reorganized company and some of our creditors received reduced cash and deferred payment settlements. Upon emergence from bankruptcy, our debt aggregated approximately $230 million. Our debt agreements contain various financial covenants which, among other things, require that we maintain compliance with certain financial ratios and limits. The financial covenants were set at levels based on financial projections prepared in connection with our plan of reorganization, become more restrictive over time and do not accommodate significant downward variations in operating results. Our plan of reorganization and the related financial projections were predicated on the improvements in the domestic refined sugar market from the historic lows recently experienced which, along with the deleveraging effects of the reorganization, are expected to return our company to a more sound financial basis. We have a very limited operating history since our emergence from bankruptcy, and the refined sugar market, while significantly improved over the prior year, has not demonstrated that it will attain and sustain the levels included in our projections. Consequently, there can be no assurances that we will achieve the results included in our projections. While we are currently in compliance with all financial covenants of our debt agreements, our current forecast indicates that we may not meet certain of these covenants during fiscal 2002 absent significant asset sales. Should we not achieve the compliance targets, we may be required to request an amendment of the agreements or a waiver of non-compliance from our lenders and there are no assurances that our lenders will be willing to provide such waiver or amendment. We have applied reorganization and fresh start accounting adjustments to our consolidated balance sheet as of August 29, 2001. Under fresh start accounting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date fresh start accounting is applied. We had net losses during each of our past four fiscal years. These losses have been attributable to a number of factors, including low refined sugar prices, high sugarbeet costs, low margins between raw sugar and refined sugar prices, abnormal weather affecting crop yields, sugarbeet quality, high energy costs, plant closure costs and debt service costs. Our return to profitability depends in part on the successful implementation of our reorganization plan and on other events beyond our control, including competition and government policies. We operate in two domestic business segments--the sugar segment, which produces and sells refined sugar and related products, and the foodservice segment, which sells and distributes numerous products to foodservice customers. For the year ended September 30, 2001, our sugar segment accounted for approximately 77% and our foodservice segment accounted for approximately 23% of our consolidated net sales. In April 2001, we sold our nutritional products business, which accounted for $34 million of net sales for the year ended September 30, 2001, or approximately 15% of net sales for our foodservice segment prior to the disposition. In December 2001, we sold our custom-assembled and packaged disposable meal kits business, which accounted for $27 million, or 7.6%, of net sales for our foodservice segment for the year ended September 30, 2001. On a pro forma basis after giving effect to these sales, segment sales for the year ended September 30, 2001 would have been 80% for our sugar segment and 20% for our foodservice segment. We manage our two segments separately because each business requires different production techniques and marketing strategies. Please read the segment information in note 13 of our consolidated financial statements which we incorporate into this discussion of our business. 1 We refine raw cane sugar at refineries located in Texas, Georgia and Louisiana and produce beet sugar at beet sugar factories located in California, Wyoming and Montana. For the year ended September 30, 2001, we sold approximately 50 million hundredweight ("cwt") of refined sugar. Our foodservice segment currently operates five facilities in California, Georgia, Indiana, Iowa and Ohio. We offer a broad product line and sell to a wide range of customers directly and through wholesalers and distributors. Our sugar segment customers include retail grocers and industrial customers, principally food manufacturers. Our foodservice segment customers include distributors, restaurants, healthcare institutions, geriatric centers and schools. Our sugar products include granulated, powdered, liquid and brown sugars sold in a variety of packaging options (one pound boxes to 100-pound bags, individual packets and in bulk) under various brands (Imperial(R), Holly(R), Spreckels(R), Dixie Crystals(R), Pioneer(R) and Wholesome Sweeteners(TM)) or private labels. In addition, we produce selected specialty sugar products, including Savannah Gold(TM) (a premium-priced, free-flowing brown sugar), Sucanat(TM) (sugar milled from organically grown sugar cane) and specialty sugars used in confections and icings. Our foodservice segment sells sugar in packages from 50-pound bags to individual packets to foodservice customers, along with complementary non-sugar products, including salt, pepper and other seasonings, non-nutritive sweeteners, non-dairy creamers, sauces, drink mixes and desserts. We have a broad customer base and no single customer accounted for 10% or more of our consolidated sales for the year ended September 30, 2001. Imperial Sugar Company was incorporated in 1924 and is the successor to a cane sugar plantation and milling operation begun in Sugar Land, Texas in the early 1800s that began producing granulated sugar in 1843. In 1988, we purchased Holly Sugar Corporation and in April 1996, we acquired Spreckels Sugar Company. We completed our acquisition of Savannah Foods & Industries, Inc. in December 1997 and we acquired Wholesome Sweeteners L.L.C. in September 1998 and Diamond Crystal Specialty Foods, Inc. in November 1998. Overview of the Sugar Industry Refined sugar can be produced by either processing sugarbeets or refining raw sugar produced from sugar cane. The profitability of cane sugar and beet sugar operations is affected by government programs designed to support the price of domestic crops of sugar cane and sugarbeets. These government programs affect cane sugar and beet sugar operations differently. Cane Sugar Production Process Sugar cane is grown in tropical and semitropical climates throughout the world. Sugar cane is processed into raw sugar by raw cane mills promptly after harvest. Raw sugar is approximately 98% sucrose and may be stored for long periods and transported over long distances without affecting its quality. Raw cane sugar imports currently are limited by United States government programs. Cane sugar refineries like those we operate purify raw sugar to produce refined sugar. Operating results of cane sugar refineries are driven primarily by the spread between raw sugar and refined sugar prices. Beet Sugar Production Process In contrast to sugar cane, sugarbeets can grow wherever a five-month growing season is possible. In the United States, sugarbeets are grown in California, Colorado, Idaho, Michigan, Minnesota, Montana, Nebraska, North Dakota, Ohio, Oregon, South Dakota, Washington and Wyoming. Harvest periods depend on the growing area, but generally are in the early fall, except in California, where spring and summer harvests also occur. Sugarbeets are highly perishable and must be processed into refined sugar quickly after harvest to avoid deterioration. Sugarbeets may be stored in piles for short periods while awaiting processing where temperatures are sufficiently cool. Sugarbeets are converted to refined sugar through a single continuous process at beet sugar factories. Beet sugar factories are located near the areas in which sugarbeets are grown in order to reduce freight costs and the risk of deterioration before processing. 2 Our staggered harvest seasons with respect to the sugarbeet acreage supplying our sugarbeet production facilities allow us to produce beet sugar year-round even though the production campaign at any single facility generally lasts no more than 180 days. Operating results are driven primarily by the quantity and quality of sugarbeets dedicated to the factory and the net sales prices received for the refined beet sugar. Under industry practice, the beet processor shares a portion of the net sales price with growers through various participation or recovery contracts or cooperative arrangements. Government Regulation Federal government programs have existed to support the price of domestic crops of sugarbeets and sugar cane almost continually since 1934. The regulatory framework that currently affects the domestic sugar industry includes the Federal Agricultural Improvement and Reform Act of 1996, or the Farm Bill. The Farm Bill provides for loans on sugar inventories to first processors (i.e., raw cane sugar mills and beet processors) and implements a tariff rate quota that limits the amount of raw and refined sugar that can be imported into the United States. In addition, the North American Free Trade Agreement, or NAFTA, adopted in 1994, limits the amount of sugar that can be imported to and exported from Mexico. To date, NAFTA had a lesser impact on the United States sugar market than the Farm Bill. However, NAFTA may have a greater impact on both demand and supply in the future as its provisions come into effect. Please read "--Sugar Legislation and Other Market Factors." Domestic Demand Domestic demand for refined sugar has increased each year since 1986 (after an earlier period in which sugar consumption fell due primarily to a switch by soft-drink manufacturers from refined sugar to high-fructose corn syrup), and the annual rate of growth over the five-year period ended September 30, 2001 has ranged from 1.5% to 2.0%. Domestic Supply Reduced demand in the early 1980s due primarily to the switch of soft drink manufacturers to high-fructose corn syrup was absorbed principally by capacity reductions in the cane sugar refining sector. Approximately one-third of domestic cane sugar refining capacity was eliminated between 1981 and 1988. Cane sugar refining capacity remained relatively flat from 1988 until 1998, when construction of a refinery in Florida with a rated annual capacity of approximately 10 million cwt was completed. Growth in refined sugar demand during the last decade has been largely satisfied through increased beet sugar production. In recent years, there have been a number of expansions to existing beet sugar factories to allow for an increase in acreage dedicated to sugarbeets. Domestic Refined Sugar Prices Given the existing domestic supply and demand situation and the current status of government regulation, the price of refined sugar in the United States in recent years has been driven primarily by the amount of beet sugar supply. Historically, good crop years have led to relatively soft refined sugar prices, and weak crop years have led to relatively strong refined sugar prices. Our Business Sugar Segment Imperial Sugar is the leading processor and marketer of refined sugar in the United States. Our sugar segment customers include both retail grocers and industrial customers, principally food manufacturers. The principal product line in our sugar segment is refined sugar, which accounted for approximately 72% of our consolidated net sales and approximately 94% of sugar segments sales for twelve months ended September 30, 2001. We have a relatively well-balanced combination of cane sugar and beet sugar sales, with cane sugar 3 constituting approximately 70% and beet sugar constituting 30% of our refined sugar sales for the year ended September 30, 2001. We market our sugar products to retail grocery and industrial customers by direct sales and through brokers. Grocery Sales--We produce and sell granulated white, brown and powdered sugar to grocery customers in packages ranging from one-pound boxes to 25-pound bags. Retail packages are marketed under the trade names: . Imperial(R) . Pioneer(R) . Spreckels(R) . Holly(R) . Dixie Crystals(R) . Wholesome Sweeteners(TM)
and also are sold under retailers' private labels. We generally sell private label packaged sugar, which represents a significant percentage of our grocery sales, at prices lower than those for branded sugar. Our business strategy is to seek to capitalize on our well-known brands to increase sales of our higher-margin branded products as a percentage of total grocery sales. For the year ended September 30, 2001, our sales of refined sugar products to retail grocery customers accounted for approximately 31% of our sugar segment sales. Industrial Sales--We produce and sell refined sugar, molasses and other ingredients to industrial customers, principally food manufacturers, in bulk, packaged or liquid form. Food manufacturers principally purchase sugar for use in the preparation of confections, baked products, frozen desserts, canned goods and various other food products. Historically, we have made the majority of our sales to industrial customers under fixed price, forward sales contracts with terms of one year or less. Industrial sales generally provide lower margins than grocery sales. For the year ended September 30, 2001, our sales of refined sugar products to industrial customers accounted for approximately 63% of our sugar segment sales. Specialty Product Sales--We also produce and sell specialty sugar products to grocery and industrial customers. Specialty sugar products include: . Savannah Gold(TM) (a premium-priced free flowing brown sugar marketed primarily to industrial customers) . edible molasses . syrups . sucanat (sugar milled from organically grown sugar cane) . sugar produced from organically grown sugar cane . specialty sugars used in confections, fondants and icings. We also market artificial sweeteners including Sweet Thing(R), a saccharin-based sweetener, and Sweet Thing II(R), an aspartame-based sweetener. Foodservice Segment Our foodservice segment sells numerous products to our foodservice customers ranging from 50-pound bags of sugar to individual packets of sugar, salt, pepper, non-dairy creamer, sauces, seasonings, drink mixes and desserts. Our foodservice segment customers include restaurants, healthcare institutions, geriatric centers, schools, and other institutions. During the year ended September 30, 2001, sugar products sold in our foodservice segment accounted for approximately 13% of our consolidated net sales and for approximately 58% of our foodservice segment sales. In April 2001, we sold our nutritional products business to Hormel Foods, Inc. In December 2001, we sold our 4 custom-assembled and packaged disposable meal kits business to Tyco International (US) Inc. The nutritional products business accounted for approximately 13% of our foodservice segment sales for the year ended September 30, 2000. For the year ended September 30, 2001, the nutritional products business accounted for approximately 9.5% and the disposable meal kits business accounted for approximately 7.6% of net sales for our foodservice segment. By-Products Our sugar segment sells by-products from our beet sugar processing as livestock feeds to dairymen, livestock feeders and livestock feed processors. These by-products include beet pulp and molasses. The major portion of the beet pulp and molasses produced from sugarbeet operations is sold during and shortly after the sugar-making campaigns. By-products from beet sugar processing are marketed in the United States, Europe and Japan. Both the domestic and export markets are highly competitive because of the availability and pricing of by-products of other sugarbeet processors and corn wet millers, as well as other livestock feeds and grains. The market price of our by-products relative to the price of competitive feeds and grains is the principal competitive determinant. Among other factors, the weather and seasonal abundance of such feeds and grains may affect the market price of by-products. Beet Seed We also develop, produce and market commercial seed to beet growers under contract to us as well as to growers under contract to grow for other beet sugar processors. We do not sell, nor do we authorize our growers to use, genetically modified seed in their production programs. Our beet seed operations are conducted primarily in Sheridan, Wyoming and Tracy, California. We also are active in sugarbeet disease control, as sugarbeet growing areas have varying levels of diseases that affect sugarbeet quality and quantity as well as the cost of processing. We have a sugarbeet plant pathology disease control research laboratory in Tracy, California that develops and implements disease control strategies for all of our sugarbeet growing areas. We also have an agreement with ADVANTA SEEDS, a partnership of D.J. van der Have B.V. and Societe Europeenne de Semences, N.V., S.A., granting ADVANTA access to our proprietary beet seed breeding material for varietal seed development in exchange for the exclusive marketing rights to ADVANTA's beet seed in certain markets in the United States, Canada and Mexico. Sales and Marketing We sell products in our sugar segment and in our foodservice segment directly through our sales force and through independent brokers. We maintain sales offices at our offices in Sugar Land, Texas and Savannah, Georgia and at regional locations across the United States. We consider our marketing and promotional activities important to our overall sales effort. We advertise our brand names in both print and broadcast media and distribute various promotional materials, including discount coupons and compilations of recipes. 5 Manufacturing Facilities We own and operate three cane sugar refineries and nine sugarbeet factories. Each facility is served by adequate transportation and is maintained in good operating condition. The facilities operate continuously when in operation. The following table shows the location and capacity of each of our refineries and processing plants:
Approximate Daily Melting Capacity Cane Sugar Refineries (Pounds of Raw Sugar) - --------------------- --------------------- Port Wentworth, Georgia 6,300,000 Gramercy, Louisiana.... 4,200,000 Sugar Land, Texas...... 4,000,000 ---------- Total............... 14,500,000 ==========
Approximate Daily Slicing Capacity Beet Sugar Factories (Tons of Sugarbeets) - -------------------- -------------------- Brawley, California.. 9,000 Mendota, California.. 4,200 Caro, Michigan*...... 4,000 Carrollton, Michigan* 3,400 Sebewaing, Michigan*. 6,000 Croswell, Michigan*.. 4,000 Sidney, Montana...... 7,000 Torrington, Wyoming.. 5,700 Worland, Wyoming**... 3,600 ------ Total............. 46,900 ======
- -------- * Factory owned by Michigan Sugar Company, a subsidiary of Imperial Sugar; currently leased and proposed for sale to Michigan Sugar Beet Growers, Inc. ** Leased to Washakie Beet Growers Association for 2001 crop season. We have concluded that our long-term interests would be best served by the sale or lease of certain beet processing operations. Following our filing for relief under the U.S. Bankruptcy Code, we explored avenues for rationalizing capacity, reducing cash flow volatility and shifting our focus to high-value functions such as marketing and distribution. To that end, in August 2001, we entered into an agreement to sell our Michigan Sugar Company subsidiary to a grower-owned cooperative, Michigan Sugar Beet Growers, Inc. In this connection, we currently are leasing the four Michigan factories to the cooperative and are managing and operating these factories for the cooperative. The lease agreement provides that the cooperative (1) pay all expenses necessary to operate the four factories and (2) pay us a lease management fee based on the number of tons of sugarbeets received at these factories for processing. We currently are renegotiating the agreement for the sale of Michigan Sugar Company with the cooperative and have reached an agreement in principle with respect to revised terms of the sale. Under the revised terms, we would receive $25 million cash and $20 million in deferred payments, and the cooperative would assume $18 million in industrial development bonds. We would enter into a sales and marketing agreement under which we would continue to market the refined sugar processed by Michigan Sugar Company following the sale. Any renegotiated agreement would require approval from our lenders. We cannot assure you that we will renogotiate successfully the definitive agreement for the sale of Michigan Sugar, that our lenders will approve any renegotiated agreement, or that the sale will occur. Whether we sell or continue to lease these factories, we expect to continue to market all refined sugar products manufactured by these factories for a minimum period of ten years. 6 We also have an agreement with the Washakie Beet Growers Association under which the association is leasing our beet processing factory in Worland, Wyoming for the 2001 crop year for a lease payment of $500,000, payable in five monthly installments. The growers are responsible for all factory operating expenses. We are providing marketing and management services to the growers association. The bankruptcy court approved this agreement. We currently are discussing the possible sale of this factory to the growers association, but have not reached a definitive agreement. We believe these proposed disposition transactions are in our best interest because they are designed to reduce our financial leverage, reduce our exposure to the agricultural and operational risks of operating the factories as well as cash flow volatility, and allow us to reduce selling, general and administrative costs. We operate an ion exclusion facility in Hereford, Texas to separate refined sugar from molasses, and also use the facility as a distribution center. We ceased sugar production at our Clewiston, Florida cane sugar refinery in October 2000, and continue to use the facility as a distribution center. We ceased sugar production at our Tracy and Woodland, California beet sugar facilities in December 2000 and currently use these facilities as distribution centers. We also operate five foodservice manufacturing facilities. The location and approximate square footage of our foodservice manufacturing facilities, each of which we own, is:
Foodservice Manufacturing Facilities Square Feet - ------------------------------------ ----------- Savannah, Georgia.................. 314,500 Bondurant and Mitchellville, Iowa.. 152,513 Perrysburg, Ohio................... 131,000 Visalia, California................ 101,500 Indianapolis, Indiana.............. 63,240
Raw Materials and Processing Requirements Raw Cane Sugar We currently purchase raw cane sugar from domestic sources of supply located in Louisiana, Florida and Texas, as well as from various foreign countries. The availability of foreign raw cane sugar is determined by the import quota level designated by applicable regulation. The terms of raw cane sugar contracts vary. Raw cane sugar purchase contracts can provide for the delivery of a single cargo or for multiple cargoes over a specified period or a specified percentage of the seller's production over one or more crop years. Contract terms may provide for fixed prices but generally provide for prices based on the futures market during a specified period of time. The contracts provide for a premium if the quality of the raw cane sugar is above a specified grade or a discount if the quality is below a specified grade. Contracts generally provide that the seller pays freight, insurance charges and other costs of shipping. We contract to purchase raw cane sugar substantially in advance of the time we deliver the refined sugar produced from that purchase. Historically, the majority of our industrial sales are under fixed price, forward sales contracts. In order to mitigate price risk in raw and refined sugar commitments, we manage the volume of refined sugar sales contracted for future delivery in relation to the volume of raw cane sugar purchased for future delivery by entering into forward purchase contracts to buy raw cane sugar at fixed prices and by using the raw sugar futures market. We have access to approximately 350,000 short tons of aggregate raw sugar storage capacity, including 215,000 short tons of storage capacity at our Port Wentworth, Georgia refinery. At Port Wentworth, we have the ability to segregate our raw sugar inventory, which allows us to store bonded sugar for re-export. This capability facilitates our participation in the re-export market. We have been active in such market in the past and may be active in the future when pricing and market conditions are favorable. 7 Sugarbeet Purchases In fiscal 2001, we purchased sugarbeets from over 1,800 independent growers, which supplied our factories with sugarbeets from approximately 280,000 acres. We purchase sugarbeets under contracts, the terms of which are negotiated with associations representing growers. We contract for acreage prior to the planting season based on estimated demand, marketing strategy, processing capacity and historical crop yields. The contract we use in the western United States provides for payments to the grower based on the sugar content of the sugarbeets delivered by each grower and the net selling price of refined beet sugar during the specified contract year. Most grower contracts provide for a premium to the growers for delivering beets of superior quality. The net selling price is the gross sales price less certain marketing costs, including packaging costs, brokerage, freight expense and amortization costs for certain facilities used in connection with marketing. Use of a participating contract reduces our exposure to price risks on our refined sugar inventory by causing the price we pay on our sugarbeet purchases to vary with the price received for refined sugar. Our beet sugar operations depend on the quantity, quality and proximity of sugarbeets available to our factories. Sugarbeet acreage varies depending on factors such as prices anticipated by growers for sugarbeets versus alternative crops, prior crop quality, productivity, availability of irrigation and weather conditions. In addition, the quantity and cost of refined sugar subsequently produced from the sugarbeet crop may be materially affected by the acreage harvested, disease, insects and weather conditions during the growing, harvesting, processing and storage season. Once the sugarbeets are harvested, we purchase them and, in the Rocky Mountains, store them in piles until processed. Under sugarbeet contracts we use in the Rocky Mountains, the beet growers share the risk of deterioration of the stored sugarbeets with us. However, we contractually accept about one-half of the risk with respect to stored sugarbeets in these areas and all of the storage risk in California. We believe that the geographic diversity of our growing areas reduces the risk that adverse conditions will occur company-wide; however, we cannot assure you that our results of operations will not be adversely affected in future years by deterioration of stored sugarbeets. Energy The primary fuel we use is natural gas, although some of our factories use significant amounts of coal. We generate a substantial portion of the electricity used at our refineries and factories. We can use fuel oil at certain locations both as an alternative energy source when the price is more attractive and as a backup to natural gas in the event of curtailment of gas deliveries. We typically purchase natural gas and coal supplies under contracts for terms of one year or more that do not contain minimum quantity requirements. Pricing of natural gas contracts generally is indexed to a spot market index. We have used financial tools such as futures, swaps and caps to stabilize the price for gas purchases under indexed contracts, although our lack of credit availability during much of fiscal 2001 limited our ability to engage in certain hedging transactions. Coal is available in abundant supply domestically, and we are able to purchase coal competitively. We own a royalty interest in a coal seam methane gas project in the Black Warrior Basin of Alabama as an additional indirect hedge against futures natural gas price increases. Gas royalties received during the year ended September 30, 2001 were approximately $590,000. During the winter of 2000, we were adversely affected by higher energy prices throughout the regions in which we operate processing or manufacturing plants, most particularly in California, where severe energy shortages resulted in significantly higher prices. High energy prices could affect us adversely in future periods. 8 Other Raw Materials We use foundry coke and limestone in the beet sugar extraction process. We generally purchase coke under contracts with one to three-year terms and use rail transportation to deliver the coke to factories. Domestic coke supplies may become tighter due to environmental restrictions; however, we have the option of converting existing coke-fired equipment to natural gas should the availability and economics of coke so dictate. We own a 50% share of a limestone quarry in Warren, Montana that supplies our Sidney, Montana and Worland, Wyoming factories with their annual limestone requirements. This quarry normally does not supply our other factories because of high freight costs. We generally purchase limestone requirements for our other factory operations from independent sources under contracts with one to five-year terms. Previously, we operated a limestone quarry in Cool, California that supplied our Northern California beet processing factories. We sold the Cool, California quarry for $100,000, plus assumption of certain environmental remediation liability, in September 2001. Seasonality Sales of refined sugar are moderately seasonal, normally increasing during the summer months because of increased demand of various food manufacturers, including fruit and vegetable packers. Shipments of specialty products (brown and powdered sugar) increase in the fourth calendar quarter due to holiday baking needs. Although the refining of cane sugar is not seasonal, the production of beet sugar is a seasonal activity. Each of our beet sugar factories operates during sugar-making campaigns, which generally total 120 days to 180 days in length each year, depending on the supply of sugarbeets available to the factory. Because of the geographical diversity of our manufacturing facilities, we generally are able to produce beet sugar year-round. While the seasonal production of sugarbeets requires us to store significant refined sugar inventory at each factory, the geographic diversity and staggered periods of production enable our total investment in inventories to be reduced. Additionally, these factors reduce the likelihood that adverse weather conditions will affect all our productive areas simultaneously and aid in distribution. Sales of our foodservice products are not significantly seasonal. Sugar Legislation and Other Market Factors Our business and results of operations are substantially affected by market factors, principally the domestic prices for refined sugar and raw cane sugar and the quality and quantity of sugarbeets available to us. These market factors are influenced by a variety of forces, including the number of domestic acres contracted to grow sugarbeets, prices of competing crops, weather conditions and United States farm and trade policies. The principal legislation currently supporting the price of domestic crops of sugar cane and sugarbeets is the Farm Bill, which became effective July 1, 1996 and extended the sugar price support program for sugar cane and sugarbeets until June 30, 2003. CCC Loans The Farm Bill obligates the Commodity Credit Corporation, or CCC, to make loans available annually to domestic first processors of sugar on existing sugar inventories from the current crop year production. CCC loans under the Farm Bill are recourse loans unless the tariff rate quota for imported sugar is set at a level in excess of 1.5 million short tons raw value, or STRV. If the tariff rate quota exceeds 1.5 million STRV, CCC loans will become non-recourse and processors will be obligated to pay participating growers a predetermined minimum support price. CCC loans mature September 30 of each year and in no event more than nine months after the month in which the loan was made. Under the Farm Bill, processors may forfeit sugar that secures CCC loans to the USDA in lieu of repaying the loans. If the tariff rate quota is below 1.5 million STRV and the value of the sugar forfeited as collateral for the loan is inadequate to cover the loan amount, the USDA may proceed against 9 the processor to recover the difference between the loan amount and the proceeds from the sale of the forfeited sugar. Additionally, under the rules governing the CCC loans, a processor will be required to pay a penalty of approximately one cent per pound of sugar forfeited. From July to September 2000, a total of 598,000 short tons of refined sugar and 305,000 STRV of raw sugar were forfeited by various industry participants in full satisfaction of outstanding loans from the CCC in lieu of repaying the loans because the forfeited price exceeded the then current market price. We forfeited 100,000 short tons of refined sugar in fiscal 2000 in full satisfaction of $47.1 million of CCC loans. We did not borrow from the CCC in fiscal 2001. Tariff Rate Quota Under the Farm Bill, the USDA uses the import quota and the forfeiture penalty to affect sugar price supports and prevent forfeitures under the CCC loan program. The USDA annually implements a tariff rate quota for foreign sugar, which has the effect of limiting the total available supply of sugar in the United States. The tariff rate quota controls the supply of raw sugar by setting a punitive tariff on all sugar imported for domestic consumption that exceeds the permitted imported quantity and is designed to make the importation of over-quota sugar uneconomical. To the extent a processor sells refined sugar for export from the United States, it is entitled to import an equivalent quantity of non-quota eligible foreign raw sugar. The tariff rate quota for sugar to be allowed entry into the United States during the year ending September 30, 2002 is 1.42 million STRV. The USDA currently determines the quota by targeting an ending stocks-to-use ratio (the projected ratio of available sugar inventories to annual consumption). A portion of the quota is made available immediately with other allocations available over time depending on domestic production of raw cane sugar and refined beet sugar. Other Government Actions In an effort to reduce the oversupply of refined sugar, the U.S. government implemented a tender process and purchased a total of 132,000 short tons of refined sugar in June 2000, including 82,000 short tons we sold. In the fall of 2000, the government used a payment-in-kind, or PIK, program to dispose of part of the refined sugar owned by the government, exchanging with growers 277,000 short tons of refined sugar for not harvesting 102,000 acres planted. In the fall of 2001, the government initiated another PIK program, exchanging 194,000 short tons of refined sugar for agreements not to harvest 90,000 acres of sugarbeets. NAFTA The North American Free Trade Agreement contains provisions that allow Mexico to increase its sugar exports to the United States to up to 275,576 STRV, if Mexico is projected to produce a net surplus of sugar. The terms of NAFTA restricted Mexico's exports, which may be in the form of raw or refined sugar, to the United States to no more than 25,000 STRV annually through the year 2000. The tariff rate quota for the year ending September 30, 2002 allocates 163,140 STRV of sugar to Mexico pursuant to NAFTA. Our management believes that increased importation of raw cane sugar from Mexico could benefit us because the proximity of our Sugar Land, Texas refinery to Mexico could allow us to import raw cane sugar more economically than our competition. However, if imports are in the form of refined sugar, the domestic refined sugar market may be adversely affected. Environmental Regulation Our operations are governed by various federal, state and local environmental regulations. These regulations impose effluent and emission limitations, and requirements regarding management of water resources, air resources, toxic substances, solid waste, and emergency planning. Environmental Permits We have obtained or are making application for the environmental permits required under federal, state and local regulations. We have filed environmental permit applications as required in California, Wyoming, Montana, Michigan, Texas, Georgia, Louisiana, and Florida. 10 Remediation at Operating Facilities The soil and ground water at our Mendota, California facility has been found to have elevated concentrations of salts. We have developed a prevention plan to install a clay cap on the areas of concern and to treat the affected ground water. The prevention plan will be accomplished over a 20- to 30-year period with an expected annual cost ranging from $40,000 to $120,000. We have recorded a liability for the estimated costs of this project. Our Torrington, Wyoming facility has made significant operational modifications in order to meet more restrictive state solid waste and ground water regulations. Remediation at Non-Operating Facilities As a result of the cessation of sugar production at our facilities in Clewiston, Florida, Hamilton City, California, Tracy, California and Woodland, California, we expect we will be required to incur costs to remediate certain production areas, including the removal or capping of certain former production settling ponds in accordance with waste discharge requirements. We continue discussions with the California Regional Water Quality Control Board concerning remediation for our Tracy and Woodland facilities. Additional expenditures also may be required to comply with future environmental protection standards, although the amount of any further expenditures cannot be fully estimated. We recorded a liability of $6.2 million for estimated environmental costs in connection with the closure of these facilities. Research We operate research and development centers in Sugar Land, Texas and Savannah, Georgia where we conduct research relating to: . manufacturing process technology . factory operations . food science . new product development. In Savannah, we operate a "pilot plant" where we have developed sugar products co-crystallized with other flavors such as honey. We market the co-crystallized specialty products produced at the pilot plant. Competition Our sugar segment competes with other cane sugar refiners and beet sugar processors and, in certain product applications, with producers of other nutritive and non-nutritive sweeteners, such as aspartame, saccharin and acesulfam-k. Our foodservice segment competes with a broad and diverse variety of other foodservice suppliers. Both of our principal business segments are highly competitive, where the selling price and our ability to supply a customer's needs in a timely fashion are important competitive considerations. Employees At September 30, 2001, we employed approximately 3,250 year-round employees, of which approximately 250 were employed by our King Packaging subsidiary. In addition, we employ approximately 2,200 seasonal employees over the course of a year. While our Port Wentworth, Georgia refinery employs non-union labor, we have entered into collective bargaining agreements with union representatives with respect to the employees at our other sugar segment plants. Our Indianapolis, Indiana and Perrysburg, Ohio foodservice facilities operate under collective bargaining agreements, while the remainder of our foodservice facilities employ non-union labor. We believe our employee and union relationships are good. 11 ITEM 2. Properties We own each of our cane sugar refineries, sugar beet processing plants and foodservice manufacturing facilities. We own our corporate headquarters in Sugar Land, Texas and lease other office space and contract for throughput and storage at warehouses and distribution stations. We own additional acreage at our factories and refineries which is used primarily for settling ponds and as buffers from nearby communities or is leased as farm and pasture land. Substantially all of these assets are subject to liens securing our bank debt. We are actively marketing the real estate surrounding the Tracy and Woodland, California facilities. Please read "Item 1. Business--Manufacturing Facilities" and "--Raw Materials and Processing Requirements--Other Raw Materials." ITEM 3. Legal Proceedings We are a party to litigation and claims which are normal in the course of our operations. While the results of litigation and claims cannot be predicted with certainty, we believe the final outcome of such matters will not materially and adversely affect our consolidated results of operations or financial position. In accordance with our plan of reorganization, we are working to resolve the remaining disputed claims of our pre-petition trade creditors in the U.S. Bankruptcy Court for the District of Delaware. As we resolve disputed claims, we are distributing to the remaining pre-petition trade creditors cash or common stock as provided under the plan of reorganization. ITEM 4. Submission of Matters to a Vote of Security Holders None. 12 EXECUTIVE OFFICERS OF THE REGISTRANT The table below sets forth the name, age and position of our executive officers as of December 21, 2001. Our By-laws provide that each officer shall hold office until the officer's successor is elected or appointed and qualified or until the officer's death, resignation or removal by the Board of Directors.
Name Age Positions ---- --- --------- Robert J. McLaughlin... 69 President, Chief Executive Officer and Chairman of the Board Douglas W. Ehrenkranz.. 44 Executive Vice President William F. Schwer...... 54 Executive Vice President and General Counsel J. Chris Brewster...... 52 Managing Director and Chief Financial Officer Roger W. Hill.......... 62 Managing Director; President and CEO of Holly Sugar Benjamin A. Oxnard, Jr. 67 Managing Director; President and CEO of Savannah Foods W.J. "Duffy" Smith..... 46 Managing Director Mark S. Flegenheimer... 40 Vice President; President of Michigan Sugar Company H. P. Mechler.......... 48 Vice President--Accounting Karen L. Mercer........ 39 Vice President and Treasurer Alan K. Lebsock........ 49 Controller Roy L. Cordes, Jr...... 54 Secretary and Deputy General Counsel
Robert J. McLaughlin became Chairman of the Board of Directors in August 2001 and became President and Chief Executive Officer in October 2001. He founded The Sutter Group in 1982, a management consulting company that focuses on enhancing shareholder value. Previously, Mr. McLaughlin served as President and Chief Executive Officer of Fibreboard Corporation, a manufacturer of lumber, plywood and paper products. Mr. Ehrenkranz became Executive Vice President in July 1999. Mr. Ehrenkranz joined Imperial in April 1995 as Director of Sales, Planning & Market Development and became Vice President--Sales and Marketing in September 1995 and Managing Director in April 1997. Prior to joining Imperial, Mr. Ehrenkranz was Marketing Manager with PepsiCo's Taco Bell subsidiary from 1993 to 1994 and held various senior sales management positions with Procter and Gamble from 1979 to 1993. Mr. Schwer became Executive Vice President in July 1999 and served as Managing Director from October 1995 to July 1999, and General Counsel since 1989. He also served as Senior Vice President from 1993 to 1995. Mr. Schwer joined Holly as Assistant General Counsel in 1988. Mr. Brewster became a Managing Director and Chief Financial Officer in November 2001. Prior to joining Imperial, from March 2000 to September 2001, he served as President and Chief Executive Officer of WorldOil.com Inc., an internet-based electronic commerce portal for oil and gas industry products and services. Mr. Brewster was a partner with Bellmeade Capital Partners, LLC, a merchant banking firm, from 1997 to March 2000. Mr. Brewster was Vice President and Chief Financial Officer of Sanifill, Inc., an international environmental services company, from 1992 to 1996, and Senior Vice President and Chief Financial Officer of National Convenience Stores, Inc., a retail grocer, from 1984 to 1992. Mr. Hill became a Managing Director in October 1995. He served as Executive Vice President from 1988 to 1995. Mr. Hill also has been President of Holly since 1988. Mr. Hill joined Holly in 1963 and served in various capacities, including Vice President--Agriculture and Executive Vice President. Mr. Oxnard became a Managing Director in February 1998 and President of Savannah Foods in October 1999. Since 1996, he had served as Senior Vice President--Raw Sugar of Savannah Foods. Mr. Oxnard joined Savannah Foods in 1983 as Vice President--Raw Sugar. 13 Mr. Smith joined Imperial as a Managing Director in September 1999. Prior to joining the Company, Mr. Smith was Senior Vice President--Worldwide Product Supply at Gerber Products Company from 1995 to 1999, was Vice President--Operations at Hostess Frito-Lay from 1993 to 1995 and was Vice President and General Manager at Campbell Soup Company Ltd. from 1992 to 1993. Mr. Flegenheimer became a Vice President of the Company and President of Michigan Sugar Company in October 1998. Mr. Flegenheimer joined Michigan Sugar in 1994 as Vice President of Administration and became Vice President and Chief Operating Officer in 1996. Mr. Mechler became Vice President--Accounting in April 1997. Mr. Mechler had been Controller since joining Imperial in 1988. Ms. Mercer became Vice President in April 1997 and has served as Treasurer since 1994. She joined Imperial in 1993. Mr. Lebsock became Controller in April 1997 and has been Controller for Holly since October 1990. From October 1984 to September 1990, he was Assistant Controller for Holly. Mr. Lebsock joined Holly in 1974. Mr. Cordes joined Imperial as Deputy General Counsel in September 1997. He became Secretary of Imperial in July 1998. Prior to joining the Company, Mr. Cordes was in private law practice from 1995 to 1997 and was County Judge in Fort Bend County, Texas from 1991 to 1994. 14 PART II ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters Recent Sales of Unregistered Securities On August 29, 2001, Imperial Sugar's plan of reorganization became effective. Under the plan of reorganization, an aggregate of 10,000,000 shares of common stock are issuable to persons who were common shareholders and creditors of Imperial Sugar immediately prior to effectiveness of the plan of reorganization. Under the plan of reorganization, warrants to purchase an aggregate of 1,111,111 shares of Imperial Sugar's common stock are issuable to persons who were common shareholders of Imperial Sugar immediately prior to effectiveness of the plan of reorganization. The warrants, which currently are neither priced nor issued, provide for the purchase of one share of common stock for each warrant, and will be exercisable at any time until their expiration on August 29, 2008. The warrant exercise price will be the quotient of the total of the allowed Class 5A and Class 5B (impaired unsecured) bankruptcy claims divided by 9,800,000 (the number of shares issuable to these claimants). If the allowed claims amount is not determined before March 1, 2002, the price will be calculated as the allowed plus disputed claim amounts on that date, divided by 9,800,000. While we cannot determine the warrant exercise price with certainty, we expect the exercise price will be between $30 and $35 per share of common stock. The shares and warrants issuable to common shareholders are issuable in exchange for shares of Imperial Sugar's common stock outstanding immediately prior to effectiveness of the plan of reorganization. The shares issuable to creditors are issuable in exchange for debt and other obligations of Imperial Sugar immediately prior to effectiveness of the plan of reorganization. The common stock and warrants issuable under the plan of reorganization are being issued in reliance on an exemption from the registration requirements of the Securities Act of 1933 provided by Section 1145(a)(1) of the U.S. Bankruptcy Code. Market Price of and Dividends on Common Equity and Related Stockholder Matters Our common stock currently is quoted on the OTC Bulletin Board under the symbol "IPSU". The Imperial Sugar common stock existing before our reorganization was listed and traded on the American Stock Exchange under the symbol "IHK." The American Stock Exchange halted trading of our common stock on December 13, 2000 and delisted our common stock on February 21, 2001. Our common stock did not trade from December 14, 2000 through February 21, 2001. On February 22, 2001, our common stock began trading on the OTC Bulletin Board. On August 29, 2001, all shares of Imperial Sugar common stock existing before our reorganization were canceled and new shares of Imperial Sugar common stock were issued. As of December 28, 2001, Imperial Sugar had 10,000,000 shares of common stock outstanding and had approximately 1,500 shareholders of record. The bid price of our common stock as quoted on the OTC Bulletin Board on December 28, 2001 was $7.45. On December 21, 2001, we filed an application with Nasdaq to list our common stock on the Nasdaq National Market. The following table contains information about the high and low sales price per share of our common stock both after and before our plan of reorganization became effective on August 29, 2001. We have not paid any cash dividends since the year ended September 30, 1999. Sales price information for periods on or before December 13, 2000 reflect prices reported by the American Stock Exchange. Sales price information for periods from February 22, 2001 to August 28, 2001 reflect quotes from the OTC Bulletin Board. Shares of our common stock existing after our reorganization became effective did not begin trading on the OTC Bulletin Board until October 11, 2001. Information about OTC bid quotations represents prices between dealers, does not include retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions. Quotations on the OTC Bulletin Board are sporadic and currently there is no established public trading market for Imperial Sugar's common stock. 15 After Reorganization--new common stock; 10,000,000 shares outstanding:
Sales Price ----------- High Low ---- --- Fiscal 2001 August 29-September 30, 2001 -- --
Before Reorganization--old common stock; 32,412,368 shares outstanding as of August 28, 2001:
Sales Price ----------- High Low ----- ----- Three months ended Fiscal 2000 December 31, 1999. $6.31 $2.94 March 31, 2000.... $4.00 $1.50 June 30, 2000..... $1.94 $0.94 September 30, 2000 $2.13 $1.00
Fiscal 2001 October 1--December 13, 2000 $1.31 $0.75 February 22--March 31, 2001. $0.39 $0.06 April 1--June 30, 2001...... $0.16 $0.06 July 1--August 28, 2001..... $0.38 $0.06
Dividend Policy Our current credit agreement prohibits the payment of dividends, other than dividends payable solely in our common stock, so long as any borrowings remain outstanding under the credit agreement. Unless we repay borrowings under the tranche B term loan, we will have borrowings outstanding under our restructuring credit facility until December 31, 2006. In addition, we currently do not anticipate paying dividends in the form of our common stock. Any determination to declare or pay dividends out of funds legally available for that purpose after termination or expiration of the restructuring credit facility will be at the discretion of our board of directors and will depend on our future earnings, results of operations, financial condition, capital requirements, any future contractual restrictions and other factors our board of directors deems relevant. 16 ITEM 6. Selected Financial Data The following selected consolidated financial information is derived from the consolidated financial statements of Imperial Sugar for periods both before and after emerging from bankruptcy protection in August 2001. This consolidated financial data should be read in conjunction with our consolidated financial statements including the related notes, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this report. The consolidated statements of operations information for the period ended September 30, 2001 and the consolidated balance sheet information at September 30, 2001 reflect our financial position and operating results after the effect of our plan of reorganization and the application of the principles of fresh start accounting in accordance with the provisions of Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under Bankruptcy Law" ("SOP 9-7"). Accordingly, such financial information is not comparable to our historical financial information before August 29, 2001. Selected financial data for the last seven periods is as follows (in thousands of dollars, except per share data):
Successor Company Predecessor Company ----------------- ----------------------------------------------------------------------- Period from Period from August 30, October 1, 2001 2000 Six Months Year to to Year Ended September 30, Ended Ended September 30, August 29, ---------------------------------- September 30, March 31, 2001 2001(1) 2000 1999(2) 1998(3) 1997(4) 1997(5) ----------------- ----------- ---------- ---------- ---------- ------------- --------- For The Period:............. Net Sales................. $133,929 $1,418,719 $1,821,231 $1,888,630 $1,783,091 $406,682 $752,595 Operating Income (Loss)... (4,234) (32,372) (27,822) 47,904 38,939 20,359 28,423 Income (Loss) Before Cumulative Effect and Extraordinary Item....... (6,464) (499,148) (34,677) (18,124) (5,835) 9,951 11,518 Net Income (Loss)......... (6,464) (316,340) (34,677) (18,124) (7,834) 9,951 11,518 Per Share Data: Basic Income (Loss) per Share: Before Cumulative Effect and Extraordinary Item...... $ (0.65) $ (15.40) $ (1.07) $ (0.57) $ (0.24) $ 0.70 $ 0.92 Net Income (Loss)........ (0.65) (9.76) (1.07) (0.57) (0.32) 0.70 0.92 Diluted Income (Loss) Per Share: Before Cumulative Effect and Extraordinary Item...... $ (0.65) $ (15.40) $ (1.07) $ (0.57) $ (0.24) $ 0.69 $ 0.90 Net Income (Loss)........ (0.65) (9.76) (1.07) (0.57) (0.32) 0.69 0.90 Cash Dividends Declared per share................ -- -- -- 0.12 0.12 0.03 -- At Period End: Total Assets.............. $555,783 $1,093,690 $1,280,783 $1,179,800 $457,619 $449,933 Long-term Debt-Net (6).... 226,779 20,000 553,577 525,893 81,304 90,619 Total Shareholders' Equity................... 79,657 318,601 373,424 352,907 162,959 176,956
- -------- (1) Includes fresh start adjustments aggregating $453,188,000 and reorganization costs totaling $19,716,000, as more fully described in note 3 to the consolidated financial statements. (2) Includes the results of Diamond Crystal since November 2, 1998, as discussed in note 4 to the consolidated financial statements. (3) Includes the results of Savannah Foods since October 17, 1997, net of minority interest through December 22, 1997. (4) In October 1997, we changed our fiscal year end from March 31 to September 30. (5) Includes the results of the Spreckels since April 19, 1996. (6) At September 30, 2000, substantially all of our long-term debt was reclassified to current. 17 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with information contained in the Consolidated Financial Statements and the notes thereto. Overview We emerged from bankruptcy protection on August 29, 2001. Our future success will depend on our ability to return to profitability and generate sufficient cash flow to meet our operational and financing requirements, including servicing our indebtedness and maintain compliance with our credit agreement. Other factors that may cause actual results of operations and future financial condition to differ from those expressed or implied in any forward-looking statements contained in this report include domestic prices for refined sugar and raw cane sugar, the quantity and quality of sugarbeets available to us and the availability and price of energy and other resources. We caution that the foregoing list of important factors is not exclusive. A key part of our plan to reduce debt, reduce working capital requirements and improve liquidity is the sale of surplus assets (for example, excess real estate and idle factory assets) and the sale of assets used in non-strategic operations. During the twelve months ended September 30, 2001, we sold our nutritional products business and our California limestone quarry. We sold our King Packaging operation in December 2001 and are renegotiating the agreement to sell our Michigan beet sugar operations in fiscal 2002. We are currently pursuing a number of other sales from which, together with the King Packaging and proposed Michigan Sugar transactions, we expect to realize in excess of $100 million of proceeds. We can provide no assurance that we will complete any future dispositions or as to the amount or timing of our receipt of any proceeds from those dispositions. Our financial results in twelve months ended September 30, 2001 have been affected by our filing for reorganization under chapter 11 of the Bankruptcy Code on January 16, 2001 and our emergence from bankruptcy. The consolidated balance sheet information at September 30, 2001 and the consolidated statements of operations and cash flows for the period from August 30, 2001 to September 30, 2001 reflect results after the consummation of our plan of reorganization and the application of the principles of fresh start accounting in accordance with the provisions of SOP 90-7. Our company before and our company after adopting fresh start accounting are different reporting entities and our consolidated financial statements have not been prepared on the same basis. We operate in two domestic business segments. Our sugar segment produces and sells refined sugar and related products. Our foodservice segment sells and distributes sugar and numerous other products to foodservice customers. The segments are managed separately because each business requires different production techniques and marketing strategies. Please read note 13 to our consolidated financial statements for additional information regarding our reporting segments. Liquidity and Capital Resources After Effectiveness of Our Reorganization We entered into a restructuring credit facility and a receivables facility when we emerged from bankruptcy. These facilities replaced our debtor-in-possession financing agreement which provided for financing that we used during the pendency of our reorganization. Restructuring Credit Agreement--As part of our plan of reorganization, we entered into a restructuring credit agreement with a group of lenders led by Harris Trust and Savings Bank as administrative and collateral agent. Our obligations under the credit agreement are guaranteed by certain of our direct and indirect subsidiaries. The credit agreement extends and continues, in part, the revolving credit facility and term loans provided to us by substantially the same group of lenders prior to our bankruptcy and during the pendency of the bankruptcy. As of August 29, 2001, the date we emerged from bankruptcy, approximately $193 million was outstanding under the restructuring credit agreement (approximately $54 million under the revolving credit facility and $139 million under the term loan portion of the credit facility). As of September 30, 2001, 18 approximately $196 million was outstanding under the restructuring credit agreement (approximately $57 million under the revolving credit facility and $139 million under the term loan portion of the credit facility). We had unused capacity under the revolving credit facility of approximately $27 million at December 28, 2001. The restructuring credit agreement consists of (i) a senior secured revolving credit facility in the aggregate principal amount of up to $117 million (subject to a borrowing base calculation), and (ii) senior secured tranche A and tranche B term loans in the aggregate principal amount of $139 million. The revolving credit facility is available through the earlier of September 30, 2004 or the date on which the term loans are paid in full. The tranche A term loans mature in 11 quarterly installments, with the unpaid balance due December 31, 2004, and the tranche B term loans mature in 19 quarterly installments, with the unpaid balance due December 31, 2006. We may prepay borrowings under the credit facility in minimum amounts of $1,000,000 or more and we may, at our option, terminate the revolving credit facility or reduce permanently the amount of the revolving credit facility in minimum amounts of $1,000,000. We are required to make mandatory prepayments of the term loan and reduce proportionately the commitment under the revolving credit facility from net cash proceeds of: . asset sales, excluding receivables securing the receivables securitization facility . casualty and condemnation events . new equity issuances . excess cash flow (as defined in the restructuring credit agreement). Our obligations under the restructuring credit agreement are secured by a lien on substantially all of our personal property and the personal property of the subsidiaries guaranteeing our obligations (in each case, excluding receivables that are securing the receivables securitization facility), as well as substantially all of our real property and the real property of the subsidiaries. Borrowings under the revolving credit facility and the tranche A term loans accrue interest at the following rates per annum: . Eurodollar Loans: LIBOR plus a margin that varies between 4% and 5%. . Base Rate Loans: the higher of (i) the rate of interest publicly announced by Harris Trust and Savings Bank as its prime commercial rate and (ii) 0.50% per annum above the Federal funds rate in effect on such date, plus a margin that varies between 2% and 3%. Borrowings under the tranche B term loans accrue interest at the following rates per annum: . Eurodollar Loans: LIBOR plus a margin that varies between 5% and 6%. . Base Rate Loans: the higher of (i) the rate of interest publicly announced by Harris Trust and Savings Bank as its prime commercial rate and (ii) 0.50% per annum above the Federal funds rate in effect on such date, plus a margin that varies between 3% and 4%. The margins will vary depending our ratio of debt to earnings before interest, taxes, depreciation and amortization (''EBITDA"), as defined in the restructuring credit agreement. We incur a commitment fee payable quarterly in arrears based on the unused amount of our revolving credit facility at a rate of .375% to .5% per year, depending on our ratio of debt to EBITDA. We incurred a restructuring fee on the date of closing of .5% of the entire amount of our revolving credit facility and term loans, and we will incur an additional restructuring fee in the same amount on the earlier of the receipt of net cash proceeds of the issuance of our capital stock or the capital stock of our subsidiaries, and August 28, 2002. Finally, we will incur an agency fee, payable quarterly, until the restructuring credit agreement terminates. 19 In addition, the restructuring credit agreement contains negative covenants limiting our ability to, among other things: . incur other indebtedness . incur other liens . undergo any fundamental changes . sell assets . declare or pay dividends . make investments and acquisitions and specified capital expenditures . modify debt instruments . engage in transactions with affiliates . enter into sale and leaseback transactions . change our fiscal periods . enter into or permit to exist any agreement that restricts our ability to pledge assets . enter into or permit to exist any agreement that restricts the ability of a material subsidiary to pay dividends or other distributions . engage in another type of business . pay or incur repair and maintenance expenses related to certain plants . make use of proceeds of borrowings under the credit facility for purposes other than those specified in the agreement. The restructuring credit agreement also contains financial covenants requiring us to comply with the following: . a minimum ratio of EBITDA to net interest expense . a minimum ratio of current assets to current liabilities . a minimum net worth requirement . a minimum EBITDA requirement . a maximum ratio of total net debt to EBITDA. The terms used in these financial covenants have specific meanings as defined in the restructuring credit agreement. The restructuring credit agreement also includes customary events of default, including a change of control. Borrowings will generally be available subject to the accuracy of all representations and warranties, including the absence of a material adverse change and the absence of any default or event of default. The financial covenants contained in the restructuring credit facility were set at levels based on projections prepared in connection with our plan of reorganization, become more restrictive over time and do not accommodate significant downward variations in operating results. Our plan of reorganization and the related financial projections were predicated on improvements in the domestic refined sugar markets from the historic lows recently experienced which, along with the deleveraging effects of the reorganization, are expected to return our company to a more sound financial basis. We have a very limited operating history since our emergence from 20 bankruptcy, and the refined sugar market, while significantly improved over the prior year, has not demonstrated that it will attain and sustain the levels included in the projections. Consequently, there can be no assurances that we will achieve the results included in our projections. While we are currently in compliance with all financial covenants of our debt agreements, our current forecast indicates that we may not meet certain of these covenants during fiscal 2002 absent significant asset sales. Our ability to maintain compliance with these covenants depends on our ability to generate sufficient EBIDTA or to reduce our indebtedness, or both, which in turn depend on a number of factors, including future operating results and sales of assets, that we cannot predict with certainty. As a result of future market conditions or other factors, we may fail to comply with some of these covenants in the future, which would result in an event of default unless our lenders acted to excuse compliance or to relax the covenants. If we do not cure or obtain a waiver for an event of default, our debt obligations might become payable immediately, we would be restricted from further borrowings under the facility and we might be required to refinance, restructure or reorganize all or a portion of our indebtedness, sell assets, obtain additional debt or equity financing or take other actions. We cannot assure you that we would be able to achieve any of these steps. Receivables Facility--On August 28, 2001, Imperial Sugar Securitization, LLC, an indirect, wholly owned subsidiary of Imperial Sugar, entered into a Receivables Funding Agreement with, among others, General Electric Capital Corporation, as lender and administrative agent. Under this agreement, General Electric Capital Corporation and any other participating lenders agree to lend up to $110 million to Imperial Sugar Securitization based on an variable advance rate of up to 85% of eligible accounts receivable, as defined in the agreement. The loans are secured primarily by the accounts receivable owned by Imperial Sugar Securitization. Advances bear interest at either an index rate or the LIBOR rate as chosen by Imperial Sugar Securitization for each advance. The index rate is a floating rate equal to the higher of (1) prime rate or (2) a federal funds rate (defined in the agreement) plus 50 basis points. The LIBOR rate is a rate equal to the sum of 2.25% and the applicable LIBOR rate as more particularly described in the agreement. The facility is available until August 28, 2004. Imperial Sugar Securitization purchases accounts receivable from certain subsidiaries of Imperial Sugar Company (the "Originators") under a receivables sale agreement. This agreement requires each Originator to sell or contribute all accounts receivable it generates to Imperial Sugar Securitization on a daily basis. The Originators receive a combination of cash and notes for sold accounts and equity in Imperial Sugar Securitization for contributed accounts. Our capital expenditures for the twelve months ended September 30, 2001 were $11.5 million, primarily for environmental, safety and production replacement projects. Our sugar production operations require substantial seasonal working capital. This seasonal requirement generally peaks during our second fiscal quarter when inventory levels are high, and a substantial portion of the payments to raw material suppliers have been made. Management believes that the credit facility and cash flow from operations will provide sufficient capital to meet anticipated working capital and operational needs for at least the next twelve months. Before Effectiveness of Our Reorganization Before we filed for protection under chapter 11 of the U.S. Bankruptcy Code, we were in default under certain financial covenants under our senior secured credit agreement. In addition, we did not make our required interest payments, which were due on December 15, 2000 and June 15, 2001, on our previously outstanding 9 3/4% senior subordinated notes due 2007. To provide a source of liquidity during the pendency of the bankruptcy proceedings, we entered into a debtor-in-possession financing agreement, which provided for up to $157.3 million of revolving borrowings. This facility matured when the plan of reorganization became effective. The daily interest rates on borrowings under the facility were at the prime rate plus 2.5%. 21 We also obtained Bankruptcy Court approval of a modified $110.0 million receivables purchase facility for our use during the pendency of the reorganization. The securitization facility allowed us to sell certain accounts receivables on a non-recourse basis. Prior to January 16, 2001, receivables were sold under the agreement at discount rates based on a commercial paper rate plus a margin of 0.7%. Effective January 16, 2001, discount rates were based on the prime rate plus a margin of 2.25%. At June 30, 2001, we had sold $59.5 million of accounts receivable under the securitization facility. The securitization facility expired on the date we emerged from bankruptcy. Under the plan of reorganization, holders of our 9 3/4% senior subordinated notes and certain other unsecured creditors received common stock in the reorganized company in satisfaction of their debt obligations. Holders of our common stock prior to our reorganization received an aggregate of 200,000 shares of common stock, representing 2.0% of the common equity in the reorganized company, and 7-year warrants to purchase an aggregate of 1,111,111 additional shares of common stock, representing 10.0% of the reorganized company on a diluted basis. These share numbers and ownership percentages exclude shares issuable on the exercise of options to be granted in connection with the long-term management incentive plan we adopted as part of the reorganization proceedings. Additionally, the plan of reorganization provided that certain former employees and directors who were participants in non-qualified pension and deferred compensation plans receive common stock in the reorganized company or, at their option, cash and a non-interest bearing note for 60% of their allowed claim. Results of Operations Industry Environment Our results of operations substantially depend on market factors, including domestic prices for refined sugar and raw cane sugar, the quantity and quality of sugarbeets available to us and the availability and price of energy and other resources. These market factors are influenced by a variety of external forces that we are unable to predict, including the number of domestic acres contracted to grow sugar cane and sugarbeets, prices of competing crops, weather conditions and United States farm and trade policy. The domestic sugar industry is subject to substantial influence by legislative and regulatory actions. The current farm bill limits the importation of raw cane sugar, affecting the supply and cost of raw material available to Imperial Sugar's cane refineries. Please read "Item 1. Business--Sugar Legislation and Other Market Factors" and "--Competition" and "--Overview of the Sugar Industry." Weather conditions during the growing, harvesting and processing seasons, the availability of acreage to contract for sugarbeets, as well as the effects of diseases and insects, may materially affect the quality and quantity of sugarbeets available for purchase as well as the costs of raw materials and processing. Please read "Item 1. Business--Raw Materials and Processing Requirements." Period from October 1, 2000 to August 29, 2001 and Period from August 30, 2001 to September 30, 2001 Net sales combined for the period ended August 29, 2001 and the period ended September 30, 2001 are approximately 15% lower than net sales for fiscal 2000. The primary reasons for the decrease were lower sales prices for sugar, lower sugar sales volumes and lower nonsugar volumes, partially offset by higher nonsugar sales prices. Sugar sales prices and volumes in both our sugar and foodservice segments were negatively impacted by increased supplies of refined sugar in the market following two years of record domestic sugarbeet crops. Volumes were also lower as a result of our decision to cease beet sugar production at our two northern California sugarbeet factories in December 2000. Nonsugar volumes in our foodservice segment were reduced when we sold our nutritional products business in April 2001, resulting in $16 million of the decrease in revenues. Gross margin after depreciation as a percent of sales was 3.7% for the period ended August 29, 2001 and 1.1% for the period ended September 30, 2001, compared to 5.6% for fiscal 2000. The reduced margins are primarily the result of the lower sugar sales prices and higher energy costs, more than offsetting lower raw 22 material costs. Additionally, during the period from August 30, 2001 to September 30, 2001, the sugar segment was impacted by higher manufacturing costs and lower production yields at one of our cane sugar refineries as a result of unusually poor quality raw material from one supplier. Imperial Sugar, as well as most of the domestic sugar industry, has experienced a very difficult operating environment during the past two years. Following a period of expansion in acreage planted in sugarbeets, the rate of which has exceeded growth in domestic demand for refined sugar, two consecutive large domestic sugarbeet crops in the fall of 1999 and the fall of 2000, produced a significant oversupply of refined sugar. The market reacted accordingly, and prices for refined bulk sugar fell to fifteen-year lows, with published industry prices declining over 20% in fiscal 2000. The largest cane sugar crop in history, again due to acreage expansion as well as the development of higher yielding cane varieties, caused the market price for domestic and quota-eligible foreign raw cane sugar to fall over 15%, also to fifteen-year lows. The decline in refined sugar prices reduced margins both in our sugarbeet processing operations, where we share in the net revenues from refined sugar with the growers, as well as in our cane sugar refinery operations. We contracted a portion of industrial sugar sales for fiscal 2000 prior to the majority of the decline in prices, so we did not feel the entire impact of the price decline until the twelve months ended September 30, 2001. Similarly, we did not realize the entire benefit of the lower raw sugar prices in fiscal 2000 because we contracted for our raw sugar supplies as we contracted for refined cane sugar industrial sales, pricing some of our raw sugar needs at higher levels. Overall, refined sugar prices declined more than raw sugar prices, resulting in a significant adverse impact on our margins. These reduced margins, together with our history of losses, cash flow problems, our high degree of leverage and non-compliance with financial covenants in our debt instruments, led to our decision to file for bankruptcy protection in January 2001. In an effort to reduce the oversupply of refined sugar, the government bought through a tender process 132,000 short tons of refined sugar in June 2000, of which we sold 82,000 short tons. The government initiated a Payment in Kind program ("PIK") in the fall of 2000, in which growers received 277,000 short tons of refined sugar from the government in exchange for not harvesting 102,000 acres already planted in sugarbeets. Additionally, the industry participated in permitted forfeitures totaling 598,000 short tons of refined sugar and 305,000 short tons raw value of raw sugar in full satisfaction of outstanding loans with the CCC from July through September 2000, in lieu of repaying the loans, because the forfeiture price exceeded the current market price. We forfeited 100,000 tons of refined sugar in full satisfaction of $47.1 million of CCC loans in fiscal 2000. A second PIK program in the fall of 2001, resulted in growers receiving 194,000 short tons of refined sugar in exchange for not harvesting 90,000 acres of sugarbeets. Low prices and factory closures reduced sugarbeet acreage which, along with government actions and weather conditions, have decreased the USDA forecasted beet sugar production for the year commencing October 1, 2001, by 15% from last year's crop and 22% from the record production two years ago. As a result, refined sugar market prices are rising. A significant portion of our industrial sales are made under fixed price, forward sales contracts, most of which commence October 1 or January 1, and extend for up to one year. Additionally, we price a portion of our raw sugar purchases in advance of the time of delivery either through pricing provisions of our raw sugar contracts or through hedging transactions in the raw sugar futures market. As a result, our realized sales prices as well as our realized raw sugar costs tend to lag market price changes. Future operating results will not include our nutritional products business which we sold in April 2001. The foodservice segment includes sales of nutritional products of approximately $50 million for fiscal 2000 and $34 million for the seven months ended April 30, 2001, and a resulting gross margin of approximately $16 million for fiscal 2000 and $11 million for the seven months ended April 30, 2001. Additionally, we sold our King Packaging subsidiary in December 2001. King Packaging had sales of $27 million and a gross margin of $6 million during the twelve months ended September 30, 2001. Selling, general and administrative costs combined for the period ended August 29, 2001 and the period ended September 30, 2001 are approximately 11% lower than for fiscal 2000, as a result of cost cutting initiatives implemented over the past year, as well as the sale of our nutritional business in April 2001. Selling, general and 23 administrative costs for the period ending August 29, 2001 includes a $1.2 million severance charge incurred in connection with a reduction in force, and $3.2 million of costs incurred prior to January 16, 2001 relating to our preparation to file for bankruptcy protection. Costs related to the reorganization, primarily legal and professional fees and a retention compensation plan, during the pendancy of our reorganization are identified separately in our consolidated statements of operations as "Reorganization Costs". Interest expense combined for the period ended August 29, 2001 and the period ended September 30, 2001 was substantially less than the year earlier period as we ceased accruing interest on our $250 million 9 3/4% Senior Subordinated Notes due 2007, effective with filing our bankruptcy petition on January 16, 2001. This debt was converted to equity under our plan of reorganization. Additionally, lower market interest rates were offset by higher interest margins required by our debtor-in-possession financing arrangements and somewhat higher borrowing levels. We sold our nutritional products business in April 2001, reporting a $2.2 million gain, and we sold our California limestone quarry in September 2001 for a $0.7 million gain. As a result of our reorganization, we had an extraordinary gain from settling liabilities for a combination of cash, equity and deferred payments. Additionally, the fresh start accounting provisions of SOP 90-7 resulted in net write-downs of assets, including goodwill, totaling $453 million. These items are more fully discussed in note 3 to our consolidated financial statements. Fiscal Year Ended September 30, 2000 Net sales decreased $67.4 million, or 3.6%, in fiscal 2000 primarily due to lower sales prices for refined sugar, which was partially offset by an increase in refined sugar volumes. The primary reason refined sugar volumes increased for the sugar segment was our selling refined sugar totaling $31.2 million to the government under a U.S. Department of Agriculture tender program in the third quarter of fiscal 2000. The foodservice segment's net sales decreased 1.4% in fiscal 2000 primarily as a result of lower sales prices received for refined sugar sold in foodservice markets, which more than offset higher non-sugar prices. Cost of sales for fiscal 2000 decreased $21.8 million or 1.3%, resulting in a decrease in gross margin as a percent of sales from 9.8% for fiscal 1999 to 7.6% in fiscal 2000. By segment, sugar gross margin as a percent of sales decreased to 6.8% in fiscal 2000 from 8.9% in fiscal 1999 and foodservice gross margin as a percent of sales decreased to 10.5% in fiscal 2000 from 13.1% in fiscal 1999. The decrease in gross margin is primarily due to significantly lower sales prices for refined sugar in both the sugar and foodservice segments and higher energy costs particularly in California, which more than offset the benefits from lower raw sugar costs, improved refinery operations and higher non-sugar sales prices. In addition, the tender of refined sugar to the government negatively impacted gross margin by $2.4 million. Selling, general and administrative costs increased $1.9 million or 2.2% for fiscal 2000 due to increased discounts and fees incurred under our accounts receivable securitization program. We entered into the agreement on June 30, 1999, and 3 months of discount and fees recorded during fiscal 1999 totaled $1.4 million; discount and fees totaled $6.4 million for the full fiscal year 2000, an increase of $5.0 million. The increase was offset by decreases in administrative, sales-related and promotional costs in the sugar segment, lower fixed and other overhead costs in the foodservice segment resulting from previously announced plant closures and from other expense reductions experienced across our operations. We ceased processing sugarbeets at our Tracy and Woodland, California facilities in December 2000 following the completion of the fall production campaign. These factories will continue to package and distribute refined sugar products with sugar supplied from the remaining two California beet factories and some of our other processing facilities. In October 2000, we ceased cane sugar refining at our Clewiston, Florida refinery. We expect to realize cost efficiencies by concentrating production in the southeastern United States in our large 24 Savannah, Georgia refinery. As a result of discontinuing the refining operation in Clewiston, Florida, as well as ceasing to process sugarbeets at Tracy and Woodland, California, we recorded charges during the fourth quarter of fiscal 2000 totaling $27.5 million. Interest expense decreased $2.4 million, or 4.1%, for fiscal 2000 primarily due to lower overall borrowing levels resulting from the securitization of accounts receivable and sale of marketable securities, which was partially offset by higher market interest rates and higher margins. During fiscal 2000, we recognized a gain of $35.9 million from the sale of the majority of our marketable securities portfolio. Other income decreased $0.6 million for fiscal 2000 primarily as a result of a decrease in dividend income due to the sale of the majority of our marketable securities portfolio. New Accounting Standards The Financial Accounting Standards Board has issued a number of new accounting standards discussed in note 1 to the consolidated financial statements. These standards, which become effective in fiscal 2002, establish additional accounting and disclosure requirements. Management has evaluated, as described in note 1 to the consolidated financial statements, what effects such requirements will have on our consolidated financial statements. Effective April 1, 2001, we adopted Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial-components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. The statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The implementation of this pronouncement did not have a material effect on our financial statements. In June 2001, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which would require us to cease amortization of goodwill and other intangible assets beginning in fiscal 2003, and subject such assets to an annual impairment test. We do not have a significant amounts of goodwill and other intangible assets as a result of the application of fresh start accounting as of August 29, 2001. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and certain provisions of APB Opinion No. 30, "Reporting Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 requires that long-lived assets to be disposed of by sale, including discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS 144 also broadens the reporting requirements of discontinued operations to include all components of an entity that have operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. The provisions of SFAS 144 are effective for fiscal years beginning after December 15, 2001. We are evaluating the effect of this statement on our results of operations and financial position. 25 ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk We use raw sugar futures and options in our raw sugar purchasing programs and natural gas futures to hedge natural gas purchases used in our manufacturing operations. Gains and losses on raw sugar futures and options are matched to inventory purchases and charged or credited to cost of sales as such inventory is sold. Gains and losses on natural gas futures are matched to the natural gas purchases and charged to cost of sales in the period of the purchase. The information in the table below presents our domestic and world raw sugar futures positions outstanding as of September 30, 2001. Our world sugar option positions are not material to our consolidated financial position, results of operations or cash flows.
Expected Maturity Expected Maturity Fiscal 2002 Fiscal 2003 ----------------- ----------------- Domestic Futures Contracts (net long positions): Contract Volumes (cwt.)......................... 1,851,360 138,880 Weighted Average Contract Price (per cwt.)...... $ 21.42 $ 21.36 Contract Amount................................. $39,658,000 $2,966,000 Weighted Average Fair Value (per cwt.).......... $ 21.15 $ 21.41 Fair Value...................................... $39,149,000 $2,973,000
Expected Maturity Fiscal 2002 ----------------- World Futures Contracts (net long positions): Contract Volumes (cwt.)...................... 1,680,000 Weighted Average Contract Price (per cwt.)... $ 7.63 Contract Amount.............................. $12,811,000 Weighted Average Fair Value (per cwt.)....... $ 6.62 Fair Value................................... $11,125,000
The above information does not include either our physical inventory or our fixed price purchase commitments for raw sugar. At September 30, 2000, our domestic futures position was a net long position of 1.3 million cwt. at an average contract price of $18.43 and an average fair value price of $20.22. The information in the table below presents our natural gas futures positions outstanding as of September 30, 2001.
Expected Maturity Expected Maturity Fiscal 2002 Fiscal 2003 ----------------- ----------------- Futures Contracts ( long positions): Contract Volumes (mmbtu)................... 7,540,000 6,900,000 Weighted Average Contract Price (per mmbtu) $ 3.07 $ 3.31 Contract Amount............................ $23,117,000 $22,813,000 Weighted Average Fair Value (per mmbtu).... $ 2.77 $ 3.15 Fair Value................................. $20,890,000 $21,718,000
At September 30, 2000, our natural gas futures position was a long position of 9,580,000 mmbtu's with an average contract price of $3.90 and an average fair value price of $4.64. We have material amounts of debt with interest rates that float with market rates, exposing us to interest rate risk. We have attempted to reduce this risk by entering into interest rate swap agreements for a portion of this floating rate debt. 26 The tables below provide information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations at September 30, 2001 and 2000, respectively. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. At September 30, 2000, the majority of our long-term debt was reclassified to current. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the treasury yield curve at the reporting date.
Expected Maturity Date at September 30, 2001 Fiscal Year Ending September 30, --------------------------------------------------------- There- Fair 2002 2003 2004 2005 2006 after Total Value ----- ----- ------ ----- ----- ------ ------ ------ (In millions of dollars) Liabilities Long-term debt: Fixed rate debt....... $ 0.8 $ 1.6 $ 1.9 $ 2.2 $ 5.1 $20.1 $ 31.7 $ 31.7 Average interest rate. 12.0% 12.0% 12.0% 12.0% 12.0% 6.4% 8.5% Variable rate debt.... $ 2.9 $ 5.9 $ 67.1 $84.1 $29.7 $ 9.1 $198.8 $198.8 Average interest rate. 7.3% 7.8% 9.3% 8.9% 9.9% 9.2% 9.2% Interest Rate Derivatives Interest rate swaps:..... Variable to fixed..... $17.2 $83.0 $(41.8) $41.3 $ 8.0 -- $107.7 $ (4.8) Average pay rate...... 6.0% 6.0% 6.0% 6.0% 6.0% -- 6.0% Average receive rate.. 5.7% 6.1% 6.5% 6.8% 7.1% -- 6.3%
Expected Maturity Date at September 30, 2000 Fiscal Year Ending September 30, --------------------------------------------------------- There- Fair 2001 2002 2003 2004 2005 after Total Value ------ ----- ----- ----- ----- ------ ------ ------ (In millions of dollars) Liabilities Long-term debt: Fixed rate debt....... $250.5 -- -- -- -- $20.0 $270.5 $ 58.0 Average interest rate. 9.7% -- -- -- -- 6.4% 9.5% Variable rate debt.... $185.9 -- -- -- -- -- $185.9 $185.9 Average interest rate. 9.9% -- -- -- -- -- 9.9% Interest Rate Derivatives Interest rate swaps: Variable to fixed..... $ 16.8 $17.2 $83.0 $48.2 $49.3 -- $214.5 $ 3.6 Average pay rate...... 6.0% 6.0% 6.0% 5.7% 6.0% -- 6.0% Average receive rate.. 6.7% 6.6% 6.5% 6.5% 6.5% -- 6.5%
27 ITEM 8. Financial Statements and Supplementary Data. See the index of financial statements and financial statement schedules under "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K." Unaudited quarterly financial data for the last eight fiscal quarters is as follows (in thousands of dollars, except per share amounts):
Income Income Before Basic and Before Cumulative Diluted Cumulative Effect and Earnings Effect and Net Extraordinary (Loss) Cash Gross Extraordinary Income Item Per Per Dividends Net Sales Margins Item (Loss) Share Share Per Share --------- ------- ------------- --------- ------------- --------- --------- Successor Company Period from August 30, 2001 to September 30, 2001................... $133,929 $ 3,026 $ (6,464) $ (6,464) $ (0.65) $(0.65) -- Predecessor Company Fiscal Year Ended September 30, 2000: December 31, 1999(1).............. $468,599 $44,266 $ 13,919 $ 13,919 $ 0.43 $ 0.43 -- March 31, 2000(1)................. 429,165 36,550 (5,028) (5,028) (0.16) (0.16) -- June 30, 2000..................... 466,313 38,493 (6,465) (6,465) (0.20) (0.20) -- September 30, 2000(2)............. 457,154 19,393 (37,103) (37,103) (1.15) (1.15) -- Period from October 1, 2000 to August 29, 2001:.................... December 31, 2000................. $428,462 $31,222 $ (12,659) $ (10,307) $ (0.39) $(0.32) -- March 31, 2001(3)................. 372,586 22,724 (15,176) (15,176) (0.47) (0.47) -- June 30, 2001(4).................. 372,274 22,020 (14,098) (14,098) (0.43) (0.43) -- Period from July 1, 2001 to August 29, 2001(5)............... 245,397 9,206 (457,215) (276,759) (14.11) (8.54) --
- -------- (1) We recognized gains of $29.2 million and $6.7 million during the first and second quarters of fiscal 2000, respectively, from the sale of substantially all of our marketable securities portfolio. (2) Net loss for the fourth quarter of fiscal 2000 includes a $27.5 million charge associated with the closure of the Tracy and Woodland, California facilities and the Clewiston, Florida refinery as discussed in note 17 to the consolidated financial statements. (3) Includes reorganization costs of $4,170,000 and a gain on sale of the nutritional products business of $2,239,000. (4) Includes reorganization costs of $3,535,000. (5) Includes fresh start adjustments of $453,188,000 and reorganization costs of $12,011,000. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 28 PART III ITEM 10. Directors and Executive Officers of the Registrant ITEM 11. Executive Compensation ITEM 12. Security Ownership of Certain Beneficial Owners and Management ITEM 13. Certain Relationships and Related Transactions Information regarding Imperial Sugar's executive officers is included in Part I of this report. The other information required by Items 10, 11, 12 and 13 will be included in our definitive proxy statement for the 2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after September 30, 2001, and is incorporated in this report by reference. 29 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements.
Item Page - ---- ---- Independent Auditors' Report......................................................................... F-1 Consolidated Financial Statements:................................................................... Consolidated Balance Sheets at September 30, 2001 (Successor Company) and 2000 (Predecessor Company)........................................................................................ F-2 Consolidated Statements of Operations for the period from August 30, 2001 to September 30, 2001 (Successor Company) and for the period from October 1, 2000 to August 29, 2001 and the years ended September 30, 2000 and 1999 (Predecessor Company)......................................... F-3 Consolidated Statements of Changes in Shareholders' Equity for the period from August 30, 2001 to September 30, 2001 (Successor Company) and for the period from October 1, 2000 to August 29, 2001 and the years ended September 30, 2000 and 1999 (Predecessor Company)...................... F-4 Consolidated Statements of Cash Flow for the period from August 30, 2001 to September 30, 2001 (Successor Company) and for the period from October 1, 2000 to August 29, 2001 and the years ended September 30, 2000 and 1999 (Predecessor Company)......................................... F-5 Notes to Consolidated Financial Statements........................................................ F-6
(a)(2) Financial Statement Schedules. All schedules and other statements for which provision is made in the applicable regulations of the SEC have been omitted because they are not required under the relevant instructions or are inapplicable. (a)(3) Exhibits. An asterisk indicates we have previously filed the exhibit with the SEC as indicted in the document description. We incorporate those previously filed exhibits in this report by reference.
Exhibit No. Document - ------- -------- *2(a) Second Amended and Restated Joint Plan of Reorganization (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference). *2(b) Stipulation with Respect to Confirmation Objection of Wells Fargo Bank (Texas), N.A. and Amendment to Debtors' Second Amended and Restated Joint Plan of Reorganization dated June 5, 2001 (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference). *2(c) Stipulation Regarding Confirmation Objection of Missouri Department of Revenue and Amendment to Debtors' Second Amended and Restated Joint Plan of Reorganization dated June 5, 2001 (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference). *3(a) Amended and Restated Articles of Incorporation of Reorganized Imperial Sugar (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference). *3(b) Amended and Restated By-Laws of Reorganized Imperial Sugar (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference). 4(a) Restructuring Credit Agreement dated as of August 28, 2001 among Imperial Sugar Company, as Borrower, the Several Lenders from time to time Parties thereto and Harris Trust and Savings Bank, as Administrative Agent and Collateral Agent.
30
Exhibit No. Document - ------- -------- *4(b)(1) Receivable Sale Agreement dated as of August 28, 2001 by and among each of the persons signatory thereto from time to time as Originators, Imperial Sugar Company and Imperial Sugar Securitization, LLC (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference). *4(b)(2) Receivables Funding Agreement dated as of August 28, 2001 by and among Imperial Sugar Securitization, LLC, Imperial Distributing, Inc., as servicer, the financial institutions signatory thereto from time to time as lenders and General Electric Capital Corporation, as a lender and as administrative agent (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference). *4(c) Warrant Agreement dated as of August 28, 2001 between Imperial Sugar Company and The Bank of New York, as warrant agent (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference). 4(d) Registration Rights Agreement dated as of August 28, 2001, by and among Imperial Sugar Company and the parties listed on the signature page thereto. Exhibits 10(a) through 10(g) relate to management contracts or compensatory plans. 10(a)(1) Specimen of Employment Agreement (Form A) for certain of Imperial Sugar's officers. 10(a)(2) Specimen of Employment Agreement (Form B) for certain of Imperial Sugar's officers. 10(a)(3) Schedule of Employment Agreements. *10(a)(4) Specimen of Employment Agreement with Roger W. Hill dated February 1, 1998 (previously filed as Exhibit 10(b)(1) to the 1998 Form 10-K and incorporated herein by reference). *10(b)(1) Imperial Holly Corporation Salary Continuation Plan (as amended and restated effective August 1, 1994) (previously filed as Exhibit 10(b)(1) to the September 1994 Form 10-Q and incorporated herein by reference). *10(b)(2) Specimen of Imperial Sugar's Salary Continuation Agreement entered into with W.F. Schwer (previously filed as Exhibit 10(b)(3) to the September 1994 Form 10-Q and incorporated herein by reference). *10(c)(1) Imperial Holly Corporation Benefit Restoration Plan (as amended and restated effective August 1, 1994) (previously filed as Exhibit 10(c)(1) to the September 1994 Form 10-Q and incorporated herein by reference). *10(c)(2) Specimen of Imperial Sugar's Benefit Restoration Agreement entered into with Roger W. Hill and W.F. Schwer (previously filed as Exhibit 10(c)(2) to the September 1994 Form 10-Q and incorporated herein by reference). *10(d)(1) Imperial Holly Corporation Executive Benefits Trust (previously filed as Exhibit 10.5 to the September 1990 Form 10-Q and incorporated herein by reference). *10(d)(2) First Amendment to Imperial Sugar's Executive Benefits Trust dated June 4, 1991 (previously filed as Exhibit 10(g)(2) to the 1994 Form 10-K and incorporated herein by reference). *10(e) Imperial Holly Corporation Retirement Plan For Nonemployee Directors (previously filed as Exhibit 10(j) to the 1994 Form 10-K and incorporated herein by reference). 10(f) Long-Term Incentive Plan of Reorganized Imperial Sugar Company. 10(g) Independent Consulting Agreement with Robert J. McLaughlin dated October 22, 2001. 21 Subsidiaries of Imperial Sugar Company.
31 (b) Reports on Form 8-K. Imperial Sugar filed the following Current Reports on Form 8-K in fourth quarter of fiscal 2001: . Current Report on Form 8-K dated August 21, 2001 . Current Report on Form 8-K dated September 12, 2001. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 28, 2001 IMPERIAL SUGAR COMPANY By: /s/ ROBERT J. MCLAUGHLIN ------------------------------------ Robert J. McLaughlin President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 28, 2001. Signature Title --------- ----- /s/ ROBERT J. MCLAUGHLIN President and Chief Executive Officer ------------------------ (Principal Executive Officer) Robert J. McLaughlin /s/ J. CHRIS BREWSTER Managing Director and Chief Financial Officer ------------------------ (Principal Financial Officer) J. Chris Brewster /s/ H.P. MECHLER Vice President-Accounting ------------------------ (Principal Accounting Officer) H. P. Mechler /s/ ROBERT J. MCLAUGHLIN Chairman of the Board of Directors ------------------------ Robert J. McLaughlin /s/ GAYLORD O. COAN Director ------------------------ Gaylord O. Coan /s/ JAMES J. GAFFNEY Director ------------------------ James J. Gaffney /s/ YVES-ANDRE ISTEL Director ------------------------ Yves-Andre Istel /s/ JAMES A. SCHLINDWEIN Director ------------------------ James A. Schlindwein /s/ JOHN K. SWEENEY Director ------------------------ John K. Sweeney 33 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Imperial Sugar Company Sugar Land, Texas We have audited the accompanying consolidated balance sheets of Imperial Sugar Company and subsidiaries (the "Company") as of September 30, 2001 (Successor Company balance sheet) and 2000 (Predecessor Company balance sheet), and the related consolidated statements of operations, shareholders' equity and cash flow for the period from August 30, 2001 to September 30, 2001 (Successor Company operations), the period from October 1, 2000 to August 29, 2001, and the years ended September 30, 2000 and 1999 (Predecessor Company operations). 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 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. As discussed in Note 3 to the consolidated financial statements, on January 16, 2001, the Company and substantially all of its subsidiaries filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code from which it emerged on August 29, 2001. Accordingly, the accompanying financial statements have been prepared in conformity with AICPA Statement of Position 90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy Code," for the Successor Company as a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 3. In our opinion, the Successor Company financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2001, and the results of its operations and its cash flows for the period from August 30, 2001 to September 30, 2001, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company financial statements referred to above present fairly, in all material respects, the financial position of the Predecessor Company as of September 30, 2000, and the results of its operations and its cash flows for the period from October 1, 2000 to August 29, 2001, and the years ended September 30, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a limited operating history since its emergence from bankruptcy which, along with restrictive financial covenants under its debt agreements, raise substantial doubt about the Company's ability to comply with such covenants at future reporting dates and consequently its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. DELOITTE & TOUCHE LLP Houston, Texas December 28, 2001 F-1 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
Successor Predecessor Company Company --------- ----------- September 30, ------------------------ 2001 2000 --------- ----------- (In Thousands of Dollars ASSETS CURRENT ASSETS: Cash and temporary investments.......................................... $ 7,331 $ 6,533 Marketable securities................................................... 2,770 4,612 Accounts receivable..................................................... 17,768 63,378 Notes receivable--securitization affiliate (Note 6)..................... 12,605 -- Inventories: Finished products..................................................... 82,466 97,625 Raw and in-process materials.......................................... 52,826 50,261 Supplies.............................................................. 36,457 39,585 Deferred costs & prepaid expenses....................................... 38,364 48,251 -------- ---------- Total current assets.................................................. 250,587 310,245 INVESTMENT IN SECURITIZATION AFFILIATE (Note 6).......................... 19,933 -- OTHER INVESTMENTS........................................................ 4,293 5,179 PROPERTY, PLANT AND EQUIPMENT--Net....................................... 275,453 357,681 GOODWILL AND OTHER INTANGIBLES--Net of accumulated amortization of $30,420,000 in 2000..................................... -- 395,818 OTHER ASSETS............................................................. 5,517 24,767 -------- ---------- TOTAL............................................................... $555,783 $1,093,690 ======== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable--trade................................................. $ 81,514 $ 117,100 Short-term borrowings................................................... 532 1,671 Current and deemed current maturities of long-term debt (Notes 3 and 9). 3,746 436,350 Deferred income taxes--net.............................................. -- 16,285 Other current liabilities............................................... 77,142 103,003 -------- ---------- Total current liabilities........................................... 162,934 674,409 -------- ---------- LONG-TERM DEBT--Net of current maturities (Notes 3 and 9)................ 226,779 20,000 DEFERRED INCOME TAXES--Net............................................... -- 1,117 DEFERRED EMPLOYEE BENEFITS............................................... 86,413 79,563 COMMITMENTS AND CONTINGENCIES (Notes 2 and 15) SHAREHOLDER' EQUITY: Preferred stock, without par value, issuable in series; 5,000,000 shares authorized, none issued............................................... -- -- Common stock, without par value; 50,000,000 shares authorized........... 90,000 310,452 Treasury stock.......................................................... -- (15,859) Retained earnings (accumulated deficit)................................. (6,464) 23,514 Accumulated other comprehensive income (loss)........................... (3,879) 494 -------- ---------- Total shareholders' equity.......................................... 79,657 318,601 -------- ---------- TOTAL............................................................... $555,783 $1,093,690 ======== ==========
See notes to consolidated financial statements. F-2 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Successor Company Predecessor Company ------------------ ---------------------------------------- Period from Period from Year Ended August 30, 2001 October 1, 2000 September 30, to to ------------------------ September 30, 2001 August 29, 2001 2000 1999 ------------------ --------------- ----------- ----------- (In Thousands of Dollars, Except Share and Per Share Amounts) NET SALES..................................... $ 133,929 $ 1,418,719 $ 1,821,231 $ 1,888,630 ----------- ----------- ----------- ----------- COSTS AND EXPENSES: Cost of sales................................ 130,903 1,333,547 1,682,529 1,704,339 Selling, general and administrative.......... 5,629 71,857 87,004 85,115 Asset impairment and other charges (Note 17).................................. -- -- 27,541 -- Depreciation and amortization................ 1,631 45,687 51,979 51,272 ----------- ----------- ----------- ----------- Total.................................... 138,163 1,451,091 1,849,053 1,840,726 ----------- ----------- ----------- ----------- OPERATING INCOME (LOSS).................... (4,234) (32,372) (27,822) 47,904 INTEREST EXPENSE.............................. (2,551) (32,658) (56,656) (59,071) REORGANIZATION COSTS.......................... -- (19,716) -- -- FRESH START ADJUSTMENTS....................... -- (453,188) -- -- REALIZED SECURITIES GAINS--Net................ -- -- 35,874 4,697 LOSS ON EQUITY INVESTMENT IN PARTNERSHIP (Note 17)....................... -- -- -- (16,706) SALES OF NUTRITIONAL PRODUCTS BUSINESS (Note 16).......................... -- 2,217 -- -- CHANGE IN FAIR VALUE OF INTEREST RATE SWAPS.................................. (901) (8,465) -- -- OTHER INCOME--Net............................. 1,222 6,332 954 1,598 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES....................................... (6,464) (537,850) (47,650) (21,578) PROVISION (CREDIT) FOR INCOME TAXES....................................... 0 (38,702) (12,973) (3,454) ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES AND EXTRAORDINARY ITEM........................................ (6,464) (499,148) (34,677) (18,124) CUMULATIVE EFFECT OF ACCOUNTING CHANGE........................... -- 2,352 -- -- EXTRAORDINARY ITEM--NET OF TAX................ -- 180,456 -- -- ----------- ----------- ----------- ----------- NET INCOME (LOSS)............................. $ (6,464) $ (316,340) $ (34,677) $ (18,124) =========== =========== =========== =========== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Income (loss) before cumulative effect and extraordinary item......................... $ (0.65) $ (15.40) $ (1.07) $ (0.57) Net income (loss)............................ $ (0.65) $ (9.76) $ (1.07) $ (0.57) WEIGHTED AVERAGE SHARES OUTSTANDING................................. 10,000,000 32,409,074 32,293,759 31,712,602 =========== =========== =========== ===========
See notes to consolidated financial statements. F-3 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Shares of Common Stock Common Stock ----------------------------------- ----------------------------- Accumulated Held by Held by Other Benefit Treasury Benefit Treasury Retained Comprehensive Issued Trust Stock Amount Trust Stock Earnings Income ----------- ---------- ---------- --------- -------- -------- --------- ------------- (in Thousands of Dollars) Predecessor Company - ------------------- BALANCE September 30, 1998......................... 28,385,991 (1,199,053) (121,197) $ 268,804 $(14,367) $ (1,452) $ 80,150 $ 19,772 Comprehensive income: Net loss...................... -- -- -- -- -- -- (18,124) -- Change in unrealized securities gains--net of $769,000 tax................. -- -- -- -- -- -- -- 1,433 Total comprehensive income.... Cash dividends ($0.12 per share)....................... -- -- -- -- -- -- (3,835) -- Stock issued in acquisition... 5,006,770 -- -- 40,054 -- -- -- -- Stock transferred from benefit trust........................ -- 514,082 (514,082) -- 6,159 (6,159) -- -- Employee stock plans.......... 91,629 -- -- 658 -- -- -- -- Nonemployee director compensation plan............ 39,776 -- -- 331 -- -- -- -- ----------- ---------- ---------- --------- -------- -------- --------- -------- BALANCE September 30, 1999......................... 33,524,166 (684,971) (635,279) 309,847 (8,208) (7,611) 58,191 21,205 Comprehensive income: Net loss................... -- -- -- -- -- -- (34,677) -- Change in unrealized securities gains--net of $11,152,000 tax........ -- -- -- -- -- -- -- (20,711) Total comprehensive income.... Stock transferred from benefit trust........................ -- 684,971 (684,971) -- 8,208 (8,208) -- -- Restricted shares withheld.... -- -- (25,569) -- -- (40) -- -- Employee stock plans.......... 109,906 -- -- 214 -- -- -- -- Nonemployee director compensation plan............ 91,212 -- -- 391 -- -- -- -- ----------- ---------- ---------- --------- -------- -------- --------- -------- BALANCE September 30, 2000......................... 33,725,284 -- (1,345,819) 310,452 -- (15,859) 23,514 494 Comprehensive income: Net loss................... -- -- -- -- -- -- (316,340) -- Change in unrealized securities gains--net of $207,000 tax........... -- -- -- -- -- -- -- 385 Cumulative effect of accounting change; net of $4,151,000 of income tax..... 7,707 Change in derivative fair value, net of $6,541,000 of income tax................... (12,148) Recognition of deferred gains in net income, net of $3,118,000 of income tax..... (5,791) Total comprehensive income.... Employee stock plans.......... 32,903 -- -- 35 -- -- -- -- Reorganization adjustments.... (33,758,187) -- 1,345,819 (310,487) -- 15,859 292,826 9,353 ----------- ---------- ---------- --------- -------- -------- --------- -------- BALANCE August 29, 2001....... 0 -- 0 $ 0 $ -- $ 0 $ 0 $ 0 =========== ========== ========== ========= ======== ======== ========= ======== - ---------------------------------------------------------------------------------------------------------------------------- Successor Company - ----------------- Stock issued in reorganization 10,000,000 $ 90,000 ----------- --------- Comprehensive income: Net Loss................... -- -- $ (6,464) Change in unrealized securities gains--net of $5,000 of income tax....................... -- -- -- $ 9 Change in derivative fair value, net of $2,094,000 of income tax................... -- -- -- (3,888) Total comprehensive income.... ----------- --------- --------- -------- BALANCE September 30, 2001......................... 10,000,000 $ 90,000 $ (6,464) $ (3,879) =========== ========= ========= ========
Total --------- Predecessor Company - ------------------- BALANCE September 30, 1998......................... $ 352,907 Comprehensive income: Net loss...................... (18,124) Change in unrealized securities gains--net of $769,000 tax................. 1,433 --------- Total comprehensive income.... (16,691) --------- Cash dividends ($0.12 per share)....................... (3,835) Stock issued in acquisition... 40,054 Stock transferred from benefit trust........................ -- Employee stock plans.......... 658 Nonemployee director compensation plan............ 331 --------- BALANCE September 30, 1999......................... 373,424 Comprehensive income: Net loss................... (34,677) Change in unrealized securities gains--net of $11,152,000 tax........ (20,711) --------- Total comprehensive income.... (55,388) --------- Stock transferred from benefit trust........................ -- Restricted shares withheld.... (40) Employee stock plans.......... 214 Nonemployee director compensation plan............ 391 --------- BALANCE September 30, 2000......................... 318,601 Comprehensive income: Net loss................... (316,340) Change in unrealized securities gains--net of $207,000 tax........... 385 Cumulative effect of accounting change; net of $4,151,000 of income tax..... 7,707 Change in derivative fair value, net of $6,541,000 of income tax................... (12,148) Recognition of deferred gains in net income, net of $3,118,000 of income tax..... (5,791) --------- Total comprehensive income.... (326,187) Employee stock plans.......... 35 Reorganization adjustments.... 7,551 --------- BALANCE August 29, 2001....... $ 0 ========= - ------------------------------------------ Successor Company - ----------------- Stock issued in reorganization $ 90,000 --------- Comprehensive income: Net Loss................... (6,464) Change in unrealized securities gains--net of $5,000 of income tax....................... $ 9 Change in derivative fair value, net of $2,094,000 of income tax................... (3,888) --------- Total comprehensive income.... (10,343) --------- BALANCE September 30, 2001......................... $ 79,657 =========
See notes to consolidated financial statements. F-4 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
Successor Company Predecessor Company ------------------ ----------------------------------- Period from Period from Year Ended August 30, 2001 October 1, 2000 September 30, to to ------------------- September 30, 2001 August 29, 2001 2000 1999 ------------------ --------------- -------- --------- (In Thousands of Dollars) OPERATING ACTIVITIES: Net income (loss)................................................ $ (6,464) $(316,340) $(34,677) $ (18,124) Adjustments for noncash and nonoperating items: Cumulative effect of accounting changes......................... -- (2,352) -- -- Fresh start adjustments......................................... -- 453,188 -- -- Extraordinary ite-m--net........................................ -- (180,456) -- -- Impairment loss................................................. -- -- 16,066 -- Reclassification adjustment from accumulated income to net income......................................................... -- (9,074) -- -- Cash settlement of derivatives.................................. (5,982) (16,757) -- -- Change in fair value of interest rate swaps..................... 901 7,540 -- -- Loss on equity investment in partnership........................ -- -- -- 16,706 Depreciation & amortization..................................... 1,631 45,687 51,979 51,272 Gain on sale of securities...................................... -- -- (35,874) (4,697) Gain on sale of nutritional products business................... -- (2,217) Deferred income taxes........................................... -- (17,402) (12,623) (11,355) Other........................................................... (1,116) 3,011 3,951 1,991 Changes in operating assets and liabilities (excluding operating assets and liabilities acquired in the purchase acquisitions): Accounts receivables............................................ 9,122 30,636 1,080 84,619 Inventories..................................................... 15,520 1,117 26,871 (40,245) Deferred costs and prepaid expenses............................. (310) 5,374 (6,541) (3,255) Accounts payable--trade......................................... (10,599) (15,864) (35,971) 28,387 Other liabilities............................................... 491 (24,540) 35,383 892 -------- --------- -------- --------- Operating cash flow............................................ 3,194 (38,449) 9,644 106,191 -------- --------- -------- --------- INVESTING ACTIVITIES: Acquisitions, net of cash acquired............................... -- -- -- (112,455) Capital expenditures............................................. (2,579) (8,896) (16,303) (26,805) Investment in marketable securities.............................. -- (1,666) (3,273) (14,141) Proceeds from sale of nutritional products business.............. -- 55,821 -- -- Proceeds from sale of marketable securities...................... -- -- 64,221 15,300 Proceeds from maturity of marketable securities.................. -- 3,347 3,996 5,881 Proceeds from sale of fixed assets............................... -- 229 4,157 2,589 Investment in securitization affiliate........................... -- (19,933) -- -- Other............................................................ (229) (877) (2,085) 1,617 -------- --------- -------- --------- Investing cash flow............................................ (2,808) 28,025 50,713 (128,014) -------- --------- -------- --------- FINANCING ACTIVITIES: Short-term borrowings: CCC borrowings--advances........................................ -- -- 105,072 60,112 CCC borrowings--repayments...................................... -- -- (57,975) (60,112) Other short-term borrowings--net................................ -- (1,673) 60 450 Revolving credit borrowings--net................................. 3,050 24,243 (61,500) 89,100 Long-term debt--Repayment........................................ (2,000) (12,814) (47,841) (59,681) Dividends paid................................................... -- -- -- (3,835) Stock option proceeds and other.................................. -- 30 435 837 -------- --------- -------- --------- Financing cash flow............................................ 1,050 9,786 (61,749) 26,871 -------- --------- -------- --------- INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS....................................................... 1,436 (638) (1,392) 5,048 CASH AND TEMPORARY INVESTMENTS BEGINNING OF PERIOD,........................................................... 5,895 6,533 7,925 2,877 -------- --------- -------- --------- CASH AND TEMPORARY INVESTMENTS, END OF PERIOD...................... $ 7,331 $ 5,895 $ 6,533 $ 7,925 ======== ========= ======== =========
See notes to consolidated financial statements. F-5 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001, 2000, and 1999 1. ACCOUNTING POLICIES The Company The consolidated financial statements include the accounts of Imperial Sugar Company and its wholly owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. The Company operates in two domestic business segments--the production and sale of refined sugar and the sale and distribution of products for the foodservice industry. Reorganization On January 16, 2001, Imperial Sugar Company and substantially all of its subsidiaries filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware. On August 29, 2001, the Company's Second Amended and Restated Joint Plan of Reorganization (the "Plan of Reorganization") became effective, and the Company emerged from bankruptcy court protection. The Company applied the accounting principles provided for in the American Institute of Certified Public Accountant's Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), including fresh start accounting upon emergence. Accordingly, the Company's financial position, results of operations and cash flows for the periods after the Company's emergence from bankruptcy are not comparable to earlier periods. Reorganization costs include legal and professional fees associated with the Company's bankruptcy proceedings and employee retention compensation costs. Business Risk The Company is significantly affected by market factors, including domestic prices for refined sugar and raw cane sugar. These market factors are influenced by a variety of external forces, including the number of domestic acres contracted to grow sugar cane and sugarbeets, prices of competing crops, weather conditions and United States farm and trade policy. Federal legislation and regulations provide for mechanisms designed to support the price of domestic sugar crops, principally through the limitations on importation of raw cane sugar for domestic consumption. In addition, agricultural conditions in the Company's growing areas may materially affect the quality and quantity of sugar beets available for purchase as well as the unit costs of raw materials and processing. A significant portion of the Company's industrial sales are made under fixed price, forward sales contracts, which extend for up to one year. The Company also contracts to purchase raw cane sugar substantially in advance of the time it delivers the refined sugar produced from the purchase. To mitigate its exposure to future price changes, the Company attempts to manage the volume of refined sugar sales contracted for future delivery in relation to the volume of raw cane sugar contracted for future delivery, when feasible. Additionally, the Company utilizes a participatory sugarbeet purchase contract, described below, which relates the cost of sugarbeets to the net selling price realized on refined beet sugar sales. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires estimates and assumptions that affect the reported amounts as well as certain disclosures. The Company's financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from those estimates. F-6 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 Cash and Temporary Investments Temporary investments consist of short-term, highly liquid investments with maturities of 90 days or less at the time of purchase. Marketable Securities All of the Company's marketable securities are classified as "available for sale", and accordingly are reflected in the Consolidated Balance Sheet at fair market value, with the aggregate unrealized gain, net of related deferred tax liability, included as a separate component of comprehensive income within shareholders' equity. Cost for determining gains and losses on sales of marketable securities is determined on the FIFO method. Inventories Inventories are stated at the lower of cost or market. Cost of sugar is determined under the last-in, first-out ("LIFO") method. All other costs are determined under the first-in, first-out ("FIFO") method. Pursuant to the application of fresh start accounting, the current cost of inventory at August 29, 2001, became the LIFO base layer. If only the FIFO cost method had been used, inventories would have been higher by $3.0 million at September 30, 2000 and $15.7 million at September 30, 1999; inventories at September 30, 2001 approximated current cost. Reductions in inventory quantities in the year ended September 30, 2000 resulted in liquidations of LIFO inventory layers carried at costs prevailing in prior years. The effect of this liquidation was to increase the net loss by about $0.3 million ($0.01 per share) in fiscal 2000. Sugarbeets Purchased Payments to growers for sugarbeets are based in part upon the Company's average net return for sugar sold (as defined in the participating contracts with the growers) during the grower contract years, some of which extend beyond the fiscal year end. The contracts provide for the sharing of the net selling price (gross sales price less certain marketing costs, including packaging costs, brokerage, freight expense and amortization of costs for certain facilities used in connection with marketing) with growers. Cost of sales includes an accrual for estimated additional amounts to be paid to growers based on the average net return realized to date for sugar sold in each of the contract years through the end of the fiscal year. The final cost of sugarbeets cannot be determined until the end of the contract year for each growing area. Revenue Recognition Revenue from product sales is recognized when the related goods are shipped and all significant obligations of the Company have been satisfied. Hedge Accounting The Company uses raw sugar futures and options in its raw sugar purchasing programs and uses natural gas futures to hedge natural gas purchases used in its manufacturing operations. Effective October 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activity", and recorded a cumulative effect of a change in accounting principles. Eligible gains and losses on raw sugar futures and options are deferred and recognized as part of the cost of inventory purchases and charged or credited to cost of sales as such inventory is sold. Eligible gains and losses on natural gas futures and basis swaps are deferred and recognized as part of the cost of the natural gas purchases and charged to cost of sales in the period of the purchase. F-7 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 Manufacturing Costs Prior to Production Certain manufacturing costs incurred between processing periods which are necessary to prepare each factory for the next processing campaign are deferred and allocated to the cost of sugar produced in the subsequent campaign. At September 30, 2001 and 2000, such amounts included in deferred costs and prepaid expenses were $23.9 million and $39.3 million. Property and Depreciation Property is stated at cost and includes expenditures for renewals and improvements and capitalized interest. Maintenance and repairs are charged to current operations. When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is included in income. Depreciation is provided principally on the straight-line or sum-of-the-years' digits methods over the estimated service lives of the assets. In general, buildings are depreciated over 10 to 20 years, machinery and equipment over 3 to 15 years and leasehold improvements over 10 years. Property, plant and equipment was revalued pursuant to fresh start accounting. Impairment of Long-Lived Assets Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset or its disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use are based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or net realizable value. Interest Rate Swap Agreements Interest rate swap agreements are recorded at market value. The differential paid or received on interest rate swap agreements is recognized as an increase or decrease in interest expense. The Company does not use these instruments for trading purposes, rather it uses them to hedge the impact of interest rate fluctuations on floating rate debt. Fair Value of Financial Instruments The fair value of financial instruments is estimated based upon market trading information, where available. Absent published market values for an instrument, management estimates fair values based upon quotations from broker/dealers or interest rate information for similar instruments. The carrying amount of cash and temporary investments, accounts receivable, accounts payable, short-term borrowings and other current liabilities approximates fair value because of the short maturity and/or frequent repricing of those instruments. Federal Income Taxes Federal income tax expense includes the current tax obligation or benefit and the change in deferred income tax liability for the period. Deferred income taxes result from temporary differences between financial and tax bases of certain assets and liabilities. The Company evaluates the realizability of deferred tax assets quarterly. F-8 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 Environmental Matters The Company provides for environmental remediation costs based on estimates of known environmental remediation exposure when such amounts are probable and estimable. Ongoing environmental compliance costs, including maintenance and monitoring costs, are expensed as incurred. Capital costs incurred to prevent future environmental contamination are capitalized. Accounting Pronouncements Effective April 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial-components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. The statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The implementation of this pronouncement did not have a material effect on the Company's financial statements. In June 2001, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which would require the Company to cease amortization of goodwill and other intangible assets beginning in fiscal 2003, and subject such assets to an annual impairment test. After the application of fresh start accounting the Company does not have goodwill or other intangible assets. Therefore, the Company anticipates this pronouncement will not effect its financial statements. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and certain provisions of APB Opinion No. 30, "Reporting Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 requires that long-lived assets to be disposed of by sale, including discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS 144 also broadens the reporting requirements of discontinued operations to include all components of an entity that have operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. The provisions of SFAS 144 are effective for fiscal years beginning after December 15, 2001. Management is evaluating the effect of this statement on the Company's results of operations and financial position. Reclassifications Certain amounts in prior years have been reclassified to be consistent with the 2001 presentation. 2. BASIS OF PRESENTATION AND MANAGEMENT'S PLANS On January 16, 2001, Imperial Sugar Company and substantially all of its subsidiaries filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware. On August 29, 2001, the Company's Second Amended and Restated Joint Plan of Reorganization became effective and the Company emerged from bankruptcy court protection. Upon emergence from bankruptcy, the Company's debt aggregated F-9 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 approximately $230 million. As more fully explained in Notes 6 and 9, the Company's accounts receivable securitization agreement and senior bank agreement contain various financial covenants, which, among other things, require that the Company maintain compliance with certain financial ratios and limits. The financial covenants were set at levels based on financial projections prepared in connection with the Plan of Reorganization, become more restrictive over time and do not accommodate significant downward variations in operating results. The Company's Plan of Reorganization and the related financial projections were predicated on improvements in the domestic refined sugar market from the historic lows recently experienced which, along with the deleveraging effects of the reorganization, are expected to return the Company to a more sound financial basis. The Company has a very limited operating history since its emergence from bankruptcy, and the refined sugar market, while significantly improved over the prior year, has not demonstrated that it will attain and sustain the levels included in the Company's projections. Consequently, there can be no assurances that the Company will achieve the results included in its projections. While the Company is currently in compliance with all financial covenants of its debt agreements, its current forecast indicates that the Company may not meet certain of these covenants during fiscal 2002 absent significant asset sales. Should the Company not achieve the compliance targets, it may be required to request an amendment of the agreements or a waiver of non-compliance from its lenders, and there are no assurances that the Company's lenders will be willing to provide such waiver or amendment. The uncertainties described above raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. Management intends to sell assets of non-strategic operations and surplus assets and use the proceeds from such sales to repay debt, in an effort to improve the Company's working capital and liquidity. Finally, management will seek amendments or modifications to its debt agreements if necessary to help assure that the Company meets its debt covenants during fiscal 2002. 3. REORGANIZATION AND FRESH START ADJUSTMENTS On January 16, 2001, Imperial Sugar Company and substantially all of its subsidiaries filed petitions for relief under chapter 11 of the U.S. Bankruptcy Code in the District of Delaware. The Company's Plan of Reorganization became effective and the Company emerged from bankruptcy on August 29, 2001. Prior to the Company's filing for bankruptcy protection, the Company was in default under certain financial covenants in its senior credit agreement. The Company did not make its required interest payments which were due on December 15, 2000 and June 15, 2001 on its 9 3/4% Senior Subordinated Notes due 2007 (the "Subordinated Debt"). The Plan of Reorganization provided that holders of the Subordinated Debt and certain other unsecured creditors received 9,800,000 shares of common stock representing 98% of the common equity in the restructured entity in satisfaction of their debt obligations. Trade creditors were given the option of receiving $5,000 or 10% of their claim in cash, in lieu of receiving common stock. Additionally, the Plan of Reorganization provided that certain former employees and directors who were participants in non-qualified pension and deferred compensation plans received common stock or, at their option, cash and a non-interest bearing note for 60% of F-10 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 their allowed claim. Previous holders of the common equity of the Company received 200,000 shares of common stock representing 2.0% of the common equity in the restructured entity and 7-year warrants to purchase an additional 1,111,111 shares of common stock representing 10.0% of the restructured entity on a diluted basis. These share numbers and ownership percentages exclude shares issuable upon the exercise of options to be granted in connection with the long-term management incentive plan adopted by the Company as part of the reorganization proceedings. Upon its emergence from bankruptcy, the Company implemented the fresh start accounting provisions of SOP 90-7. In accordance with fresh start accounting, the reorganization value of the Company was allocated to the Company's assets and liabilities in relation to their fair values similar to the procedures specified by Accounting Principles Board Opinion 16, ''Business Combinations''. In addition, the accumulated deficit of the Company was eliminated and its common stock was valued based on an enterprise value midpoint of $350 million and an equity value midpoint of $90 million. The Company recorded the effects of the Plan of Reorganization and fresh-start reporting as of August 29, 2001, as follows (in thousands):
Predecessor Adjustments to Record Effects Successor Company of the Plan Company Consolidated ---------------------------- Consolidated Balance Reorganization Fresh Start Balance Sheet Adjustments Adjustments Sheet ------------ -------------- ----------- ------------ Current assets........................ $270,900 $ -- $ 4,912 $275,812 Property, plant and equipment, net.... 331,113 -- (56,118) 274,995 Goodwill and other intangibles........ 330,401 -- (330,401) -- Other assets, net..................... 47,042 (8,544) (9,038) 29,460 -------- --------- --------- -------- Total assets....................... $979,456 $ (8,544) $(390,645) $580,267 ======== ========= ========= ======== Current liabilities................... $223,766 $ (25,435) $ (25,353) $172,978 Long-term debt........................ 467,779 (238,304) -- 229,475 Other long-term liabilities........... 77,649 (13,461) 23,626 87,814 -------- --------- --------- -------- Total liabilities.................. 769,194 (277,200) (1,727) 490,267 -------- --------- --------- -------- Common stock.......................... 310,487 88,200 (308,687) 90,000 Treasury stock........................ (15,859) -- 15,859 -- Accumulated deficit................... (75,033) 180,456 (105,423) -- Accumulated other comprehensive income (9,333) -- 9,333 -- -------- --------- --------- -------- Total shareholders' equity......... 210,262 268,656 (388,918) 90,000 -------- --------- --------- -------- Total.............................. $979,456 $ (8,544) $(390,645) $580,267 ======== ========= ========= ========
Reorganization adjustments reflect the conversion of both the Subordinated Debt, including related accrued interest, and certain prepetition trade payables into new common stock, as well as the settlement of the non-qualified pension and deferred compensation liabilities, resulting in an extraordinary gain of $180.5 million. 4. DIAMOND CRYSTAL ACQUISITION On November 2, 1998 the Company acquired all the outstanding common stock of DSLT Inc. ("Diamond Crystal") in a merger of a wholly owned subsidiary of the Company, with and into Diamond Crystal. Consideration for the acquisition consisted of $80.2 million cash, 5.0 million shares of common stock and the repayment of $28.3 million of Diamond Crystal debt. The cash portion of the merger consideration was funded by borrowing under the Company's existing revolving credit agreement. F-11 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 Diamond Crystal produces nutritional dry mixes, sauces, seasonings, drink mixes and desserts for distribution to the healthcare and foodservice industries. The purchase method was used to account for the acquisition, and Diamond Crystal's results of operations are included in the Company's consolidated financial statements commencing November 2, 1998. An allocation of the aggregate purchase price of $184.6 million, including $31.9 million of liabilities assumed, was made to current assets ($33.3 million), plant, property and equipment ($18.8 million) and goodwill ($132.0 million). Liabilities assumed include $2.7 million for the estimated costs to close two Diamond Crystal production facilities, as well as cost related to the involuntary termination of certain administrative employees, both of which were completed in fiscal 2000. The following table presents unaudited, summarized pro forma operating results as if the acquisition of Diamond Crystal and the related financing transactions had occurred on October 1, 1998, assuming effective income tax rates of 35% to 38%.
Year Ended September 30, 1999 -------------- (Pro forma) (In Thousands of Dollars, Except Per Share Amounts) Net sales.............................. $1,899,714 ---------- Cost of sales.......................... 1,713,107 Selling, general and administrative.... 86,467 Depreciation and amortization.......... 51,705 Asset impairment and other charges..... -- ---------- Operating income (loss)................ 48,435 Interest expense....................... (59,774) Securities gains (losses).............. 4,697 Loss on investment in partnership...... (16,706) Other income........................... 1,598 ---------- Income (loss) before income taxes...... (21,750) Provision (benefit) for income taxes... (3,276) ---------- Income (loss) before extraordinary item $ (18,474) ========== Basic earnings (loss) per share........ $ (0.57) ==========
Amortization of goodwill and other intangibles totaled $9.7 million in the period from October 1, 2000 to August 29, 2001, $10.8 million in fiscal 2000 and, $11.0 million in fiscal 1999, respectively. F-12 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 5. MARKETABLE SECURITIES Marketable securities consisted of the following (in thousands of dollars):
Successor Company September 30, 2001 ---------------------------- Gross Unrealized Fair Holding Amortized Market ----------- Cost Value Gains Losses --------- ------ ----- ------ US Government securities, maturing in 2002 $1,908 $1,908 $ -- $ -- Common stocks............................. 848 862 14 -- ------ ------ ---- ---- Total.................................. $2,756 $2,770 $ 14 $ -- ====== ====== ==== ==== Predecessor Company September 30, 2000 ---------------------------- Gross Unrealized Fair Holding Amortized Market ----------- Cost Value Gain Losses --------- ------ ----- ------ US Government securities, maturing in 2001 $3,548 $3,602 $ -- $(54) Common stocks............................. 254 1,010 756 -- ------ ------ ---- ---- Total.................................. $3,802 $4,612 $756 $(54) ====== ====== ==== ====
The Company liquidated substantially all of its marketable securities portfolio in fiscal 2000, and utilized $36.6 million of the net proceeds to pay down senior term loans. Realized securities gains are reported net of realized losses of $0.5 million in fiscal 2000. There were no realized securities losses during the periods ended August 29, 2001, September 30, 2001 or fiscal 1999. Marketable securities at September 30, 2001 were pledged to secure certain insurance obligations. Other investments include the Company's royalty interest in a coal seam methane gas project, which is accounted for at amortized cost. The Company has a limited partnership interest in a company which owns an interest in a fuel oil terminal in the Port of Houston; a former director of the Company is the general partner. 6. SALE OF ACCOUNTS RECEIVABLE The Company entered into a receivables securitization facility in conjunction with its emergence from bankruptcy to replace its prior facility. The replacement facility extends until August 2004 and provides for loans from a third party to a wholly-owned, unconsolidated subsidiary of up to $110 million. Such loans are secured by trade accounts receivable purchased by such subsidiary from the Company on a non-recourse basis, for a combination of cash, notes and an equity contribution. Loans outstanding from the third party to such unconsolidated subsidiary, not included in the consolidated financial statements, totaled $78.1 million at September 30, 2001. Trade receivables sold to such subsidiary during the period ended September 30, 2001 totaled $263.6 million and the balance of receivables sold totaled $112.7 million at September 30, 2001. The Company services the receivables under the agreement for a fee of 1% . The replacement securitization facility requires compliance with the same financial covenants described in Note 9, and also includes a maximum receivables delinquency rate and a maximum receivables dilution rate. F-13 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 In 1999, the Company entered into a receivables purchase agreement with an independent issuer of receivables-backed commercial paper. Through a wholly owned, consolidated, special purpose subsidiary, the Company agreed to sell on an ongoing basis and without recourse, an undivided percentage ownership interest in designated pools of accounts receivable. To maintain the balance in the designated pools of accounts receivable sold, the Company was obligated to sell undivided percentage interests in new receivables as existing receivables were collected. The agreement was cancelled August 29, 2001. The Company recorded such transfers as sales of the related accounts receivable. The Company had sold accounts receivable to the purchaser at September 30, 2000 of $82.5 million. At September 30, 2000, the Company's retained interest was $42.1 million; the fair value of the retained interest approximated its book value. The discount under these agreements are variable based on the general level of interest rates on commercial paper plus administrative fees typical in such transactions. These costs were approximately $0.3 million in the period ending September 30, 2001, $6.5 million in the period ending August 29, 2001, $6.4 million in fiscal 2000 and $1.4 million for fiscal 1999 and were included in selling, general and administrative in the accompanying Consolidated Statement of Operations. The Company receives compensation for servicing the accounts receivables that approximates its cost to provide such services. Accordingly, no servicing assets or liability is recorded. 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands of dollars):
Successor Predecessor Company Company --------- ----------- September 30, --------------------- 2001 2000 --------- ----------- Land.............................. $ 27,475 $ 42,927 Buildings, machinery and equipment 239,631 540,774 Construction in progress.......... 9,974 13,073 -------- -------- Total.......................... 277,080 596,774 Less accumulated depreciation..... 1,627 239,093 -------- -------- Property, Plant and Equipment--Net $275,453 $357,681 ======== ========
Property, plant and equipment was revalued pursuant to fresh start accounting. 8. SHORT-TERM BORROWINGS In the past, the Company borrowed short-term from the Commodity Credit Corporation ("CCC") under the USDA's price support loan program. CCC borrowings, which mature September 30 each year, are secured by refined beet sugar inventory and are recourse or nonrecourse to the Company depending upon certain regulatory conditions. During fiscal 2000, the Company participated in permitted forteitures of refined sugar in full satisfaction of $47.1 million of outstanding loans with the CCC in lieu of repaying the loans because the forfeiture price exceeded the current market price. The Company accounted for this transaction as a debt repayment. The net book value of inventory forfeited approximated the debt discharged, including interest. The Company did not borrow from the CCC during the twelve months ended September 30, 2001. F-14 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 9. LONG-TERM DEBT Long-term debt was as follows (in thousands of dollars):
Successor Predecessor Company Company --------- ----------- September 30, --------------------- 2001 2000 --------- ----------- Senior bank agreements: Revolving credit facility.............. $ 57,293 $ 30,000 Term loans............................. 139,036 150,769 9 3/4% Senior Subordinated Notes due 2007. -- 250,000 Industrial revenue bonds.................. 22,500 25,100 Non-interest bearing notes................ 11,696 -- Other..................................... -- 481 -------- -------- Total long-term debt............... 230,525 456,350 Less current and deemed current maturities 3,746 436,350 -------- -------- Long-term debt, net....................... $226,779 $ 20,000 ======== ========
The senior bank agreement in effect at September 30, 2001, which replaced the previous agreement upon the Company's emergence from bankruptcy, includes a $117 million revolving credit facility (available through September 30, 2004) and term loans aggregating $139 million. Generally, CCC borrowings reduce the amounts available under the revolving credit facility, however, CCC borrowings of up to $25 million seasonally may be made without reducing the availability of borrowings under the revolving credit facility. At September 30, 2001, the carrying amount of the Company's debt approximates fair value. The industrial revenue bonds consist of various issues at fixed and variable interest rates, ranging from 3.0% to 6.6%, and have maturity dates ranging from 2015 to 2025. Pursuant to the Plan of Reorganization, the non-interest bearing notes were issued to certain former employees and directors who were participants in non-qualified pension and deferred compensation plans. The notes require 23 equal quarterly payments aggregating $0.7 million commencing March 2002, with final maturity in August 2007. The notes have been recorded on a discounted basis at a 12% rate of interest. Scheduled maturities of long-term debt at September 30, 2001, is as follows (in thousands of dollars): Fiscal 2002 $ 3,746 Fiscal 2003 7,569 Fiscal 2004 68,979 Fiscal 2005 86,201 Fiscal 2006 34,853 Thereafter. 29,177
The senior bank agreement is secured by substantially all of the Company's assets. The senior bank agreement contains restrictive covenants which may limit, among other things, the Company's ability to incur F-15 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 additional indebtedness and make capital expenditures and investments and prohibit the Company from paying dividends. The senior bank agreement requires quarterly compliance with certain financial covenants including a total leverage ratio, working capital ratio, fixed charge coverage ratio, minimum EBITDA, minimum level of net worth and an interest coverage ratio. The Company was in compliance with all financial covenants at September 30, 2001, however the covenant levels in the agreement do not allow for significant downward variation in operating results and future compliance cannot be assured. Interest on borrowings under the senior bank agreement is at floating rates (either a base rate plus a margin from 2.0% to 4.0% or a Eurodollar rate plus a margin from 4.0% to 6.0%). The Company has entered into interest rate swap agreements with a major financial institution in which the Company pays a fixed interest rate of 6.01% on $107.7 million. The Company is exposed to credit risk in the event of nonperformance by counterparties to its interest rate swap agreements. The Company anticipates that its counterparties will fully perform their obligations under the agreements. Cash paid for interest on short and long-term debt was $0.8 million for the period ended September 30, 2001, $21.2 million for the period ended August 29, 2001, $54.5 million for fiscal 2000, and $57.2 million for fiscal 1999. Interest capitalized as part of the cost of constructing assets was $0.01 million for the period ended September 30, 2001, $0.4 million for the period ended August 29, 2001, $.5 million for fiscal 2000, and $.4 million for fiscal 1999. 10. INCOME TAXES The components of the consolidated income tax provision (credit), including amounts reported as an extraordinary item, were as follows (in thousands of dollars):
Successor Company Predecessor Company ------------------ ---------------------------------- Period from Year Ended Period from October 1, 2000 September 30, August 30, 2001 to to ------------------ September 30, 2001 August 29, 2001 2000 1999 ------------------ --------------- -------- -------- Federal: Current........................................ $ -- $ -- $ -- $ 7,512 Tax benefit of operating loss carryforward utilized (generated)......................... 5,979 (41,169) (920) (19,327) Deferred....................................... (7,980) (38,640) (11,703) 7,972 State............................................. 84 874 (350) 389 ------- -------- -------- -------- Total before extraordinary item............ (1,917) (78,935) (12,973) (3,454) Tax effect of extraordinary item (reduction of net operating loss carryforward).................... -- $ 21,300 -- -- Valuation allowance............................... 1,917 40,233 -- -- ------- -------- -------- -------- Total...................................... $ 0 $(17,402) $(12,973) $ (3,454) ======= ======== ======== ========
F-16 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 The tax effects of temporary differences which give rise to the Company's deferred tax assets and liabilities were as follows (in thousands of dollars):
Successor Company Predecessor Company ----------------------------- - ---------------------------- September 30, 2001 September 30, 2000 ----------------------------- - ---------------------------- Assets Liabilities Total Assets Liabilities Total -------- ----------- -------- - ------- ----------- -------- Current: Marketable securities valuation......... differences............................. -- -- -- -- $ (265) $ (265) Inventory valuation differences, principally purchase accounting....... -- $(19,472) $(19,472) -- (14,818) (14,818) Manufacturing costs prior to production deducted currently.................... -- (7,851) (7,851) -- (13,746) (13,746) Accruals not currently deductible....... $ 5,316 -- 5,316 $ 9,868 -- 9,868 Alternate minimum tax differences....... 1,499 -- 1,499 1,499 -- 1,499 Operating loss carryforward............. -- -- -- -- -- -- Other................................... 1,506 -- 1,506 1,177 1,177 -------- -------- -------- - ------- -------- -------- Total current....................... 8,321 (27,323) (19,002) 12,544 (28,829) (16,285) -------- -------- -------- - ------- -------- -------- Noncurrent: Depreciation differences, including..... purchase accounting..................... -- (40,095) (40,095) -- (54,542) (54,542) Accruals not currently deductible....... 24,976 -- 24,976 24,738 -- 24,738 Operating loss carryforward............. 32,413 -- 32,413 20,247 -- 20,247 Other................................... 43,858 43,858 8,440 -- 8,440 -------- -------- -------- - ------- -------- -------- Total noncurrent.................... 101,247 (40,095) 61,152 53,425 (54,542) (1,117) -------- -------- -------- - ------- -------- -------- Total...................................... $109,568 $(67,418) 42,150 $65,969 $(83,371) $(17,402) ======== ======== = ======= ======== ======== Valuation allowance........................ (42,150) -------- Net..................................... $ 0 ========
The consolidated income tax provision is different from the amount which would be provided by applying the statutory federal income tax rate of 35% to the Company's income before taxes (including extraordinary item). The reasons for the differences from the statutory rate are as follows (in thousands of dollars):
Successor Company Predecessor Company ------------------ - --------------------------------- Period from Period from October 1, 2000 Year Ended August 30, 2001 to to ----------------- September 30, 2001 August 29, 2001 2000 1999 ------------------ - --------------- -------- ------- Income taxes computed at the statutory federal rate $(2,262) $(188,247) $(16,678) $(7,552) Non deductible goodwill amortization............ -- 3,377 3,787 3,847 Non deductible fresh start adjustments.......... -- 100,796 -- -- State income taxes.............................. 84 874 (350) 253 Other........................................... 261 4,265 268 (2) Valuation allowance............................. 1,917 40,233 -- -- ------- - --------- -------- ------- Total before extraordinary item............. $ 0 $ (38,702) $(12,973) $(3,454) ======= = ========= ======== =======
F-17 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 Income taxes paid were $1 million for the period ended August 29, 2001, $1.7 million in fiscal 2000 and $1.0 million in fiscal 1999. No income taxes were paid during the period ended September 30, 2001. The valuation allowance reduces deferred tax assets to the amount that the Company believes is most likely to be realized. Due to a recent history of losses, the Company has provided a valuation allowance for the net deferred tax asset balance. At August 29, 2001, the Company had federal income tax net operating loss ("NOL") carryforwards of approximately $154 million (before the reduction described below). The NOL carryforwards expire in various years through 2020. The amount of the NOL carryforwards and certain other tax attributes available to the Company as of the effective date of its emergence from bankruptcy were reduced substantially, to approximately $93 million as a result of the discharge and cancellation of various prepetition liabilities under the Plan. Tax attributes remaining after the application of cancellation of indebtedness rules are subject to limitation-on-utilization rules. The federal tax code imposes limitations on the utilization of tax attributes, such as NOL carryovers, after certain changes in the ownership of a company. The income tax benefit, if any, resulting from any future realization of the NOL carryforwards will be credited to additional paid-in-capital. 11. EMPLOYEE BENEFITS Defined Benefit Pension Plans and Postretirement Benefits Other Than Pensions Substantially all of the Company's nonseasonal employees are covered by retirement plans. Certain unionized employees are covered by an industry-wide plan, and other employees are covered by Company-sponsored defined benefit plans. Under the Company-sponsored defined benefit plans, retirement benefits are primarily a function of years of service and the employee's compensation for a defined period of employment. The Company funds pension costs at an actuarially determined amount based on normal cost and the amortization of prior service costs, gains, and losses over the remaining service periods. Additionally, the Company provides a supplemental non-qualified, unfunded pension plan for certain officers whose benefits under the qualified plan are limited by federal tax law. The Company provides a non-qualified retirement plan for non-employee directors, which provides benefits based upon years of service as a director and the retainer in effect at the date of a director's retirement. Certain of the Company's employees are covered by benefit plans that provide postretirement health care and life insurance benefits to certain employees who meet the applicable eligibility requirements. F-18 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 The following tables present the benefit obligation, changes in plan assets, the funded status of the pension plans and the assumptions used (in thousands of dollars):
Pension Benefits ------------------------------------------- Period from Year Period from October 1 2000 Ended August 30, 2001 to to September September 30, 2001 August 29, 2001 30, 2000 ------------------ --------------- --------- Change in benefit obligation: Benefit obligation at beginning of period............... $247,295 $225,503 $221,540 Service cost............................................ 483 5,359 5,418 Interest cost........................................... 1,487 15,519 16,176 Amendments.............................................. -- 435 990 Actuarial (gain)/loss................................... -- 27,088 (2,677) Curtailment loss........................................ -- -- (174) Expenses paid........................................... (89) (1,836) (1,304) Benefits paid........................................... (1,189) (14,514) (14,466) Bankruptcy settlement of certain non-qualified benefits. -- (10,259) -- -------- -------- -------- Benefits obligation at end of period.................... $247,987 $247,295 $225,503 ======== ======== ======== Change in plan assets: Fair value of plan assets at beginning of period........ $216,368 $253,552 248,383 Actual return on plan assets............................ 1,613 (21,629) 18,821 Employer contribution................................... -- 795 2,118 Expenses paid........................................... (89) (1,836) (1,304) Benefits paid........................................... (1,189) (14,514) (14,466) -------- -------- -------- Fair value of plan assets at end of period.............. $216,703 $216,368 $253,552 ======== ======== ======== Funded status.............................................. $(31,283) $(30,927) $ 28,049 Unrecognized actuarial (gain)/loss......................... -- -- (45,252) Unrecognized prior service cost............................ -- -- 7,576 Adjustment for fourth quarter contributions................ 368 -- 290 -------- -------- -------- Net amount recognized...................................... $(30,915) $(30,927) $ (9,337) ======== ======== ========
F-19 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999
Postretirement Benefits Other Than Pensions ------------------------------------------- Period from Year Period from October 1 2000 Ended August 30, 2001 to to September September 30, 2001 August 29, 2001 30, 2000 ------------------ --------------- --------- Change in benefit obligation: Benefit obligation at beginning of period........ $ 41,978 $ 38,035 $ 36,126 Service cost..................................... 35 565 567 Interest cost.................................... 253 2,610 2,644 Amendments....................................... -- (12,401) 419 Actuarial (gain)/loss............................ -- 15,544 967 Benefits paid.................................... (190) (2,375) (2,688) -------- -------- -------- Benefits obligation at end of period............. $ 42,076 $ 41,978 $ 38,035 ======== ======== ======== Change in plan assets: Fair value of plan assets at beginning of period. -- -- -- Employer contribution............................ 190 2,375 2,688 Benefits paid.................................... (190) (2,375) (2,688) -------- -------- -------- Fair value of plan assets at end of period....... $ -- $ -- $ -- ======== ======== ======== Funded status....................................... $(42,076) $(41,978) $(38,035) Unrecognized actuarial (gain)/loss.................. -- -- 4,430 Unrecognized prior service cost..................... -- -- 419 Adjustment for fourth quarter contributions......... -- -- 706 -------- -------- -------- Net amount recognized............................... $(42,076) $(41,978) $(32,480) ======== ======== ========
Postretirement Benefits Postretirement Benefits Other than Pensions ---------------------- ---------------------- September 30, September 30, ---------------------- ---------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Amounts recognized in the statement of financial position consist of: Accrued benefit liability............................. $(30,915) $(11,637) $(42,076) $(32,480) Intangible asset...................................... -- 2,300 -- -- -------- -------- -------- -------- Net amount recognized.................................... $(30,915) $ (9,337) $(42,076) $(32,480) ======== ======== ======== ========
F-20 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 The assumptions used and the annual cost related to these plans consist of the following:
Period from Year Period from October 1 2000 Ended August 30, 2001 to to September September 30, 2001 August 29, 2001 30, 2000 ------------------ --------------- --------- Pension Benefits Weighted-average assumptions: Discount rate............................................ 7.25% 7.25% 7.75% Expected return on plan assets........................... 9.0% 9.0% 9.0% Rate of compensation increase............................ 4.5-5.0% 4.5-5.0% 4.5-5.0% Components of net periodic benefit cost of Company-sponsored plans: Service cost............................................. $ 483 $ 5,359 $ 5,418 Interest cost............................................ 1,487 15,518 16,176 Expected return on plan assets........................... (1,614) (20,355) (21,833) Amortization of prior service cost....................... -- 766 799 Amortization of transition (asset)/obligation............ -- -- (22) Recognized actuarial (gain)/loss......................... (2,583) (3,582) -------- -------- -------- Net periodic benefit cost................................... 356 (1,295) (3,044) Curtailment effect recognized............................... -- -- (316) -------- -------- -------- Total net periodic benefit cost - Company-sponsored plans... 356 (1,295) (3,360) Industry-wide plan for certain unionized employees.......... 40 479 512 -------- -------- -------- Total pension cost....................................... $ 396 $ (816) $ (2,848) ======== ======== ========
Period from Year Period from October 1 2000 Ended August 30, 2001 to to September September 30, 2001 August 29, 2001 30, 200 ------------------ --------------- --------- Postretirement Benefits Other Than Pensions Discount rate assumptions.................. 7.25% 7.25% 7.75% Components of net periodic benefit cost: Service cost............................ $ 35 $ 565 $ 567 Interest cost........................... 252 2,610 2,644 Recognized actuarial (gain)/loss........ -- 91 66 ----- ------ ------ Net periodic benefit cost.................. $ 287 $3,266 $3,277 ===== ====== ======
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $22.0 million, $20.3 million, and $0.5 million, respectively, as of September 30, 2000 and $145.6 million, $129.8 million, and $96.3 million, respectively, as of September 30, 2001. The assumed health care cost trend rate used in measuring the accumulated benefit obligation for postretirement benefits other than pensions as of September 30, 2001 was 14% for 2002. The rate was assumed F-21 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 to decrease gradually to 5.25% for 2009 and remain at that level thereafter. Assumed health care cost trend rates 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- 1- Percentage Percentage Point Point Increase Decrease ---------- ---------- (In Thousands of Dollars) Effect on total service and interest cost components $ 36 $ (30) Effective on postretirement benefit obligation...... 4,643 (3,890)
401(k) Plans Substantially all of the employees may elect to defer up to 15% of their annual compensation in the Company sponsored 401(k) tax deferred savings plans. The Company makes matching contributions in some of these plans. The amounts charged to expense for each of the periods presented for these plans were not significant. Employee Stock Purchase Plan Prior to bankruptcy, the Company had an employee stock purchase plan which provided substantially all year-round employees the option to purchase shares of common stock either through open market purchases at market value or directly from the Company at 85% of market value. The amounts charged to compensation expense for each of the periods presented for the discount on shares purchased under the latter alternative were not significant. This plan was terminated in December 2001. F-22 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 12. SHAREHOLDERS' EQUITY Earnings per Share The following table presents information necessary to calculate basic and diluted earnings per share (in thousands of dollars, except per share amounts):
Period from Period from October 1, 2000 Year Ended September 30, August 30, 2001 to to ------------------------ September 30, 2001 August 29, 2001 2000 1999 ------------------ --------------- ----------- ----------- Earnings for basic and diluted computation: Income (loss) before cumulative effect and extraordinary item.......................... $ (6,464) $ (499,148) $ (34,677) $ (18,124) Net income (loss)............................. (6,464) (316,340) (34,677) (18,124) =========== =========== =========== =========== Basic earnings per share:..................... Weighted average shares outstanding........... 10,000,000 32,409,074 32,293,759 31,712,602 =========== =========== =========== =========== Income (loss) per share before cumulative effect and extraordinary item............... $ (0.65) $ (15.40) $ (1.07) $ (0.57) =========== =========== =========== =========== Net income (loss) per share................... $ (0.65) $ (9.76) $ (1.07) $ (0.57) =========== =========== =========== =========== Diluted earnings per share:................... Weighted average shares outstanding........... 10,000,000 32,409,074 32,293,759 31,712,602 Incremental shares issuable from assumed exercise of stock options under the treasury stock method................................ -- -- -- -- ----------- ----------- ----------- ----------- Weighed average shares outstanding-as adjusted.................................... 10,000,000 32,409,074 32,293,759 31,712,602 =========== =========== =========== =========== Income (loss) per share before cumulative effect and extraordinary item............... $ (0.65) $ (15.40) $ (1.07) $ (0.57) =========== =========== =========== =========== Net income (loss) per share................... $ (0.65) $ (9.76) $ (1.07) $ (0.57) =========== =========== =========== ===========
Stock Incentive Plan The Company measures compensation cost of stock-based compensation using the intrinsic value method. The Company's reported net income and earnings per share would not have been materially effected had compensation cost for the Company's stock-based compensation plans been determined using the fair value method of accounting. Prior to bankruptcy, the Company had a stock incentive plan which provided for the granting of incentive awards in the form of stock options, stock appreciation rights (SARs), restricted stock, performance units and performance shares at the discretion of the Executive Compensation Committee of the Board of Directors. Additionally, the Company had a non-employee director stock option plan and a non-employee director stock compensation plan. These plans were terminated and all outstanding options were cancelled pursuant to the Plan of Reorganization. F-23 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 In connection with the Company's emergence from bankruptcy, the Company adopted a long-term incentive plan which provides for the granting to management of options to purchase up to 1,234,568 shares of common stock of the reorganized company; to date no options have been granted. 13. DERIVATIVE INSTRUMENTS The Company uses derivative instruments to manage exposures to changes in raw sugar prices, natural gas prices and interest rates. The Company's objective for holding derivatives is to minimize risk using the most efficient methods to eliminate or reduce the impacts of these exposures. Raw Sugar The Company's risk management policy is to manage the forward pricing of purchases of raw sugar in relation to its forward refined sugar sales to reduce price risk. The Company attempts to meet this objective by entering into fixed price supply agreements, futures contracts and options contracts to reduce its exposure. The Company has designated its futures contracts and certain options contracts as cash flow hedging instruments. Such financial instruments are used to manage the Company's exposure to variability in future cash flows attributable to the purchase price of raw sugar. The changes in the fair value of the futures contracts and certain options contracts are included as a component of Other Comprehensive Income ("OCI"). The Company collects or pays cash based upon the change in the market value of open futures positions on a daily basis; accordingly, no asset or liability for the raw sugar futures contracts is reflected in the consolidated balance sheet. The changes in the fair value of the futures contracts and options contracts are matched to inventory purchases by period, and are recognized in earnings as such inventory is sold. The Company expects to recognize in earnings through September 30, 2002, approximately $1.4 million, net of tax, of existing net losses presently deferred in OCI. The pricing mechanisms of the futures contracts and the respective forecasted raw sugar purchase transactions are the same. As a result, there is no hedge ineffectiveness to be reflected in earnings. The Company excludes the change in the time value of the options contracts from its assessment of hedge effectiveness. The Company recorded a loss of $0.3 million in cost of sales as the change in the time value of options for the period ended August 29, 2001. The Company has hedged a portion of its exposure to raw sugar price risk movement through November 30, 2002. Certain options contracts not designated as hedging instruments under SFAS 133 are also used to hedge the impact of the variability of price risk for raw sugar. The change in the fair value of such instruments is recognized currently in earnings. Natural Gas The Company uses fixed price physical delivery contracts, futures contracts and basis swaps to help manage its costs of natural gas. The Company has designated as cash flow hedge instruments certain natural gas futures and basis swap contracts matched against variable price forecasted gas purchases. The change in the fair value of such contracts is included as a component of OCI. F-24 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 The Company also has natural gas futures and basis swap contracts that cannot be designated as cash flow hedge instruments because the aggregate notional value of its natural gas futures and basis swap contracts exceeds the Company's forecasted natural gas requirements in the relevant periods. Any change in fair value of such instruments is recorded as gain or loss in the period of the change. The Company collects or pays cash based upon the change in the market value of all open natural gas futures contracts on a daily basis; accordingly, no asset or liability for the natural gas futures contracts is reflected in the consolidated balance sheet. Natural gas basis swaps with a market value (liability) of $(1.7) million are included in the consolidated balance sheet at September 30, 2001. The changes in the fair value of the futures and swap contracts are matched to forecasted natural gas purchases and will be recognized in earnings in the period of the purchase. The Company expects to recognize in earnings through September 30, 2002, approximately $1.8 million, net of tax, of existing net losses presently deferred in OCI. For the periods ended August 29, 2001 and September 30, 2001, the Company recognized $0.3 million and ($87,000) respectively of derivative gains(losses) recorded in cost of sales, which represented the ineffectiveness of the natural gas cash flow hedging activity. For the period ended August 29, 2001 the Company reclassified $2.6 million of derivative gains from OCI to cost of sales, representing the discontinuance of cash flow hedges as it was no longer probable that the original forecasted transactions would occur. The Company has hedged a portion of its exposure to natural gas price risk through September 30, 2003. Interest Rates The Company has material amounts of debt with interest rates that float with market rates, exposing the Company to interest rate risk. The Company's policy is to reduce interest rate risk on its variable rate debt by entering into interest rate swap agreements for a portion of such floating rate debt. Since the Company has the ability to change the interest rate index of the debt, the interest rate swap agreements are not designated as hedging instruments under SFAS 133. Therefore, changes in the fair value of the interest rate swaps are recognized in earnings. 14. REPORTABLE SEGMENTS The Company has identified two reportable segments: sugar and foodservice. The segments are strategic business units that offer different products to different customers. The segments are managed separately because each business requires different production technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company accounts for intersegment sales as if the sales were to third parties, that is, at current market prices. The Company evaluates performance based on operating income of the respective business units. F-25 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 The sugar segment produces and sells refined sugar and related products. The segment's products include granulated, powdered, liquid, liquid blends and brown sugars, which are primarily sold to grocery and industrial customers and by-products from the production of refined sugar. The foodservice segment sells numerous products to foodservice customers, ranging from 50-pound bags of sugar to individual packets of sugar, salt, pepper, non-dairy creamer, sauces, seasonings, drink mixes and desserts. Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Corporate and Other" column includes corporate-related items.
Corporate Reconciling Sugar Foodservice and Other Eliminations Consolidated ---------- ----------- --------- ------------ ------------ Successor Company - ----------------- (In Thousands of Dollars) For the Period from August 30, 2001 to September 30, 2001 Revenues from external customers... $ 106,606 $ 27,323 -- -- $ 133,929 Intersegment revenues.............. 6,544 569 -- $ (7,113) Gross margin....................... 389 2,637 -- -- 3,026 Depreciation and amortization...... 1,145 417 $ 69 -- 1,631 Operating income................... (4,600) 737 (371) -- (4,234) Capital expenditures............... 1,683 570 326 -- 2,579 As of September 30, 2001 Total assets....................... 445,791 91,852 18,140 -- 555,783 Corporate Reconciling Sugar Foodservice and Other Eliminations Consolidated ---------- ----------- --------- ------------ ------------ Predecessor Company - ------------------- (In Thousands of Dollars) For the Period from October 1, 2000 to August 29, 2001 Revenues from external customers... $1,089,337 $329,382 -- -- $1,418,719 Intersegment revenues.............. 77,640 6,944 -- $ (84,584) -- Gross margin....................... 40,998 44,174 -- -- 85,172 Depreciation and amortization...... 33,811 8,052 $ 3,824 -- 45,687 Operating income................... (35,397) 13,236 (10,211) -- (32,372) Capital expenditures............... 6,394 1,240 1,262 -- 8,896 Corporate Reconciling Sugar Foodservice and Other Eliminations Consolidated ---------- ----------- --------- ------------ ------------ (In Thousands of Dollars) As of and for the Year Ended September 30, 2000 Revenues from external customers... $1,429,242 $391,989 $1,821,231 Intersegment revenues.............. 98,026 7,298 $(105,324) -- Gross margin....................... 97,378 41,324 138,702 Depreciation and amortization...... 37,473 10,297 $ 4,209 51,979 Operating income................... (23,785) 2,421 (6,458) (27,822) Total assets....................... 747,337 250,802 95,551 1,093,690 Capital expenditures............... 13,486 1,345 1,472 16,303
F-26 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999
Corporate Reconciling Sugar Foodservice and Other Eliminations Consolidated ---------- ----------- --------- ------------ ------------ (In Thousands of Dollars) As of and for the Year Ended September 30, 1999 Revenues from external customers. $1,490,981 $397,649 -- -- $1,888,630 Intersegment revenues............ 92,493 7,234 -- $(99,727) -- Gross margin..................... 132,007 52,284 -- -- 184,291 Depreciation and amortization.... 38,849 9,782 $ 2,641 -- 51,272 Operating income................. 35,661 14,037 (1,794) -- 47,904 Total assets..................... 870,894 247,834 162,055 -- 1,280,783 Capital expenditures............. 17,569 3,723 5,513 -- 26,805
Reconciliation of operating income to net loss before income taxes, minority interest and extraordinary item (in thousands):
Period from Period from October 1, 2000 Year Ended August 30, 2001 to to ------------------ September 30, 2001 August 29, 2001 2000 1999 ------------------ --------------- -------- -------- Operating income............................... $(4,234) $ (32,372) $(27,822) $ 47,904 Interest expense-net........................... (2,551) (32,658) (56,656) (59,071) Reorganization costs........................... -- (19,716) -- -- Fresh start adjustments........................ -- (453,188) -- -- Realized securities gains-net.................. -- -- 35,874 4,697 Loss on partnership investment................. -- -- -- (16,706) Sales of lines of business..................... -- 2,217 -- -- Change in fair value of interest rate swaps.... (901) (8,465) -- -- Other income-net............................... 1,222 6,332 954 1,598 ------- --------- -------- -------- Loss before income taxes, cumulative effect and extraordinary item........................... $(6,464) $(537,850) $(47,650) $(21,578) ======= ========= ======== ========
15. COMMITMENTS AND CONTINGENCIES The Company is party to litigation and claims which are normal in the course of its operations; while the results of such litigation and claims cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a materially adverse effect on its results of operations or consolidated financial position. The Company was obligated under $35.3 million in outstanding letters of credit at September 30, 2001. The Company leases certain facilities and equipment under cancelable and noncancelable operating leases. Total rental expenses for all operating leases amounted to $5.0 million in period ending August 29, 2001, $0.3 million in period ending September 30, 2001, $6.2 million in fiscal 2000, and $6.5 million in fiscal 1999. F-27 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 The aggregate future minimum lease commitments under noncancelable operating leases at September 30, 2001 are summarized as follows (in thousands of dollars):
Operating Fiscal Year Ending September 30, Leases - -------------------------------- --------- 2002................ 1,013 2003................ 796 2004................ 703 2005................ 173 2006................ 114 Thereafter........... 59
The aggregate future minimum amount to be received under sub-leases was $.8 million at September 30, 2001. 16. SALES OF BUSINESS ASSETS In April 2001, the Company completed the sale of the nutritional products portion of its foodservice segment to Hormel Foods Corporation for $64.8 million cash, of which $6.5 million was placed in escrow until July 2002. The Company applied the net proceeds to reduce debt and expects to apply a portion of any escrow funds released to the Company to further reduce debt. The nutritional products, which were sold primarily to hospitals and nursing homes, represented approximately $50 million and $34 million of net sales in fiscal 2000 and the seven months ended April 30, 2001, respectively. The Company sold its California limestone quarry in September 2001 for $100,000, plus the assumption of environmental reclamation liabilities. In August 2001, the Company entered into an agreement to sell its Michigan Sugar Company subsidiary, which owns four beet sugar factories, to a grower-owned cooperative. In this connection, the Company currently is leasing the four Michigan factories to the cooperative and is managing and operating these factories for the cooperative. The lease agreement provides that the cooperative (1) pay all expenses necessary to operate the four factories and (2) pay the Company a lease management fee based on the number of tons of sugarbeets received at these factories for processing. The Company currently is renegotiating the agreement for the sale of Michigan Sugar Company with the cooperative and has reached an agreement in principle with respect to revised terms of the sale. Under the revised terms, the Company would receive $25 million cash and $20 million in deferred payments, and the cooperative would assume $18 million in industrial development bonds. The Company would enter into a sales and marketing agreement under which it would continue to market the refined sugar processed by Michigan Sugar Company following the sale. Any renegotiated agreement would require approval from the Company's lenders and the negotiation of a definitive agreement. Whether the Company sells or continues to lease these factories, it expects to continue to market all refined sugar products manufactured by these factories for a minimum period of ten years. In December 2001, the Company completed the sale of its King Packaging subsidiary for $28 million, subject to certain post-closing adjustments. Sales proceeds of $5.6 million were placed in escrow until June 2003. The Company applied the net proceeds to reduce debt and expects to apply a portion of any escrow funds released to the Company to further reduce debt. King Packaging's sale of kits containing plastic cutlery and seasonings totaled $27 million for the twelve months ended September 30, 2001. F-28 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 17. SUPPLEMENTARY INFORMATION The Company ceased processing sugarbeets at the Tracy and Woodland, California facilities near the end of calendar 2000 following the completion of the fall production campaigns. These factories will continue to package and distribute refined sugar products with sugar supplied from the remaining two California beet factories and other Company processing facilities. In October 2000, the Company ceased cane sugar refining at its Clewiston, Florida refinery and concentrated production in the southeastern United States in its large Savannah, Georgia refinery. As a result, the Company recorded charges during the fourth quarter of fiscal 2000 totaling $27.5 million as summarized below (in thousands of dollars):
Amounts Accrued Paid in Balance at Fiscal September 30, Total 2000 2000 ------- ------- ------------- Accrual for cash charges: Severance for approximately 280 employees........ $ 3,203 -- $ 3,203 Environmental costs.............................. 6,245 -- 6,245 Abandoned lease commitments and other cash costs. 2,026 -- 2,026 ------- ------- Sub total cash charges....................... 11,474 11,474 Noncash charges - asset impairment of: Property and equipment........................... 15,142 Beet seed inventory.............................. 925 ------- Subtotal noncash charges..................... 16,067 ------- Total impairment and other charge................... $27,541 =======
Changes in the accrued balance during the twelve months ended September 30, 2001 were (in thousands of dollars):
Amounts Paid in the Twelve Accrued Months Accrued Balance at Ended Balance at September 30, September 30, September 30, 2000 2001 2001 ------------- ------------- ------------- Accrual for cash charges: Severance for approximately 280 employees........ $ 3,203 $2,612 $ 591 Environmental costs.............................. 6,245 1,214 5,031 Abandoned lease commitments and other cash costs. 2,026 669 1,357 ------- ------ ------ Subtotal cash charges........................ $11,474 $4,495 $6,979 ======= ====== ======
Severance costs for employees at the affected production facilities was estimated based upon the positions eliminated and the Company's severance policy or collective bargaining agreements and does not include any portion of the employees' salary through their severance dates. The Company accrued $6.2 million related to expected, environmental exit costs associated with the California and Florida facilities. The Company expects it will be required to incur costs to remediate certain production areas, including the removal or capping of certain former production settling ponds. The Company expects to spend approximately $5 million over a 3-year period. F-29 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2001, 2000, and 1999 The Company recorded an asset impairment charge of $15.1 million to write down the book value of buildings and equipment which will no longer be used in the Company's sugar operations to the estimated value to be realized upon disposal. Additionally, the Company provided an allowance for the impairment of the book value of beet seed inventory varieties which were developed specifically for the Northern California growing region. During the fourth quarter of 2000, the Company recorded $6.8 million of cost of sales resulting from balances between subsidiaries. In fiscal 1999, the Company recorded charges totaling $16.7 million to write-off its investment in Pacific Northwest Sugar Company, a partnership in which a subsidiary of the Company was a 43% limited partner. In connection with the restructuring of the partnership's debt, the Company transferred its limited partnership interest to an affiliate of the general partner. An agreement dated April 26, 1999 terminated the Company's involvement with the project and includes mutual releases among the parties. As a result of the agreement, the general partner became the sole owner of the partnership, which constructed, owns and operates a beet sugar processing facility in Moses Lake, Washington. The facility experienced substantial operating losses in its first year of operation; the Company's share of such losses on the equity accounting method totaled approximately $10.5 million and is included in the above-mentioned charge. Interest income and dividends totaled $0.03 million for the period ended September 30, 2001, $0.5 million for the period ended August 29, 2001, $1.2 million for fiscal 2000 and $1.7 million for fiscal 1999. Other current liabilities at September 30, 2001 include payroll and employee benefit accruals totaling $21 million and accrued professional fees relating to the Company's restructuring totaling $9 million. F-30 EX-4.A 3 dex4a.txt RESTRUCTURING CREDIT AGREEMENT Exhibit 4a ================================================================================ Restructuring Credit Agreement among Imperial Sugar Company, as Borrower, The Several Lenders from Time to Time Parties Hereto, and Harris Trust and Savings Bank, as Administrative Agent and Collateral Agent Dated as of August 28, 2001 ================================================================================ Table of Contents
Section Heading Page Section 1. Definitions...................................................... 3 Section 1.1. Defined Terms.................................................... 3 Section 1.2. Other Definitional Provisions.................................... 29 Section 2. Amount and Terms of Commitments.................................. 29 Section 2.1. The Term Loans................................................... 29 Section 2.2. Wells Fargo Tranche A Term Loan.................................. 30 Section 2.3. Repayment of Term Loans.......................................... 30 Section 2.4. Revolving Credit Commitments..................................... 31 Section 2.5. Procedure for Revolving Credit Borrowing......................... 32 Section 2.6. Swine Line Commitment............................................ 32 Section 2.7. Procedure for Swing Line Borrowing; Refunding of Swing Line Loans....................................................... 33 Section 2.8. Repayment of Loans; Evidence of Debt............................. 34 Section 2.9. Commitment Fees, Etc............................................. 35 Section 2.10. Termination or Reduction of Revolving Credit Commitments......... 36 Section 2.11. Optional Prepayments............................................. 36 Section 2.12. Mandatory Prepayments and Commitment Reductions.................. 36 Section 2.13. Conversion and Continuation Options.............................. 39 Section 2.14. Minimum Amounts and Maximum Number of Eurodollar Tranches........ 40 Section 2.15. Interest Rates and Payment Dates................................. 40 Section 2.16. Computation of Interest and Fees................................. 40 Section 2.17. Inability to Determine Interest Rate............................. 41 Section 2.18. Pro Rata Treatment and Payments.................................. 41 Section 2.19. Requirements of Law.............................................. 44 Section 2.20. Taxes............................................................ 45 Section 2.21. Indemnity........................................................ 47 Section 2.22. Change of Lending Office; Claims Certificate..................... 47 Section 2.23. Collateral....................................................... 48 Section 2.24. Illegality....................................................... 49 Section 2.25. Cleandown Periods................................................ 49 Section 3. Letters of Credit................................................ 49 Section 3.1. L/C Commitment................................................... 49 Section 3.2. Procedure for Issuance of Letter of Credit....................... 50 Section 3.3. Commissions, Fees and Other Charges.............................. 50 Section 3.4. L/C Participations............................................... 51 Section 3.5. Reimbursement Obligation of the Borrower......................... 51 Section 3.6. Obligations Absolute............................................. 52
Section 3.7. Letter of Credit Payments........................................ 52 Section 3.8. Reductions and Reinstatements.................................... 52 Section 3.9. Documents and Reports............................................ 53 Section 3.10. Amendments....................................................... 53 Section 3.11. Applications..................................................... 53 Section 4. Representations and Warranties................................... 53 Section 4.1. Financial Condition.............................................. 53 Section 4.2. No Change........................................................ 54 Section 4.3. Corporate Existence; Compliance with Law......................... 54 Section 4.4. Corporate Power; Authorization; Enforceable Obligations.......... 54 Section 4.5. No Legal Bar..................................................... 55 Section 4.6. No Material Litigation........................................... 55 Section 4.7. No Default....................................................... 55 Section 4.8. Ownership of Property; Liens..................................... 55 Section 4.9. Intellectual Property............................................ 55 Section 4.10. Taxes............................................................ 55 Section 4.11. Federal Regulations.............................................. 56 Section 4.12. ERISA............................................................ 56 Section 4.13. Investment Company Act; Other Regulations........................ 56 Section 4.14. Subsidiaries..................................................... 56 Section 4.15. Use of Proceeds.................................................. 56 Section 4.16. Environmental Matters............................................ 57 Section 4.17. Accuracy of Information, Etc..................................... 58 Section 4.18. Security Documents............................................... 58 Section 4.19. Solvency......................................................... 59 Section 4.20. Regulation H..................................................... 59 Section 5. Conditions Precedent............................................. 59 Section 5.1. Conditions to Initial Extension of Credit........................ 59 Section 5.2. Conditions to Each Extension of Credit........................... 62 Section 5.3. Conditions to Issuance of Bond Letters of Credit................. 62 Section 6. Affirmative Covenants............................................ 63 Section 6.1. Financial Statements............................................. 63 Section 6.2. Certificates; Other Information.................................. 64 Section 6.3. Payment of Obligations........................................... 66 Section 6.4. Conduct of Business and Maintenance of Existence, Etc............ 66 Section 6.5. Maintenance of Property; Insurance............................... 66 Section 6.6. Inspection of Property; Books and Records; Discussions........... 66 Section 6.7. Notices.......................................................... 67 Section 6.8. Environmental Laws............................................... 67 Section 6.9. Additional Collateral, Etc....................................... 68 Section 6.10. Post-Closing Matters............................................. 70
-ii- Section 7. Negative Covenants............................................... 71 Section 7.1. Financial Condition Covenants.................................... 71 Section 7.2. Limitation on Indebtedness....................................... 74 Section 7.3. Limitation on Liens.............................................. 75 Section 7.4. Limitation on Fundamental Changes................................ 76 Section 7.5. Limitation on Sale of Assets..................................... 76 Section 7.6. Limitation on Dividends.......................................... 77 Section 7.7. Limitation on Capital Expenditures............................... 77 Section 7.8. Limitation on Investments, Loans and Advances.................... 78 Section 7.9. Limitation on Modifications of Debt Instruments, Etc............. 79 Section 7.10. Limitation on Transactions with Affiliates....................... 79 Section 7.11. Limitation on Sales and Leasebacks............................... 79 Section 7.12. Limitation on Changes in Fiscal Periods.......................... 79 Section 7.13. Limitation on Negative Pledge Clauses............................ 80 Section 7.14. Limitation on Restrictions on Subsidiary Distributions........... 80 Section 7.15. Limitation on Lines of Business.................................. 80 Section 7.16. The SPV.......................................................... 80 Section 7.17. Repair and Maintenance Expenses.................................. 80 Section 8. Events of Default................................................ 80 Section 9. The Agents....................................................... 84 Section 9.1. Appointment...................................................... 84 Section 9.2. Delegation of Duties............................................. 84 Section 9.3. Exculpatory Provisions........................................... 84 Section 9.4. Reliance by Administrative Agent................................. 85 Section 9.5. Notice of Default................................................ 85 Section 9.6. Non-Reliance on Agents and Other Lenders......................... 86 Section 9.7. Indemnification.................................................. 86 Section 9.8. Agent in Its Individual Capacity................................. 87 Section 9.9. Successor Administrative Agent................................... 87 Section 9.10. Authorization to Release Liens................................... 88 Section 10. Miscellaneous.................................................... 88 Section 10.1. Amendments and Waivers........................................... 88 Section 10.2. Notices.......................................................... 89 Section 10.3. No Waiver; Cumulative Remedies................................... 90 Section 10.4. Survival of Representations and Warranties....................... 90 Section 10.5. Payment of Expenses.............................................. 90 Section 10.6. Successors and Assigns; Participations and Assignments........... 91 Section 10.7. Adjustments; Setoff.............................................. 94 Section 10.8. Counterparts..................................................... 94 Section 10.9. Severability..................................................... 94 Section 10.10. Integration...................................................... 95
-iii- Section 10.11. Governing Law.................................................... 95 Section 10.12. Submission to Jurisdiction; Waivers.............................. 95 Section 10.13. Acknowledgments.................................................. 95 Section 10.14. Waivers of Jury Trial............................................ 96 Section 10.15. Confidentiality.................................................. 96
-iv- Annexes: A Pricing Grid Schedules: 1.1A Commitments and Term Loan Amounts 1.1B Mortgaged Property 3.1(a) Existing L/Cs 4.1 Contingent Liabilities 4.14 Subsidiaries 4.18(a) UCC Filing Jurisdictions 4.18(b) Mortgage Filing Jurisdictions 4.20 Real Property Located in Flood Zone 7.1(d) EBITDA Covenant Schedules 7.2(e) Existing Indebtedness 7.3(g) Existing Liens 7.8(g) Extensions of Credit Exhibits: A Form of Guarantee and Collateral Agreement B Form of Compliance Certificate C Form of Closing Certificate D-1 Form of Mortgage Supplement D-2 Form of Modification of Deed of Trust E Form of Assignment and Acceptance F-1 Form of Legal Opinion of Baker & Botts L.L.P. F-2 Form of Legal Opinion of Borrower's General Counsel G-1 Form of Term Note G-2 Form of Revolving Credit Note G-3 Form of Swing Line Note H Form of Exemption Certificate I Form of Borrowing Base Certificate J-1 Form of Notice of Borrowing (Drawings) J-2 Form of Notice of Borrowing (Conversions) J-3 Form of Notice of Borrowing (Continuation) K 52 Week Cash Flow Forecast -v- Restructuring Credit Agreement, dated as of August 28, 2001, among Imperial Sugar Company, a Texas corporation (the "Borrower"), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders"), Harris Trust and Savings Bank, as collateral agent (in such capacity, the "Collateral Agent") and Harris Trust and Savings Bank, as administrative agent (in such capacity, the "Administrative Agent"). Witnesseth: Whereas, the Borrower entered into that certain Amended and Restated Credit Agreement dated as of December 22, 1997 by and between the Borrower, the several lenders from time to time parties thereto (the "Pre-Petition Lenders"), Lehman Brothers, Inc., as Arranger, Lehman Commercial Paper Inc., as Syndication Agent, and Harris Trust and Savings Bank, as Administrative Agent and Collateral Agent (as such Administrative Agent and Collateral Agent, the "Pre-Petition Agent), as the same has from time to time been modified or amended (the "Pre-Petition Credit Agreement"), pursuant to which the lenders named therein extended the Pre-Petition Revolving Credit Facility, the Pre-Petition Tranche A Term Loan Facility and the Pre-Petition Tranche B Loan Facility to the Borrower; Whereas, as a condition precedent to the effectiveness of the Pre-Petition Credit Agreement and the obligations of the Pre-Petition Lenders to make their respective extensions of credit to the Borrower thereunder the Pre-Petition Lenders required that certain of the Debtors guaranty the obligations of Borrower under the Pre-Petition Credit Agreement and the other Loan Documents (as defined in the Pre-Petition Credit Agreement) by executing and delivering that certain Amended and Restated Guarantee and Collateral Agreement dated as of December 22, 1997 in favor of the Pre-Petition Agent for the benefit of the Pre- Petition Lenders (as the same may be amended, supplemented or otherwise modified from time to time, the "Pre-Petition Guarantee"); Whereas, the Debtors' indebtedness, obligations and liabilities to the Pre- Petition Lenders and Pre-Petition Agent under the Pre-Petition Credit Agreement and the Pre-Petition Guarantee were secured by liens and security interests granted pursuant to the Pre-Petition Guarantee and various mortgages and deeds of trust executed by and delivered by certain of the Debtors to or for the benefit of the Pre-Petition Agent (the "Pre-Petition Mortgages"); Whereas, on January 16, 2001 (the "Petition Date") the Borrower and the Initial Guarantors (collectively, the "Debtors" and individually a "Debtor") filed voluntary petitions with the United States Bankruptcy Court for the District of Delaware initiating cases under Chapter 11 of the Bankruptcy Code (the cases of the Borrower and the Initial Guarantors, each a "Chapter 11 Case" and collectively the "Chapter 11 Cases") and have continued in possession of their assets and the management of their businesses pursuant to Sections 1107 and 1108 of the Bankruptcy Code; Whereas, pursuant to January 16, 2001 and February 6, 2001, orders of the Bankruptcy Court and as part of the Chapter 11 Cases, the Borrower and the other Debtors entered into the Post-Petition Credit Agreement dated as of January 16, 2001, among the Borrower, the guarantors named therein, Harris Trust and Savings Bank, individually and as administrative agent and collateral agent thereunder (the "DIP Agent"), and the several lenders from time to time parties thereto (the "DIP Lenders"), as amended, supplemented and modified from time to time (the "DIP Credit Agreement"), pursuant to which the DIP Lenders extended the DIP Credit Facility to the Borrower, the Initial Guarantors guaranteed the payment of the Borrower's obligations to the DIP Lenders thereunder, and the Borrower and the Initial Guarantors granted liens and security interests in substantially all of their assets to or for the benefit of the DIP Lenders and the Pre-Petition Lenders; Whereas, on August 7, 2001 (the "Confirmation Date") the Bankruptcy Court entered its Order Confirming Debtor's Second Amended and Restated Joint Plan of Reorganization (as Modified) (the "Confirmation Order") pursuant to which, among other things, the Bankruptcy Court confirmed and approved the Debtors' Second Amended and Restated Joint Plan of Reorganization as modified by amendments with regard to the Missouri Department of Revenue and Wells Fargo Bank (Texas), N.A. and more fully described therein (the "Plan of Reorganization"); Whereas, pursuant to the Confirmation Order and the Plan of Reorganization, all property of the Debtors' Estate shall vest in and become property of the Debtors, subject to the Liens of the Pre-Petition Agent, the Pre-Petition Lenders, the DIP Agent, the DIP Lenders, the Collateral Agent, and the Lenders hereunder and otherwise free and clear of all liens, claims, charges or other encumbrances; Whereas, pursuant to and in furtherance of the Debtors' Plan of Reorganization, the Agents and the Lenders wish to enter into this Agreement to set forth the terms and conditions upon which the Agents and the Lenders will continue the credit facilities previously extended to the Borrower pursuant to the Pre-Petition Credit Agreement and the DIP Credit Agreement; Whereas, the credit and other financial accommodations to be extended and afforded to the Borrower pursuant to this Agreement constitute, in part, an extension and continuation of the credit and other financial accommodations extended and afforded to the Borrower pursuant to the Pre-Petition Credit Agreement and the DIP Credit Agreement, and the guarantee thereof by the Guarantor Subsidiaries pursuant to the Guarantee and Collateral Agreement constitutes, in part, an extension and continuation of the guarantors' guarantees under the Pre-Petition Guarantee and the DIP Credit Agreement; and Whereas, pursuant to the Confirmation Order and the Plan of Reorganization, all liens and security interests in property of the Debtors previously granted to or for the benefit of the Pre-Petition Lenders, the Pre-Petition Agent, the DIP Lenders and the DIP Agent are to continue on the property subject thereto; Whereas, this Agreement is the "Amended Senior Credit Agreement" referred to and as defined in the Confirmation Order and the Plan of Reorganization and amends, restates and -2- replaces the Pre-Petition Credit Agreement and replaces the DIP Credit Agreement in their entirety and all of the Borrower's indebtedness outstanding under the Pre-Petition Credit Agreement and the DIP Credit Agreement on the effective date of this Agreement shall be deemed to be outstanding under this Agreement and shall be subject to the terms and conditions hereof and of the other Loan Documents in all respects; Now, Therefore, in consideration of the premises and the agreements hereinafter set forth, the parties hereto hereby agree as follows: Section 1. Definitions. Section 1.1. Defined Terms. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. "Adjusted Revolving Credit Commitment": as to any Lender at any time, (a) the amount of such Lender's Revolving Credit Commitment less (b)(i) during each period commencing on November 15 of any year and ending on the immediately succeeding March 15, such Lender's Revolving Credit Percentage of the aggregate principal amount of CCC Loans in excess of $25,000,000, and (ii) at all other times, such Lender's Revolving Credit Percentage of the aggregate principal amount of all CCC Loans. "Adjustment Date": as defined in the Pricing Grid. "Administrative Agent": as defined in the preamble hereto. "Affiliate": as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agents": the collective reference to the Administrative Agent and the Collateral Agent. "Agreement": this Restructuring Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Margin": for each Type of Loan, the rate per annum determined based on the Consolidated Total Leverage Ratio in effect from time to time, as set forth in the Pricing Grid. "Applicable Overadvance Allowance or Block": for purposes of the calculation of the Borrowing Base as of a date in each period set forth below, the amount set forth below for such period: -3- Period Amount August 31, 2001 through January 30, 2002 $ 35,000,000 January 31, 2002 through February 28, 2002 $ 15,000,000 March 1, 2002 through May 31, 2002 -$10,000,000 June 1, 2002 through June 30, 2002 -$15,000,000 July 1, 2002 through September 30, 2002 -$25,000,000 "Application": an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to open a Letter of Credit. "Asset Sale": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c) or (f) of Section 7.5) which yields gross proceeds to the Borrower or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non- cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $250,000 in the aggregate in any fiscal year of the Borrower. "Assignee": as defined in Section 10.6(c). "Assignor": as defined in Section 10.6(c). "Available Revolving Credit Commitment": as to any Revolving Credit Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Adjusted Revolving Credit Commitment over (b) such Lender's Revolving Extensions of Credit; provided, that (i) in calculating any Lender's Revolving Extensions of Credit for the purpose of determining such Lender's Available Revolving Credit Commitment pursuant to Section 2.9(a), the aggregate principal amount of Swing Line Loans then outstanding shall be deemed to be zero and (ii) in calculating such Lender's Adjusted Revolving Credit Commitment for the purpose of determining such Lender's Available Revolving Credit Commitment pursuant to Section 2.9(a), the aggregate principal amount of CCC Loans then outstanding shall be deemed to be zero. "Bankruptcy Code": shall mean The Bankruptcy Reform Act of 1978, as heretofore and hereafter amended, and codified as 11 U.S.C. Section 101 et seq. "Bankruptcy Court": shall mean the United States Bankruptcy Court for the District of Delaware, or any other court having jurisdiction over the Chapter 11 Cases from time to time. "Base Rate": means for any day the rate of interest announced by Harris Trust and Savings Bank ("Harris") from time to time as its prime commercial rate in effect on such day, with any change in the Base Rate resulting from a change in said prime commercial rate to be effective as of the date of the relevant change in said prime commercial rate (the "Harris Prime Rate"), provided that if the rate per annum determined by adding 1/2 of 1% to the rate at which Harris would offer to sell federal funds in the interbank market on or about 10:00 a.m. (Chicago time) on any day (the "Adjusted Fed Funds Rate") shall be higher than the Harris Prime Rate on such day, then the Base Rate for such day and for the succeeding day which is not a Business Day -4- shall be such Adjusted Fed Funds Rate. The determination of the Adjusted Fed Funds Rate by the Administrative Agent shall be final and conclusive provided it has acted in good faith in connection therewith. "Base Rate Loans": Loans the rate of interest applicable to which is based upon the Base Rate. "Board": the Board of Governors of the Federal Reserve System of the United States (or any successor). "Bonds": any industrial revenue bonds or other similar obligations of any state or any political subdivision, agency or municipality thereof. "Bond Documents": as to any series or issue of Bonds, the trust indenture, trust agreement, loan agreement, lease, guaranty and other documents pursuant to which such Bonds are issued or which evidence such Bonds or the Borrower's or any Subsidiary's obligations in any way relating to such Bonds. "Bond Letter of Credit": any letter of credit issued by the Issuing Lender under this Agreement to a Bond Trustee to support the payment of the principal of, premium, if any, and interest on any Bonds issued for the account or benefit of the Borrower or a Subsidiary of the Borrower, or to support the obligation of the Borrower or a Subsidiary of the Borrower, to purchase any such Bonds upon any tender for purchase pursuant to any of the Bond Documents relating thereto. "Bond Trustee": as to any series or issue of Bonds, the Trustee for such Bonds. "Borrower": as defined in the preamble hereto. "Borrowing Base": as of any time the same is to be determined, an amount determined in a manner agreed to in writing by the Borrower and the Required Lenders and absent such an agreement in writing an amount equal to the sum of: (a) 85% of the Value of Eligible Inventory consisting of produced finished goods sugar, plus (b) 85% of the Value of Eligible Inventory consisting of purchased finished goods sugar, plus (c) 80% of the Value of Eligible Inventory consisting of raw sugar eligible for domestic consumption (including without limitation such Eligible Inventory that is in transit between permitted collateral locations, provided that the Borrower shall promptly notify the Administrative Agent of any damage to or other matters affecting any such in transit inventory and thereafter the continued eligibility of such affected inventory shall be determined by the Administrative Agent, plus -5- (d) 70% of the Value of Eligible Inventory consisting of raw sugar that is not eligible for domestic consumption and for which all documents necessary for resale or export are in the Borrower's possession, plus (e) 50% of the Value of Eligible Inventory consisting of work-in- process, plus (f) 60% of the Value of Eligible Inventory consisting of finished goods-food service, plus (g) 60% of the Value of Eligible Inventory consisting of by-products, pulp and molasses, plus (h) 50% of the Value of Eligible Inventory consisting of sugar beets on hand, plus (i) 30% of the Value of Eligible Inventory consisting of supply, repair and quarry, plus (j) 30% of the Value of Eligible Inventory consisting of sugar beet seed, plus (k) 100% of the Net Liquidating Value of commodities accounts with futures commission merchants, minus (l) the amount of all Grower Payables (provided that if any such Grower Payables are paid and such payment is reported in writing to the Administrative Agent, the Administrative Agent shall reduce the amount deducted at such time pursuant to this clause (l) by the amount of such payment), plus (or minus as the case may be) (m) the Applicable Overadvance Allowance or Block; provided that (i) the Borrowing Base shall be computed only as against and on so much of the Collateral as is included on the Borrowing Base Certificates to be furnished from time to time by the Borrower pursuant to Section 6.2(f) hereof and, if required by the Administrative Agent or the Required Lenders pursuant to any of the terms hereof, as verified by such other evidence required to be furnished to the Administrative Agent or the Lenders pursuant hereto. "Borrowing Base Certificate": a certificate in the form attached hereto as Exhibit I. "Borrowing Base Obligations": as of any time the same is to be determined, an amount equal to the sum of the aggregate principal amount of all Revolving Credit Loans, Swing Line Loans and L/C Obligations then outstanding. "Borrowing Date": any Business Day specified by the Borrower as a date on which the Borrower requests the relevant Lenders to make Loans hereunder. -6- "Business Day": (i) for all purposes other than as covered by clause (ii) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market. "Capital Expenditures": for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "Capitalized Refurbishment Expenditures": manufacturing costs incurred between processing periods which are necessary to prepare any beet processing factory for the next processing campaign which are deferred and allocated to the cost of sugar produced in the subsequent campaign. "Capital Lease Obligations": as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Cash Equivalents": (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by Standard & Poor's Ratings Services ("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority -7- of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "CCC Loans": Indebtedness permitted by Section 7.2(i) hereof. "Chapter 11 Cases": shall have the meaning set forth in the preamble hereof. "Closing Date": the date on which the conditions precedent set forth in Section 5.1 shall have been satisfied, which date occurred on August 28, 2001. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document. "Collateral Agent": as defined in the preamble hereto. "Commitment": as to any Lender, the Revolving Credit Commitment of such Lender. "Commitment Fee Rate": the rate per annum determined based on the Consolidated Total Leverage Ratio in effect from time to time, as set forth in the Pricing Grid. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "Compliance Certificate": a certificate duly executed by a Responsible Officer substantially in the form of Exhibit B. "Confirmation Date": as defined in the preamble hereto. "Confirmation Order": as defined in the preamble hereto. "Consolidated Current Assets": at any date, all amounts which would, in conformity with GAAP, be properly classified as current assets after deducting adequate reserves where proper, on a consolidated balance sheet of the Borrower and its Subsidiaries at such date. "Consolidated Current Liabilities": at any date, all amounts which would, in conformity with GAAP be properly classified as current liabilities, including CCC Loans and Revolving Credit Obligations, on a consolidated balance sheet of the Borrower and its Subsidiaries at such -8- date but excluding short-term borrowings, deferred taxes and the current portion of long-term debt. "Consolidated Current Ratio": at any date, the ratio of Consolidated Current Assets to Consolidated Current Liabilities. "Consolidated EBITDA": for any period, Consolidated Net Income for such period plus all amounts deducted in arriving at such Net Income amount in respect of (a) Consolidated Interest Expense (including SPV Interest Expense), amortization or write-off of debt discount and debt issuance costs and other fees and charges associated with Indebtedness (including the Loans), (b) foreign, federal, state and local income taxes for such period, (c) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period, (d) Extraordinary expenses or losses as defined by GAAP, (e) losses from sale of assets outside the ordinary course of business, and (f) the restructuring fees related to the Chapter 11 Cases, as estimated on Exhibit L hereto, (g) unrealized losses (x) on commodities accounts maintained with future commission merchants and (y) under Interest Rate Protection Agreements, (h) expenses or charges related to closing or down-sizing facilities or corporate entities ("Down-Sizing Expenses"), and (i) the cumulative effect of accounting changes, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (i) interest income, (ii) Extraordinary income or gains as defined by GAAP, (iii) gains on sale of assets outside the ordinary course of business, and (iv) unrealized gains (x) on commodities accounts maintained with futures commission merchants and (y) under Interest Rate Protection Agreements, provided however, that the amount added to Consolidated Net Income pursuant to clauses (d), (e), (f) and (h) above (A) for the Borrower's fiscal year ending September 30, 2001, must have been accrued during such fiscal year (regardless of when actually paid), must be payable in cash and shall not exceed $30,000,000, and (B) for any later fiscal year of the Borrower, must have been paid in cash in such fiscal year, must not have been added to the Borrower's Consolidated Net Income for its fiscal year ending September 30, 2001, and shall not exceed $5,000,000 in any fiscal year. "Consolidated Fixed Charges": for any period, the sum (without duplication) of (a) Consolidated Interest Expense for such period, (b) payments of cash income taxes made by the Borrower or any of its Subsidiaries on a consolidated basis in respect of such period, (c) regularly scheduled payments made in cash during such period on account of principal of Indebtedness of the Borrower or any of its Subsidiaries (including scheduled principal payments in respect of the Term Loans) other than (i) any repayment of the Loans made pursuant to Section 2.12(b) hereof, and (ii) any repayments of the Loans made pursuant to Section 2.12(c) hereof, and (d) dividends paid in cash during such period by the Borrower or any of its Subsidiaries. "Consolidated Fixed Charge Coverage Ratio": for any period, the ratio of (a) Consolidated EBITDA minus Capital Expenditures for such period to (b) Consolidated Fixed Charges for such period. "Consolidated Interest Coverage Ratio": for any period, the ratio of (a) Consolidated EBITDA for such period, to (b) Consolidated Interest Expense for the same period. -9- "Consolidated Interest Expense": for any period, the sum of (a) total cash interest expense (including that attributable to Capital Lease Obligations) of the Borrower and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Protection Agreements to the extent such net costs are allocable to such period in accordance with GAAP) and (b) the SPV Interest Expense for such period. "Consolidated Net Income": for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (b) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "Consolidated Net Worth": at any date, all amounts which would, in conformity with GAAP, be included on a consolidated balance sheet of the Borrower and its Subsidiaries under stockholders' equity at such date, excluding any amount included therein attributable to accumulated other comprehensive income for the Borrower or its Subsidiaries. "Consolidated Total Debt": at any date, the sum of the aggregate principal amount of all Funded Debt of the Borrower and its Subsidiaries at such date; provided that the amount included for the Revolving Credit Obligations shall be the average daily principal amount of Revolving Credit Obligations outstanding during the 12 months ending on such date. "Consolidated Total Leverage Ratio": as at the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period. "Consolidated Working Capital": at any date, the excess of Consolidated Current Assets (but excluding from Consolidated Current Assets all Capitalized Refurbishment Expenses) on such date over Consolidated Current Liabilities on such date. "Continuing Directors": the directors of the Borrower on the Closing Date, after giving effect to the Plan of Reorganization and the other transactions contemplated hereby, and each other director, if, in each case, such other director's nomination for election to the board of directors of the Borrower is recommended by at least 66-2/3% of the then Continuing Directors. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound. -10- "Costs of Reorganization": all legal, professional and advisory fees paid by the Debtors (whether or not incurred by the Debtors) in connection with the Chapter 11 Cases as set forth in the Budget and approved in the Financing Order or as may be otherwise approved from time to time by the Bankruptcy Court, subject to the DIP Lenders' and the DIP Agents' right to object thereto. "Debtor" and "Debtors": as defined in the preamble hereto. "Default": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "DIP Agent": as defined in the preamble hereto. "DIP Credit Agreement": as defined in the preamble hereto. "DIP Credit Facility" or "Facility": shall mean the debtor-in-possession facility extended to the Borrower by the DIP Lenders pursuant to the DIP Credit Agreement, other than the Incremental DIP Credit Facility. "DIP Lenders": as defined in the preamble hereto "DIP Loans": loans made under the DIP Credit Facility. "Disclosure Statement": the Amended and Restated Disclosure Statement In Support of Debtors' Second Amended and Restated Joint Plan of Reorganization dated June 5, 2001, submitted by the Debtors to the Bankruptcy Court in connection with the Chapter 11 Cases. "Disposition": with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms "Dispose" and "Disposed of" shall have correlative meanings. "Dollars" and "$": dollars in lawful currency of the United States of America. "Domestic Subsidiary": any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States of America. "Eligible Inventory": any inventory owned by the Borrower or any Guarantor which the Required Lenders in their sole discretion deem to be acceptable for inclusion in the Borrowing Base and which complies with each of the following requirements: (a) it consists of raw bulk sugar, sugar beets, supplies, finished goods, all other sugar and sugar products, supply, repair, quarry, work-in- process, and pulp and molasses and other by-products from the processing or refining of sugar; (b) it substantially conforms to the Borrower's or the applicable Guarantor's advertised or represented specifications, applicable government standards and regulations -11- and other quality standards and has not been reasonably determined by the Administrative Agent to be unacceptable due to age, type, variety, quality, quantity, or location; (c) it is not covered by a warehouse receipt or similar document unless, if requested by the Administrative Agent, such warehouse receipt or similar document has been delivered to the Administrative Agent with all necessary endorsements; (d) all warranties of the Borrower or the applicable Guarantor in the Loan Documents are true and correct in all material respects with respect thereto; (e) it has been identified to the Administrative Agent in the manner required by the Administrative Agent; (f) it is located at a location disclosed to and approved by the Administrative Agent, and if requested by the Administrative Agent, any Person owning or controlling such location shall have waived all right, title and interest in and to such Inventory in a manner satisfactory to the Administrative Agent; and (g) it is subject to a perfected first priority Lien in favor of the Collateral Agent and it is free and clear of any other Lien of any nature whatsoever (it being understood and agreed that (x) the Securitized Receivables shall not be considered part of the Permitted Seller's Inventory, and (z) inventory that is subject to a Lien securing the CCC Loans shall not constitute Eligible Inventory in any event). "Environmental Laws": any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, or other legally enforceable requirement (including, without limitation, Environmental Permits) of any Governmental Authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health, or employee health and safety, as has been, is now, or may at any time hereafter be, in effect. "Environmental Permits": any and all permits, licenses, registrations, notifications, exemptions and any other authorization required under any Environmental Law. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in -12- Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate Service (or otherwise on such service), the "Eurodollar Base Rate" for purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent and acceptable to Borrower or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 10:00 A.M., Chicago time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Loans": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Eurodollar Tranche": the collective reference to Eurodollar Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Event of Default": any of the events specified in Section 8, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Excess Cash Flow": for any fiscal year of the Borrower, the excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for such fiscal year, (ii) an amount equal to the amount of all non-cash charges (including depreciation and amortization and amounts expensed during such period attributable to Capitalized Refurbishment Expenditures) deducted in arriving at such Consolidated Net Income, (iii) decreases in Consolidated Working Capital for such fiscal year, (iv) an amount equal to the aggregate net non-cash loss on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income and (v) the net increase during such fiscal year (if any) in deferred tax accounts of the Borrower over (b) the sum, without duplication, of (i) an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income, (ii) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such fiscal year on account of Capital Expenditures and Capitalized Refurbishment Expenses (excluding the principal amount of Indebtedness incurred in connection with such expenditures), (iii) the aggregate amount of all prepayments of Revolving Credit Loans and Swing Line Loans during such fiscal year to the extent of accompanying permanent optional reductions of the Revolving -13- Credit Commitments and all optional prepayments of the Term Loans during such fiscal year, (iv) the aggregate amount of all regularly scheduled principal payments of Funded Debt (including, without limitation, the Term Loans) of the Borrower and its Subsidiaries made during such fiscal year (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder), (v) increases in Consolidated Working Capital for such fiscal year, (vi) an amount equal to the aggregate net non-cash gain on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent included in arriving at such Consolidated Net Income, and (vii) the net decrease during such fiscal year (if any) in deferred tax accounts of the Borrower. "Excess Cash Flow Application Date": as defined in Section 2.12(c). "Excluded Foreign Subsidiaries": any Foreign Subsidiary the pledge of all of whose Capital Stock as Collateral would, in the good faith judgment of the Borrower, result in adverse tax consequences to the Borrower. "Existing L/Cs": as defined in Section 3.1(a). "Facility": each of (a) the Tranche A Term Loan Commitments and the Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"), (b) the Tranche B Commitments and the Tranche B Term Loans made thereunder (the "Tranche B Term Loan Facility") and (c) the Revolving Credit Commitments and the extensions of credit made thereunder (the "Revolving Credit Facility"). "Federal Funds Effective Rate": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Reference Lender from three federal funds brokers of recognized standing selected by it. "Financing Order": that certain Final Financing Order Authorizing (1) Borrowing with Priority over Administrative Expenses and Secured by Liens on Property of the Estates Pursuant to Section 364(C) and Section 364(D) of the Bankruptcy Code, (2) the Debtors' Use of Cash Collateral and Granting Adequate Protection Therefor Pursuant to Sections 361 and 363 of the Bankruptcy Code, and (3) Modifying the Automatic Stay signed by the Bankruptcy Judge on February 6, 2001. "Foreign Subsidiary": any Subsidiary of the Borrower that is not a Domestic Subsidiary. "Funded Debt": as to any Person, all Indebtedness of such Person that is described in clauses (a), (b), (c), (d), (e) and (f) (but only to the extent drawn and not reimbursed) of the definition of the term "Indebtedness" contained in this Agreement. -14- "Funding Office": the office specified from time to time by the Administrative Agent as its funding office by notice to the Borrower and the Lenders. "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board or the American Institute of Certified Public Accountants and the 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 of the Borrower as of the date of determination, except that for purposes of Section 7.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered pursuant to Section 4.1(b). In the event that any "Accounting Change" (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. "Accounting Changes" refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the Securities and Exchange Commission (or successors thereto or agencies with similar functions). "Governmental Authority": 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, the National Association of Insurance Commissioners). "Grower Payables": all amounts owed by the Loan Parties from time to time to any Person on account of agricultural products or services (including the purchase price of sugar beets). "Guarantee and Collateral Agreement": the Guarantee and Collateral Agreement to be executed and delivered by the Borrower and each Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly -15- or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business or purchases of inventory (including crops and raw materials) in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Hedging Agreement": any forward purchase agreement, put, call, option or other agreement or arrangement designed to protect the Borrower or such Subsidiary from fluctuations in commodity prices and to or under which the Borrower or any of its Subsidiaries is a party or a beneficiary. "Hedging Liabilities": indebtedness, obligations and liabilities of the Borrower and any of its Subsidiaries attributable to any Interest Rate Protection Agreement or Hedging Agreement to which the Borrower or any of its Subsidiaries is a party or a beneficiary. "Incremental DIP Credit Facility": shall mean the debtor-in-possession facility extended to the Borrower by certain lenders under Section 2.1(e) of the DIP Credit Agreement. "Incur": as defined in Section 7.2. "Indebtedness": of any Person at any date, without duplication, (a) all Indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services (other than current trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party under acceptance, letter of credit or similar facilities, (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock (other than common stock) of such Person, (h) all Guarantee Obligations of such Person in respect of -16- obligations of the kind referred to in clauses (a) through (g) above; (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on Property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation (for purposes of calculating the amount of indebtedness referred to in this clause (i) the amount of indebtedness shall be limited to the value of such Property) and (j) for the purposes of Section 8(e) only, all obligations of such Person in respect of Interest Rate Protection Agreements and (k) the liquidation value of any preferred Capital Stock of such Person or its Subsidiaries (i) held by any Person other than such Person and its Wholly Owned Subsidiaries and (ii) providing for any scheduled or mandatory payment, redemption or sinking fund prior to one year after the final maturity of the Tranche B Term Loans. "Initial Guarantors": each of Biomass Corporation, Crown Express, Inc., Diamond Crystal Brands, Inc., Diamond Crystal Brands, LP, Diamond Crystal Holdings, Inc., Diamond Crystal Specialty Foods, Inc., Dixie Crystal Food Service, Inc., DSLT Holding Company, Food Carriers, Inc., Fort Bend Utilities Company, Great Lakes Sugar Company, Holly Northwest Company, Holly Sugar Corporation, Imperial Distributing, Inc., Imperial-Savannah, L.P., Imperial Sweetener Distributors, Inc., King Packaging Co., Inc., Limestone Products Company, Inc., Menu Magic Foods, Inc., Michigan Sugar Company, Phoenix Packaging Corporation, Ragus Holdings, Inc., Savannah Foods Industrial, Inc., Savannah Foods & Industries, Inc., Savannah Investment Company, Savannah Molasses & Specialties Company, Savannah Sugar Refining Corporation, Wholesome Sweeteners Group, Ltd., Wholesome Sweeteners, LLC, ICUBE, Inc., Savannah International Company, Savannah Packaging Company, Savannah Total Invert Company, and Imperial Holly Corporation. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each month to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (c) as to any Loan (other than any Revolving Credit Loan that is a Base Rate Loan and any Swing Line Loan), the date of any repayment or prepayment made in respect thereof. -17- "Interest Period": as to any Eurodollar Loan, initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its Notice of Borrowing with respect thereto, and thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Revolving Credit Termination Date or beyond the date final payment is due on the Tranche A Term Loans or the Tranche B Term Loans, as the case may be, shall end on the Revolving Credit Termination Date or such due date, as applicable; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month ending one, two, three or six months thereafter, as the case may be, as designated in the relevant Notice of Borrowing; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "Interest Rate Protection Agreement": any interest rate protection agreement, interest rate futures contract, interest rate option, interest rate cap or other interest rate hedge arrangement, to or under which the Borrower or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary after the date hereof. "Issuing Lender": Harris Trust and Savings Bank, in its capacity as issuer of any Letter of Credit. "L/C Commitment": $60,000,000. "L/C Fee Payment Date": the last day of each March, June, September and December and the Revolving Credit Termination Date. "L/C Obligations": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit (including, in the case of Bond Letters of Credit, the maximum amount that may be drawn thereunder at any time, -18- including by virtue of reinstatement thereof) and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 3.5. "L/C Participants": the collective reference to all the Revolving Credit Lenders other than the Issuing Lender. "Leased Plants": the facility located at 300 S. First Street, Worland, Wyoming leased by Holly Sugar Corporation to Washakie Beet Growers Association, a Wyoming not-for-profit corporation, pursuant to the Facility Lease dated March 28, 2001, and the facilities located at 763 N. Beck Street, Sebewaing, Michigan, 159 S. Howard Street, Croswell, Michigan, 819 Peninsular Street, Caro, Michigan and 341 Sugar Street, Carrollton, Michigan leased by the Borrower to Michigan Sugar Beet Growers, Inc., a Michigan Agricultural Cooperative pursuant to a Facilities Lease dated May 15, 2001. "Lenders": as defined in the preamble hereto. "Letters of Credit": as defined in Section 3.1(a). "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, whether or not filed, recorded or otherwise perfected under applicable law (including, without limitation, any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Loan": any loan made by any Lender pursuant to this Agreement. "Loan Documents": this Agreement, the Security Documents, the Applications and the Notes. "Loan Parties": the Borrower and each Subsidiary of the Borrower which is a party to a Loan Document. "Loan Percentage": as to any Lender at any time, the percentage which the aggregate principal amount of such Lender's Revolving Credit Commitments (or, if the Revolving Credit Commitments have been terminated, such Lender's Revolving Extensions of Credit) and Term Loans then outstanding constitutes of the aggregate principal amount of the Revolving Credit Commitments (or, if the Revolving Credit Commitments have been terminated, the Total Revolving Extensions of Credit) and Term Loans then outstanding. "Majority Facility Lenders": with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans or the Total Revolving Extensions of Credit, as the case may be, outstanding under such Facility (or, in the case of the Revolving -19- Credit Facility, prior to any termination of the Revolving Credit Commitments, the holders of more than 50% of the Total Revolving Credit Commitments). "Majority Revolving Credit Facility Lenders": the Majority Facility Lenders in respect of the Revolving Credit Facility. "Mandatory Prepayment Percentage": (a) with respect to Net Cash Proceeds of Asset Sales, 85% until the aggregate amount of Net Cash Proceeds of Asset Sales retained by the Loan Parties equals or exceeds $6,334,950 minus the amount, if any, received by the Borrower from the escrow accounts established in connection with the sale of a portion of its assets to Hormel Foods Corporation pursuant to the Escrow Agreement dated as of April 27, 2001, among Hormel Foods Corporation, the Borrower and U.S. Bank Trust National Association, and 100% thereafter, and (b) with respect to Net Cash Proceeds of a Recovery Event, 100%. "Margin Stock": as defined in Regulation U. "Material Adverse Change": any adverse change, circumstance or effect that, individually or in the aggregate with all other adverse changes, circumstances and effects, is or could reasonably be expected to be materially adverse to (a) the business, operations, assets, liabilities (including, without limitation, contingent liabilities), financial condition or results of operations of the Borrower and its Subsidiaries, taken as a whole, or (b) the validity or enforceability of any of the Loan Documents or the material rights and remedies of the Administrative Agent and the Lenders thereunder. "Material Adverse Effect": a material adverse effect on (a) the business, assets, property, operations, liabilities (including, without limitation, contingent liabilities), or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Agents or the Lenders hereunder or thereunder which materially affects the benefits intended to be bestowed thereunder. "Material Environmental Amount": an amount payable by the Borrower and/or its Subsidiaries in excess of $10,000,000 in any individual circumstance, or at the time of any determination, $15,000,000 in the aggregate at any such time for remedial costs, compliance costs, compensatory damages, punitive damages, fines, penalties or any combination thereof. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactivity, and any other substance that is regulated pursuant to or could give rise to liability under any Environmental Law or common law. "Mortgaged Properties": the real properties listed on Schedule 1.1B, as to which the Collateral Agent for the benefit of the Lenders shall be granted a Lien pursuant to the Mortgages and the Mortgage Supplements. -20- "Mortgages": each of the mortgages and deeds of trust made by any Loan Party in favor of, or for the benefit of, the Collateral Agent for the benefit of the Lenders in connection with the Pre-Petition Credit Agreement and substantially in the form of Exhibit D to the Pre-Petition Credit Agreement, as supplemented and amended by a Mortgage Supplement (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage or deed of trust is recorded), as the same may be amended, supplemented or otherwise modified from time to time. "Mortgage Supplement": each modification supplement to a mortgage or deed of trust made by any Loan Party in favor of, or for the benefit of, the Collateral Agent for the benefit of the Lenders, substantially in the form of Exhibit D-1 or D-2, as applicable, with such changes thereto as shall be advisable under the law of the jurisdiction in which each such supplement is to be recorded. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable within 12 months of such Asset Sale or Recovery Event as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements realized as a result of such Asset Sales or Recovery Events) and (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "Net Liquidating Value": with respect to any commodity account as of any date, the amount the holder of such account would be entitled to receive if all commodity contracts held in such account were liquidated on such date and all gains and losses on such contracts were realized on such date, and all amounts held as margin (whether initial, maintenance or otherwise) in such account. "Non-Excluded Taxes": as defined in Section 2.20(a). "Non-U.S. Lender": as defined in Section 2.20(d). "Notes": the collective reference to any promissory note evidencing Loans. -21- "Notice of Borrowing": (i) with respect to (a) any borrowing of Loans, a Notice of Borrowing (Drawings), substantially in the form of Exhibit J-1, (b) any conversion of Loans, a Notice of Borrowing (Conversions), substantially in the form of Exhibit J-2 and (c) any continuation of Eurodollar Loans, a Notice of Borrowing (Continuations), substantially in the form of Exhibit J-3 or (ii) telephonic notice of any such borrowing, conversion or continuation promptly confirmed in writing (in a form reasonably acceptable to the Administrative Agent). "Obligations": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender (or, in the case of Hedging Liabilities, any Affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Interest Rate Protection Agreement entered into with any Lender or any Affiliate of any Lender or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise. "Obligor": the Person obligated on a Receivable. "Other Taxes": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Participant": as defined in Section 10.6(b). "Payment Office": the office specified from time to time by the Administrative Agent as its payment office by notice to the Borrower and the Lenders. "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor). "Permitted Sellers": shall mean the Borrower and its Wholly Owned Subsidiaries. "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Petition Date": as defined in the preamble hereto. -22- "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Plan of Reorganization": as defined in the preamble hereto. "Plant Lease Documents": (a) with respect to the Leased Plants located in Michigan, the Facility Lease, the Factories Management Agreement and the Marketing Agreement, each dated May 15, 2001, between Imperial Sugar Company and the Michigan Sugar Beets Growers, Inc., a Michigan Agricultural Cooperative, and (b) with respect to the Leased Plants located in Worland, Wyoming, the Facility Lease, the Factory Management Agreement and the Marketing Agreement, each dated March 28, 2001, between Holly Sugar Corporation and Washakie Beet Growers Association, a Wyoming not-for-profit corporation. "Pre-Petition Agent": as defined in the preamble hereto. "Pre-Petition Credit Agreement": shall mean that certain Amended and Restated Credit Agreement dated as of December 22, 1997 by and between the Borrower, the several lenders from time to time parties thereto, Lehman Brothers, Inc., as Arranger, Lehman Commercial Paper Inc., as Syndication Agent, and Harris Trust and Savings Bank, as Administrative Agent and Collateral Agent, as the same has from time to time been modified or amended. "Pre-Petition Guarantee": as defined in the preamble hereto. "Pre-Petition Lenders": as defined in the preamble hereto. "Pre-Petition Revolving Credit Facility": the revolving credit facility provided under the "Total Revolving Credit Commitments" provided for by the Pre- Petition Credit Agreement. "Pre-Petition Revolving Credit Loan": a revolving credit loan made under the Pre-Petition Revolving Credit Facility. "Pre-Petition Tranche A Term Loan": a term loan made under the Pre- Petition Tranche A Term Loan Facility. "Pre-Petition Tranche A Term Loan Facility": the term loan facility provided under the "Tranche A Term Loan Commitment" provided for by the Pre- Petition Credit Agreement. "Pre-Petition Tranche B Term Loan": a term loan made under the Pre- Petition Tranche B Term Loan Facility. "Pre-Petition Tranche B Term Loan Facility": the term loan facility provided under the "Tranche B Term Loan Commitment" provided for by the Pre- Petition Credit Agreement. "Pricing Grid": the pricing grid attached hereto as Annex A. -23- "Property": any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock. "Receivables": indebtedness of an Obligor (whether constituting an account, chattel paper, document, instrument or general intangible) arising from the provision of merchandise, goods or services to such Obligor, including the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Receivables Securitization Program": a securitization program which provides for the Permitted Sellers to sell, contribute and/or grant a Lien in their Receivables and Related Security to the SPV, without recourse except for breaches of representations, warranties and covenants and for indemnities typical of securitization transactions which do not constitute credit recourse for uncollectible Receivables. "Recovery Event": any settlement of or payment in excess of $250,000 in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Borrower or any of its Subsidiaries. "Reference Lender": Administrative Agent. "Refunded Swing Line Loans": as defined in Section 2.7. "Refunding Date": as defined in Section 2.7. "Register": as defined in Section 10.6(d). "Regulation U": Regulation U of the Board as in effect from time to time. "Regulation T": Regulation T of the Board as in effect from time to time. "Regulation X": Regulation X of the Board as in effect from time to time. "Reimbursement Obligation": the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit. "Related Security": with respect to any Receivable: (a) all security interests or liens and property subject thereto from time to time securing or purporting to secure the payment of any such indebtedness by the related Obligor; (b) all guarantees, indemnities and warranties, insurance policies, financing statements and other agreements or arrangements of whatever character from time to time supporting or securing payment of any such indebtedness; -24- (c) all right, title and interest of any Permitted Seller, Imperial or the SPV in and to any goods (including returned, repossessed or foreclosed goods) the sale of which gave rise to a Receivable; provided, that Related Security will not include returned goods only to the extent that (i) all amounts required to be paid pursuant to the Receivables Securitization Program in respect of such returned goods have been paid or (ii) such returned goods are commingled with other goods or merchandise of the applicable Permitted Seller so as to cease to be identifiable from other goods or merchandise of such Permitted Seller; (d) all collections with respect to any of the foregoing; (e) all records with respect to any of the foregoing; and (f) all proceeds of any Receivable or with respect to any of the foregoing. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S) 2615. "Required L/C Participants": the Majority Revolving Credit Facility Lenders. "Required Lenders": the holders of more than 50% of the sum of (a) the aggregate unpaid principal amount of the Term Loans and (b) the Total Revolving Credit Commitments or, if the Revolving Credit Commitments have been terminated, the Total Revolving Extensions of Credit. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Responsible Officer": the chief executive officer, president, chief financial officer or vice president/treasurer of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower. "Revolving Credit Commitment": as to any Lender, the obligation of such Lender, if any, to make Revolving Credit Loans and participate in Swing Line Loans and Letters of Credit, in an aggregate principal and/or face amount not to exceed the amount set forth under the heading "Revolving Credit Commitment" opposite such Lender's name on Schedule 1.1A, as the same may be changed from time to time pursuant to the terms hereof. The original amount of the Total Revolving Credit Commitments is $117,072,371.04. -25- "Revolving Credit Commitment Period": the period from and including the Closing Date to the Revolving Credit Termination Date. "Revolving Credit Lender": each Lender which has a Revolving Credit Commitment or which has made Revolving Credit Loans. "Revolving Credit Loans": as defined in Section 2.4. "Revolving Credit Obligations": the outstanding principal amount of all Revolving Credit Loans, Swing Line Loans and Reimbursement Obligations. "Revolving Credit Percentage": as to any Revolving Credit Lender at any time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the Total Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Revolving Credit Loans then outstanding constitutes of the aggregate principal amount of the Revolving Credit Loans then outstanding). "Revolving Credit Termination Date": the earlier of (a) the Scheduled Revolving Credit Termination Date and (b) the date on which the Term Loans shall be paid in full. "Revolving Extensions of Credit": as to any Revolving Credit Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Lender then outstanding, (b) such Lender's Revolving Credit Percentage of the L/C Obligations then outstanding and (c) such Lender's Revolving Credit Percentage of the aggregate principal amount of Swing Line Loans then outstanding. "Scheduled Revolving Credit Termination Date": September 30, 2004. "SEC": the Securities and Exchange Commission (or successors thereto or an analogous Governmental Authority). "Securitized Receivables": all Receivables and Related Security of Permitted Sellers that sell or contribute, or purport to sell or contribute or that have sold or contributed or have purported to have sold or contributed, Receivables into the Receivables Securitization Program. "Security Documents": the collective reference to the Guarantee and Collateral Agreement, the Mortgages, the Mortgage Supplements and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any Property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "Senior Subordinated Notes": the Borrower's 9-3/4% Senior Subordinated Notes due 2007 issued pursuant to an Indenture of Trust dated as of December 22, 1999, between the Borrower and the Bank of New York, as Trustee. -26- "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Solvent": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable Federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. "SPV Interest Expense": for any period the sum of total cash interest expense of the SPV for such period with respect to all Indebtedness of the SPV plus all discounts of the sale price of Receivables (or any interest therein) sold by the SPV pursuant to the Receivables Securitization Program. "SPV": a Wholly Owned Subsidiary of the Borrower or any of its Subsidiaries created for the sole purpose of purchasing Receivables from the Permitted Sellers as part of the Receivables Securitization Program. "Subordinated Debt": any unsecured Indebtedness of the Borrower or its Subsidiaries that is (i) stated to be fully subordinated in payment or priority to the Obligations and any part thereof and (ii) has no terms requiring or permitting any interim or final maturity or repayment, repurchase, redemption or sinking fund payment (including any requirement that the issuer thereof offer to take any of the foregoing actions) prior to one year after the final maturity of the Tranche B Term Loans. "Subsidiary": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Subsidiary Guarantor": each Subsidiary of the Borrower that guarantees the Obligations pursuant to the Guarantee and Collateral Agreement. "Supermajority Lenders": the holders of more than 66-2/3% of the sum of (a) the aggregate principal amount of the Term Loans and (b) the Total Revolving Credit Commitments, if the Resolving Credit Commitments have been terminated, the Total Revolving Extensions of Credit. -27- "Swing Line Commitment": the obligation of the Swing Line Lender to make Swing Line Loans pursuant to Section 2.6 in an aggregate principal amount at any one time outstanding not to exceed $15,000,000. "Swing Line Lender": Harris Trust and Savings Bank, in its capacity as the lender of Swing Line Loans. "Swing Line Loans": as defined in Section 2.6. "Swing Line Participation Amount": as defined in Section 2.7. "Term Loan Lenders": the collective reference to the Tranche A Term Loan Lenders and the Tranche B Term Loan Lenders. "Term Loans": the collective reference to the Tranche A Term Loans and Tranche B Term Loans. "Total Revolving Credit Commitments": at any time, the aggregate amount of the Revolving Credit Commitments at such time. "Total Revolving Extensions of Credit": at any time, the aggregate amount of the Revolving Extensions of Credit of the Revolving Credit Lenders at such time. "Tranche A Term Loan": as defined in Section 2.1(a). The aggregate principal amount of the Tranche A Term Loans on the Closing Date is $79,747,702.93. "Tranche A Term Loan Lender": each Lender which holds a Tranche A Term Loan. "Tranche A Term Loan Percentage": as to any Tranche A Term Loan Lender at any time, the percentage which the aggregate principal amount of such Lender's Tranche A Term Loans then outstanding constitutes of the aggregate principal amount of the Tranche A Term Loans then outstanding. "Tranche B Term Loan": as defined in Section 2.1(b). The aggregate principal amount of the Tranche B Term Loans on the Closing Date is $59,288,294.00. "Tranche B Term Loan Lender": each Lender which holds a Tranche B Term Loan. "Tranche B Term Loan Percentage": as to any Tranche B Term Loan Lender at any time, the percentage which the aggregate principal amount of such Lender's Tranche B Term Loans then outstanding constitutes of the aggregate principal amount of the Tranche B Term Loans then outstanding. "Transferee": as defined in Section 10.15. "Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan. -28- "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "Value": the lower of cost (determined in a manner acceptable to the Collateral Agent and consistent with the Borrower's past practices) or fair market value of Eligible Inventory. "Wells Fargo": Wells Fargo Bank (Texas), N.A. "Wholly Owned Subsidiary": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. "Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a Wholly Owned Subsidiary of the Borrower. "52 Week Cash Flow Forecast": the cash flow forecast attached hereto as Exhibit K. Section 1.2. Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Section 2. Amount and Terms of Commitments. Section 2.1. The Term Loans . Subject to the terms and conditions hereof, on the Closing Date the Pre-Petition Tranche A Term Loan held by each Lender under the Pre-Petition Credit Agreement shall be deemed to be outstanding under this Agreement for all purposes whatsoever in the same principal amount as the Pre-Petition Tranche A Term Loan held by such Lender immediately prior to the Closing Date (except in the case of the Tranche A Term Loan of Wells Fargo, which shall be adjusted as provided in Section 2.2 of this Agreement), shall constitute such Lender's tranche A term loan (a "Tranche A Term Loan") hereunder and shall be subject to all of the terms and conditions of this Agreement and the other Loan Documents. The -29- principal amount of each Tranche A Term Loan Lender's Tranche A Term Loan on the Closing Date is set forth under the heading "Tranche A Term Loan Amount" opposite such Lender's name on Schedule 1.1A. (b) Subject to the terms and conditions hereof, on the Closing Date the Pre-Petition Tranche B Term Loan held by each Lender under the Pre-Petition Credit Agreement shall be deemed to be outstanding under this Agreement for all purposes whatsoever in the same principal amount as the Pre-Petition Tranche B Term Loan held by such Lender immediately prior to the Closing Date, shall constitute such Lender's tranche B term loan (a "Tranche B Term Loan") hereunder and shall be subject to all of the terms and conditions of this Agreement and the other Loan Documents. The principal amount of each Tranche B Term Loan Lender's Tranche B Term Loan on the Closing Date is set forth under the heading "Tranche B Term Loan Amount" opposite such Lender's name on Schedule 1.1A. (c) The Term Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.13. Section 2.2. Wells Fargo Tranche A Term Loan. (a) Subject the terms and conditions hereof, on the Closing Date all Pre-Petition Revolving Credit Loans and DIP Loans in an aggregate principal amount not to exceed $5,006,909.69 then held by Wells Fargo shall not be converted into Revolving Credit Loans to under this Agreement pursuant to Section 2.4(b) the terms and conditions hereof, on the Closing but instead shall constitute and be a part of the Date all Pre- Petition Revolving Credit Loans and Tranche A Term Loan then held by Wells Fargo. In DIP Loans in an aggregate principal amount not to the event the aggregate principal amount of all exceed $5,006,909.69 then held by Wells Fargo Pre-Petition Revolving Credit Loans and DIP Loans shall not be converted into Revolving Credit Loans held by Wells Fargo on the Closing Date is less than $5,006,909.69 (any such difference being referred to as the "shortfall") Wells Fargo shall make available to the Administrative Agent at the Funding Office no later than 2:00 P.M., Chicago time, on the Closing Date an amount in immediately available funds equal to the Shortfall. The Administrative Agent shall apply the amounts made available to the Administrative Agent by Wells Fargo to the prepayment of the Revolving Credit Loans outstanding on the Closing Date. Section 2.3. Repayment of Term Loans. (a) The Tranche A Term Loan of each Tranche A Term Loan Lender shall mature in 11 consecutive quarterly installments, commencing on June 30, 2002, each of which shall be in an amount equal to such Lender's Tranche A Term Loan Percentage multiplied by the amount set forth below opposite such installment: Installment Principal Amount June 30, 2002 $1,374,960.21 September 30, 2002 $1,374,960.21 December 31, 2002 $1,433,575.49 March 31, 2003 $1,433,575.49 June 30, 2003 $1,433,575.49 September 30, 2003 $1,433,575.49 December 31, 2003 $2,389,293.71 March 31, 2004 $2,389,293.71 -30- Installment Principal Amount June 30, 2004 $2,389,293.71 September 30, 2004 $2,389,293.71 December 31, 2006 The Unpaid Balance (b) The Tranche B Term Loan of each Tranche B Lender shall mature in 19 consecutive quarterly installments, commencing on June 30, 2002, each of which shall be in an amount equal to such Lender's Tranche B Term Loan Percentage multiplied by the amount set forth below opposite such installment: Installment Principal Amount June 30, 2002 $ 14,156.71 September 30, 2002 $ 14,156.71 December 31, 2002 $ 14,156.71 March 31, 2003 $ 14,156.71 June 30, 2003 $ 14,156.71 September 30, 2003 $ 14,156.71 December 31, 2003 $ 14,156.71 March 31, 2004 $ 14,156.71 June 30, 2004 $ 14,156.71 September 30, 2004 $ 14,156.71 December 31, 2004 $ 14,156.71 March 31, 2005 $7,389,800.54 June 30, 2005 $7,389,800.54 September 30, 2005 $7,389,800.54 December 31, 2005 $7,389,800.54 March 31, 2006 $7,389,800.54 June 30, 2006 $7,389,800.54 September 30, 2006 $7,389,800.54 December 31, 2006 The Unpaid Balance Section 2.4. Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, each Revolving Credit Lender severally agrees to make revolving credit loans ("Revolving Credit Loans") to the Borrower from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Lender's Revolving Credit Percentage of (i) the L/C Obligations then outstanding and (ii) the aggregate principal amount of the Swing Line Loans then outstanding, does not exceed the amount of such Lender's Adjusted Revolving Credit Commitment; provided, however, that (i) in no event may the Total Revolving Extensions of Credit ever exceed the Total Revolving Credit Commitments, and (ii) in no event may the aggregate amount of all Borrowing Base Obligations ever exceed the Borrowing Base. During the Revolving Credit Commitment Period the Borrower may use the Adjusted Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance -31- with the terms and conditions hereof. The Revolving Credit Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.13, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan if the last day of the Interest Period with respect thereto would occur on or after the Revolving Credit Termination Date. (b) Subject to the terms and conditions hereof, on the Closing Date the Pre-Petition Revolving Credit Loans held by each Lender other than Wells Fargo under the Pre-Petition Credit Agreement and the DIP Loans held by each Lender other than Wells Fargo under the DIP Credit Agreement shall be deemed to be outstanding under the Revolving Credit Commitments for all purposes whatsoever in the same principal amount as the Pre-Petition Revolving Credit Loans and DIP Loans held by such Lender immediately prior to the Closing Date, shall constitute Revolving Credit Loans hereunder and shall be subject to all of the terms and conditions of this Agreement and the other Loan Documents. (c) The Borrower shall repay all outstanding Revolving Credit Loans on the Revolving Credit Termination Date. Section 2.5. Procedure for Revolving Credit Borrowing. The Borrower may borrow under the Adjusted Revolving Credit Commitments during the Revolving Credit Commitment Period on any Business Day, provided that the Borrower shall give the Administrative Agent irrevocable Notice of Borrowing (which notice must be received by the Administrative Agent prior to 11:30 A.M., Chicago time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) no later than the requested Borrowing Date, in the case of Base Rate Loans), specifying (i) the amount and Type of Revolving Credit Loans to be borrowed and, in the case of Eurodollar Loans, the length of the initial Interest Period therefor and (ii) the requested Borrowing Date. Any Revolving Credit Loans made on the Closing Date shall initially be Base Rate Loans. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Credit Commitments are less than $1,000,000 such lesser amount) and (y) in the case of Eurodollar Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof; provided, that the Swing Line Lender may request, on behalf of the Borrower, borrowings under the Adjusted Revolving Credit Commitments in other amounts pursuant to Section 2.7. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Revolving Credit Lender thereof. Each Revolving Credit Lender will make the amount of its Revolving Credit Percentage of each borrowing available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 2:00 p.m., Chicago time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent in like funds as received by the Administrative Agent as soon as practicable, in accordance with the Administrative Agent's normal practice, after receipt thereof from the Lenders. Section 2.6. Swing Line Commitment. (a) Subject to the terms and conditions hereof, the Swing Line Lender agrees to make a portion of the credit otherwise available to the Borrower under the Adjusted Revolving Credit Commitments from time to time during the Revolving -32- Credit Commitment Period by making swing line loans ("Swing Line Loans") to the Borrower; provided that (i) the aggregate principal amount of Swing Line Loans outstanding at any time shall not exceed the Swing Line Commitment then in effect (notwithstanding that the Swing Line Loans outstanding at any time, when aggregated with the Swing Line Lender's other outstanding Revolving Credit Loans hereunder, may exceed the Swing Line Commitment or the Swing Line Lender's Adjusted Revolving Credit Commitment then in effect) and (ii) the Borrower shall not request, and the Swing Line Lender shall not make, any Swing Line Loan if, after giving effect to the making of such Swing Line Loan, the aggregate amount of the Available Revolving Credit Commitments would be less than zero. During the Revolving Credit Commitment Period, the Borrower may use the Swing Line Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof. Swing Line Loans shall be Base Rate Loans only. (b) The Borrower shall repay all outstanding Swing Line Loans on (i) the fifth Business Day after the Borrowing Date of each Base Rate Loan, and (ii) in all cases on the Revolving Credit Termination Date. Section 2.7. Procedure for Swing Line Borrowing; Refunding of Swing Line Loans. (a) Whenever the Borrower desires that the Swing Line Lender make Swing Line Loans it shall give the Swing Line Lender irrevocable telephonic notice confirmed promptly in writing (which telephonic notice must be received by the Swing Line Lender not later than 12:00 noon, Chicago time, in the case of Base Rate Loans on the proposed Borrowing Date), specifying (i) the amount to be borrowed, and (ii) the requested Borrowing Date (which shall be a Business Day during the Revolving Credit Commitment Period). Each borrowing under the Swing Line Commitment shall be in an amount equal to $100,000 or a whole multiple of $100,000 in excess thereof. Not later than 2:00 P.M., Chicago time, on the Borrowing Date specified in a notice in respect of Swing Line Loans, the Swing Line Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the amount of the Swing Line Loan to be made by the Swing Line Lender. The Administrative Agent shall make the proceeds of such Swing Line Loan available to the Borrower on such Borrowing Date in immediately available funds. (b) The Swing Line Lender, at any time and from time to time in its sole and absolute discretion may, and, in respect of any Swing Line Loan outstanding for five Business Days shall, on behalf of the Borrower (which hereby irrevocably directs the Swing Line Lender to act on its behalf), upon notice given by the Swing Line Lender no later than 12:00 noon, Chicago time, request each Revolving Credit Lender to make, and each Revolving Credit Lender hereby agrees to make, a Revolving Credit Loan, in an amount equal to such Revolving Credit Lender's Revolving Credit Percentage of the aggregate amount of the Swing Line Loans (the "Refunded Swing Line Loans") outstanding on the date of such notice, to repay the Swing Line Lender. Each Revolving Credit Lender shall make the amount of such Revolving Credit Loan available to the Administrative Agent at the Funding Office in immediately available funds, not later than 2:00 P.M., Chicago time, on the date of such notice. The proceeds of such Revolving Credit Loans shall be immediately applied by the Swing Line Lender to repay the Refunded Swing Line Loans. -33- (c) If prior to the time a Revolving Credit Loan would have otherwise been made pursuant to Section 2.7(b), one of the events described in Section 8(f) shall have occurred and be continuing with respect to the Borrower or if for any other reason, as determined by the Swing Line Lender in its sole discretion, Revolving Credit Loans may not be made as contemplated by Section 2.7(b), each Revolving Credit Lender shall, on the date such Revolving Credit Loan was to have been made pursuant to the notice referred to in Section 2.7(b) (the "Refunding Date"), purchase for cash an undivided participating interest in an amount equal to (i) its Revolving Credit Percentage times (ii) the aggregate principal amount of Swing Line Loans then outstanding which were to have been repaid with such Revolving Credit Loans (the "Swing Line Participation Amount"). (d) Whenever, at any time after the Swing Line Lender has received from any Revolving Credit Lender such Lender's Swing Line Participation Amount, the Swing Line Lender receives any payment on account of the Swing Line Loans, the Swing Line Lender will distribute to such Lender its Swing Line Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender's pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swing Line Loans then due); provided, however, that in the event that such payment received by the Swing Line Lender is required to be returned, such Revolving Credit Lender will return to the Swing Line Lender any portion thereof previously distributed to it by the Swing Line Lender. (e) Each Revolving Credit Lender's obligation to make the Loans referred to in Section 2.7(b) and to purchase participating interests pursuant to Section 2.7(c) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which such Revolving Credit Lender or the Borrower may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Revolving Credit Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. Section 2.8. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Revolving Credit Lender, Swing Line Lender or Term Loan Lender, as the case may be, (i) the then unpaid principal amount of each Revolving Credit Loan of such Revolving Credit Lender on the Revolving Credit Termination Date (or such earlier date on which the Loans become due and payable pursuant to Section 8), (ii) the then unpaid principal amount of each Swing Line Loan of the Swing Line Lender on the fifth Business Day after such Swing Line is made and in any event on the Revolving Credit Termination Date (or such earlier date on which the Loans become due and payable pursuant to Section 8) and (iii) the principal amount of each Term Loan of such Term Loan Lender in installments according to the amortization schedule set forth in Section 2.3 (or on such earlier date on which the Loans become due and payable pursuant to Section 8). The -34- Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.15. Payments received by the Administrative Agent after 2:00 P.M. Chicago time shall be deemed received on the next succeeding Business Day. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 10.6(e), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and any Note evidencing such Loan, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.8(b) shall, to the extent permitted by applicable law, be prima facie evidence absent manifest error of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to such Borrower by such Lender in accordance, with the terms of this Agreement. (e) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender a promissory note of the Borrower evidencing any Term Loans, Revolving Credit Loans or Swing Line Loans, as the case may be, of such Lender, substantially in the forms of Exhibit G-1, G-2 or G-3, respectively, with appropriate insertions as to date and principal amount. Section 2.9. Commitment Fees, Etc. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Credit Lender, a commitment fee for the period from and including the Closing Date to the last day of the Revolving Credit Commitment Period, computed at the Commitment Fee Rate on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Credit Termination Date, commencing on the first of such dates to occur after the date hereof. (b) The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates from time to time agreed to in writing by the Borrower and the Administrative Agent. -35- (c) The Borrower agrees to pay to the Administrative Agent for the account of the Lenders a restructuring fee in an amount equal to one-half of one percent (0.50%) of the Total Revolving Credit Commitments, the Tranche A Term Loan Commitments and the Tranche B Term Loan Commitments on the Closing Date before giving effect to the initial borrowings hereunder (the "Original Facility Amount"), payable on the Closing Date. (d) The Borrower agrees to pay to the Administrative Agent for the account of the Lenders an additional restructuring fee in an amount equal to one-half of one percent (0.50%) of the Original Facility Amount, payable on the earlier of the date on which the Borrower or any Subsidiary receives Net Cash Proceeds of the issuance of its Capital Stock and the date that is one year after the effective date of the Plan of Reorganization. Section 2.10. Termination or Reduction of Revolving Credit Commitments. The Borrower shall have the right, upon not less than two Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments; provided that no such termination or reduction of Revolving Credit Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans and Swing Line Loans made on the effective date thereof, the Total Revolving Extensions of Credit would exceed the Total Revolving Credit Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Credit Commitments then in effect. Section 2.11. Optional Prepayments. The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and at least one Business Day prior thereto in the case of Base Rate Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or Base Rate Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.21. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Credit Loans which are Base Rate Loans and Swing Line Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Term Loans and Revolving Credit Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof; provided, however, that the Borrower may prepay Term Loans and Revolving Credit Loans in an aggregate principal amount less than $1,000,000 and the amount of any such prepayment shall be held by the Administrative Agent as additional Collateral and not applied to such Loans until the earlier of the date on which the aggregate amount of such prepayments in the Administrative Agent's possession equals or exceeds $1,000,000 and the ninetieth day after any such proceeds are delivered to the Administrative Agent. Partial prepayments of Swing Line Loans shall be in an aggregate principal amount of $100,000 or a whole multiple thereof. Section 2.12. Mandatory Prepayments and Commitment Reductions. (a) If the Borrower or any Subsidiary shall issue any Capital Stock, an amount equal to 100% of the Net Cash Proceeds thereof (other than (i) the Net Cash Proceeds in an aggregate amount not to exceed -36- $25,000,000 of the issuance of preferred stock of the Borrower having a cash pay dividend of up to 8% and upon which no cash dividends may be declared or paid during the Existence of a Default or Event of Default hereunder, and (ii) Net Cash Proceeds in an aggregate amount not to exceed $50,000,000 of the issuance of common stock of the Borrower or options, warrants or rights with respect to such common stock of the Borrower upon which no cash dividends may be declared or paid during the Existence of a Default or Event of Default hereunder) shall be applied on the date of such issuance toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(d); provided that nothing contained in this Section 2.12(a) shall obligate the SPV to make any prepayment of any Loans under this Agreement nor shall contributions to the capital of the SPV in the form of Receivables be deemed to generate Net Cash Proceeds. The Lenders hereby agree that this Section 2.12(a) shall not apply to the issuance of Capital Stock of the Borrower to the holders of the Borrower's Senior Subordinated Notes pursuant to the Plan of Reorganization. (b) If the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event, the Mandatory Prepayment Percentage of such Net Cash Proceeds shall be promptly applied toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(d); provided, that, notwithstanding the foregoing: (i) net insurance proceeds received by the Collateral Agent shall be made available for the restoration of the portion of the Collateral damaged or destroyed if written application for such use is made within thirty (30) days of receipt of such proceeds and the following conditions are satisfied: (A) the Borrower has in effect business interruption insurance covering the income to be lost during the restoration period as a result of the damage or destruction to the Collateral or provides the Administrative Agent with other evidence satisfactory to it that the Borrower has cash resources sufficient to pay its obligations during the restoration period; (B) the effect of the damage to or destruction of the Collateral giving rise to receipt of the insurance proceeds is not to terminate, or give a lessee the option to terminate, any lease of all or any portion of the Mortgaged Premises; (C) no Event of Default or Default shall have occurred or be continuing (and if such an event shall occur during restoration the Administrative Agent may, at its election, apply any insurance proceeds then remaining in its hands to the reduction of the Obligations); (D) the Borrower shall have submitted to the Administrative Agent plans and specifications for the restoration which shall be satisfactory to it; (E) the Borrower shall submit to the Administrative Agent fixed price contracts with good and responsible contractors and materialmen covering all work and materials necessary to complete restoration and providing for a total completion price not in excess of the amount of insurance proceeds available for restoration, or, if a deficiency shall exist, the Borrower shall have deposited the amount of such deficiency with the Administrative Agent; and (F) the Borrower shall have obtained a waiver of the right of subrogation from any insurer under such policies of insurance who at that time claims that no liability exists as to the Borrower or the insured under such policies. Any insurance proceeds to be released pursuant to the foregoing provisions may at the option of the Administrative Agent be disbursed from time to time as restoration progresses to pay for restoration work completed and in place and such disbursements may at the -37- Administrative Agent's option be made directly to the Borrower or to or through any contractor or materialman to whom payment is due or to or through a construction escrow to be maintained by a title insurer acceptable to the Administrative Agent. The Administrative Agent may impose such further conditions upon the release of insurance proceeds (including the receipt of title insurance) as are customarily imposed by prudent construction lenders to insure the completion of the restoration work free and clear of all liens or claims for lien. All title insurance charges and other costs and expenses paid to or for the account of the Borrower in connection with the release of such insurance proceeds shall constitute so much additional Obligations to be payable upon demand with interest at the rate applicable to Revolving Credit Loans that are Base Rate Loans at the time such costs or expenses are incurred. The Administrative Agent may deduct any such costs and expenses from insurance proceeds at any time standing in its hands. If the Borrower fails to request that insurance proceeds be applied to the restoration of the improvements or if the Borrower makes such a request but fails to complete restoration within a reasonable time, the Administrative Agent shall have the right, but not the duty, to restore or rebuild said Collateral or any part thereof for or on behalf of the Borrower in lieu of applying said proceeds to the Obligations and for such purpose may do all necessary acts, including using funds deposited by the Borrower as aforesaid and advancing additional funds for the purpose of restoration, all such additional funds to constitute part of the Obligations payable upon demand with interest at the rate applicable to Revolving Credit Loans that are Base Rate Loans at the time of incurrence; (ii) the proceeds from any sales of Receivables pursuant to the Receivables Securitization Program shall be used for working capital purposes, operational purposes and other general corporate purposes; and (iii) proceeds in an aggregate amount of less than $1,000,000 may be held by the Administrative Agent until the aggregate amount of such proceeds equals or exceeds $1,000,000 and then applied as provided herein. Any proceeds held by the Administrative Agent pursuant to this clause (iii) shall be invested in mutually acceptable investments, which shall be part of the Collateral and, so long as no Default or Event of Default shall have occurred and be continuing, the investment earnings thereon shall be made available to the Borrower at its request. (c) If, for any fiscal year of the Borrower commencing with the fiscal year ending September 30, 2001, there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application Date, apply 85% of such Excess Cash Flow toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(d). Each such prepayment and commitment reduction shall be made on a date (an "Excess Cash Flow Application Date") no later than five days after the earlier of (i) the date on which the financial statements of the Borrower referred to in Section 6.1(a) or (b), for the fiscal year with respect to which such prepayment is made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered. (d) All amounts to be applied in connection with prepayments and Commitment reductions made pursuant to this Section 2.12 shall be applied to the prepayment of the Term -38- Loans (in the order set forth in Section 2.18(b)) and to the permanent reduction of the Revolving Credit Commitments ratably in accordance with the outstanding principal amount of the Term Loans and the amount of the Total Revolving Credit Commitments, determined without regard to any outstanding Revolving Extensions of Credit. Any such reduction of the Revolving Credit Commitments shall be accompanied by prepayment of the Revolving Credit Loans and/or the Swing Line Loans to the extent, if any, that the Total Revolving Extensions of Credit exceed the amount of the Total Revolving Credit Commitments as so reduced, provided that if the aggregate principal amount of Revolving Credit Loans and Swing Line Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Lenders on terms and conditions satisfactory to the Administrative Agent. The application of any prepayment pursuant to Section 2.12 shall be made first to Base Rate Loans and second to Eurodollar Loans. Each prepayment of the Loans under Section 2.12 (except in the case of Revolving Credit Loans that are Base Rate Loans and Swing Line Loans) shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid and any amounts owing pursuant to Section 2.21. Section 2.13. Conversion and Continuation Options. (a) The Borrower may elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative Agent at least two Business Days' prior irrevocable Notice of Borrowing containing such election, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior Notice of Borrowing containing such election (which notice shall specify the length of the initial Interest Period therefor), provided that no Base Rate Loan under a particular Facility may be converted into a Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. (b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable Notice of Borrowing to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan under a particular Facility may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to Base Rate Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. -39- Section 2.14. Minimum Amounts and Maximum Number of Eurodollar Tranches. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurodollar Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole multiple of $500,000 in excess thereof and (b) no more than fifteen Eurodollar Tranches shall be outstanding at any one time. Section 2.15. Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin. (c) (i) If all or a portion of the principal amount of any Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all of such outstanding Loans and Reimbursement Obligations shall bear interest at a rate per annum which is equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section 2.15 plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to Base Rate Loans under the Revolving Credit Facility plus 2%, and (ii) if all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate applicable to Base Rate Loans under the relevant Facility plus 2%, in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section 2.15 shall be payable from time to time on demand. Section 2.16. Computation of Interest and Fees. (a) Interest, fees and commissions payable pursuant hereto shall be calculated on the basis of a 360- day year for the actual days elapsed, except that, with respect to Base Rate Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate. -40- (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.15(a). Section 2.17. Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Majority Facility Lenders in respect of the relevant Facility that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans under the relevant Facility requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (y) any Loans under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the relevant Facility shall be converted, on the first day of such Interest Period, to Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent which notice shall be withdrawn promptly upon notice to the Administrative Agent confirming the termination of the events precipitating same, no further Eurodollar Loans under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurodollar Loans. Section 2.18. Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee and any reduction of the Commitments of the Lenders shall be made pro rata according to the respective Tranche A Term Loan Percentages, Tranche B Term Loan Percentages or Revolving Credit Percentages, as the case may be, of the relevant Lenders. (b) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Term Loans shall be made pro rata according to the respective outstanding principal amounts of the Term Loans then held by the Term Loan Lenders. The amount of each optional principal prepayment of the Term Loans made pursuant to Section 2.11 hereof and each mandatory principal prepayment made pursuant to Section 2.12 (b) hereof in connection with an Asset Sale shall be applied to reduce the then remaining installments of the Tranche A Term Loans and Tranche B Term Loans, as the case may be, pro rata based upon the then remaining -41- principal amount thereof. The amount of each mandatory principal prepayment, other than any mandatory principal prepayment made pursuant to Section 2.12 (b) hereof in connection with an Asset Sale, shall be applied to reduce the then remaining installments of the Tranche A Term Loans and Tranche B Term Loans, as the case may be, in the inverse order of their respective maturities. Amounts prepaid on account of the Term Loans may not be reborrowed. (c) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Credit Loans then held by the Revolving Credit Lenders. (d) Anything contained herein to the contrary notwithstanding, all payments and collections received in respect of the Obligations and all proceeds of the Collateral received, in each instance, by the Administrative Agent, the Collateral Agent or any of the Lenders after the occurrence of an Event of Default shall be remitted to the Administrative Agent and distributed as follows: (i) first, to the payment of any outstanding costs and expenses incurred by the Administrative Agent in monitoring, verifying, protecting, preserving or enforcing the Liens on the Collateral, and in protecting, preserving or enforcing rights under this Agreement or any of the other Loan Documents, and in any event including all costs and expenses of a character which the Borrower has agreed to pay under Section 10.5 hereof (such funds to be retained by the Administrative Agent for its own account unless it has previously been reimbursed for such costs and expenses by the Lenders, in which event such amounts shall be remitted to the Lenders to reimburse them for payments theretofore made to the Administrative Agent); (ii) second, to the payment of any outstanding interest or other fees or amounts due under this Agreement or any of the other Loan Documents other than for principal and Hedging Liabilities, pro rata as among the Administrative Agent and the Lenders in accord with the amount of such interest and other fees or amounts owing each; (iii) third, to the payment of the principal of the Notes and any L/C Obligations and the Hedging Liabilities, pro rata as among the Lenders in accord with the then respective unpaid principal balances of the Notes and the then unpaid L/C Obligations and Hedging Liabilities; (iv) fourth, to the Administrative Agent and the Lenders pro rata in accord with the amounts of any other indebtedness, obligations or liabilities of the Borrower owing to them and secured by the Security Documents unless and until all such indebtedness, obligations and liabilities have been fully paid and satisfied; (v) fifth, to the Administrative Agent for the cash collateralization of the entire amount undrawn on the Letters of Credit, with amounts to be so remitted on account of such undrawn Letters of Credit until the Administrative Agent is holding an -42- amount of cash equal to the then outstanding undrawn amount of all such Letters of Credit; and (vi) sixth, to the Borrower or to whoever the Administrative Agent reasonably determines to be lawfully entitled thereto. Except as otherwise specifically provided for herein, the Borrower hereby irrevocably waives the right to direct the application of payments and collections at any time received by the Administrative Agent or any of the Lenders from or on behalf of the Borrower, and the Borrower hereby irrevocably agrees that the Administrative Agent shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time by the Administrative Agent or any of the Lenders against the Obligations in the manner described above. (e) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 11:00 A.M., Chicago time, on the due date thereof to the Administrative Agent, for the pro rata account of the Lenders, at the Payment Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders in like funds as received (i) if such funds are received by the Administrative Agent prior to 11:00 A.M. Chicago time, on the date of their receipt by the Administrative Agent, and (ii) if such funds are received by the Administration Agent on or after 11:00 A.M., Chicago time, promptly upon their receipt by the Administrative Agent. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (f) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this Section 2.18(f) shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the -43- rate per annum applicable to Base Rate Loans under the relevant Facility, on demand, from the Borrower. (g) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment being made hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days of such required date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower. Section 2.19. Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority in all cases made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.20 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section 2.19, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or -44- directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority in all cases made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) A certificate as to any additional amounts payable pursuant to this Section 2.19 shall be submitted by the relevant Lender to the Borrower (with a copy to the Administrative Agent) and shall set forth in detail the reason for such compensation together with a computation of the amount claimed shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section 2.19 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder for a period of one year. Section 2.20. Taxes. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on any Agent or any Lender as a result of a present or former connection between such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld from any amounts payable to any Agent or any Lender hereunder, the amounts so payable to such Agent or such Lender shall be increased to the extent necessary to yield to such Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Borrower shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to comply with the requirements of paragraph (d) or (e) of this subsection or (ii) that are United States withholding taxes imposed on amounts payable to such Lender at the time the Lender becomes a party to this Agreement, except to the extent that such Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to Section 2.20(a). (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law upon receipt of a written request complying with Section 2.19(c). -45- (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for the account of the relevant Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Agents the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by any Agent or any Lender as a result of any such failure. The agreements in this Section 2.20 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder for a period of one year. (d) Each Lender (or Transferee) that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America (or any jurisdiction thereof), or any estate or trust that is subject to federal income taxation regardless of the source of its income (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a statement substantially in the form of Exhibit H and a Form W-8, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this Section 2.20(d), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.20(d) that such Non-U.S. Lender is not legally able to deliver. (e) A Lender that is entitled to an exemption from or reduction of non- U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's reasonable judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. -46- Section 2.21. Indemnity. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section 2.21 submitted to the Borrower by any Lender and shall set forth in detail the reason for such compensation together with a computation of the amount claimed shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. Section 2.22. Change of Lending Office; Claims Certificate. (a) Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.19 or 2.20(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section 2.22 shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Section 2.19 or 2.20(a). (b) In the event any Lender gives a notice to the Borrower pursuant to Section 2.19, or any Lender is one of the Lenders notifying the Agent pursuant to Section 2.17(d), or is unable to deliver the forms as required by Section 2.20(d), or with respect to whom the Borrower is required to pay additional amounts pursuant to Section 2.20 or any Lender is unable to make Eurodollar Loans or cancels its commitment to make Eurodollar Loans pursuant to Section 2.24, the Borrower may give notice in response, with copies to the Administrative Agent, that it wishes to seek one or more financial institutions to replace such Lender in accordance with the provisions set forth in Section 10.6. Each Lender giving such a notice agrees that, at the request of the Borrower, it will assign all of its interests thereunder and under the Notes and the Commitment to a designated Assignee for the full amount then owing to it, all in accordance with Section 10.6. Thereafter, said assignee shall have all of the rights hereunder and obligations of the assigning Lender (except as otherwise expressly set forth herein) and such Lender shall have no further obligations to the Borrower hereunder. -47- (c) Any notice given pursuant to this Section 2.22 shall be deemed to contain a representation by the Lender issuing such notice that: (i) such Lender has used reasonable efforts to minimize said costs or charges but cannot, in its sole judgment, do so at reasonable expense, and (ii) the increased costs and charges are common to substantially all of the comparable loan customers of such Lender and are not unique to the Borrower. Section 2.23. Collateral. The payment and performance of the Obligations shall be secured by (i) 100% of the Capital Stock and other equity interests in each of the Borrower's direct and indirect Subsidiaries (other than Foreign Subsidiaries, as to which only 65% of the Capital Stock or other equity interests shall be pledged to the Collateral Agent), and (ii) all of each Loan Party's now existing or hereafter arising or acquired tangible and intangible assets (other than Securitized Receivables), including without limitation all accounts other than Securitized Receivables, general intangibles, inventory, machinery, equipment, investment property, farm products, and all other goods, chattel paper, instruments, documents and Intellectual Property and all real estate owned by the Loan Parties and all the rents, issues and profits thereof, whether now owned or hereafter acquired or arising, including without limitation the Mortgaged Properties; provided, however, that until an Event of Default has occurred and is continuing and thereafter until otherwise required by the Required Lenders or the Administrative Agent, (i) Liens need not be perfected on notes receivable and similar instruments having an aggregate face value of less than $2,000,000 if the same were received in connection with the Disposition of Property or in satisfaction of claims previously contracted, and (ii) no blocked account agreement or account control agreement need be delivered on any deposit accounts (other than the concentration account maintained by Imperial Distributing, Inc.) in which the aggregate balances do not exceed $1,500,000 at any time. The Liens on the Collateral shall be granted to the Collateral Agent for the ratable account of the Lenders and shall be valid and perfected first Liens subject, however, to the proviso appearing at the end of the immediately preceding sentence and Liens permitted pursuant to Section 7.3 hereof. Notwithstanding anything to the contrary contained herein, in no event will any of the Collateral described above be deemed to include (a) real property having an estimated fair market value of less than $1,000,000, provided that the total estimated value of all such unmortgaged real property does not exceed $5,000,000, (b) rolling stock (including vehicles subject to a certificate of title law), to the extent the fair market value thereof does not exceed $1,000,000 in the aggregate, (c) any interest in contracts and contracts rights thereunder (other than Accounts arising therefrom) to the extent that the granting of a security interest or lien therein is prohibited by such contract and such prohibition has not been or is not waived or the consent of the applicable party has not been or is not obtained, (d) Property located outside the United States of America; (e) any interests in Property owned by any Loan Party which is subject to a prior Lien permitted by this Agreement (such as a Purchase Money Lien in favor of any third party (other than the Borrower or any of its Affiliates), the interest of the lessor under a Capitalized Lease, and Liens on specifically identified sugar securing only CCC Loans) to the extent the granting of a Lien therein is prohibited by the agreement(s) pursuant to which such Property is subject and such prohibition has not been or is not waived or the consent of the applicable party has not been or is not obtained, (f) any interest in copyrights, trademarks, patents or similar intangibles licensed to the Borrower or any Subsidiary from any third party (other than the Borrower or any of its Affiliates) to the extent that the granting of a Lien therein is prohibited by the license or other agreement(s) pursuant to which such the Borrower or Subsidiary holds such interest and such prohibition has -48- not been or is not waived or the consent of the applicable party has not been or is not obtained, and (g) any interests in any leases or licenses to use Property under which any Loan Party is lessee or licensee and a Person other than the Borrower or an Affiliate of such Person is lessor or licensor to the extent the granting of a Lien therein is prohibited by the agreement(s) pursuant to which such Property is leased and such prohibition has not been or is not waived or the consent of the applicable party has not been or is not obtained. Section 2.24. Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 2.21. Section 2.25. Cleandown Periods. During each period commencing on September 1 and ending on the immediately following October 31 in each year, the aggregate amount of the Total Revolving Extensions of Credit outstanding must be reduced to at least the following amounts for 30 consecutive days: Year Outstandings 2001 $90,000,000 2002 $80,000,000 2003 $70,000,000 Section 3. Letters of Credit. Section 3.1. L/C Commitment. (a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Revolving Credit Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit") for the account of the Borrower on any Business Day during the Revolving Credit Commitment Period in such form as may be approved from time to time by the Issuing Lender; provided that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Credit Commitments would be less than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date which is five Business Days prior to the Revolving Credit Termination Date, provided that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). -49- Upon satisfaction of all conditions precedent to the initial Loan hereunder, without any further action on the part of the Borrower, the Issuing Lender, the Administrative Agent or any L/C Participant, (i) each of the letters of credit listed on Schedule 3.1 hereto (the "Existing L/Cs") previously issued for the account of the Borrower shall be deemed for all purposes of this Agreement to be issued hereunder, (ii) each application and agreement for letter of credit pursuant to which each Existing L/C was issued shall be deemed for all purposes of this Agreement to be an Application, and (iii) all of the Borrower's indebtedness and liabilities to Harris Trust and Savings Bank with respect to the Existing L/C shall be deemed to be L/C Obligations of the Borrower for all purposes of this Agreement and the other Loan Documents. (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (c) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. Section 3.2. Procedure for Issuance of Letter of Credit. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof). Section 3.3. Commissions, Fees and Other Charges. (a) The Borrower will pay a commission on all outstanding Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans under the Revolving Credit Facility minus one-eighth of one percent (0.125%), shared ratably among the Revolving Credit Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. (b) The Borrower shall pay the Issuing Lender a fronting fee on all outstanding Letters of Credit at a per annum rate equal to one-eight of one percent (0.125%), payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. (c) In addition to the foregoing fees and commissions, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred -50- or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit. Section 3.4. L/C Participations. (a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Revolving Credit Percentage in the Issuing Lender's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at the Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's Revolving Credit Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. (b) If any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 3.4(a) is not made available to the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Base Rate Loans under the Revolving Credit Facility. A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with Section 3.4(a), the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. Section 3.5. Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Borrower of -51- the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this Section from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate set forth in Section 2.15(c). Each drawing under any Letter of Credit shall (unless an event of the type described in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with respect to the Borrower, in which case the procedures specified in Section 3.4 for funding by L/C Participants shall apply) constitute a request by the Borrower to the Administrative Agent for a borrowing pursuant to Section 2.5 of Base Rate Loans (or, at the option of the Administrative Agent and the Swing Line Lender in their sole discretion, a borrowing pursuant to Section 2.7 of Swing Line Loans) in the amount of such drawing. The Borrowing Date with respect to such borrowing shall be the date of such drawing. Section 3.6. Obligations Absolute. The Borrower's obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions resulting from the gross negligence or willful misconduct of the Issuing Lender. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards or care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to the Borrower. Section 3.7. Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall promptly notify the Borrower of the date and amount thereof. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit. Section 3.8. Reductions and Reinstatements. The Borrower and the L/C Participants recognize, acknowledge and agree that (i) each Bond Letter of Credit provides, or may provide, -52- for automatic reductions and reinstatements as set forth in the provisions of such Bond Letter of Credit, and (ii) each Bond Letter of Credit provides, or may provide, for the beneficiary thereof to reduce from time to time the amounts available to be drawn thereon. Section 3.9. Documents and Reports. The Issuing Lender agrees to deliver to the L/C Participants promptly upon receipt thereof copies of all documents and reports delivered to the Issuing Lender pursuant to any Bond Document. Section 3.10. Amendments. The Issuing Lender may enter into any amendment or modification of, or may waive compliance with the terms of any Bond Document (other than an Indenture) without the consent of any L/C Participants; provided (a) that without the consent of the Required L/C Participants, the Issuing Lender shall not execute any instrument agreeing to any amendment or modification of, or waiver of compliance with any Bond Document, which would waive any "Event of Default" arising under any Bond Document, and (b) without the consent of all of the L/C Participants, the Issuing Lender shall not execute any instrument agreeing to any amendment or modification of, or waiver of compliance with any Bond Document, (i) which would (A) reduce the principal of, or interest on, any Reimbursement Obligation, (B) postpone the due date for any payment of principal of, or interest on, any Reimbursement Obligation, (C) extend the stated expiration date of the Bond Letter of Credit, (D) increase in any material manner (in the reasonable opinion of the Issuing Lender) the obligations of the L/C Participants or, in any event, increase the obligations of the L/C Participants the effect of which shall cause any such L/C Participant's Revolving Extensions of Credit to exceed such L/C Participant's Revolving Credit Commitment, or (E) release or otherwise adversely affect the interests of the L/C Participants in any collateral granted under any Bond Document, or (ii) after the occurrence of a default or event of default. Section 3.11. Applications. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply. Section 4. Representations and Warranties. To induce the Agents and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, the Borrower hereby represents and warrants to each Agent and each Lender that: Section 4.1. Financial Condition. The consolidated balance sheets of the Borrower as at September 30, 2000, and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by and accompanied by an unqualified report from Deloitte & Touche LLP (which report includes an explanatory paragraph regarding going concern issues), and the unaudited consolidated balance sheets of the Borrower as at June 30, 2001, and the related consolidated statements of income and cash flows for the 9-month period then ended, present fairly the consolidated financial condition of the Borrower as at such date, and the consolidated results of its operations and its consolidated cash flows for the periods covered thereby. All such financial statements, including the related schedules and notes thereto, if any, have been prepared in accordance with GAAP applied consistently throughout the periods -53- involved (except as approved by the aforementioned firm of accountants and disclosed therein). The Borrower and its Subsidiaries do not have any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, which are not reflected in the most recent financial statements referred to in this Section, except as disclosed on Schedule 4.1. During the period from June 30, 2001 to and including the date hereof there has been no Disposition by the Borrower or its Subsidiaries of any material part of its business or Property or any transfer of Capital Stock of any Subsidiary to any Person other than a Wholly Owned Subsidiary Guarantor. Section 4.2. No Change. Since September 30, 2000, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect other than those referred to in the financial statements referred to in Section 4.1, those which customarily occur as a result of events leading up to and following the commencement of a proceeding under Chapter 11 of the Bankruptcy Code and the commencement of the Chapter 11 Cases and those referred to in the Disclosure Statement. Section 4.3. Corporate Existence; Compliance with Law. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its Property, to lease the Property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except, in the case of clauses (c) and (d), to the extent that the failure to so qualify, be in good standing or comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 4.4. Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the borrowings on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Plan of Reorganization or the financing transactions contemplated hereby and the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices which have been obtained or made and are in full force and effect and (ii) the filings referred to in Section 4.18(b). Each Loan Document has been duly executed and delivered on behalf of each Loan Party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party hereto and thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws affecting -54- the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). Section 4.5. No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of the Borrower or any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective material properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. Section 4.6. No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) which if adversely determined could reasonably be expected to have a Material Adverse Effect. Section 4.7. No Default. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. Section 4.8. Ownership of Property; Liens. Each of the Borrower and its Subsidiaries has indefeasible title to, or a valid leasehold interest in, all its material real property necessary for the conduct of its business as currently conducted, and good title to, or a valid leasehold interest in, all its other material Property necessary for the conduct of its business as currently conducted, and none of such Property is subject to any Lien except as permitted by Section 7.3. Section 4.9. Intellectual Property. The Borrower and each of its Subsidiaries owns, or is licensed to use, all Intellectual Property necessary to conduct its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property. The use of Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person in any material respect. Section 4.10. Taxes. Each of the Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state and other material tax returns which are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its Property and all other taxes, fees or other charges imposed on it or any of its Property by any Governmental Authority (other than amounts the validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as -55- the case may be); no material tax Lien has been filed, and, to the knowledge of the Borrower, no material claim is being asserted, with respect to any such tax, fee or other charge. Section 4.11. Federal Regulations. No part of the proceeds of any Loans will be used for any purpose which violates the provisions of Regulations T, U or X of the Board. Section 4.12. ERISA. Except for the Merger of Spreckels Sugar Company, Inc. into Holly Sugar Company on March 31, 1997, neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount material in light of such amounts and related circumstances. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan which has resulted or could reasonably be expected to result in a material liability under ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. Section 4.13. Investment Company Act; Other Regulations. No Loan Party is an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) which limits its ability to incur Indebtedness. Section 4.14. Subsidiaries. The Subsidiaries listed on Schedule 4.14 constitute all the Subsidiaries of the Borrower at the date hereof. Section 4.15. Use of Proceeds. (a) The proceeds of the Term Loans shall be used (i) to refinance the borrowings of the Borrower under the Pre-Petition Tranche A Term Loan Facility and the Pre-Petition Tranche B Term Loan Facility. (b) The proceeds of the Revolving Credit Loans and the Swing Line Loans shall be used (i) to repay the borrowings of the Borrower under the Pre-Petition Revolving Credit Facility and the DIP Credit Facility and (ii) for working capital purposes and other general corporate purposes of the Borrower and its Subsidiaries. Letters of Credit shall be used to provide credit support for general corporate requirements of the Borrower and its Subsidiaries. -56- Section 4.16. Environmental Matters. Other than exceptions to any of the following that could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect or the payment of a Material Environmental Amount: (a) The Borrower and its Subsidiaries: (i) are, and within the period of all applicable statutes of limitation have been, in compliance with all applicable Environmental Laws; (ii) hold all Environmental Permits (each of which is in full force and effect) required for any of their current operations or for any property owned, leased, or otherwise operated by any of them; (iii) are, and within the period of all applicable statutes of limitation have been, in compliance with all of their Environmental Permits; and (iv) reasonably believe that there are no pending changes in applicable Environmental Laws. (b) Materials of Environmental Concern are not present at, on, under, in, or about any real property now or formerly owned, leased or operated by the Borrower or any of its Subsidiaries or, to the Borrower's knowledge, at any other location (including, without limitation, any location to which Materials of Environmental Concern have been sent for reuse or recycling or for treatment, storage, or disposal) which could reasonably be expected to (i) give rise to liability of the Borrower or any Subsidiary, or (ii) interfere with the Borrower's or any Subsidiary's continued operations, or (iii) impair the fair saleable value, as a component of a going business, of any real property owned or leased by the Borrower or any Subsidiary. (c) There is no judicial, administrative, or arbitral proceeding (including any notice of violation or alleged violation) under or relating to any Environmental Law to which the Borrower or any of its Subsidiaries is, or to the knowledge of the Borrower will be, named as a party that is pending or, to the knowledge of the Borrower, threatened. (d) Neither the Borrower nor any of its Subsidiaries has received any written request for information, or been notified that it is a potentially responsible party under or relating to the federal Comprehensive Environmental Response, Compensation, and Liability Act or any similar Environmental Law, or with respect to any Materials of Environmental Concern. (e) Neither the Borrower nor any of its Subsidiaries has entered into or agreed to any consent decree, order, or settlement or other agreement, nor is subject to any judgment, decree, or order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law. (f) Neither the Borrower nor any of its Subsidiaries has assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law or with respect to any Material of Environmental Concern. Notwithstanding the qualification as to the Borrower's knowledge set forth in the foregoing subsection 4.16(b), for purposes of Section 8(b) the representations contained in such -57- subsection 4.16(b) shall be deemed to be made, or have been made, as the case may be, without giving effect to such qualification. Section 4.17. Accuracy of Information, Etc. No statement or information when taken as a whole contained in this Agreement, any other Loan Document or any other document, certificate or statement furnished to the Administrative Agent or the Lenders or any of them, by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished, any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained herein or therein not misleading. The projections and pro forma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. As of the date hereof, the representations and warranties contained in the Transaction Documentation are true and correct in all material respects. There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents or in any other documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. Section 4.18. Security Documents. (a) The Guarantee and Collateral Agreement is effective to create in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof (other than the Securitized Receivables). In the case of the Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Stock are delivered to the Administrative Agent and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements in appropriate form are filed in the offices specified on Schedule 4.18(a), the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and, subject to compliance with applicable law, the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (other than Liens expressly permitted by Section 7.3). (b) Each of the Mortgages is effective to continue and/or create in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 4.18(b), each such Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person except for (i) Liens expressly permitted by Section 7.3 hereof and (ii) all matters set forth in Schedule B to the mortgagee's title insurance policy delivered to the Administrative Agent in accordance with Section 6.10(a) herein. -58- Section 4.19. Solvency. Each Loan Party is, and after giving effect to the Plan of Reorganization and the other transactions contemplated hereby and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. Section 4.20. Regulation H. No Mortgage encumbers improved real property which is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968 except as set forth on Schedule 4.20. Section 5. Conditions Precedent. Section 5.1. Conditions to Initial Extension of Credit. The agreement of each Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such extension of credit on the Closing Date, of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Borrower, (ii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of the Borrower and each Subsidiary Guarantor, (iii) each of the Mortgage Supplements, executed and delivered by a duly authorized officer of each party thereto, (iv) for the account of each relevant Lender, Notes conforming to the requirements hereof and executed and delivered by a duly authorized officer of the Borrower and (v) such blocked account agreements as the Collateral Agent may request (subject to the interest of the Borrower's receivables financing arrangement), executed and delivered by a duly authorized officer of each party thereto. (b) Confirmation of Plan of Reorganization. The Bankruptcy Court shall have confirmed the Plan of Reorganization with the support of not less than the minimum percentage required under the Bankruptcy Code of creditors of the class of which the Lenders are a part, no appeal from the confirmation order shall be pending which is unacceptable to the Administrative Agent and matters relating to the Chapter 11 Cases shall be otherwise acceptable to the Required Lenders. (c) Conversion of Senior Subordinated Notes. All of the Borrower's Senior Subordinated Notes shall have been converted into Capital Stock of the Borrower that does not require mandatory dividends, repurchases, redemptions, sinking fund or similar provisions. (d) Management. The identity of the Chairman of the Borrower's Board of Directors and the members of the Borrower's Board of Directors shall have been disclosed in writing to the Lenders. -59- (e) Securitization Facility. The Borrower shall have entered into a Receivables Securitization Facility or other receivables financing arrangement acceptable in each case to the Required Lenders. (f) No Material Adverse Change. Since June 30, 2001, no change shall have occurred in the financial condition or the business prospects of the Loan Parties which the Required Lenders regard as material and adverse. (g) Field Audit. The Lenders shall have completed a field examination of the business, operations and Properties of the Loan Parties in accordance with the Lenders' customary procedures and practices and as otherwise required by the nature and circumstances of the business of the Loan Parties, the results of which shall be satisfactory to the Agents. (h) Fees. The Lenders and the Administrative Agent shall have received all fees required to be paid, and all expenses for which invoices have been presented, on or before the Closing Date. (i) Approvals. All governmental, stockholder and third party approvals (including debtholders', landlords' and other consents) reasonably necessary in connection with the financing contemplated hereby and the continuing operations of the Borrower and its Subsidiaries shall have been obtained and be in full force and effect. (j) Closing Certificate. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments. (k) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions: (i) the legal opinion of Baker Botts L.L.P., counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F-1; and (ii) the legal opinion of William Schwer, general counsel of the Borrower and its Subsidiaries, substantially in the form of Exhibit F-2. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (m) Pledged Stock; Stock Powers; Pledged Notes. The Collateral Agent shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note pledged to the Collateral Agent pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank (or accompanied by an -60- executed transfer form in blank satisfactory to the Administrative Agent) by the pledgor thereof. (n) Filings, Registrations and Recordings. Each document (including, without limitation, any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Collateral Agent to be filed, registered or recorded in order to create in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 7.3), shall be in proper form for filing, registration or recordation. (o) Mortgages, Etc. (i) The Administrative Agent shall have received a Mortgage Supplement with respect to each Mortgage on each Mortgaged Property, executed and delivered by a duly authorized officer of each party thereto. (ii) If requested by the Administrative Agent, the Administrative Agent shall have received, and the title insurance company issuing the policy referred to in Section 5.1(n)(iii) (the "Title Insurance Company") shall have received, maps or plats of an as-built survey of the sites of the Mortgaged Properties certified to the Administrative Agent and the Title Insurance Company in a manner satisfactory to the Title Insurance Company and the Agent, dated a date satisfactory to the Administrative Agent and the Title Insurance Company by an independent professional licensed land surveyor satisfactory to the Administrative Agent and the Title Insurance Company, which maps or plats and the surveys on which they are based shall be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1992, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such maps, plats or surveys the following: (A) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines; (B) the lines of streets abutting the sites and width thereof; (C) all access and other easements appurtenant to the sites; (D) all roadways, paths, driveways, easements, encroachments and overlapping improvements and similar encumbrances affecting the site, whether recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (E) any encroachments on any adjoining property by the building structures and improvements on the sites; (F) if the site is described as being on a filed map, a legend relating the survey to said map; and (G) the flood zone designations, if any, in which the Mortgaged Properties are located. (iii) If requested by the Administrative Agent, the Administrative Agent shall have received (A) a policy of flood insurance which (1) covers any parcel of improved real property which is encumbered by any Mortgage (2) is written in an amount not less than the outstanding principal amount of the indebtedness secured by such Mortgage which is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (3) has a term ending not later than the -61- maturity of the Indebtedness secured by such Mortgage and (B) confirmation that the Borrower has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board. (p) Insurance. The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 6.5 and Section 5.3 of the Guarantee and Collateral Agreement. (q) Indebtedness, Liens or Preferred Stock. Neither the Borrower nor its Subsidiaries shall have any outstanding Indebtedness, Liens or preferred Capital Stock other than such Indebtedness, Liens or preferred Capital Stock permitted by Sections 7.2 and 7.3. (r) Fee Letter. The Administrative Agent shall have received an agreement with the Borrower as to the fees and expenses of the Agents, executed by a Responsible Officer of the Borrower. Section 5.2. Conditions to Each Extension of Credit. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made in all material respects by any Loan Party in or pursuant to the Loan Documents shall be true and correct on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. (c) Borrowing Base. After giving effect to the requested extension of credit, the aggregate principal amount of all Borrowing Base Obligations shall not exceed the Borrowing Base. Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 5.2 have been satisfied. Section 5.3. Conditions to Issuance of Bond Letters of Credit. The agreement of the Issuing Lender to issue any Bond Letter of Credit requested to be issued by it on any date is subject to the satisfaction of the following conditions precedent: (a) The Issuing Lender shall have received, in form and substance satisfactory to it: -62- (i) evidence that the issuer of the Bonds supported by such Bond Letter of Credit has authorized the execution and delivery of such Bonds and the related Bond Documents; (ii) executed originals of each of the Bond Documents and all legal opinions and certificates relating to the applicable Bonds; and (iii) evidence that the issuer of such Bonds shall have executed, issued and delivered the Bonds to the Bond Trustee therefor and the bond registrar for such Bonds shall have duly authenticated the Bonds and delivered the Bonds against payment therefor. Each issuance of a Bond Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such issuance that the conditions contained, in this Section 5.3 have been satisfied. Section 6. Affirmative Covenants. The Borrower hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall and shall cause each of its Subsidiaries to: Section 6.1. Financial Statements. Furnish to each Agent and each Lender: (a) as soon as available, but in any event within 100 days after the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on by Deloitte & Touche LLP or other independent certified public accountants of nationally recognized standing; (b) as soon as available, but in any event not later than 50 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income for such quarter and the portion of the fiscal year through the end of such quarter and an unaudited consolidated statement of cash flow for the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (including all adjustments consisting only of normal recurring accruals necessary for fair presentation of such interim periods); (c) as soon as available, but in any event not later than 30 days (or 50 days with respect to the last month in any fiscal quarter) after the end of each month, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as -63- at the end of such month and the related unaudited consolidated statements of income for such month and the portion of the fiscal year through the end of such month and an unaudited consolidated statement of cash flow for the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (including all adjustments consisting only of normal recurring accruals necessary for fair presentation of such interim periods); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). Section 6.2. Certificates; Other Information. Furnish to each Agent and each Lender, or, in the case of clause (k), to the relevant Lender: (a) concurrently with the delivery of the financial statements referred to in Section 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of any financial statements pursuant to Sections 6.1(a), (b) and (c), (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) (x) a Compliance Certificate containing all information and calculations necessary for determining compliance by the Borrower and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the month, fiscal quarter or fiscal year of the Borrower, as the case may be, and (y) to the extent not previously disclosed to the Administrative Agent, a listing of any county or state within the United States where any Loan Party keeps inventory or equipment and of any Intellectual Property acquired by any Loan Party since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Closing Date) (each such date being a "Reporting Date"), the legal name, organizational number, if any, and jurisdiction of organization of any new Subsidiary of the Borrower formed since the most recent Reporting Date and the date, nature and extent of all asset transfers from the Borrower or any Subsidiary to any other Subsidiary that is not a Guarantor or the Borrower, except transfers to the SPV pursuant to the Receivables Securitization Program and transfers to Holly Finance Company; (c) concurrently with the delivery of the financial statements referred to in Sections 6.1(a), (b) and (c), a narrative discussion and analysis of the financial condition -64- and results of operations and an explanation of variances to the Business Plan of the Borrower and its Subsidiaries for the fiscal period covered thereby and a comparison to the comparable periods of the previous year; (d) no later than the last day of each fiscal quarter of the Borrower, an update to the 52-Week Cash Flow Forecast covering the ensuing fiscal quarter on a week-by-week basis, signed by a Responsible Officer of the Borrower; (e) no later than 10 Business Days after the end of each month, a comparison of the 52 Week Cash Flow Forecast as updated pursuant to Subsection (d) above to actual month by month and cumulative performance for the completed period covered thereby, signed by a Responsible Officer of the Borrower; (f) no later than 30 days after the end of each monthly period commencing with the month ending August 31, 2001, a Borrowing Base Certificate setting forth the calculation of the Borrowing Base as of the last day of the preceding month, signed by a Responsible Officer of the Borrower; (g) no later than September 30, 2002, and September 30, 2003, a pro forma Borrowing Base forecast by month for the subsequent fiscal year of the Borrower, signed by a Responsible Officer of the Borrower; (h) by September 30 of each of 2002 and 2003 an updated business plan for the Borrower and its Subsidiaries for the next fiscal year, including quarterly income statements and balance sheets and assumptions and a week by week cash flow forecast for such fiscal year; provided, however, that if the Borrower sells (with the Required Lenders' consent) King Packaging or any Subsidiary or line of business (other than King Packaging) which accounts for more than 5% of the Borrower's EBITDA for the then current fiscal year, the Borrower shall within 30 days of such sale delivered to each Agent and each Lender an updated business plan for the Borrower and its Subsidiaries for the then current fiscal year showing the effects of such sale on the information contained in the business plan and other documents previously pursuant to this subsection (h); (i) by March 1, 2002, if the Leased Plants have not been sold, a business plan for such plants demonstrating that the Borrower will be able to remain in compliance with this Agreement after giving effect to such plan; (j) no later than 50 days after the last day of each fiscal quarter, a report showing the average daily balance during such fiscal quarters of all deposit accounts not maintained with the Collateral Agent with respect to which no blocked account agreement has been delivered to the Collateral Agent, signed by the Borrower's chief financial officer; (k) promptly after the same are sent, copies of all financial statements and reports which the Borrower sends to the holders of any class of its debt securities or public equity securities and within five days after the same are filed, copies of all -65- financial statements and reports which the Borrower may make to, or file with, the SEC or any successor or analogous Governmental Authority; and (l) promptly, such additional financial and other information as any Agent or any Lender may from time to time reasonably request through the Administrative Agent. Section 6.3. Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature (including, without limitation, tax obligations), except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. Section 6.4. Conduct of Business and Maintenance of Existence, Etc. (a) (i) Continue to engage in business of the same general type as now conducted by it and business related thereto, all as set forth in subsection 7.15, (ii) preserve, renew and keep in full force and effect its corporate existence except that the Borrower shall not be required to preserve, renew or keep in full force and effect the corporate or other existence of any Subsidiary, if the Board of Directors of the Borrower shall determine in the exercise of its business judgment that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or any Subsidiary and that abandonment of any such right shall not have a Material Adverse Effect and (iii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.4 and except, in the case of clause (iii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 6.5. Maintenance of Property; Insurance. (a) Keep all Property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance or by means of self insurance with adequate provisions made for the funding therefor on all its Property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. Section 6.6. Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives of the Administrative Agent and any Lender (coordinated, to the extent reasonable, through the Administrative Agent) to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time during normal business hours and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants. If an Event of Default has occurred and is continuing, -66- Borrower will pay for all such examinations; prior thereto the examining Lender will pay for same. Section 6.7. Notices. Promptly upon a Responsible Officer becoming aware thereof, give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Borrower or any of its Subsidiaries in which the amount involved is $10,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought which if adversely determined could be reasonably expected to cause a Material Adverse Effect; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and (e) any development or event which has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section 6.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower or the relevant Subsidiary proposes to take with respect thereto. Section 6.8. Environmental Laws. (a) (i) Comply with all Environmental Laws applicable to it, and obtain, comply with and maintain any and all Environmental Permits necessary for its operations as conducted and as planned; and (ii) take reasonable efforts to ensure that all of its tenants, subtenants, contractors, subcontractors, and invitees comply with all Environmental Laws, and obtain, comply with and maintain any and all Environmental Permits, applicable to any of them insofar as any failure to so comply, obtain or maintain reasonably could be expected to adversely affect the Borrower or any of its Subsidiaries. For purposes of this 6.8(a), noncompliance by the Borrower or any of its Subsidiaries with any applicable Environmental Law or Environmental Permit shall be deemed not to constitute a breach of this covenant so long as (x) upon learning of any actual or suspected noncompliance, the Borrower and any affected Subsidiary shall promptly undertake reasonable efforts to achieve compliance, -67- and (y) in any case, such noncompliance, and any other noncompliance with Environmental Law, individually or in the aggregate, could not reasonably be expected to give rise to a Material Adverse Effect or materially and adversely affect the value of the Mortgaged Property, taken as a whole. (b) Promptly comply with all enforceable requirements of all Governmental Authorities regarding Environmental Laws, other than such enforceable requirements as to which appropriate proceedings have been timely and properly taken in good faith so long as the pendency of any and all such proceedings could not reasonably be expected to give rise to a Material Adverse Effect or the payment of a Material Environmental Amount. (c) Prior to acquiring any ownership or leasehold interest in real property, or other interest in any real property (x) involving aggregate value for such property (including improvements thereof) of $2,000,000 or more and (y) that could give rise to Borrower being found an owner, operator, or otherwise subject to potential liability under any Environmental Law (or any entity with such interests in any real property): (i) obtain a written report by an environmental consulting firm reasonably acceptable to the Administrative Agent (an "Environmental Consultant") of the Environmental Consultant's assessment of the presence or potential presence of significant levels of any Materials of Environmental Concern on, in, under, or about such property, or of other conditions that could give rise to potentially significant liability under or violations of Environmental Law relating to such acquisition, and notify the Agents of such potential acquisition; and (ii) if requested by the Administrative Agent after learning of such potential acquisition, provide such Report to the Administrative Agent, provided that in the event that the Borrower is contractually prohibited from providing any such requested Report prior to the consummation of the applicable acquisition, such Report shall be delivered promptly upon such consummation. The Administrative Agent shall have the right, but shall not have any duty, to obtain any such report. (d) Promptly upon the Administrative Agent's request if there has occurred or the Administrative Agent reasonably anticipates an Event of Default, permit an environmental consultant whom the Administrative Agent in its discretion designates to perform an environmental assessment (including, without limitation: reviewing documents; interviewing knowledgeable persons; and sampling and analyzing soil, air, surface water, groundwater, and/or other media in or about property owned or leased by the Borrower or any of its Subsidiaries, or on which operations of the Borrower or any of its Subsidiaries otherwise take place). Such environmental assessment shall be in form, scope, and substance satisfactory to the Administrative Agent. The Borrower and its Subsidiaries shall cooperate fully in the conduct of such environmental assessment, and Borrower shall pay the costs of such environmental assessment immediately upon written demand by the Administrative Agent. The Administrative Agent shall have the right, but shall not have any duty, to request and/or obtain such environmental assessment. Section 6.9. Additional Collateral, Etc. (a) With respect to any Property acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than (x) any Property described in paragraph (b), (c) or (d) below, (y) any Property subject to a Lien expressly permitted by Section 7.3(g) or (n) and (z) any Property of the SPV, including without limitation -68- any Receivables of the Permitted Sellers sold, assigned or transferred to the SPV in connection with the Receivables Securitization Program) as to which the Collateral Agent, for the benefit of the Agents and the Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent deems necessary or advisable in order to grant to the Collateral Agent, for the benefit of the Agents and the Lenders, a security interest in such Property and (ii) take all actions necessary or advisable to grant to the Collateral Agent, for the benefit of the Agents and the Lenders, a perfected first priority security interest in such Property, including without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent. (b) With respect to any fee interest in any real estate having a value (together with improvements thereof) of at least $2,000,000 acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than any such real estate subject to a Lien expressly permitted by Section 7.3(g)), promptly (i) execute and deliver a first priority mortgage or deed of trust, as the case may be, in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, covering such real estate, in form and substance reasonably satisfactory to the Administrative Agent, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real estate in an amount at least equal to the purchase price of such real estate (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor's certificate and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such mortgage or deed of trust, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions, which opinions shall be in form and substance substantially similar to the relevant opinions delivered on the Closing Date and otherwise reasonably satisfactory to the Administrative Agent, and from counsel reasonably satisfactory to the Administrative Agent. (c) With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date (which, for the purposes of this paragraph (c), shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary), by the Borrower or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable in order to grant to the Collateral Agent, for the benefit of the Agents and the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Borrower or any of its Subsidiaries, (ii) deliver to the Collateral Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement and (B) to take such actions necessary or advisable to grant to the Collateral Agent for the benefit of the Agents and the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including, without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral -69- Agreement or by law or as may be requested by the Administrative Agent, and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance substantially similar to the relevant opinions delivered on the Closing Date and otherwise reasonably satisfactory to the Administrative Agent, and from counsel reasonably satisfactory to the Administrative Agent; provided that the provisions of the foregoing clause (iii) shall not apply to the SPV. (d) With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by the Borrower or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable in order to grant to the Collateral Agent, for the benefit of the Agents and the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Borrower or any of its Subsidiaries (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Collateral Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Subsidiary, as the case may be and (iii) if requested by the Administrative Agent deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (e) Notwithstanding any provision of this Section 6.9 to the contrary, in no event shall the SPV have any obligation to grant any Lien upon any of its Property to the Administrative Agent, the Collateral Agent or the Lenders. Section 6.10. Post-Closing Matters. No later than the 60/th/ day following the Closing Date: (a) The Administrative Agent shall have received in respect of each Mortgaged Property a mortgagee's title insurance policy (or policies) or marked up unconditional binder for such insurance or, in the case of Mortgaged Property located in the State of Texas, an effective commitment in respect thereof. Each such policy shall (A) be in an amount satisfactory to the Administrative Agent; (B) be issued at ordinary rates; (C) insure that the Mortgage insured thereby as supplemented by a Mortgage Supplement creates a valid first Lien on such Mortgaged Property free and clear of all defects and encumbrances, except (i) as disclosed therein and (ii) those Liens expressly permitted by Section 7.3 hereof; (D) name the Administrative Agent for the benefit of the Lenders as the insured thereunder; (E) be in the form of ALTA Loan Policy (or equivalent policies); (F) contain such endorsements and affirmative coverage as the Administrative Agent may reasonably request; and (G) be issued by title companies satisfactory to the Administrative Agent (including any such title companies acting as co-insurers or reinsurers, at the option of the Administrative Agent). The Administrative Agent shall have received evidence satisfactory to it that all premiums in respect of each such policy, all charges for mortgage recording tax, and all related expenses, if any, have been paid. -70- (b) The Administrative Agent shall have received a copy of all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in Section 6.10(a) and a copy of all other material documents affecting the Mortgaged Properties. Section 7. Negative Covenants. The Borrower hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: Section 7.1. Financial Condition Covenants. (a) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter: Consolidated Interest Fiscal Quarter Coverage Ratio September 30, 2001 0.54 to 1.00 December 31, 2001 0.67 to 1.00 March 31, 2002 1.02 to 1.00 June 30, 2002 1.68 to 1.00 September 30, 2002 2.29 to 1.00 December 31, 2002 2.64 to 1.00 Each quarter thereafter 3.00 to 1.00 (b) Consolidated Current Ratio. Permit its Consolidated Current Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending during any period set forth below to be less than the ratio set forth below opposite such period: Consolidated Current Period Beginning Period Ending Ratio September 30, 2001 September 30, 2002 1.2 to 1 December 31, 2002 September 30, 2003 1.3 to 1 December 31, 2003 Thereafter 1.4 to 1 (c) Maintenance of Net Worth. Permit its Consolidated Net Worth as of the last day of any fiscal quarter set forth below to be less than the amount set forth below opposite such fiscal quarter: -71- Fiscal Quarter Required Amount September 30, 2001 $ 80,000,000 December 31, 2001 $ 81,221,000 March 31, 2002 $ 84,101,000 June 30, 2002 $ 88,823,000 September 30, 2002 $ 93,634,000 December 31, 2002 $100,862,000 March 31, 2003 $109,811,000 June 30, 2003 $120,838,000 September 30, 2003 $131,608,000 December 31, 2003 $137,758,000 March 31, 2004 $145,242,000 Thereafter $155,573,000 (d) Minimum EBITDA. Permit its Consolidated EBITDA for any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to be less than the amount set forth below opposite such fiscal quarter (this section being herein sometimes referred to as the "EBITDA" and the amount set forth below being referred to herein as the Base Line EBITDA requirement): Quarter Ending Minimum Amount September 30, 2001 $19,881,000 December 31, 2001 $21,056,000 March 31, 2002 $27,873,000 June 30, 2002 $45,000,000 September 30, 2002 $59,500,000 December 31, 2002 $65,000,000 March 31, 2002 $75,000,000 June 30, 2002 $83,500,000 September 30, 2002 $93,000,000 December 31, 2002 $91,000,000 March 31, 2003 $90,000,000 Thereafter $88,000,000 Upon the sale of any trade style, entity or business line permitted by this Agreement, the minimum Consolidated EBITDA amounts required by the EBITDA Covenant as of any time on or after the Closing Date shall be adjusted as follows (each adjustment pursuant to this paragraph being herein referred to as an "EBITDA Covenant Adjustment"): (a) if King Packaging Company, Inc. ("King Packaging") is sold with the Required Lenders' consent, King Packaging's contribution to Consolidated EBITDA (as reflected in Column 2 on Schedule 7.1(d) hereto (the "EBITDA Covenant Schedule") and whether such contribution represents a gain or loss) shall be eliminated from each of such minimum Consolidated EBITDA amounts for each quarterly period including and -72- following such sale (by adding the amount set forth in Column 2 on the EBITDA Covenant Schedule for each such fiscal quarter to the Base Line EBITDA Requirement for that fiscal quarter and with appropriate daily proration for any sale which occurs within a given fiscal quarter, on a basis which assumes an equal amount of Consolidated EBITDA was generated each day during such fiscal quarter); and (b) if there is sold with the Required Lenders' consent any Subsidiary or line of business (other than King Packaging) which accounts for more than 5% of the Borrower's EBITDA for the then current fiscal year, the Borrower and Lenders shall negotiate in good faith to reset such minimum Consolidated EBITDA amounts to reflect the effect of such sale for each quarterly period including and following such sale and if such amounts are not reset within 20 Business Days of such sale the minimum Consolidated EBITDA amounts required by this Section shall remain unchanged. An EBITDA Covenant Adjustment shall take effect on the date the Net Cash Proceeds from such sale are paid to the Administrative Agent. (e) Consolidated Total Leverage Ratio. Permit the Consolidated Total Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter: Consolidated Total Fiscal Quarter Leverage Ratio September 30, 2001 11.24 to 1.00 December 31, 2001 11.09 to 1.00 March 31, 2002 7.48 to 1.00 June 30, 2002 4.37 to 1.00 September 30, 2002 3.06 to 1.00 December 31, 2002 3.09 to 1.00 March 31, 2003 2.52 to 1.00 June 30, 2003 2.12 to 1.00 Thereafter 1.78 to 1.00 (f) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter: Consolidated Fixed Fiscal Quarter Charge Coverage Ratio September 30, 2002 0.80 to 1 Thereafter 1.00 to 1 (g) No Financial Obligation of SPV. Notwithstanding any provision of this Section 7.1 to the contrary, in no event shall the Borrower or any of its Subsidiaries have any obligation -73- (direct or indirect) to (i) subscribe for additional shares of equity interests of the SPV, or (ii) maintain or preserve the SPV's financial condition or to cause the SPV to achieve any specified levels of operating results. Section 7.2. Limitation on Indebtedness. Create, incur, assume or suffer to exist (in each case, to "Incur") any Indebtedness, except: (a) Indebtedness of any Loan Party pursuant to any Loan Document; (b) Indebtedness of the Borrower to any Subsidiary and of any Wholly Owned Subsidiary Guarantor to the Borrower or any other Subsidiary; (c) Indebtedness secured by Liens permitted by Section 7.3(h) in an aggregate principal amount not to exceed, when added to the Capital Lease Obligations permitted under paragraph (d) of this Section 7.2, $10,000,000 at any one time outstanding; (d) Capital Lease Obligations in an aggregate principal amount not to exceed, when added to the Indebtedness permitted under paragraph (c) of this Section 7.2, $10,000,000 at any one time outstanding; (e) Indebtedness outstanding on the date hereof and listed on Schedule 7.2(e) and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof); (f) guarantees made in the ordinary course of business by the Borrower or any of its Subsidiaries of obligations of any Wholly Owned Subsidiary Guarantor; (g) Indebtedness under any Interest Rate Protection Agreements and Hedging Agreements entered into to protect the Borrower or any of its Subsidiaries against fluctuations in interest rates or commodity prices and not for speculative purposes; (h) renewals and extensions (in the same or lesser principal amount on similar terms and conditions and in any case no less favorable to the interests of the Lenders) of any Indebtedness listed in the foregoing clauses; (i) Indebtedness of the Borrower and its Subsidiaries to Commodity Credit Corporation; provided that such Indebtedness provides no recourse to the Borrower or any of its Subsidiaries; (j) Indebtedness of Holly Finance Company not to exceed $5,000,000 in aggregate principal amount outstanding at any time; (k) other Indebtedness not to exceed $10,000,000 in aggregate principal amount outstanding at any time; and -74- (l) Indebtedness of the Permitted Sellers pursuant to the Receivables Securitization Program. Section 7.3. Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like nonconsensual Liens imposed by operation of law, arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions, minor irregularities in title, and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not material in amount and which do not in any case materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries and all such title matters described in the Mortgages; (f) Liens securing Indebtedness of the Borrower and any of its Subsidiaries incurred pursuant to Section 7.2(i); provided that such Liens do not at any time encumber any Property other than the specific sugar or sugar-related products financed by such Indebtedness and the proceeds thereof; (g) Liens in existence on the date hereof listed on Schedule 7.3(g), securing Indebtedness permitted by Section 7.2(e), provided that no such Lien is spread to cover any additional Property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (h) Liens securing Indebtedness of the Borrower and any of its Subsidiaries incurred pursuant to Section 7.2(c) or (d) to finance the acquisition or lease of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any Property other than the Property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased; -75- (i) Liens created pursuant to the Security Documents; (j) any interest or title of a lessor under any lease entered into by the Borrower or any Subsidiary of the Borrower in the ordinary course of its business and covering only the assets so leased; (k) Liens securing judgments which do not constitute an Event of Default; (l) Liens securing Indebtedness of Holly Finance Company permitted under subsection 7.2(j) on notes payable to Holly Finance Company in respect of loans made by it in the ordinary course of its business to growers; (m) rights of lessees of equipment owned by the Borrower or any of its Subsidiaries not interfering with the normal conduct of the Borrower's business; (n) Liens created pursuant to the Receivables Securitization Program in Securitized Receivables; and (o) Liens in favor of any counterparts to a Hedging Agreement, provided such Liens attach only to the commodity account (and property therein) maintained by such counterparty and secure only indebtedness, obligations and liabilities of the Borrower or any Subsidiary to such counterparty relating solely to such Hedging Agreement and account and property held therein. Section 7.4. Limitation on Fundamental Changes. Enter into any merger, acquisition, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of, all or substantially all of its Property or business, or make any material change in its present method of conducting business, except: (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (provided that the Borrower shall be the continuing or surviving corporation) or with or into any Wholly Owned Subsidiary Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the continuing or surviving corporation); (b) any Subsidiary of the Borrower may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any Wholly Owned Subsidiary Guarantor; and (c) the dissolution of any SPV upon the termination or expiration of the Receivables Securitization Program of which it is a part. Section 7.5. Limitation on Sale of Assets. Dispose of any of its Property or business (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: -76- (a) the Disposition of surplus, obsolete or worn out personal property in the ordinary course of business (including the expiration or termination of leasehold interests related to receiving station leases); (b) the sale of inventory in the ordinary course of business; (c) Dispositions permitted by Section 7.4(b); (d) Dispositions in the normal course of the Borrower's business of nonoperating assets unnecessary for the continued operation of the Borrower's business; (e) Dispositions of assets to the extent such assets are replaced with assets providing the same function for the Borrower and its Subsidiaries as such replaced assets provided; provided that the fair market value of all such Dispositions (determined at the time thereof) shall not exceed (i) $5,000,000 in any year and (ii) $12,000,000 in the aggregate on a cumulative basis after the Closing Date; (f) transfers of assets among Foreign Subsidiaries; (g) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any Wholly Owned Subsidiary Guarantor; and (h) the Disposition by the Permitted Sellers of all or substantially all of its Securitized Receivables pursuant to the Receivables Securitization Program, provided that the maximum cash principal amount advanced pursuant to the Receivables Securitization Program shall not exceed $110,000,000 at any time. Dispositions in which the non-cash component of the consideration received by the Borrower and its Subsidiaries exceeds $1,000,000 must be approved by (i) the Administrative Agent in the case of Dispositions in which the non-cash consideration is less than $2,500,000 and (ii) the Required Lenders in all other cases. Section 7.6. Limitation on Dividends. Declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Borrower or any Subsidiary or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary (collectively, "Restricted Payments"), except that any Subsidiary may make Restricted Payments to the Borrower or any Wholly Owned Subsidiary Guarantor. Section 7.7. Limitation on Capital Expenditures. Make or commit to make (by way of the acquisition of securities of a Person or otherwise) any Capital Expenditure, except Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not to exceed $30,000,000 in any fiscal year; provided that (i) such Capital Expenditures are made or -77- incurred solely to maintain the Loan Parties' current business operations and not to acquire new business enterprises or lines of business, (ii) any portion of the amount specified above for any fiscal year that is not expended in such fiscal year may be carried over to increase the amount of Capital Expenditures permitted for the immediately succeeding fiscal year, and (iii) the Borrower may request an increase in the maximum amount of Capital Expenditures permitted for any fiscal year ending after September 30, 2001, to an amount not to exceed $40,000,000 for the fiscal year ending September 30, 2002 and $45,000,000 in any fiscal year thereafter so long as the Borrower provides to the Lenders by no later than September 30 of the preceding fiscal year a Capital Expenditure plan in reasonable detail for the relevant period justifying the requested increase to the satisfaction of the Required Lenders. Section 7.8. Limitation on Investments, Loans and Advances. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting all or a material part of a business unit of, or make any other investment in, any Person, except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) Guarantee Obligations permitted by Section 7.2; (d) loans and advances to employees of the Borrower or its Subsidiaries in the ordinary course of business (including, without limitation, for travel, entertainment and relocation expenses) in an aggregate amount for the Borrower and its Subsidiaries not to exceed $250,000 at any one time outstanding; (e) investments by the Borrower or any of its Subsidiaries in the Borrower or any Person that, prior to such investment, is a Wholly Owned Subsidiary Guarantor; (f) Loans by Holly Finance Company or Holly Sugar Corporation in the ordinary course of business not to exceed $5,000,000 in the aggregate outstanding at any time; (g) advances, loans, extensions of credit existing on the date hereof and listed on Schedule 7.8(g); (h) advances consisting of the payment or prepayment by the Borrower or any of its Subsidiaries of operating expenses and repair and maintenance expenses for the Leased Plants pursuant to the terms of the relevant Plant Lease Documents so long as (i) the aggregate unreimbursed amount of all such advances does not exceed $15,000,000 at any time, (ii) the Borrower's right to be paid or reimbursed for such advances is secured by perfected Liens in the inventory of sugar processed at the Leased Plants and all accounts receivable and other proceeds from the sale or other disposition of such processed sugar, and (iii) the payment or reimbursement terms applicable to such -78- advances (including the amount and type of assets subject to the Liens required by clause (ii) above) are acceptable to the Required Lenders; (i) investments made by the Borrower or any of its Subsidiaries in Holly Finance Company in an aggregate amount outstanding at any one time not to exceed $5,000,000; and (j) cash capital contributions to the SPV made prior to the date hereof, and investments and advances, if any, arising from the sale of Receivables pursuant to the Receivables Securitization Program. Section 7.9. Limitation on Modifications of Debt Instruments, Etc. Amend any terms of any capitalization or organizational documents (including in respect of Capital Stock) in any manner determined by the Administrative Agent to be adverse to the Lenders without the prior written consent of the Required Lenders. Section 7.10. Limitation on Transactions with Affiliates. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower or any Wholly Owned Subsidiary Guarantor) unless such transaction is (a) not prohibited under this Agreement and (b) upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate; provided that the foregoing shall not prohibit the sale of all or substantially all of the Permitted Sellers' Receivables, or any undivided interest therein, pursuant to the Receivables Securitization Program. Section 7.11. Limitation on Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or such Subsidiary, other than any arrangements otherwise expressly permitted hereunder. Section 7.12. Limitation on Changes in Fiscal Periods. Permit the fiscal year of the Borrower to end on a day other than September 30 or change the Borrower's method of determining fiscal quarters, provided that the Borrower may make one election after the Closing Date to change its fiscal year end, if the Borrower enters into such amendments to this Agreement as the Administrative Agent shall request to reflect such change, including modifications to Section 7, such that the covenants affected by such change shall have the same effect (or, in any case, be substantively no less favorable to the Lenders, in the determination of the Administrative Agent) after giving effect thereto as if such change were not made. The Lenders hereby authorize the Administrative Agent and the Administrative Agent to enter into such amendments to effect such modifications, if any, in accordance with the provisions of this subsection. -79- Section 7.13. Limitation on Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement which prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired to secure the Obligations or Indebtedness incurred to refinance any of the same, other than (a) this Agreement and the other Loan Documents, (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby), (c) restrictions on the transfer or encumbrance by the SPV or any Permitted Seller of any Property, including without limitation Receivables, owned by it contained in the documentation for the Receivables Securitization Program and (d) restrictions on Liens incurred to secure Indebtedness refinancing the Obligations which are designed to assure that the Receivables Securitization Program is protected from adverse effects resulting from such Liens to the same extent provided for in the Loan Documents. Section 7.14. Limitation on Restrictions on Subsidiary Distributions. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Borrower to (a) pay dividends or make any other distributions in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any other Subsidiary of the Borrower or (c) transfer any of its assets to the Borrower or any other Subsidiary of the Borrower, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement which has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, (iii) any restriction with respect to the SPV or any of its Property, and (iv) restrictions contained in the Receivables Securitization Program documentation. Section 7.15. Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower or any of its Subsidiaries are engaged on the date of this Agreement. Section 7.16. The SPV. Notwithstanding any other provision of this Agreement or any other Loan Document to the contrary, the SPV is not obligated to guaranty or otherwise directly or indirectly provide credit support (including granting lien on any of its assets) for any Indebtedness of the Company or any of its Subsidiaries or Affiliates. Section 7.17. Repair and Maintenance Expenses. Pay or incur any intercampaign repair and maintenance expenses relating to the Leased Plants until 20 days after the Administration Agent has received the business plan required to be delivered pursuant to Section 6.2(i) hereof, if any. Section 8. Events of Default. If any of the following events shall occur and be continuing: -80- (a) The Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other Loan Document, within five Business Days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or (c) (i) Any Loan Party shall default in the observance or performance of any term, provision or agreement contained in clause (i) or (ii) of Section 6.4(a) (with respect to the Borrower only), Section 6.7(a), Section 7, or Section 5 of the Guarantee and Collateral Agreement or (ii) an "Event of Default" under and as defined in any Mortgage shall have occurred and be continuing; or (d) Any Loan Party shall default in the observance or performance of any other term, provision or agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after notice to the Borrower from the Administrative Agent or the Required Lenders; or (e) The Borrower or any of its Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness (including, without limitation, any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default under this Agreement unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $10,000,000; or -81- (f) (i) The Borrower or any of its Subsidiaries (other than Holly Finance Company) shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries (other than Holly Finance Company) shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries (other than Holly Finance Company) any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its Subsidiaries (other than Holly Finance Company) any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its Subsidiaries (other than Holly Finance Company) shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries (other than Holly Finance Company) shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries (other than Holly Finance Company) involving in the aggregate a -82- liability (to the extent not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (i) Any of the Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and substantially of the same effect and priority purported to be created thereby; or (j) The guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or (k) (i) any "Person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), (A) shall become, or obtain rights (whether by means or warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 40% of the outstanding common stock of the Borrower or (B) shall obtain the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Borrower; or (ii) the board of directors of the Borrower shall cease to consist of a majority of Continuing Directors; provided that notwithstanding the foregoing no Event of Default shall result from the conversion of the Borrower's Senior Subordinated Notes into Capital Stock of the Borrower. then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Revolving Credit Facility Lenders, the Administrative Agent may, or upon the request of the Majority Revolving Credit Facility Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Credit Commitments to be terminated forthwith, whereupon the Revolving Credit Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the -83- Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). Section 9. The Agents. Section 9.1. Appointment. Each Lender hereby irrevocably designates and appoints the Agents as the agents of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes each Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent. Section 9.2. Delegation of Duties. Each Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Section 9.3. Exculpatory Provisions. Neither any Agent, the Issuing Lender nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement, any other Loan Document or any Bond Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement, any other Loan Document or any Bond Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any other Loan Document or any Bond Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. Neither the Agents nor the Issuing Lender shall be under -84- any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, any other Loan Document or any Loan Document, or to inspect the properties, books or records of any Loan Party. Without limiting the generality of the foregoing, the Collateral Agent shall not be responsible to any of the Agents or any of the Lenders for the existence, creation, attachment, perfection or priority of any lien or security interest in the Collateral or any part thereof or for the existence of any liens, security interests or other encumbrances or charges thereon. Section 9.4. Reliance by Administrative Agent. Each Agent and the Issuing Lender shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Loan Parties), independent accountants and other experts selected by the Administrative Agent. The Agents may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. Each Agent and the Issuing Lender shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document (or in the case of the Issuing Lender, any Bond Document) unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Agent and the Issuing Lender shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents (or, in the case of the Issuing Lender, any Bond Document) in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. Section 9.5. Notice of Default. No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." The Issuing Lender shall not be deemed to have knowledge or notice of the occurrence of any default or event of default under any Bond Document, unless the Issuing Lender shall have received written notice from the Borrower or any other party to a Bond Document. In the event that the Administrative Agent or the Issuing Lender receives such a notice, the Administrative Agent or the Issuing Lender, as applicable, shall give notice thereof to the Lenders. The Administrative Agent and the Collateral Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent or the Collateral Agent, as the case may be, shall have received such directions, the Administrative Agent and the Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as such Agent shall deem advisable in the best interests of the Lenders. The Issuing Lender shall take such action with respect to such default or event of default under the Bond Documents as shall be required pursuant to Section 8 hereof; provided -85- that unless and until the Issuing Lender shall have received direction under Section 8, the Issuing Lender may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such default or event of default as it shall deem advisable and in the best interest of the L/C Participants, except any action resulting in the acceleration or redemption of any Bonds. Section 9.6. Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereinafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any 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 credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, no Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party which may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. Section 9.7. Indemnification. The Lenders agree to indemnify each Agent (and the Revolving Credit Lenders agree to indemnify the Issuing Lender) in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective aggregate Revolving Credit Percentages, Tranche A Term Loan Percentages and Tranche B Term Loan Percentages (and in the case of the Issuing Lender, ratably according to their respective Revolving Credit Percentages) in effect on the date on which indemnification is sought under this Section 9.7 (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans or the termination of any Bond Letter of Credit) be imposed on, incurred by or asserted against such Agent or the Issuing Lender, as applicable, in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable -86- for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements which are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's or the Issuing Lender's, as the case may be, gross negligence or willful misconduct or, in the case of the Issuing Lender, for the fees and expenses of counsel in connection with the preparation, execution, delivery, administration or modification of any Bond Document or any amendments thereto. The agreements in this Section 9.7 shall survive the payment of the Loans and all other amounts payable hereunder. Section 9.8. Agent in Its Individual Capacity. Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though such Agent was not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in its individual capacity. Section 9.9. Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 8(a) or Section 8(f) with respect to the Borrower shall have occurred and be continuing) be approved by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. The Collateral Agent, may, at any time, by notice to the Lenders and the Administrative Agent, resign as Collateral Agent, hereunder, whereupon the duties, rights, obligations and responsibilities hereunder shall automatically be assumed by, and inure to the benefit of, the Administrative Agent, without any further act by the Collateral Agent, the Administrative Agent or any Lender; provided that in the case of a resignation by the Collateral Agent, the Collateral Agent shall (i) assign and deliver to the Administrative Agent any Collateral pledged to the Collateral Agent, for the benefit of the Agents and the Lenders, (ii) execute and deliver to the Administrative Agent any amendments to the Security Documents or such other documents as the Administrative Agent deems necessary or advisable in order to continue the security interest of the Lenders in the Collateral and (iii) take all other actions necessary or advisable to continue the security interest of the Lenders in the Collateral (including, without limitation, the execution and delivery of amendments to the Uniform Commercial Code financing statements filed, registered or -87- recorded in order to create in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, the perfected, first priority Lien on the Collateral). After any retiring Agent's resignation as Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. Section 9.10. Authorization to Release Liens and Limit Amount of Certain Claims. The Administrative Agent and the Collateral Agent are hereby irrevocably authorized by each of the Lenders to release any Lien covering any Property of the Borrower or any of its Subsidiaries that is the subject of a Disposition which is permitted by this Agreement or which has been consented to in accordance with Section 10.1. The Administrative Agent and the Collateral Agent are further irrevocably authorized by each of the Lenders to reduce or limit the amount of the Obligations secured by any particular item of Collateral to an amount not less than the estimated value thereof to the extent necessary to reduce mortgage registry, filing and similar taxes. Section 10. Miscellaneous. Section 10.1. Amendments and Waivers. Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1. The Required Lenders and each Loan Party to the relevant Loan Document may, or (with the written consent of the Required Lenders) the Administrative Agent and each Loan Party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders, or the Agents, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan, reduce the stated rate of any interest, fee or letter of credit commission payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender's Revolving Credit Commitment, in each case without the consent of each Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section 10.1 or reduce any percentage specified in the definitions of Required Lenders or Supermajority Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, or release all or substantially all of the Subsidiary Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the written consent of all Lenders; (iii) amend, modify or waive any condition precedent to any extension of credit under the Revolving Credit Facility set forth in Section 5.2 (including, without limitation, in connection with any waiver of an existing Default or Event of Default) without the written consent of the Majority Revolving Credit Facility Lenders; (iv) reduce the percentage specified in the definition of Majority Facility Lenders without the written consent of all Lenders under each affected Facility; (v) amend, modify or waive any provision of Section 9 without the written consent of the Agents; (vi) amend, modify or waive any provision of -88- Section 2.6 or 2.7 without the written consent of the Swing Line Lender; or (vii) amend, modify or waive any provision of Section 3 without he written consent of the Issuing Lender; or (viii) release Collateral having an aggregate net book value of more than $50,000,000 or consent to or permit Dispositions of Property the gross sales proceeds of which exceed $50,000,000 or amend, modify or waive the definition of the term "Borrowing Base" contained in Section 1.1, any defined term used therein or Exhibit I hereto in each case in a manner that increases the availability under the Borrowing Base (it being understood that nothing contained herein shall impair any Agent's discretion under this Agreement with respect to the calculation of the Borrowing Base or the determination of the eligibility of any item for inclusion in the Borrowing Base), or amend, modify or waive any financial covenant contained in Section 7.1, in each case without the prior written consent of the Supermajority Lenders; provided, further, notwithstanding the provisions set forth above, no Lender consent shall be required in connection with the release of any Liens on Property sold by the Borrower or its Subsidiaries if such sale is permitted pursuant to Section 7.5. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Section 10.2. Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Borrower, the Collateral Agent and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto: The Borrower: Imperial Sugar Company One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Attention: Karen Mercer Telecopy: (281) 490-9895 Telephone: (281) 490-9506 -89- The Collateral Agent and the Administrative Agent: Harris Trust and Savings Bank 111 West Monroe Street 4/th/ Floor East Chicago, Illinois 60603 Attention: Special Assets Division Telecopy: (312) 765-1724 Telephone: (312) 461-7729 provided that any notice, request or demand to or upon any Agent or the Lenders shall not be effective until received. Section 10.3. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of either Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. Section 10.4. Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. Section 10.5. Payment of Expenses. The Borrower agrees (a) to pay or reimburse the Agents for all their reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Agents for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the reasonable fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender and of counsel to the Agents, (c) to pay, indemnify, and hold each Lender and the Agents harmless from, any and all recording and filing fees or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Agents and their respective officers, directors, trustees, investment advisors, employees, affiliates, agents and controlling persons (each, an "indemnitee") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including, without limitation, any of the foregoing relating to the use -90- of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower or any of its Subsidiaries or any of the Properties (all the foregoing in this clause (d), collectively, the "indemnified liabilities"), provided, that the Borrower shall have no obligation hereunder to any indemnitee with respect to indemnified liabilities to the extent such indemnified liabilities resulted from the gross negligence or willful misconduct of such indemnitee. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and hereby waives, and shall cause each of its Subsidiaries not to assert and to waive, all rights of contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. The agreements in this Section 10.5 shall survive repayment of the Loans and all other amounts payable hereunder. Section 10.6. Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agents, all future holders of the Loans and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agents and each Lender. In furtherance and not in limitation of the foregoing, no party to the Pre-Petition Credit Agreement or the DIP Credit Agreement shall have any rights, duties or obligations under this Agreement or the other Loan Documents, nor shall any such party be entitled to any of the benefits of this Agreement or the other Loan Documents, unless such party is also a party to this Agreement. (b) Any Lender may, without the consent of the Borrower, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a "Participant") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Loans or any fees payable hereunder, or postpone the date of the final maturity of the Loans, in each case to the extent subject to such participation. The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have -91- agreed to share with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.19, 2.20 and 2.21 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; provided that, in the case of Section 2.20, such Participant shall have complied with the requirements of said Section and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender (an "Assignor") may, in accordance with applicable law, at any time and from time to time, subject to the consent of the Administrative Agent (which shall not be unreasonably withheld), assign to any Lender or any affiliate thereof or any Approved Fund or, with the consent of the Borrower and the Administrative Agent (which, in each case, shall not be unreasonably withheld or delayed) (provided that no such consent need be obtained for assignments involving the Administrative Agent or its Affiliates and no consent of the Borrower shall be required at any time that a Default or Event of Default has occurred and is continuing), to any bank, financial institution or other entity (an "Assignee") all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee, such Assignor and the Administrative Agent (and, where the consent of the Borrower is required pursuant to the foregoing provisions, by the Borrower) and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that no such assignment to an Assignee (other than any Lender or any affiliate thereof or an Approved Fund) shall be in an aggregate principal amount of less than $3,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement), unless otherwise agreed by the Borrower and the Administrative Agent. Any such assignment need not be ratable as among the Facilities. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment and/or Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). Notwithstanding any provision of this Section 10.6, the consent of the Borrower shall not be required for any assignment which occurs at any time when any of the events described in Section 8(f) shall have occurred and be continuing. For purposes of this Section 10.6, "Approved Fund" shall mean, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans which is managed or advised by the same investment advisor as such Lender or by an affiliate of such investment advisor. (d) The Administrative Agent shall maintain at its address referred to in Section 10.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time and any Notes evidencing such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and the -92- Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loan and any Note evidencing such Loan recorded therein for all purposes of this Agreement. Any assignment of any Loan whether or not evidenced by a Note shall be effective only upon appropriate entries with respect thereto being made in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of a Loan evidenced by a Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note evidencing such Loan, accompanied by a duly executed Assignment and Acceptance, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the designated Assignee and the old Notes shall be returned by the Administrative Agent to the Borrower marked "cancelled." The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender, an Assignee and the Administrative Agent (and, in the case of an Assignee that is not then a Lender or an affiliate thereof or a Person under common management with such Lender, by the Borrower, the Administrative Agent and the Issuing Lender) together with payment to the Administrative Agent of a registration and processing fee of $3,500 (except that no such registration and processing fee shall be payable in connection with certain assignments involving the Administrative Agent related to the primary syndication hereof, and in the case of an assignment to an Assignee that is a Lender or an affiliate thereof or an Approved Fund, such fee shall be reduced to $1,000; and except that in the case of contemporaneous assignments by a Lender to more than one fund managed by the same investment advisor (which funds are not then Lenders hereunder, affiliates thereof or Approved Funds), only a single fee of $3,500 shall be payable for all such contemporaneous assignments), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. On or prior to such effective date, the Borrower, at its own expense, upon request, shall execute and deliver to the Administrative Agent (in exchange for the Revolving Credit Note and/or Term Notes, as the case may be, of the assigning Lender) a new Revolving Credit Note and/or Term Notes, as the case may be, to the order of such Assignee in an amount equal to the Revolving Credit Commitment and/or applicable Term Loans, as the case may be, assumed or acquired by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Revolving Credit Commitment and/or Term Loans, as the case may be, upon request, a new Revolving Credit Note and/or Term Notes, as the case may be, to the order of the assigning Lender in an amount equal to the Revolving Credit Commitment and/or applicable Term Loans, as the case may be, retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Note replaced thereby. (f) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section 10.6 concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. -93- Section 10.7. Adjustments; Setoff. (a) Except to the extent that this Agreement provides for payments to be allocated to the Lenders under a particular Facility, if any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Loans or the Reimbursement Obligations owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, pursuant to events or proceedings of the nature referred to in Section 8(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans or the Reimbursement Obligations owing to such other Lender, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan and/or of the Reimbursement Obligations owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise) to setoff and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. (c) Notwithstanding the foregoing, no Lender shall institute or commence any proceeding to collect any amounts owed to it hereunder or shall otherwise exercise any remedies (including setoff) with respect to the amounts owed to it unless such Lender shall provide at least five Business Days' (or such shorter period as may be consented to by the Collateral Agent) prior written notice thereof to the Collateral Agent. Section 10.8. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. Section 10.9. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any -94- such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 10.10. Integration. This Agreement and the other Loan Documents represent the entire agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. Section 10.11. Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. Section 10.12. Submission to Jurisdiction; Waivers. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in Section 10.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section 10.12 any special, exemplary, punitive or consequential damages. Section 10.13. Acknowledgments. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; -95- (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders. Section 10.14. Waivers of Jury Trial. The Borrower, the Agents and the Lenders hereby irrevocably and unconditionally waive trial by jury in any legal action or proceeding relating to this Agreement or any other Loan Document and for any counterclaim therein. Section 10.15. Confidentiality. Each of the Agents and each Lender agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein shall prevent any Agent or any Lender from disclosing any such information (a) to the Administrative Agent, any other Lender or any affiliate of any Lender to the extent necessary to enable such Lender to manage or administer its loans and commitments hereunder, (b) to any Participant or Assignee (each, a "Transferee") or prospective Transferee which agrees to comply with the provisions of this Section 10.15, (c) to the employees, directors, agents, attorneys, accountants and other professional advisors of such Lender or its affiliates to the extent necessary to enable such Lender to manage or administer its loans and commitments hereunder, (d) upon the request or demand of any Governmental Authority having jurisdiction over such Agent or such Lender, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, provided that the Administrative Agent will use commercially reasonable efforts to give notice to the Borrower thereof, (g) which has been publicly disclosed other than in breach of this Section 10.15, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document, or (j) to any direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section 10.15). -96- In Witness Whereof, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. Imperial Sugar Company By: /s/ James C. Kempner ---------------------------------- Name: James C. Kempner ----------------------------- Title: President & CEO ---------------------------- Signature Page Imperial Sugar Company Restructuring Credit Agreement Lehman Commercial Paper Inc. By: /s/ G. Andrew Keith --------------------------------- Name: G. Andrew Keith ------------------------------- Title: Authorized Signatory ------------------------------ Harris Trust and Savings Bank, as Administrative Agent, Collateral Agent, Issuing Lender and as a Lender By: /s/ Janet Maxwell-Wickett --------------------------------- Name: Janet Maxwell-Wickett ------------------------------- Title: Vice President ------------------------------ Signature Page Imperial Sugar Company Restructuring Credit Agreement Wachovia Bank, N.A. By: /s/ Christopher Tierney --------------------------------- Name: Christopher Tierney ------------------------------- Title: Senior Vice President ------------------------------ Signature Page Imperial Sugar Company Restructuring Credit Agreement Union Bank of California, N.A. By: /s/ Daniel Isenberg ---------------------------------- Name: Daniel Isenberg -------------------------------- Title: Vice President ------------------------------- Signature Page Imperial Sugar Company Restructuring Credit Agreement US Bank National Association By: /s/ Sandra A. Sauer ---------------------------------- Name: Sandra A. Sauer -------------------------------- Title: Vice President ------------------------------- Signature Page Imperial Sugar Company Restructuring Credit Agreement The Bank of New York By: /s/ Stephen C. Brennan ----------------------------- Name: Stephen C. Brennan --------------------------- Title: Vice President --------------------------- Cooperatieve Centrale Raiffeisen- Boerenleenbank B.A., "Rabobank Nederland" New York Branch By: /s/ Timothy J. Moore ----------------------------- Name: Timothy J. Moore ----------------------------- Title: Vice President ----------------------------- By: /s/ W. Jeffrey Vollack ----------------------------- Name: W. Jeffrey Vollack ----------------------------- Title: Managing Director ----------------------------- Senior Credit Officer ----------------------------- Farm Credit Bank of Wichita By: /s/ Travis W. Ball ----------------------------- Name: Travis W. Ball --------------------------- Title: Vice President --------------------------- Frost National Bank By: /s/ Phil Dudley ----------------------------- Name: Phil Dudley --------------------------- Title: Senior Vice President --------------------------- Credit Agricole Indosuez By: /s/ Larry Materi ----------------------------- Name: Larry Materi --------------------------- Title: Vice President --------------------------- By: /s/ Bradley C. Peterson ----------------------------- Name: Bradley C. Peterson --------------------------- Title: First Vice President --------------------------- Wells Fargo Bank (Texas), N.A. By: /s/ Danny Oliver ----------------------------- Name: Danny Oliver --------------------------- Title: Vice President --------------------------- Balanced High Yield Fund I, Ltd., By: ING Capital Advisors LLC, as Asset Manager By: /s/ Kurt Wegletner ----------------------------- Name: Kurt Wegletner --------------------------- Title: Senior Vice President --------------------------- Metropolitan Life Insurance Company By: /s/ Claudia Cromte ----------------------------- Name: Claudia Cromte --------------------------- Title: Director --------------------------- Monument Capital Ltd. By: Alliance Capital Management L.P., as Investment Manager By: Alliance Capital Management Corporation, as General Partner By: /s/ Sverker M.M. Johansson ----------------------------- Name: Sverker M.M. Johansson --------------------------- Title: Vice President --------------------------- Oak Mountain Limited By: Alliance Capital Management L.P., as Investment Manager By: Alliance Capital Management Corporation, as General Partner By: /s/ Sverker M.M. Johansson ----------------------------- Name: Sverker M.M. Johansson --------------------------- Title: Vice President --------------------------- Van Kampen CLO I, Ltd. By: Van Kampen Management Inc., as Collateral Manager By: /s/ Darvin D. Pierce ----------------------------- Name: Darvin D. Pierce --------------------------- Title: Executive Director --------------------------- Van Kampen CLO II, Ltd. By: Van Kampen Management Inc., as Collateral Manager By: /s/ Darvin D. Pierce ----------------------------- Name: Darvin D. Pierce --------------------------- Title: Executive Director --------------------------- Van Kampen Senior Income Trust By: /s/ Darvin D. Pierce ----------------------------- Name: Darvin D. Pierce --------------------------- Title: Executive Director --------------------------- Black Diamond CLO 1998 - 1 Ltd. By: /s/ John H. Cullinane ----------------------------- Name: John H. Cullinane --------------------------- Title: Director --------------------------- Black Diamond International Funding Ltd. By: /s/ David Dyer ----------------------------- Name: David Dyer --------------------------- Title: Director --------------------------- Black Diamond CLO 2000-1 Ltd. By: /s/ David Dyer ----------------------------- Name: David Dyer --------------------------- Title: Director --------------------------- KZH Sterling LLC By: /s/ Virginia Conway ----------------------------- Name: Virginia Conway --------------------------- Title: Authorized Agent --------------------------- PAMCO Cayman Ltd. By: Highland Capital Management, L.P. as Collateral Manager By: /s/ Todd Travers --------------------------------------- Name: Todd Travers -------------------------------------- Title: Sr. Portfolio Mgr. ------------------------------------- Signature Page Imperial Sugar Company Restructuring Credit Agreement Highland Legacy Limited By: Highland Capital Management, L.P. as Collateral Manager By: /s/ Todd Travers ---------------------------------------- Name: Todd Travers -------------------------------------- Title: SR. PORTFOLIO MGR. ------------------------------------- Signature Page Imperial Sugar Company Restructuring Credit Agreement Highland Crusader Offshore Partners, L.P. By: Highland Capital Management, L.P. as General Partner By: /s/ Todd Travers ---------------------------------------- Name: Todd Travers -------------------------------------- Title: SR. PORTFOLIO MGR. ------------------------------------- Signature Page Imperial Sugar Company Restructuring Credit Agreement Lone Star Partners, L.P. By: /s/ Jerome L. Simon ------------------------------------- Name: Jerome L. Simon ----------------------------------- Title: General Partner ---------------------------------- Signature Page Imperial Sugar Company Restructuring Credit Agreement Pilgrim Prime Rate Trust By: ING Pilgrim Investments, as its Investment Manager By:/s/ Jeffrey A. Bakalar --------------------------------------- Name: Jeffrey A. Bakalar ------------------------------------ Title: Senior Vice President ------------------------------------ Pilgrim America High Income Investments, Ltd. (as Assignee) By: ING Pilgrim Investments, as its Investment Manager By:/s/ Jeffrey A. Bakalar --------------------------------------- Name: Jeffrey A. Bakalar ------------------------------------ Title: Senior Vice President ----------------------------------- Signature Page Imperial Sugar Company Restructuring Credit Agreement EX-4.D 4 dex4d.txt REGISTRATION RIGHTS AGREEMENT Exhibit 4d REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT, dated as of August 28, 2001, is by and among IMPERIAL SUGAR COMPANY, a Texas corporation (the "Company"), and the other parties listed on the signature pages hereto (together with their successors and assigns, the "Holders"). This Agreement is being entered into in connection with the Second Amended and Restated Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the "Plan"). The Plan provides for, among other things, the issuance of Common Stock (defined below) to the Holders who are Affiliates (defined below) of the Company. The parties hereto desire to provide certain registration rights to the Holders with respect to the shares of Common Stock. Accordingly, the parties hereto agree as follows: 1. Definitions As used herein, unless the context otherwise requires, the following terms have the following respective meanings: "Affiliate" means, at any time, a Person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company. As used in this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" means any shares of common stock, without par value, of the Company now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Company which may be issued on or after the date hereof in respect of, or in exchange for, shares of Common Stock pursuant to a merger, consolidation, stock split, reverse stock split, stock dividend, recapitalization of the Company or otherwise. "Company" has the meaning set forth in the preamble of this Agreement. "Electing Holder" means any Holder of Registrable Shares that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 2.1(b) in connection with the Shelf Registration Statement to sell Registrable Shares covered by such Shelf Registration Statement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act shall include a reference to the comparable section, if any, of any such similar Federal statute. 1 "Holder Indemnitee" has the meaning set forth in Section 2.5(a) of this Agreement. "Holders" has the meaning set forth in the preamble of this Agreement. "Inspectors" has the meaning set forth in Section 2.4 of this Agreement. "Notice and Questionnaire" means a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A --------- hereto. "Person" means a corporation, an association, a partnership, limited liability company, an organization, a business, a trust, an individual, or any other entity or organization, including a government or political subdivision or an instrumentality or agency thereof. "Plan" has the meaning set forth in the introductory paragraphs of this Agreement. "Records" has the meaning set forth in Section 2.4 of this Agreement. "Registrable Shares" means (i) the shares of Common Stock issued to a Holder under the Plan or (ii) any Common Stock issued with respect to the Common Stock referred to in clause (i) hereof by way of a stock dividend, stock split or reverse stock split or in connection with a combination of shares, recapitalization, merger, consolidation or otherwise. As to any particular Registrable Shares, such securities shall cease to be Registrable Shares when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (iii) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require the registration under the Securities Act, (iv) they may be sold under Rule 144 of the Securities Act or any successor or similar rule or provision, without regard to volume limitations, or (v) they shall have ceased to be outstanding. "Registration Expenses" means all expenses incident to the registration and disposition of the Registrable Shares pursuant to Section 2 hereof, including all registration, filing and applicable national securities exchange fees; all fees and expenses of complying with state securities or blue sky laws; all duplicating and printing expenses; the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of "cold comfort" letters; and the reasonable fees and expenses of one outside counsel to the Holders selected by a plurality of all Electing Holders who own an aggregate of not less than 25% of the Registrable Shares covered by the Shelf Registration Statement; provided, however, Registration Expenses shall exclude and the Holders shall pay (i) any underwriting discounts and commissions in respect of the Registrable Shares included in an underwriting and (ii) any brokerage fees and commissions. "Requisite Holders" has the meaning set forth in Section 2.3 of this Agreement. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar federal statute. "Shelf Registratin Period" has the meaning set forth in Section 2.1(a) of this Agreement. 2 "Shelf Registration Statement" has the meaning set forth in Section 2.1(a) of this Agreement. "Suspension Event" means any time the Company reasonably believes an amendment or supplement to the Shelf Registration Statement may be required and reasonably believes that amending or supplementing the Shelf Registration Statement at that time would interfere with a pending, proposed or planned acquisition, disposition, financing, reorganization or other material transaction or event involving the Company or its subsidiaries or otherwise would require the disclosure of material non-public information. "Suspension Period" has the meaning set forth in Section 2.1(a) of this Agreement. 2. Shelf Registration; Registration Under Securities Act 2.1 Shelf Registration (a) Shelf Registration Period Within 30 days following the date of this Agreement, the Company shall use commercially reasonable efforts to file with the Commission, at the Company's expense, a "shelf" registration statement on any appropriate form pursuant to Rule 415 under the Securities Act covering all Registrable Shares requested to be included in the registration by Electing Holders (the "Shelf Registration Statement"). The Company shall use commercially reasonable efforts to have the Shelf Registration Statement initially declared effective within 90 days after the date of this Agreement and to keep the Shelf Registration Statement continuously effective until the earliest of (i) such time as all shares of Registrable Shares have been sold thereunder, (ii) three years following the date on which the Shelf Registration Statement is declared effective, or (iii) such time as all of the Registrable Shares can be sold by the Electing Holders thereof under Rule 144 of the Securities Act or any successor or similar rule or provision without regard to volume limitations (the "Shelf Registration Period"). The Company shall, to the extent necessary, use commercially reasonable efforts to supplement or amend the Shelf Registration Statement to keep the Shelf Registration Statement effective during the Shelf Registration Period. For purposes hereof, "Suspension Period" shall mean a period of time commencing on the date on which the Company provides notice (i) that the prospectus included in the Shelf Registration Statement may no longer comply with the requirements therefor prescribed by Section 10(a) of the Securities Act, (ii) of the happening of any event described in Section 2.2(f)(iii) or (v), or (iii) that there is a Suspension Event, and the Company has elected to require the suspension of the sale by each Holder of Registrable Shares pursuant to the Shelf Registration Statement, and shall end on the date when such Holder either receives copies of the supplemented or amended prospectus contemplated by Section 2.2(c) or such earlier time that such Holder is otherwise advised in writing by the Company that use of the prospectus may be resumed. Each Holder agrees that it will not sell any share of Registrable Shares pursuant to the Shelf Registration Statement during any Suspension Period. The Company will use commercially reasonable efforts to ensure that the aggregate duration of Suspension Periods in any 12-month period does not exceed a total of 90 days. The Shelf Registration Period shall be extended by the number of days from and including the date of the giving of any such notice to and including the date when such Holder shall have received copies of such amended or supplemented prospectus or such earlier time that such Holder is otherwise advised in writing by the Company that the use of the prospectus may be resumed. (b) Electing Holders Holders desiring to include Registrable Shares in the Shelf Registration Statement must return a completed Notice and Questionnaire to the Company no later than 30 days after the date of this 3 Agreement. No Holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement as of the Effective Time, the Company shall not be required to take any action to name such Holder as a selling securityholder in the Shelf Registration Statement, and no Holder shall be entitled to use the prospectus forming a part thereof for resales of Registrable Shares at any time, unless and until such Holder has returned a completed and signed Notice and Questionnaire to the Company on or before 30 days after the date of this Agreement. (c) Registration Expenses The Company shall pay all Registration Expenses incurred in connection with the Shelf Registration Statement, whether or not it becomes effective. Notwithstanding the foregoing, nothing herein shall obligate the Company to incur or pay for fees and disbursements of underwriters, brokers or other selling expenses in connection with a distribution under the Shelf Registration Statement. 2.2 Registration Procedures In connection with the Shelf Registration Statement, the Company shall: (a) prior to the effective time of the Shelf Registration Statement, the Company shall furnish drafts of such Shelf Registration Statement (including all exhibits) to the Electing Holders, and prior to filing any amendment or supplement thereto, the Company shall furnish drafts of such documents to each Electing Holder and each underwriter, if any, participating in the offering of the Registrable Shares, and shall use commercially reasonable efforts to take into account, and, if appropriate, reflect in an amendment, comments as such Electing Holders or underwriters and their respective counsel reasonably may propose; (b) notify each Electing Holder of the Commission's requests for amending or supplementing the Shelf Registration Statement and the prospectus, and use commercially reasonable efforts to prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Shelf Registration Statement effective and to comply with the provisions of the Securities Act; (c) furnish, without charge, to each Electing Holder and each underwriter such number of conformed copies of such Shelf Registration Statement and of each such amendment and supplement thereto, such number of copies of the prospectus contained in such Shelf Registration Statement, in conformity with the requirements of the Securities Act, and such other documents, as such Electing Holders and such underwriters may reasonably request; (d) use commercially reasonable efforts to register or qualify all Registrable Shares and other securities covered by such Shelf Registration Statement under such securities or blue sky laws of such States of the United States of America where an exemption is not available and as any Electing Holder or any managing underwriter, if any, shall reasonably request; provided, however, that the Company shall not for any purpose be required to execute a general consent to service of process, subject itself to taxation in any jurisdiction where it does not pay taxes or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified; (e) in connection with any underwritten offering conducted pursuant to Section 2.3, use commercially reasonable efforts to obtain a "cold comfort" or special procedures letter or letters dated as of the date of the closing under the underwriting agreement from the Company's independent public accountants who have audited the financial statements of the Company included in the Shelf Registration 4 Statement, in customary form and covering matters of the type customarily covered by "cold comfort" letters delivered to underwriters in underwritten secondary public offerings of securities; (f) promptly notify the Electing Holders and each managing underwriter, if any, participating in the offering of the securities covered by such Shelf Registration Statement (i) when such Shelf Registration Statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to such Shelf Registration Statement has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission for amendments or supplements to such Shelf Registration Statement or the prospectus related thereto or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Shares for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) at any time during the Shelf Registration Period, on discovery that, or on the happening of any event as a result of which, the prospectus included in such Shelf Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made; and (g) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder. If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement or shall initiate any proceedings for that purpose, or any state securities commission or other regulatory authority shall issue an order suspending the qualification of any Registrable Shares for sale under the state securities or blue sky laws of any jurisdiction or shall initiate any proceedings for that purpose, the Company shall use its commercially reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time. The Company may require the Holders selling Registrable Shares covered by such Shelf Registration Statement to furnish the Company such information regarding the Holders and the distribution of the Registrable Shares as the Company may from time to time reasonably request, including, without limitation the Notice and Questionnaire. If a Holder fails to provide such information and the failure by such Holder to furnish such information would prevent or unreasonably delay the Shelf Registration Statement relating to such registration from being declared effective by the Commission, the Company may exclude such Holder's Registrable Shares from such registration. The Holders agree that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph Section 2.2(f)(iii) or (v), each of the Holders will discontinue its disposition of Registrable Shares pursuant to the Shelf Registration Statement relating to such Registrable Shares until the Company notifies Holders in writing that they may recommence sales and dispositions under the Shelf Registration Statement and, in the case of Section 2.2(f)(v), Holders receive copies of the supplemented or amended prospectus contemplated by Section 2.2(f)(v) and, if so directed by the Company, Holders will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in its possession, of the prospectus relating to such Registrable Shares current at the time of receipt of such notice. 2.3 Underwritten Offering 5 Any Electing Holder who desires to do so may sell its Registrable Shares (in whole or in part) in an underwritten offering under the Shelf Registration Statement; provided that (i) the Electing Holders of at least 25% of the Registrable Shares then covered by the Shelf Registration Statement (the "Requisite Holders") shall request such an offering and (ii) at least such number of such Registrable Shares shall be included in such offering; and provided further that the Company shall not be obligated to cooperate with more than one underwritten offering during the Shelf Registration Period. Upon receipt of such a request, the Company shall provide all Electing Holders of Registrable Shares written notice of the request, which notice shall inform such Electing Holders that they have the opportunity to participate in the offering. The Requisite Holders shall designate the managing underwriter for such underwritten offering, subject to the approval of the Company, which approval shall not be unreasonably withheld or delayed. If requested by the underwriters for any such underwritten offering pursuant to the Shelf Registration Statement, the Company shall enter into a customary underwriting agreement with such underwriter or underwriters. No Electing Holder may participate in any underwritten offering contemplated hereby unless (a) such Holder agrees to sell such Holder's Registrable Shares to be included in the underwritten offering in accordance with any approved underwriting arrangements, and (b) such Electing Holder completes and executes all reasonable and customary questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such approved underwriting arrangements. 2.4 Preparation; Reasonable Investigation In connection with the preparation and filing of the Shelf Registration Statement, the Company will make reasonably available for inspection by any Electing Holder, by any underwriter participating in any disposition to be effected under the Shelf Registration Statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter (collectively, "Inspectors"), all pertinent financial and other records, pertinent corporate documents and properties of the Company (collectively the "Records") as shall be reasonably necessary to enable them to exercise "due diligence" within the meaning of the Securities Act, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any Inspector in connection with the Shelf Registration Statement, provided, however, that if the Company reasonably determines in good faith that any of such Records or other information are confidential and so notifies the Inspectors in writing, then, unless (A) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in the Shelf Registration Statement or is otherwise required by law or legal process, (B) the release of such Records is required pursuant to a subpoena, court order or regulatory or agency request, or (C) the information in such Records has been made generally available to the public without violation of any confidentiality obligations hereunder, the Company's obligation to make such confidential Records or other information available hereunder shall be subject to the appropriate parties signing confidentiality agreements acceptable to the Company. 2.5 Indemnification (a) Indemnification by the Company The Company agrees that on registration of the Registrable Shares pursuant to Section 2.1 hereof, to the extent permitted by applicable laws, the Company shall, and hereby does, indemnify and hold harmless each Electing Holder, its respective directors, officers, partners, agents and affiliates and each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Electing Holder or any such underwriter within the meaning of the Securities Act (each, a "Holder Indemnitee"), against any losses, claims, damages, or liabilities, joint or several, to which such Holder Indemnitee may become subject under the Securities Act or otherwise, 6 insofar as such losses, claims, damages or liabilities, joint or several (or actions or proceedings in respect thereof), arise out of or are based on (i) any untrue statement or alleged untrue statement of any material fact contained in the Shelf Registration Statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, and the Company shall reimburse such Holder Indemnitee for the reasonable legal fees and expenses of one outside counsel and any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable in any such case or to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based on an untrue statement or alleged untrue statement or omission or alleged omission made in the Shelf Registration Statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Holder or underwriter for use therein, as the case may be, for use in the preparation thereof; and provided, further, that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Shares or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Shares to such Person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force regardless of any investigation made by or on behalf of Holder or any such director, officer, partner, agent or affiliate or controlling Person and shall survive the transfer of such securities by such Holder. (b) Indemnification by the Holders Each Electing Holder including any Registrable Shares in the Shelf Registration Statement, hereby agrees, severally and not jointly, to the extent permitted by applicable laws, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 2.5(a)) the Company, and each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, and, to the extent requested, each underwriter, with respect to any statement or alleged statement in or omission or alleged omission from such Shelf Registration Statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, but only to the extent such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Holder for use therein; provided, however, that the liability of such indemnifying party under this Section 2.5(b) shall be limited to the amount of net proceeds received by such indemnifying party in the offering giving rise to such liability. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such Holder; and provided, further, that such Holder shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Shares or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to any other Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Shares to such other Person if such statement or omission was corrected by such Holder in such final prospectus. 7 (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subsections of this Section 2.5, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action or proceeding; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section 2.5, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice, and shall not relieve the indemnifying party from any liability which it may have to the indemnified party otherwise than under this Section 2.5. In case any such action or proceeding is brought against an indemnified party, the indemnifying party shall be entitled to participate therein and, unless in the opinion of outside counsel to the indemnified party a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action or proceeding include both the indemnified party and the indemnifying party and if in the opinion of outside counsel to the indemnified party there may be legal defenses available to such indemnified party and/or other indemnified parties which are different from or in addition to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to defend such action or proceeding on behalf of such indemnified party or parties and the indemnifying party shall be obligated to pay the fees and expenses of one separate outside counsel (in addition to any local counsel). After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by the indemnified party of such counsel, the indemnifying party shall not be liable to such indemnified party for any legal expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation (unless the proviso in the preceding sentence shall be applicable). No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Contribution If the indemnification provided for in this Section 2.5 shall for any reason be held by a court to be unavailable to an indemnified party under subsection (a) or (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under subsection (a) or (b) hereof, the indemnified party and the indemnifying party under subsection (a) or (b) hereof shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (i) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and the indemnified party on the other, which resulted in such loss, claim, damage or liability, or action in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the allocation provided in this clause (ii) provides a greater amount to the indemnified party than clause (i) above, in such proportion as shall be appropriate to reflect not only the relative fault but also the relative benefits received by the indemnifying party and the indemnified party from the offering of the securities covered by such Shelf Registration Statement as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 2.5(d) were to be 8 determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in this Section 2.5(d). 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 Holders' obligations to contribute as provided in this subsection (d) are several and not joint and shall be in proportion to the relative value of their respective Registrable Shares covered by such Shelf Registration Statement. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. Notwithstanding anything in this subsection (d) to the contrary, no indemnifying party (other than the Company) shall be required to contribute any amount in excess of the net proceeds received by such party from the sale of the Registrable Shares in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate. (e) Survival. The agreements contained in this Section 2.5 shall survive the sale of the Registrable Securities pursuant to the Shelf Registration Statement and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of any indemnified party. 2.6 Limitation on Sale of Securities In connection with (1) any underwritten public offering of shares of Common Stock, or securities convertible into or exercisable or exchangeable for Common Stock, issued by the Company during the Shelf Registration Period and (2) any underwritten offering of Registrable Shares under the Shelf Registration Statement, each of the Holders agrees, if requested by the managing underwriter, not to effect any sale or distribution of, grant any option for the purchase of or otherwise dispose of, including a sale pursuant to Rule 144 of the Securities Act or under the Shelf Registration Statement, (i) any shares of Common Stock (except, if applicable, as part of such underwritten offering), (ii) any securities of the Company similar to any such issue or (iii) any security convertible into or exchangeable or exercisable for any shares of Common Stock or similar issue of the Company during the 15 days prior to commencement of the underwritten offering, as reasonably determined by the Company, and during the 90-day period (or such other period as may be reasonably requested by the underwriter of such offering) after the date of the final prospectus for such underwriting offering. The Shelf Registration Period shall be extended by the number of days during which the Holders are subject to any trading restriction pursuant to this Section 2.6. 2.7 No Required Sale Nothing in this Agreement shall be deemed to create an independent obligation on the part of any of the Holders to sell any Registrable Shares pursuant to any effective Shelf Registration Statement. 2.8 Notice of Proposed Sale Other than in connection with an underwritten offering under the Shelf Registration Statement, each Electing Holder intending to sell any Registrable Shares under the Shelf Registration Statement agrees to provide the Company with written notice of such intent substantially in the form of Exhibit B to this Agreement at least four business days prior to the proposed sale date. Such Holder understands that no sale can be consummated until the fourth Business Day following the date it delivers the notice to the Company. In the event the Company notifies such Holder of a Suspension Event before the fourth business day following the date such Holder delivers the notice to the Company, Holder will not 9 consummate the sale until the Company notifies such Holder in writing of the end of the Suspension Period. 2.9 Listing Requirements The Company shall use commercially reasonable efforts to cause all Registrable Securities covered by the Shelf Registration Statement to be listed on each securities exchange or automated quotation system on which any shares of Common Stock are listed. 3. Rule 144 The Company shall take commercially reasonable actions necessary to enable holders of Registrable Shares to sell such securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144, or (b) any similar rule or regulation hereafter adopted by the Commission including, without limiting the generality of the foregoing, filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of any Holder, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. 4. Amendments This Agreement may not be modified or amended, except pursuant to the written consent of the Holders of not less than 50% of the Registrable Shares and the Company. 5. Waivers The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term, but such waiver shall be effective only if it is in a writing signed by the party entitled to enforce such term and against which such waiver is to be asserted; provided, however, that a writing signed by the Holders of a majority of the then outstanding Registrable Shares shall operate as an effective waiver signed by and binding upon each Holder of Registrable Shares. No failure or delay on the part of the Company or any Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. No delay in exercising any rights hereunder shall operate as a waiver of any rights of the Company or any Holder. 6. Adjustments In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend, reverse split, combination, recapitalization, merger, consolidation, or otherwise, applicable provisions of this Agreement shall be appropriately adjusted. 7. Notice All notices and other communications hereunder shall be in writing and, unless otherwise provided herein, shall be deemed to have been given when received by the party to whom such notice is 10 to be given at its address set forth below, or such other address for the party as shall be specified by notice given pursuant hereto: (a) If to any Holder, the address of such Holder set forth on the signature page hereto; (b) If to the Company, to it at: Imperial Sugar Company 8016 Highway 90A P.O. Box 9 Sugar Land, Texas 77487 Attn: William F. Schwer Executive Vice President and General Counsel ax: (281) 490-9881 8. Termination Except as set forth in Section 2.5(e) above, this Agreement shall terminate and be of no further force or effect on the earlier of (i) the first date on which there are no Registrable Shares subject to this Agreement or (ii) as to each Holder, upon the first day or which all of such Holder's Registrable Shares may be sold under Rule 144 of the Securities Act or any successor or similar rule or provision then in effect, without regard to volume limitations; provided, however, that notwithstanding the time periods set forth in this Section 8, with respect to each Holder referred to in clause (ii), the Company shall continue to comply with its obligations under Section 3 until the disposition by such Holder of all of its Registrable Shares pursuant to Rule 144 or otherwise. 9. Assignment This Agreement shall be binding on and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. No Holder may assign this Agreement or its rights hereunder except to a transferee of all of such Holder's Registrable Shares under a written agreement reasonably satisfactory to the Company whereby the assignee agrees to assume all of the obligations of such Holder hereunder and to be bound by all of the terms, conditions and restrictions set forth in this Agreement; provided, that if the assigning Holder is an Electing Holder, such assignee shall have delivered to the Company the Notice and Questionnaire before any assignment hereunder may be effected. 10. Remedies The parties hereto agree that money damages or any other remedy at law would not be sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that, in addition to all other remedies available to them, each of them shall be entitled to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including, without limitation, specific performance, without bond or other security being required. In any action or proceeding brought to enforce any provision of this Agreement (including the indemnification provisions thereof), the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 11 11. No Inconsistent Agreements The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. 12. Headings Headings of the sections and paragraphs of this Agreement are for convenience only and shall be given no substantive or interpretive effect whatsoever. 13. Governing Law This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Texas, without giving effect to the conflicts of law principles thereof. 14. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 15. Invalidity of Provision The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. If any restriction or provision of this Agreement is held unreasonable, unlawful or unenforceable in any respect, such restriction or provision shall be interpreted, revised or applied in a manner that renders it lawful and enforceable to the fullest extent possible under law. 16. Further Assurances Each party hereto shall do and perform or cause to be done and performed all further acts and things and shall execute and deliver all other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 17. Entire Agreement; Effectiveness This Agreement and the other writings referred to herein or delivered in connection herewith contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 12 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written: COMPANY: -------- IMPERIAL SUGAR COMPANY By: /s/ William F. Schwer --------------------- Name: William F. Schwer Title: Executive Vice President HOLDERS: -------- LEHMAN BROTHERS, INC. By: /s/ James P. Seery ------------------ Name: James P. Seery, Jr. Title: Senior Vice-President Address: 200 Vesey Street, 11th Floor New York, New York 10285 Attention: James P. Seery, Jr. Exhibit A --------- Notice of Registration Statement and Selling Securityholder Questionnaire ------------------------------------ ________________, 2001 Reference is hereby made to the Registration Rights Agreement (the "Registration Rights Agreement") among Imperial Sugar Company (the "Company") and the Holders named therein. Pursuant to the Registration Rights Agreement, the Company has filed with the United States Securities and Exchange Commission (the "Commission") a registration statement (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the shares of the Company's common stock, without par value (the "Common Stock"). A copy of the Registration Rights Agreement is attached hereto. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Registrable Shares (as defined below) is entitled to have the Registrable Shares beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Shares included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire") must be completed, executed and delivered to the Company's counsel at the address set forth herein for receipt ON OR BEFORE 30 DAYS AFTER THE DATE OF THE REGISTRATION ------------------------------------------------------- RIGHTS AGREEMENT. Beneficial owners of Registrable Shares who do not complete, - ---------------- execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the prospectus forming a part thereof for resales of Registrable Shares. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related prospectus. Accordingly, holders and beneficial owners of Registrable Shares are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related prospectus. A-2 ELECTION The undersigned holder (the "Selling Securityholder") of Registrable Shares hereby elects to include in the Shelf Registration Statement the Registrable Shares beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Shares by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement, including, without limitation, Section 2.5 of the Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto. Upon any sale of Registrable Shares pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company the Notice of Transfer set forth as Exhibit B to the Registration Rights Agreement. The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: A-3 QUESTIONNAIRE (1) (a)Full Legal Name of Selling Securityholder: _______________________________________________________________________ (b)Full Legal Name of Registered Holder (if not the same as in (a) above) of Registrable Shares Listed in Item (3) below: _______________________________________________________________________ (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) Through Which Registrable Shares Listed in Item (3) below are Held: _______________________________________________________________________ (2) Address for Notices to Selling Securityholder: _____________________________ _____________________________ _____________________________ Telephone: _____________________________ Fax: _____________________________ Contact Person: _____________________________ (3) Beneficial Ownership of Securities: Except as set forth below in this Item (3), the undersigned does not beneficially own any shares of Common Stock. (a) Number of Registrable Shares (as defined in the Registration Rights Agreement) beneficially owned: ____________________ (b) Number of shares of Common Stock other than Registrable Shares beneficially owned: _________ (c) Number of Registrable Shares which the undersigned wishes to be included in the Shelf Registration Statement:_____________________________ (4) Beneficial Ownership of Other Securities of the Company: Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any shares of Common Stock or any other securities of the Company, other than the Securities and shares of Common Stock listed above in Item (3). State any exceptions here: A-4 (5) Relationships with the Company: Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: (6) Plan of Distribution: Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Shares listed above in Item (3) only as follows (if at all): Such Registrable Shares may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents. Such Registrable Shares may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Registrable Shares or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Shares in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Shares short and deliver Registrable Shares to close out such short positions, or loan or pledge Registrable Shares to broker-dealers that in turn may sell such securities. State any exceptions here: Note: Except as otherwise provided in the Registration Rights Agreement, in no event may such method(s) of distribution take the form of an underwritten offering of the Registrable Shares without the prior agreement of the Company. By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M. In the event that the Selling Securityholder transfers all or any portion of the Registrable Shares listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Registration Rights Agreement. A-5 By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related Prospectus. In accordance with the Selling Securityholder's obligation under Sections 2.1(b) and 2.2 of the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows: To the Company: Imperial Sugar Company 8016 Highway 90A, P. O. Box 9 Sugar Land, Texas 77487 Attention: William F. Schwer Executive Vice President and General Counsel Fax: (281) 490-9881 Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company's counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Registrable Shares beneficially owned by such Selling Securityholder and listed in Item (3) above). This Agreement shall be governed in all respects by the laws of the State of Texas. A-6 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: ___________________ _______________________________________ Selling Securityholder (Print/type full legal name of beneficial owner of Registrable Shares) By: ___________________________________ Name: _________________________________ Title: ________________________________ PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE 30 DAYS AFTER THE DATE OF THE REGISTRATION RIGHTS AGREEMENT TO THE COMPANY'S COUNSEL AT: Imperial Sugar Company 8016 Highway 90A P. O. Box 9 Sugar Land, Texas 77487 Attention: William F. Schwer Executive Vice President and General Counsel Fax: (281) 490-9881 A-7 Exhibit B --------- NOTICE OF PROPOSED TRANSFER PURSUANT TO REGISTRATION STATEMENT Bank of New York __________________________ __________________________ __________________________ Attention: _______________ Imperial Sugar Company 8016 Highway 90A P. O. Box 9 Sugar Land, Texas 77487 Attention: William F. Schwer Executive Vice President and General Counsel FAX (281) 490-9881 Re: Imperial Sugar Company (the "Company") shares of Common Stock, without par value (the "Shares") Dear Sirs: Please be advised that ____________________ proposes to transfer ___________ Shares pursuant to an effective Registration Statement (File No. 333-____) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, will be satisfied and that the above-named beneficial owner of the Shares is named as a "Selling Holder" in the prospectus dated [date], or in supplements thereto, and that the number of Shares transferred are the number of Shares listed in such prospectus opposite such owner's name. Dated: _________________ Very truly yours, __________________________ (Name) By: ______________________ (Authorized Signature) B-1 EX-10.A1 5 dex10a1.txt SPECIMEN EMPLOYMENT AGREEMENT FORM A EXHIBIT 10(a)(1) SPECIMEN EMPLOYMENT AGREEMENT (FORM A) THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made and entered into as of the first day of March, 2000 (the "Effective Date"), by and between Imperial Sugar Company, a Texas corporation (hereafter "Company") and _________________ hereafter "Executive"), an individual; W I T N E S S E T H: WHEREAS, Company wishes to continue to secure the services of the Executive subject to the terms and conditions hereafter set forth; and WHEREAS, the Executive is willing to enter into this Agreement upon the terms and conditions hereafter set forth, NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, the parties hereto agree as follows: 1. Employment. During the Employment Period (as defined in Section 4 hereof), the Company shall employ Executive, and Executive shall serve as _______________________________________. Executive's principal place of employment shall be at the corporate offices of the Company in Sugar Land, Texas. Executive's principal place of employment shall not be moved more than 25 miles without his consent, although Executive understands and agrees that he may be required to travel from time to time for business purposes. 2. Compensation. The Company shall pay or cause to be paid to Executive during the Employment Period an annual base salary for his services under this Agreement of not less than $_______, payable in installments in accordance with the Company's normal payroll procedures for its executives. The Executive's base salary shall be subject to at least annual review and may be increased (but not decreased without his consent), depending upon the performance of the Company and Executive, upon the recommendation of the Company's President and approved by the Executive Compensation Committee of the Board of Directors of the Company (hereafter "Committee"). Nothing contained herein shall preclude the payment of any bonus or other compensation to Executive. 3. Duties And Responsibilities Of Executive. During the Employment Period, Executive shall devote his services full time to the business of the Company and perform the duties and responsibilities assigned to him by the Company's President or the Company's Board of Directors ("Board Of Directors" or "Board") to the best of his ability and with reasonable diligence. In determining Executive's duties and responsibilities, the Company's President and Board of Directors shall act in good faith and shall not assign duties and responsibilities to Executive that are not appropriate or customary with respect to the position of Executive hereunder. This Section 3 shall not be construed as preventing Executive from engaging in 1 reasonable volunteer services for charitable, educational or civic organizations, or from investing his assets in such form or manner as will not require a material amount of his services in the operations of the companies or businesses in which such investments are made. 4. Term Of Employment. Executive's initial term of employment with the Company under this Agreement shall be for the period from the Effective Date through February 28, 2001 (the "Initial Term Of Employment"). Thereafter, the term of employment hereunder shall be automatically extended repetitively for an additional one (1) year period on March 1, 2001 and each anniversary thereof, unless Notice of Termination pursuant to Section 7 is given by either the Company or Executive to the other party at least ninety (90) days prior to the end of the Initial Term of Employment, or any one-year extension thereof, as applicable, that the Agreement will not be renewed for a successive one-year period. The Company and Executive shall each have the right to give Notice of Termination at will, with or without cause, at any time subject, however, to the terms and conditions of this Agreement regarding the rights and duties of the parties upon termination of employment. The Initial Term of Employment, and any one-year extension of employment hereunder, shall each be referred to herein as a "Term Of Employment." The period from the Effective Date through the date of Executive's termination of employment for whatever reason shall be referred to herein as the "Employment Period." 5. Benefits. Subject to the terms and conditions of this Agreement, during the Employment Period, Executive shall be entitled to the following: (a) Reimbursement Of Expenses. The Company shall pay or reimburse Executive for all reasonable travel, entertainment (including club dues appropriate in the performance of Executive's service hereunder) and other reasonable expenses paid or incurred by Executive in performing his duties hereunder. The Company shall also provide Executive with suitable office space, including secretarial and staff support. (b) Other Benefits. Executive shall be entitled to participate and shall be included in any pension, profit-sharing, stock option, deferred compensation, or similar plan or program of the Company to the extent that he is eligible under the provisions thereof. Executive shall also be entitled to participate in any group insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Company to the extent that he is eligible under the provisions thereof. (c) Paid Vacation. Executive shall be entitled to the number of days of paid vacation each year that is accorded under the Company's vacation policy for senior officers in the Office of the President of the Company, but not less than four weeks of paid vacation. The number of days of paid vacation may be increased by the Company's President or Board of Directors at any time during the Employment Period. (d) Annual Physical. Each year the Company shall pay for a complete physical examination of Executive at the Sid Richardson Institute in Houston, Texas, or any comparable facility designated by the Company's President. 6. Rights And Payments Upon Termination. The Executive's right to compensation and benefits for periods after the date on which his employment with the Company 2 terminates for whatever reason (the "Termination Date") shall be determined in accordance with this Section 6: (a) Minimum Payments. Executive shall be entitled to the following payments, in addition to any payments or benefits to which the Executive is entitled under the terms of any employee benefit plan or the following provisions of this Section 6: (i) his unpaid salary for the full month in which his Termination Date occurred; provided, however, if Executive is terminated for Cause (as defined in Section 6(d)), he shall only be entitled to receive his accrued but unpaid salary through his Termination Date; and (ii) his accrued but unpaid vacation pay for the period ending on his Termination Date. Such salary and accrued vacation shall be paid to Executive within five (5) business days following the Termination Date. (b) Payments Under The Salary Continuation Agreement. Executive is a party to a Salary Continuation Agreement, made as of August 1, 1994 by and between Executive and the Company, as said agreement may be amended from time to time or terminated as provided therein (hereafter "Salary Continuation Agreement"). In accordance with the terms of the Salary Continuation Agreement as in effect on the Termination Date, Executive may be entitled to the following payments: (1) Termination After Normal Retirement. If the employment of Executive with the Company is terminated on or after the date that Executive attains the age of 65 ("Normal Retirement") for any reason other than due to his death, Disability (as defined in the Salary Continuation Agreement) or for Cause (as defined in the Salary Continuation Agreement), then Company shall pay to Executive a supplemental retirement benefit pursuant to the terms of the Salary Continuation Agreement. (2) Early Retirement. If the employment of Executive with the Company is terminated prior to his Normal Retirement, but after the date that (i) he attains the age of 62 and completes 10 Years of Service (as defined in the Salary Continuation Agreement) or (ii) attains the age of 55 but before the age of 62 and completes 10 Years of Service, for any reason other than due to his death, Disability (as defined in the Salary Continuation Agreement) or for Cause (as defined in the Salary Continuation Agreement), then Company shall pay to Executive a supplemental retirement benefit pursuant to the terms of the Salary Continuation Agreement. (3) Termination Of Employment Due To Disability. If the employment of Executive with the Company is terminated prior to 3 his Normal Retirement due to his Disability (as defined in the Salary Continuation Agreement), Executive shall be entitled to a supplemental disability benefit pursuant to the terms of the Salary Continuation Agreement. (4) Termination Of Employment Due To Death While In Employment Or During Disability. If Executive dies during the Term of Employment or during Disability (as defined in the Salary Continuation Agreement), Executive's Beneficiary (as defined in the Salary Continuation Agreement) shall be entitled to a supplemental death benefit pursuant to the terms of the Salary Continuation Agreement. (5) Termination For Cause. If Executive's employment with the Company is terminated by the Company for Cause (as defined in the Salary Continuation Agreement), Executive shall have no right to payments under the Salary Continuation Agreement pursuant to the terms of the Salary Continuation Agreement. (6) Termination Without Cause. If Executive's employment with the Company is terminated prior to the Executive's Early Retirement (as defined in the Salary Continuation Agreement) for any reason other than death, Disability (as defined in the Salary Continuation Agreement), or termination for Cause (as defined in the Salary Continuation Agreement), Executive shall be entitled to a supplemental termination benefit pursuant to the terms of the Salary Continuation Agreement. (7) Salary Continuation Agreement Controls. In the event of any discrepancy between the terms of this Section 6(b) and the terms of the Salary Continuation Agreement, the Salary Continuation Agreement shall control and govern. This Agreement does not affect the rights of the parties to the Salary Continuation Agreement to amend or terminate the Salary Continuation Agreement in accordance with its terms. (c) Other Termination Payments. (1) In the event that (A) Executive's employment is terminated by the Company for any reason other than a "Non-Severance Event" (as defined in Section 6(d)), (B) the Company does not renew the Agreement pursuant to Section 4 for any one- year renewal period at any time, or (C) Executive terminates his own employment hereunder for "Good Reason" (as defined below), then in any such event, the Company shall pay to Executive as additional pay ("Additional Pay"), the product equal to two (2) multiplied by Executive's annual base salary in effect immediately prior to his 4 Termination Date. The Company shall pay the Additional Pay to Executive in a cash lump sum not later than thirty (30) calendar days following the Termination Date. (2) Notwithstanding any provision of this Section 6(c) to the contrary, the Executive must first execute an appropriate release agreement whereby he agrees to release and waive, in return for the Additional Pay described in Section 6(c)(1) only, any claims that he may have against the Company for (A) unlawful discrimination (including, without limitation, age discrimination) and (B) termination pay under any severance pay plan or program maintained by the Company that covers Executive; provided, however, such release shall not release any claims by Executive for payments due under this Agreement, without Executive's express written consent. Executive shall not be required to mitigate any payments due under this Section 6(c) or any other provision of this Agreement. (d) Definitions. (1) "Non-Severance Event" means termination of Executive for "Cause" (as defined below), or due to his death or Disability (as defined below). (2) "Cause" means a termination of Executive's employment directly resulting from (a) an act of dishonesty on the part of Executive constituting a felony which has a direct and adverse effect on the Company, (b) a breach by the Executive of any of the provisions of Sections 10, 11, 12 or 13, if such breach has a material adverse effect on the Company, or (c) the willful, material and repeated nonperformance of Executive's duties to the Company (other than by reason of Executive's illness, incapacity or Disability) after written notice from the Board of such nonperformance (which notice specifically identifies the manner and sets forth specific facts, circumstances and examples in which the Board believes that Executive has not substantially performed his duties) and his continued willful, material and repeated nonperformance of such duties for at least thirty (30) days after his receipt of such notice; and, for purposes of this clause (c), no act or failure to act on Executive's part shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company (assuming the disclosure of the pertinent facts, any action or omission by Executive after consultation with, and in accordance with the advice of, legal counsel reasonably acceptable to the Company shall be deemed to have been taken in good faith and to not be willful under this Agreement). Notwithstanding the 5 foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there has been delivered to him a copy of a resolution duly adopted by the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth above and specifying the particulars thereof in reasonable detail. (3) "Code" means the Internal Revenue Code of 1986, as amended, or its successor. (4) "Disability" shall mean a "permanent and total disability" as defined in Section 22(e)(3) of the Code and Treasury regulations thereunder. Evidence of such Disability shall be certified by a physician acceptable to both the Company and Executive. In the event that the parties are not able to agree on the choice of a physician, each shall select a physician who, in turn, shall select a third physician to render such certification. All costs relating to the determination of whether Executive has incurred a Disability shall be paid by the Company. Executive agrees to submit to any examination that is reasonably required by the physician. (5) "Good Reason" means the occurrence of any of the following events without Executive's express written consent: (A) A reduction in Executive's base salary; (B) Any material breach by the Company or its successor of any provision of this Agreement. 7. Notice Of Termination. Any termination by the Company or the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, the term "Notice Of Termination" means a written notice which indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 8. No Mitigation Required. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. 9. Post-Employment Medical Benefits. If Executive's employment with the Company is terminated for any reason except Cause (as defined in Section 6(d)) after Executive has completed at least five (5) complete years of service with the Company or its predecessors (including, for this purpose, prior service with any corporation acquired by or merged into the Company), then the Company shall provide post-employment medical coverage in accordance 6 with the terms and conditions of this Section 9. The Company shall continue to cover Executive and his spouse (hereinafter referred to as "Spouse") and his eligible dependent children, if any, from the date of Executive's termination of employment with the Company, under the group health care plan maintained by the Company to provide major medical insurance coverage for employees and their dependents (such group medical plan or its successor(s) shall be hereinafter referred to as the "Health Care Plan"). The coverage of Executive and his Spouse under the Health Care Plan shall continue for each of their lives without interruption, but such coverage of his eligible dependent children shall continue only for such time period that they otherwise qualify for dependent coverage under the terms of the Health Care Plan. In the event of any change to the Health Care Plan following the Termination Date, Executive, his Spouse and dependents shall be treated consistently with the then-current senior officers of the Company (or its successor) with respect to the terms and conditions of coverage and other substantive provisions of the Health Care Plan. The provisions of this Section 9 shall be effective regardless of the reason for Executive's termination of employment with the Company except for Cause. The continuation coverage under the Health Care Plan provided to Executive and his Spouse pursuant to this Agreement shall continue and remain in full force and effect until the later of (a) Executive's date of death or (b) his Spouse's date of death. Executive and his Spouse hereby agree and consent to acquire and maintain any and all coverage that either or both of them are entitled to at any time during their lives under the Medicare program or any similar or succeeding plan or program that is maintained by the United States Government or any agency thereof (hereinafter referred to as "Medicare"). The coverage described in the immediately preceding sentence includes, without limitation, parts A and B of Medicare and any additional or successor parts of Medicare. Executive and his Spouse further agree and consent to pay all required premiums and other costs for Medicare coverage from their personal funds. If Executive or Spouse are covered under Medicare, the "retiree" coverage provided under the Health Care Plan to such person shall be secondary payor to Medicare to the full extent permitted by law. In addition, if Executive or his Spouse or other dependents should become covered under another major medical plan maintained by another employer or other entity, such coverage shall be primary payor to the coverage provided pursuant to this Section 9 to the full extent permitted by law. Executive, on behalf of himself and his Spouse and other dependents, if any, shall be required to pay premiums for their coverage under the Health Care Plan at the rates, if any, charged by the Company to active employees who are senior officers of the Company (or its successor) at the time the premium is charged. The Company shall not be responsible for the payment of any income or other taxes which may be imposed on Executive, or on his Spouse or dependents, as the result of receiving continuation coverage under the Health Care Plan pursuant to this Section 9. 10. Conflicts Of Interest. In keeping with his fiduciary duties to Company, Executive hereby agrees that he shall not become involved in a conflict of interest, or upon discovery thereof, allow such a conflict to continue at any time during the Employment Period. Moreover, Executive agrees that he shall immediately disclose to the Board of Directors any known facts which might involve a conflict of interest of which the Board is not aware. 7 Executive and Company recognize and acknowledge that it is not possible to provide an exhaustive list of actions or interests which may constitute a "conflict of interest." Moreover, Company and Executive recognize there are many borderline situations. In some instances, full disclosure of facts by the Executive to the Board of Directors may be all that is necessary to enable Company to protect its interests. In others, if no improper motivation appears to exist and Company's interests have not demonstrably suffered, prompt elimination of the outside interest may suffice. In egregious and material instances it may be necessary for Company to terminate Executive's employment for Cause (as defined in Section 6(d)). The Board of Directors reserves the right to take such action as, in its good faith judgment, will resolve the conflict of interest. Executive hereby agrees that any interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might adversely affect the Company or any of its affiliated entities, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Executive would or might arise, and which should be reported immediately to the Board of Directors, include, but are not limited to, any of the following: (a) Ownership of more than a de minimis interest in any lender, supplier, contractor, customer or other entity with which Company or any of its affiliated entities does business; (b) Intentional misuse of information, property or facilities to which Executive has access in a manner which is demonstrably injurious to the interests of Company or any of its affiliated entities, including its business, reputation or goodwill; or (c) Materially trading in products or services connected with products or services designed or marketed by or for the Company or any of its affiliated entities. For purposes of this Agreement, "Affiliated Entity" means any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, the Company. 11. Confidential Information. (a) Confidential Information Defined. Executive hereby acknowledges that in his senior management position, he will create, acquire and have access to confidential information and trade secrets pertaining to the business of Company (hereafter "Confidential Information" as defined below). Executive hereby acknowledges that such Confidential Information is unique and valuable to Company's business and that Company could suffer irreparable injury if Confidential Information was divulged to the public or to persons or entities in competition with Company. Therefore, Executive hereby covenants and agrees to keep in strict secrecy and confidence, both during and after the Employment Period, any Confidential Information. Executive specifically agrees that he will not at any time disclose to others, use, copy or permit to be copied, except in pursuance of his duties on behalf of Company or with the prior consent of 8 Company, Confidential Information relating to the Company or any of its affiliated entities. For purposes of this Agreement, "Confidential Information" shall mean and include, without limitation, information related to the business affairs, property, methods of operation, future plans, financial information, customer or client information, or other data which relates to the business or operations of Company or any of its affiliated entities, and other information obtained by Executive during the Employment Period which concerns the affairs of Company or any of its affiliated entities and which Company has requested be held in confidence or could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be materially embarrassing, detrimental or disadvantageous to the Company or any of its affiliated entities, or its and their directors, officers, employees or shareholders. Confidential Information, however, shall not include: (i) Information that is at the time of receipt by Executive in the public domain or is otherwise generally known in the industry or subsequently enters the public domain or becomes generally known in the industry through no fault of Executive; or (ii) Information that at any time is received in good faith by Executive from a third party who was lawfully in possession of the same and had the right to disclose the same. (b) Required Disclosure. In the event that Executive is required by law which cannot be waived to disclose any Confidential Information, Executive agrees that he will provide prompt notice of such potential disclosure to Company so that an appropriate protective order may be sought and/or a waiver of compliance with the provisions of this Agreement may be granted. In the event that (i) such protection or other remedy is not obtained or (ii) Company waives in writing the compliance by Executive with this provision, Executive agrees that he may furnish only that portion of the Confidential Information which Executive is advised by written opinion of counsel is legally required to be disclosed, and Executive shall exercise reasonable effort to obtain assurances that confidential treatment will be accorded such Confidential Information. (c) Delivery Of Documents. Executive further agrees to deliver to Company at the termination of his employment, all correspondence, memoranda, notes, records, drawings, plans, customer lists or other documents, and all copies thereof made, composed or received by Executive, solely or jointly with others, and which are in Executive's possession, custody or control at such date and which relate in any manner to the past, present or anticipated business of Company or any of its affiliated entities. (d) Remedies. In the event of a breach or threatened breach of any of the provisions of this Section 11, Company shall be entitled to an injunction ordering the return of all such documents, and any and all copies thereof, and restraining Executive from using or disclosing, for his benefit or the benefit of others, in whole or in part, any Confidential Information, including, but not limited to, the Confidential Information which such documents contain, constitute or embody. Executive further agrees that any breach or threatened breach of 9 any of the provisions of this Section 12 could cause irreparable injury to Company, for which it would have no adequate remedy at law. Nothing herein shall be construed as prohibiting Company from pursuing any other remedies available to it for any such breach or threatened breach, including the recovery of damages. 12. Property Rights. In keeping with his fiduciary duties to Company, Executive hereby covenants and agrees that during his Employment Period, and for a period of six (6) months following his Termination Date, Executive shall promptly disclose in writing to Company any and all information, ideas, concepts, improvements, discoveries, inventions and other intellectual properties, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Executive, either individually or jointly with others, and which relate to the business, products or services of Company or any of its affiliated entities. In consideration for his employment hereunder, Executive hereby specifically sells, assigns and transfers to Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries, inventions and other intellectual properties. If during the Employment Period, Executive creates any original work of authorship or other property fixed in any tangible medium of expression which (a) is the subject matter of copyright (including computer programs) and (b) relates to Company's present or planned business, products, or services, whether such property is created solely by Executive or jointly with others, such property shall be deemed a work for hire, with the copyright automatically vesting in Company. To the extent that any such writing or other property is determined not to be a work for hire for whatever reason, Executive hereby consents and agrees to the unconditional waiver of "moral rights" in such writing or other property, and to assign to Company all of his right, title and interest, including copyright, in such writing or other property. Executive hereby agrees to (a) exercise reasonable effort to assist Company or its nominee in the protection of any and all property subject to this Section 12, (b) not to disclose any such property to others without the written consent of Company or its nominee, except as required by his employment hereunder, and (c) at the request of Company, to execute such assignments, certificates or other interests as Company or its nominee may from time to time deem desirable to evidence, establish, maintain, perfect, protect or enforce its rights, title or interests in or to any such property. 13. Agreement Not To Compete. Executive hereby recognizes and acknowledges that: (a) in his executive capacity with Company he will be given knowledge of, and access to, the Confidential Information (as described in Section 11); (b) in the event that Executive was to enter into competition with Company, Executive's knowledge of such Confidential Information would be of invaluable benefit to a competitor of Company, and could cause irreparable harm to Company's business interests; and (c) Executive's consent and agreement to enter into the noncompetition provisions and covenants set forth herein is an integral condition of this Agreement, without which Company would not have agreed to provide Confidential Information to Executive nor to his compensation, benefits, and other terms of this Agreement. Accordingly, in consideration for his employment, compensation, benefits, access to and entrustment of Confidential Information, and the goodwill, training and experience provided to Executive during his Employment Period, Executive hereby covenants, consents and agrees that during the 10 Employment Period, and for a period of one (1) year after his employment is terminated for any reason except (i) termination by the Company without Cause (as defined in Section 6(d)) or termination by Executive for Good Reason (as defined in Section 6(d)) or (ii) termination of employment after expiration of the Term of Employment due to non-renewal of this Agreement by the Company pursuant to Section 4, Executive shall not, directly or indirectly, acting alone or in conjunction with others, for his own account or for the account of others, including, without limitation, as an officer, director, stockholder, owner, partner, joint venturer, employee, promoter, consultant, agent, representative, or otherwise: (a) Solicit, canvass, or accept any fees or business from any customer of Company for himself or any other person or entity engaged in a "Similar Business to Company" (as defined below); (b) Engage or participate in any Similar Business to Company within the entire continental United States (referred to herein as the "Restricted Area"); (c) Request or advise any service provider, supplier, or customer to reduce or cancel any business that it may transact with Company or any of its affiliated entities; (d) Solicit, induce, or otherwise attempt to influence any employee of the Company or any of its affiliated entities, to terminate his or her relationship with the Company or any of its affiliated entities; or (e) Make any statement or perform any act intended to advance an interest of an existing or prospective competitor of the Company or any of its affiliated entities in any way that demonstrably injures the reputation, goodwill or any other business interest of Company or any of its affiliated entities. For purposes of this Agreement, "Similar Business To Company" means any business or other enterprise that is competitive with the current or planned businesses, products, services or operations of the Company or any of its affiliated entities at the time of termination of Executive's employment. For purposes of clarity and not limitation, the non-compete and other provisions of this Section 13 shall not apply to Executive if Executive's employment hereunder is terminated (a) by the Company without Cause (as defined in Section 6(d)), (b) by the Executive for Good Reason (as defined in Section 6(d)), or (c) after the Term of Employment (as defined in Section 4) has expired due to non-renewal by the Company. Executive hereby agrees that the limitations set forth in this Section 13 on his rights to compete with Company after his termination of employment are reasonable and necessary for the protection of Company. In this regard, Executive specifically agrees that such limitations as to the period of time, geographic area and types and scopes of restriction on his activities, as specified above, are reasonable and necessary to protect the goodwill and other business interests of Company. However, should the time period, the geographic area or any other non- 11 competition provision set forth herein be deemed invalid or unenforceable in any respect, then Executive acknowledges and agrees that, as set forth in Section 14 hereof, reformation may be made with respect to such time period, geographic area or other non-competition provision in order to protect Company's reasonable business interests to the maximum permissible extent. 14. Remedies. In the event of any pending, threatened or actual breach of any of the covenants or provisions of Section 10, 11, 12 or 13, it is understood and agreed by Executive that the remedy at law for a breach of any of the covenants or provisions of these Sections may be inadequate and, therefore, Company shall be entitled to a restraining order or injunctive relief from any court of competent jurisdiction, in addition to any other remedies at law and in equity. In the event that Company seeks to obtain a restraining order or injunctive relief, Executive hereby agrees that Company shall not be required to post any bond in connection therewith. Should a court of competent jurisdiction or an arbitrator (pursuant to Section 24) declare any provision of Section 10, 11, 12 or 13 to be unenforceable due to an unreasonable restriction of duration or geographical area, or for any other reason, such court or arbitrator is hereby granted the consent of each of the Executive and Company to reform such provision and/or to grant the Company any relief, at law or in equity, reasonably necessary to protect the reasonable business interests of Company or any of its affiliated entities. Executive hereby acknowledges and agrees that all of the covenants and other provisions of Sections 10, 11, 12 and 13 are reasonable and necessary for the protection of the Company's reasonable business interests. Executive hereby agrees that if the Company prevails in any action, suit or proceeding with respect to any matter arising out of or in connection with 10, 11, 12 or 13, Company shall be entitled to all equitable and legal remedies, including, but not limited to, injunctive relief and compensatory damages. 15. Defense Of Claims. Executive agrees that during the Employment Period and for a period of two (2) years after his Termination Date, upon reasonable request from the Company, he will cooperate with the Company and its affiliated entities in the defense of any claims or actions that may be made by or against the Company or any of its affiliated entities that affect his prior areas of responsibility, except if Executive's reasonable interests are adverse to the Company (or affiliated entity) in such claim or action as determined by Executive or his counsel. To the extent travel is required to comply with the requirements of this Section 15, the Company shall, to the extent possible, provide Executive with notice at least 10 days prior to the date on which such travel would be required. The Company agrees to promptly pay or reimburse Executive upon demand for all of his reasonable travel and other direct expenses incurred, or to be reasonably incurred, to comply with his obligations under this Section 15. 16. Determinations By The Committee. (a) Termination Of Employment. Any question as to whether and when there has been a termination of Executive's employment, and the cause of such termination, shall be determined in good faith by the Committee. (b) Compensation. Any question regarding salary, bonus and other compensation payable to Executive pursuant to this Agreement shall be determined in good faith by the Committee. 12 17. Withholdings: Right Of Offset. Company may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling, (b) all other normal employee deductions made with respect to Company's employees generally, and (c) any advances made to Executive and owed to Company. 18. Nonalienation. The right to receive payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by Executive, his dependents or beneficiaries, or to any other person who is or may become entitled to receive such payments hereunder. The right to receive payments hereunder shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any person who is or may become entitled to receive such payments, nor may the same be subject to attachment or seizure by any creditor of such person under any circumstances, and any such attempted attachment or seizure shall be void and of no force and effect. 19. Incompetent Or Minor Payees. Should the Board of Directors determine that any person to whom any payment is payable under this Agreement has been determined to be legally incompetent or is a minor, any payment due hereunder may, notwithstanding any other provision of this Agreement to the contrary, be made in any one or more of the following ways: (a) directly to such minor or person; (b) to the legal guardian or other duly appointed personal representative of the person or estate of such minor or person; or (c) to such adult or adults as have, in the good faith knowledge of the Board of Directors, assumed custody and support of such minor or person; and any payment so made shall constitute full and complete discharge of any liability under this Agreement in respect to the amount paid. 20. Indemnification. The Company shall, to the fullest extent permitted by law, indemnify and hold harmless the Executive from and against any and all liability arising from his service as an employee, officer or director of the Company and its affiliates. To the fullest extent permitted by law, the Company shall retain counsel to defend Executive or shall advance legal fees and expenses to Executive for counsel selected by Executive in connection with any litigation or proceeding related to service as an employee, officer and director of the Company or any of its affiliates. This Section 20 shall not limit in any way the rights of Executive to any other indemnification from the Company, as a matter of law, contract or otherwise. 21. Severability. It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 24), the parties hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. 22. Title And Headings; Construction. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Any and all Exhibits referred to in this Agreement are, by such reference, incorporated herein and made a part hereof for all purposes. The words "herein", "hereof", 13 "hereunder" and other compounds of the word "here" shall refer to the entire Agreement and not to any particular provision hereof. 23. Choice Of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. 24. Arbitration. (a) Arbitrable Matters. If any dispute or controversy arises between Executive and the Company as to their respective rights or obligations under this Agreement, then either party may submit the dispute or controversy to arbitration under the then-current National Employment Dispute Resolution Rules of the American Arbitration Association (AAA) (the "Rules"); provided, however, the Company shall retain its rights to seek a restraining order or injunctive relief pursuant to Section 14. Any arbitration hereunder shall be conducted before a panel of three arbitrators unless the parties mutually agree to a single arbitrator. The site for any arbitration hereunder shall be either Harris County or Fort Bend County, Texas, unless otherwise mutually agreed by the parties. (b) Submission To Arbitration. The party submitting any matter to arbitration shall do so in accordance with the Rules. Notice to the other party shall state the question or questions to be submitted for decision or award by arbitration. Notwithstanding any provision in this Section 24, Executive shall be entitled to seek specific performance of the Executive's right to be paid during the pendency of any dispute or controversy arising under this Agreement. In order to prevent irreparable harm, the arbitrator may grant temporary or permanent injunctive or other equitable relief for the protection of property rights. (c) Arbitration Procedures. The arbitrator shall set the date, time and place for each hearing, and shall give the parties advance written notice in accordance with the Rules. Any party may be represented by counsel or other authorized representative at any hearing. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.(S)(S)1 et. seq. (or its successor). The arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the State of Texas to the claims asserted to the extent that the arbitrator determines that federal law is not controlling. (d) Compliance With Award. (i) Any award of an arbitrator shall be final and binding upon the parties to such arbitration, and each party shall immediately make such changes in its conduct or provide such monetary payment or other relief as such award requires. The parties agree that the award of the arbitrator shall be final and binding and shall be subject only to the judicial review permitted by the Federal Arbitration Act. (ii) The parties hereto agree that the arbitration award may be entered with any court having jurisdiction and the award may then be enforced as between the parties, without further evidentiary proceedings, the same as if entered by the court at the 14 conclusion of a judicial proceeding in which no appeal was taken. The Company and the Executive hereby agree that a judgment upon any award rendered by an arbitrator may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (e) Costs And Expenses. Each party shall pay any monetary amount required by the arbitrator's award, and the fees, costs and expenses for its own counsel, witnesses and exhibits, unless otherwise determined by the arbitrator in the award. The compensation and costs and expenses assessed by the arbitrator and the AAA shall be paid by the Company, unless otherwise determined by the arbitrator in the award such as, for example, if the arbitrator determines that Executive's claim was frivolous or not brought in good faith. If court proceedings to stay litigation or compel arbitration are necessary, the party who unsuccessfully opposes such proceedings shall pay all associated costs, expenses, and attorney's fees which are reasonably incurred by the other party as determined by the arbitrator. 25. Binding Effect: Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and to their respective heirs, executors, beneficiaries, personal representatives, successors and permitted assigns hereunder, but otherwise this Agreement shall not be for the benefit of any third parties. 26. Entire Agreement And Amendment. This Agreement contains the entire agreement of the parties with respect to Executive's employment and the other matters covered herein; moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the parties hereto concerning the subject matter hereof. This Agreement may be amended, waived or terminated only by a written instrument executed by both parties hereto. 27. Survival Of Certain Provisions. Wherever appropriate to the intention of the parties hereto, the respective rights and obligations of said parties, including, but not limited to, the rights and obligations set forth in Sections 6 through 16 and 24 hereof, shall survive any termination or expiration of this Agreement. 28. Waiver Of Breach. No waiver by either party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either party hereto to take any action by reason of any breach will not deprive such party of the right to take action at any time while such breach continues. 29. Successors And Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its affiliated entities, and its and their successors, and upon any person or entity acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the business and/or assets of Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to 15 perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, no such assumption shall relieve the Company of its obligations hereunder. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees or other Beneficiary. In the event of the death of Executive while any amount would still be payable hereunder if such death had not occurred, all such amounts, unless otherwise specifically provided herein, shall be paid in accordance with the terms of this Agreement to Executive's Beneficiary. "Beneficiary", for this purpose, shall mean the person or persons designated by Executive in writing to receive any benefits payable to Executive hereunder in the event of his death or, if no such person is so designated, Executive's surviving spouse if any, or, if not, then Executive's estate. No Beneficiary designation shall be effective unless it is in writing and received by the Company prior to the date of Executive's death. 30. Notices. Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (a) when delivered in person or sent by facsimile transmission, (b) on the first business day after it is sent by air express overnight courier service, or (c) on the third business day following deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid and addressed, to the following address, as applicable: (i) If to Company, addressed to: Imperial Sugar Company P.O. Box 9 Sugar Land, Texas 77487-0009 Attention: President (ii) If to Executive, addressed to the address set forth below his name on the execution page hereof; or to such other address as either party may have furnished to the other party in writing in accordance with this Section 30. 31. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party hereto, but together signed by both parties. 32. Executive Acknowledgment. Executive acknowledges that (a) he is knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, (b) he has read the Agreement, and (c) he understands its terms and conditions. Executive represents that he is free to enter into this Agreement including, without limitation, that he is not subject to any other contract of employment or covenant not to compete that would conflict with his duties under this Agreement. 16 33. Termination Of Prior Employment Agreement/Survival Of Other Agreements. After this Agreement is effective and enforceable upon execution of this Agreement by the parties hereto, that certain Employment Agreement between the Company and ___________ dated [February 1, 1998] shall terminate and be superseded in all respects by this Agreement. All other agreements or arrangements between the Executive and Company in effect on the date hereof shall remain fully effective, including, but not limited to, the obligations of the Company under (a) the Salary Continuation Agreement which is referenced herein and (b) any benefit restoration agreement to provide supplemental retirement and death benefits. [Signature page follows.] 17 IN WITNESS WHEREOF, Executive has hereunto set his hand and Company has caused this Agreement to be executed in its name and on its behalf by its duly authorized officer, to be effective as of the Effective Date. WITNESS: EXECUTIVE: Signature: Signature: ---------------------------- ---------------------------- Name: Name: --------------------------------- ---------------------------------- Date: Date: --------------------------------- ---------------------------------- Address for Notices: ------------------- ------------------------------- ------------------------------- ------------------------------- ATTEST: IMPERIAL SUGAR COMPANY: By: By: ----------------------------------- ------------------------------------ Title: Its: -------------------------------- ----------------------------------- Name: Name: --------------------------------- ---------------------------------- Date: Date: --------------------------------- ---------------------------------- 18 EX-10.A2 6 dex10a2.txt SPECIMEN EMPLOYMENT AGREEMENT FORM B EXHIBIT 10(a)(2) SPECIMEN EMPLOYMENT AGREEMENT (FORM B) THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made and entered into as of the first day of March, 2000 (the "Effective Date"), by and between Imperial Sugar Company, a Texas corporation (hereafter "Company") and ___________________ (hereafter "Executive"), an individual; W I T N E S S E T H: WHEREAS, Company wishes to continue to secure the services of the Executive subject to the terms and conditions hereafter set forth; and WHEREAS, the Executive is willing to enter into this Agreement upon the terms and conditions hereafter set forth, NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, the parties hereto agree as follows: 1. Employment. During the Employment Period (as defined in Section 4 hereof), the Company shall employ Executive, and Executive shall serve as _______________________. Executive's principal place of employment shall be at the corporate offices of the Company in Sugar Land, Texas. Executive's principal place of employment shall not be moved more than 25 miles without his consent, although Executive understands and agrees that he may be required to travel from time to time for business purposes. 2. Compensation. The Company shall pay or cause to be paid to Executive during the Employment Period an annual base salary for his services under this Agreement of not less than $_______, payable in installments in accordance with the Company's normal payroll procedures for its executives. The Executive's base salary shall be subject to at least annual review and may be increased (but not decreased without his consent), depending upon the performance of the Company and Executive, upon the recommendation of the Company's President and approved by the Executive Compensation Committee of the Board of Directors of the Company (hereafter "Committee"). Nothing contained herein shall preclude the payment of any bonus or other compensation to Executive. 3. Duties And Responsibilities Of Executive. During the Employment Period, Executive shall devote his services full time to the business of the Company and perform the duties and responsibilities assigned to him by the Company's President or the Company's Board of Directors ("Board Of Directors" or "Board") to the best of his ability and with reasonable diligence. In determining Executive's duties and responsibilities, the Company's President and Board of Directors shall act in good faith and shall not assign duties and responsibilities to Executive that are not appropriate or customary with respect to the position of Executive 1 hereunder. This Section 3 shall not be construed as preventing Executive from engaging in reasonable volunteer services for charitable, educational or civic organizations, or from investing his assets in such form or manner as will not require a material amount of his services in the operations of the companies or businesses in which such investments are made. 4. Term Of Employment. Executive's initial term of employment with the Company under this Agreement shall be for the period from the Effective Date through February 28, 2001 (the "Initial Term Of Employment"). Thereafter, the term of employment hereunder shall be automatically extended repetitively for an additional one (1) year period on March 1, 2001 and each anniversary thereof, unless Notice of Termination pursuant to Section 7 is given by either the Company or Executive to the other party at least ninety (90) days prior to the end of the Initial Term of Employment, or any one-year extension thereof, as applicable, that the Agreement will not be renewed for a successive one-year period. The Company and Executive shall each have the right to give Notice of Termination at will, with or without cause, at any time subject, however, to the terms and conditions of this Agreement regarding the rights and duties of the parties upon termination of employment. The Initial Term of Employment, and any one-year extension of employment hereunder, shall each be referred to herein as a "Term Of Employment." The period from the Effective Date through the date of Executive's termination of employment for whatever reason shall be referred to herein as the "Employment Period." 5. Benefits. Subject to the terms and conditions of this Agreement, during the Employment Period, Executive shall be entitled to the following: (a) Reimbursement Of Expenses. The Company shall pay or reimburse Executive for all reasonable travel, entertainment (including club dues appropriate in the performance of Executive's service hereunder) and other reasonable expenses paid or incurred by Executive in performing his duties hereunder. The Company shall also provide Executive with suitable office space, including secretarial and staff support. (b) Other Benefits. Executive shall be entitled to participate and shall be included in any pension, profit-sharing, stock option, deferred compensation, or similar plan or program of the Company to the extent that he is eligible under the provisions thereof. Executive shall also be entitled to participate in any group insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Company to the extent that he is eligible under the provisions thereof. (c) Paid Vacation. Executive shall be entitled to the number of days of paid vacation each year that is accorded under the Company's vacation policy for senior officers in the Office of the President of the Company, but not less than four weeks of paid vacation. The number of days of paid vacation may be increased by the Company's President or Board of Directors at any time during the Employment Period. (d) Annual Physical. Each year the Company shall pay for a complete physical examination of Executive at the Sid Richardson Institute 2 in Houston, Texas, or any comparable facility designated by the Company's President. 6. Rights And Payments Upon Termination. The Executive's right to compensation and benefits for periods after the date on which his employment with the Company terminates for whatever reason (the "Termination Date") shall be determined in accordance with this Section 6: (a) Minimum Payments. Executive shall be entitled to the following payments, in addition to any payments or benefits to which the Executive is entitled under the terms of any employee benefit plan or the following provisions of this Section 6: (i) his unpaid salary for the full month in which his Termination Date occurred; provided, however, if Executive is terminated for Cause (as defined in Section 6(c)), he shall only be entitled to receive his accrued but unpaid salary through his Termination Date; and (ii) his accrued but unpaid vacation pay for the period ending on his Termination Date. Such salary and accrued vacation shall be paid to Executive within five (5) business days following the Termination Date. (b) Other Termination Payments. (1) In the event that (A) Executive's employment is terminated by the Company for any reason other than a "Non-Severance Event" (as defined in Section 6(c)), (B) the Company does not renew the Agreement pursuant to Section 4 for any one- year renewal period at any time, or (C) Executive terminates his own employment hereunder for "Good Reason" (as defined below), then in any such event, the Company shall pay to Executive as additional pay ("Additional Pay"), the product equal to two (2) multiplied by Executive's annual base salary in effect immediately prior to his Termination Date. The Company shall pay the Additional Pay to Executive in a cash lump sum not later than thirty (30) calendar days following the Termination Date. (2) Notwithstanding any provision of this Section 6(b) to the contrary, the Executive must first execute an appropriate release agreement whereby he agrees to release and waive, in return for the Additional Pay described in Section 6(b)(1) only, any claims that he may have against the Company for (A) unlawful discrimination (including, without limitation, age discrimination) and (B) termination pay under any severance pay plan or program maintained by the Company that covers Executive; provided, however, such release shall not release any claims by Executive for payments due under this Agreement without Executive's express written consent. Executive shall not be required to mitigate any payments due under this Section 6(b) or any other provision of this Agreement. 3 (c) Definitions. (1) "Non-Severance Event" means termination of Executive for "Cause" (as defined below), or due to his death or Disability (as defined below). (2) "Cause" means a termination of Executive's employment directly resulting from (a) an act of dishonesty on the part of Executive constituting a felony which has a direct and adverse effect on the Company, (b) a breach by the Executive of any of the provisions of Sections 10, 11, 12 or 13, if such breach has a material adverse effect on the Company, or (c) the willful, material and repeated nonperformance of Executive's duties to the Company (other than by reason of Executive's illness, incapacity or Disability) after written notice from the Board of such nonperformance (which notice specifically identifies the manner and sets forth specific facts, circumstances and examples in which the Board believes that Executive has not substantially performed his duties) and his continued willful, material and repeated nonperformance of such duties for at least thirty (30) days after his receipt of such notice; and, for purposes of this clause (c), no act or failure to act on Executive's part shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company (assuming the disclosure of the pertinent facts, any action or omission by Executive after consultation with, and in accordance with the advice of, legal counsel reasonably acceptable to the Company shall be deemed to have been taken in good faith and to not be willful under this Agreement). Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there has been delivered to him a copy of a resolution duly adopted by the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth above and specifying the particulars thereof in reasonable detail. (3) "Code" means the Internal Revenue Code of 1986, as amended, or its successor. (4) "Disability" shall mean a "permanent and total disability" as defined in Section 22(e)(3) of the Code and Treasury regulations thereunder. Evidence of such Disability shall be certified by a physician acceptable to both the Company and Executive. In the event that the parties are not able to agree on the choice of a 4 physician, each shall select a physician who, in turn, shall select a third physician to render such certification. All costs relating to the determination of whether Executive has incurred a Disability shall be paid by the Company. Executive agrees to submit to any examination that is reasonably required by the physician. (5) "Good Reason" means the occurrence of any of the following events without Executive's express written consent: (A) A reduction in Executive's base salary; (B) Any material breach by the Company or its successor of any provision of this Agreement; or 7. Notice Of Termination. Any termination by the Company or the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, the term "Notice Of Termination" means a written notice which indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 8. No Mitigation Required. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. 9. Post-Employment Medical Benefits. If Executive's Employment With the Company is terminated for any reason except Cause (as defined in Section 6(c)) after Executive has completed at least five (5) complete years of service with the Company or its predecessors (including, for this purpose, prior service with any corporation acquired by or merged into the Company), then the Company shall provide post-employment medical coverage in accordance with the terms and conditions of this Section 9 for a period of two years. The Company shall continue to cover Executive and his spouse (hereinafter referred to as "Spouse") and his eligible dependent children, if any, from the date of Executive's termination of employment with the Company, under the group health care plan maintained by the Company to provide major medical insurance coverage for employees and their dependents (such group medical plan or its successor(s) shall be hereinafter referred to as the "Health Care Plan"). The coverage of Executive and his Spouse under the Health Care Plan shall continue for each of their lives without interruption, but such coverage of his eligible dependent children shall continue only for such time period that they otherwise qualify for dependent coverage under the terms of the Health Care Plan. In the event of any change to the Health Care Plan following the Termination Date, Executive, his Spouse and dependents shall be treated consistently with the then-current senior officers of the Company (or its successor) with respect to the terms and conditions of coverage and other substantive provisions of the Health Care Plan. The provisions of this Section 9 shall be effective regardless of the reason for Executive's termination of employment with the Company except for Cause. 5 The continuation coverage under the Health Care Plan provided to Executive and his Spouse pursuant to this Agreement shall continue and remain in full force and effect until the later of (a) Executive's date of death or (b) his Spouse's date of death. Executive and his Spouse hereby agree and consent to acquire and maintain any and all coverage that either or both of them are entitled to at any time during their lives under the Medicare program or any similar or succeeding plan or program that is maintained by the United States Government or any agency thereof (hereinafter referred to as "Medicare"). The coverage described in the immediately preceding sentence includes, without limitation, parts A and B of Medicare and any additional or successor parts of Medicare. Executive and his Spouse further agree and consent to pay all required premiums and other costs for Medicare coverage from their personal funds. If Executive or Spouse are covered under Medicare, the "retiree" coverage provided under the Health Care Plan to such person shall be secondary payor to Medicare to the full extent permitted by law. In addition, if Executive or his Spouse or other dependents should become covered under another major medical plan maintained by another employer or other entity, such coverage shall be primary payor to the coverage provided pursuant to this Section 9 to the full extent permitted by law. Executive, on behalf of himself and his Spouse and other dependents, if any, shall be required to pay premiums for their coverage under the Health Care Plan at the rates, if any, charged by the Company to active employees who are senior officers of the Company (or its successor) at the time the premium is charged. The Company shall not be responsible for the payment of any income or other taxes which may be imposed on Executive, or on his Spouse or dependents, as the result of receiving continuation coverage under the Health Care Plan pursuant to this Section 9. 10. Conflicts Of Interest. In keeping with his fiduciary duties to Company, Executive hereby agrees that he shall not become involved in a conflict of interest, or upon discovery thereof, allow such a conflict to continue at any time during the Employment Period. Moreover, Executive agrees that he shall immediately disclose to the Board of Directors any known facts which might involve a conflict of interest of which the Board is not aware. Executive and Company recognize and acknowledge that it is not possible to provide an exhaustive list of actions or interests which may constitute a "conflict of interest." Moreover, Company and Executive recognize there are many borderline situations. In some instances, full disclosure of facts by the Executive to the Board of Directors may be all that is necessary to enable Company to protect its interests. In others, if no improper motivation appears to exist and Company's interests have not demonstrably suffered, prompt elimination of the outside interest may suffice. In egregious and material instances it may be necessary for Company to terminate Executive's employment for Cause (as defined in Section 6(c)). The Board of Directors reserves the right to take such action as, in its good faith judgment, will resolve the conflict of interest. Executive hereby agrees that any interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might adversely affect the Company or any of its affiliated entities, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Executive would or might arise, and which should be reported immediately to the Board of Directors, include, but are not limited to, any of the following: 6 (a) Ownership of more than a de minimis interest in any lender, supplier, contractor, customer or other entity with which Company or any of its affiliated entities does business; (b) Intentional misuse of information, property or facilities to which Executive has access in a manner which is demonstrably injurious to the interests of Company or any of its affiliated entities, including its business, reputation or goodwill; or (c) Materially trading in products or services connected with products or services designed or marketed by or for the Company or any of its affiliated entities. For purposes of this Agreement, "Affiliated Entity" means any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, the Company. 11. Confidential Information. (a) Confidential Information Defined. Executive hereby acknowledges that in his senior management position, he will create, acquire and have access to confidential information and trade secrets pertaining to the business of Company (hereafter "Confidential Information" as defined below). Executive hereby acknowledges that such Confidential Information is unique and valuable to Company's business and that Company could suffer irreparable injury if Confidential Information was divulged to the public or to persons or entities in competition with Company. Therefore, Executive hereby covenants and agrees to keep in strict secrecy and confidence, both during and after the Employment Period, any Confidential Information. Executive specifically agrees that he will not at any time disclose to others, use, copy or permit to be copied, except in pursuance of his duties on behalf of Company or with the prior consent of Company, Confidential Information relating to the Company or any of its affiliated entities. For purposes of this Agreement, "Confidential Information" shall mean and include, without limitation, information related to the business affairs, property, methods of operation, future plans, financial information, customer or client information, or other data which relates to the business or operations of Company or any of its affiliated entities, and other information obtained by Executive during the Employment Period which concerns the affairs of Company or any of its affiliated entities and which Company has requested be held in confidence or could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be materially embarrassing, detrimental or disadvantageous to the Company or any of its affiliated entities, or its and their directors, officers, employees or shareholders. Confidential Information, however, shall not include: (i) Information that is at the time of receipt by Executive in the public domain or is otherwise generally known in the industry or subsequently enters the public domain or becomes generally known in the industry through no fault of Executive; or 7 (ii) Information that at any time is received in good faith by Executive from a third party who was lawfully in possession of the same and had the right to disclose the same. (b) Required Disclosure. In the event that Executive is required by law which cannot be waived to disclose any Confidential Information, Executive agrees that he will provide prompt notice of such potential disclosure to Company so that an appropriate protective order may be sought and/or a waiver of compliance with the provisions of this Agreement may be granted. In the event that (i) such protection or other remedy is not obtained or (ii) Company waives in writing the compliance by Executive with this provision, Executive agrees that he may furnish only that portion of the Confidential Information which Executive is advised by written opinion of counsel is legally required to be disclosed, and Executive shall exercise reasonable effort to obtain assurances that confidential treatment will be accorded such Confidential Information. (c) Delivery Of Documents. Executive further agrees to deliver to Company at the termination of his employment, all correspondence, memoranda, notes, records, drawings, plans, customer lists or other documents, and all copies thereof made, composed or received by Executive, solely or jointly with others, and which are in Executive's possession, custody or control at such date and which relate in any manner to the past, present or anticipated business of Company or any of its affiliated entities. (d) Remedies. In the event of a breach or threatened breach of any of the provisions of this Section 11, Company shall be entitled to an injunction ordering the return of all such documents, and any and all copies thereof, and restraining Executive from using or disclosing, for his benefit or the benefit of others, in whole or in part, any Confidential Information, including, but not limited to, the Confidential Information which such documents contain, constitute or embody. Executive further agrees that any breach or threatened breach of any of the provisions of this Section 11 could cause irreparable injury to Company, for which it would have no adequate remedy at law. Nothing herein shall be construed as prohibiting Company from pursuing any other remedies available to it for any such breach or threatened breach, including the recovery of damages. 12. Property Rights. In keeping with his fiduciary duties to Company, Executive hereby covenants and agrees that during his Employment Period, and for a period of six (6) months following his Termination Date, Executive shall promptly disclose in writing to Company any and all information, ideas, concepts, improvements, discoveries, inventions and other intellectual properties, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Executive, either individually or jointly with others, and which relate to the business, products or services of Company or any of its affiliated entities. In consideration for his employment hereunder, Executive hereby specifically sells, assigns and transfers to Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries, inventions and other intellectual properties. If during the Employment Period, Executive creates any original work of authorship or other property fixed in any tangible medium of expression which (a) is the subject matter of 8 copyright (including computer programs) and (b) relates to Company's present or planned business, products, or services, whether such property is created solely by Executive or jointly with others, such property shall be deemed a work for hire, with the copyright automatically vesting in Company. To the extent that any such writing or other property is determined not to be a work for hire for whatever reason, Executive hereby consents and agrees to the unconditional waiver of "moral rights" in such writing or other property, and to assign to Company all of his right, title and interest, including copyright, in such writing or other property. Executive hereby agrees to (a) exercise reasonable effort to assist Company or its nominee in the protection of any and all property subject to this Section 12, (b) not to disclose any such property to others without the written consent of Company or its nominee, except as required by his employment hereunder, and (c) at the request of Company, to execute such assignments, certificates or other interests as Company or its nominee may from time to time deem desirable to evidence, establish, maintain, perfect, protect or enforce its rights, title or interests in or to any such property. 13. Agreement Not To Compete. Executive hereby recognizes and acknowledges that: (a) in his executive capacity with Company he will be given knowledge of, and access to, the Confidential Information (as described in Section 11); (b) in the event that Executive was to enter into competition with Company, Executive's knowledge of such Confidential Information would be of invaluable benefit to a competitor of Company, and could cause irreparable harm to Company's business interests; and (c) Executive's consent and agreement to enter into the noncompetition provisions and covenants set forth herein is an integral condition of this Agreement, without which Company would not have agreed to provide Confidential Information to Executive nor to his compensation, benefits, and other terms of this Agreement. Accordingly, in consideration for his employment, compensation, benefits, access to and entrustment of Confidential Information, and the goodwill, training and experience provided to Executive during his Employment Period, Executive hereby covenants, consents and agrees that during the Employment Period, and for a period of one (1) year after his employment is terminated for any reason except (i) termination by the Company without Cause (as defined in Section 6(c)) or termination by Executive for Good Reason (as defined in Section 6(c)) or (ii) termination of employment after expiration of the Term of Employment due to non- renewal of this Agreement by the Company pursuant to Section 4, Executive shall not, directly or indirectly, acting alone or in conjunction with others, for his own account or for the account of others, including, without limitation, as an officer, director, stockholder, owner, partner, joint venturer, employee, promoter, consultant, agent, representative, or otherwise: (a) Solicit, canvass, or accept any fees or business from any customer of Company for himself or any other person or entity engaged in a "Similar Business to Company" (as defined below); (b) Engage or participate in any Similar Business to Company within the entire continental United States (referred to herein as the "Restricted Area"); 9 (c) Request or advise any service provider, supplier, or customer to reduce or cancel any business that it may transact with Company or any of its affiliated entities; (d) Solicit, induce, or otherwise attempt to influence any employee of the Company or any of its affiliated entities, to terminate his or her relationship with the Company or any of its affiliated entities; or (e) Make any statement or perform any act intended to advance an interest of an existing or prospective competitor of the Company or any of its affiliated entities in any way that demonstrably injures the reputation, goodwill or any other business interest of Company or any of its affiliated entities. For purposes of this Agreement, "Similar Business to Company" means any business or other enterprise that is competitive with the current or planned businesses, products, services or operations of the Company or any of its affiliated entities at the time of termination of Executive's employment. For purposes of clarity and not limitation, the non-compete and other provisions of this Section 13 shall not apply to Executive if Executive's employment hereunder is terminated (a) by the Company without Cause (as defined in Section 6(c)), (b) by the Executive for Good Reason (as defined in Section 6(c)), or (c) after the Term of Employment (as defined in Section 4) has expired due to non-renewal by the Company. Executive hereby agrees that the limitations set forth in this Section 13 on his rights to compete with Company after his termination of employment are reasonable and necessary for the protection of Company. In this regard, Executive specifically agrees that such limitations as to the period of time, geographic area and types and scopes of restriction on his activities, as specified above, are reasonable and necessary to protect the goodwill and other business interests of Company. However, should the time period, the geographic area or any other non-competition provision set forth herein be deemed invalid or unenforceable in any respect, then Executive acknowledges and agrees that, as set forth in Section 14 hereof, reformation may be made with respect to such time period, geographic area or other non-competition provision in order to protect Company's reasonable business interests to the maximum permissible extent. 14. Remedies. In the event of any pending, threatened or actual breach of any of the covenants or provisions of Section 10, 11, 12 or 13, it is understood and agreed by Executive that the remedy at law for a breach of any of the covenants or provisions of these Sections may be inadequate and, therefore, Company shall be entitled to a restraining order or injunctive relief from any court of competent jurisdiction, in addition to any other remedies at law and in equity. In the event that Company seeks to obtain a restraining order or injunctive relief, Executive hereby agrees that Company shall not be required to post any bond in connection therewith. Should a court of competent jurisdiction or an arbitrator (pursuant to Section 24) declare any provision of Section 10, 11, 12 or 13 to be unenforceable due to an unreasonable restriction of duration or geographical area, or for any other reason, such court or arbitrator is hereby granted the consent of each of the Executive and Company to reform such provision and/or to grant the Company any relief, at law or in equity, reasonably necessary to protect the reasonable business 10 interests of Company or any of its affiliated entities. Executive hereby acknowledges and agrees that all of the covenants and other provisions of Sections 10, 11, 12 and 13 are reasonable and necessary for the protection of the Company's reasonable business interests. Executive hereby agrees that if the Company prevails in any action, suit or proceeding with respect to any matter arising out of or in connection with Section 10, 11, 12 or 13, Company shall be entitled to all equitable and legal remedies, including, but not limited to, injunctive relief and compensatory damages. 15. Defense Of Claims. Executive agrees that during the Employment Period and for a period of two (2) years after his Termination Date, upon reasonable request from the Company, he will cooperate with the Company and its affiliated entities in the defense of any claims or actions that may be made by or against the Company or any of its affiliated entities that affect his prior areas of responsibility, except if Executive's reasonable interests are adverse to the Company (or affiliated entity) in such claim or action as determined by Executive or his counsel. To the extent travel is required to comply with the requirements of this Section 15, the Company shall, to the extent possible, provide Executive with notice at least 10 days prior to the date on which such travel would be required. The Company agrees to promptly pay or reimburse Executive upon demand for all of his reasonable travel and other direct expenses incurred, or to be reasonably incurred, to comply with his obligations under this Section 15. 16. Determinations By The Committee. (a) Termination Of Employment. Any question as to whether and when there has been a termination of Executive's employment, and the cause of such termination, shall be determined in good faith by the Committee. (b) Compensation. Any question regarding salary, bonus and other compensation payable to Executive pursuant to this Agreement shall be determined in good faith by the Committee. 17. Withholdings: Right Of Offset. Company may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling, (b) all other normal employee deductions made with respect to Company's employees generally, and (c) any advances made to Executive and owed to Company. 18. Nonalienation. The right to receive payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by Executive, his dependents or beneficiaries, or to any other person who is or may become entitled to receive such payments hereunder. The right to receive payments hereunder shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any person who is or may become entitled to receive such payments, nor may the same be subject to attachment or seizure by any creditor of such person under any circumstances, and any such attempted attachment or seizure shall be void and of no force and effect. 19. Incompetent Or Minor Payees. Should the Board of Directors determine that any person to whom any payment is payable under this Agreement has been determined to be 11 legally incompetent or is a minor, any payment due hereunder may, notwithstanding any other provision of this Agreement to the contrary, be made in any one or more of the following ways: (a) directly to such minor or person; (b) to the legal guardian or other duly appointed personal representative of the person or estate of such minor or person; or (c) to such adult or adults as have, in the good faith knowledge of the Board of Directors, assumed custody and support of such minor or person; and any payment so made shall constitute full and complete discharge of any liability under this Agreement in respect to the amount paid. 20. Indemnification. The Company shall, to the fullest extent permitted by law, indemnify and hold harmless the Executive from and against any and all liability arising from his service as an employee, officer or director of the Company and its affiliates. To the fullest extent permitted by law, the Company shall retain counsel to defend Executive or shall advance legal fees and expenses to Executive for counsel selected by Executive in connection with any litigation or proceeding related to service as an employee, officer and director of the Company or any of its affiliates. This Section 20 shall not limit in any way the rights of Executive to any other indemnification from the Company, as a matter of law, contract or otherwise. 21. Severability. It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 24), the parties hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. 22. Title And Headings; Construction. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Any and all Exhibits referred to in this Agreement are, by such reference, incorporated herein and made a part hereof for all purposes. The words "herein", "hereof", "hereunder" and other compounds of the word "here" shall refer to the entire Agreement and not to any particular provision hereof. 23. Choice Of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. 24. Arbitration. (a) Arbitrable Matters. If any dispute or controversy arises between Executive and the Company as to their respective rights or obligations under this Agreement, then either party may submit the dispute or controversy to arbitration under the then-current National Employment Dispute Resolution Rules of the American Arbitration Association (AAA) (the "Rules"); provided, however, the Company shall retain its rights to seek a restraining order or injunctive relief pursuant to Section 14. Any arbitration hereunder shall be conducted before a panel of three arbitrators unless the parties mutually agree to a single arbitrator. The site for any arbitration hereunder shall be either Harris County or Fort Bend County, Texas, unless otherwise mutually agreed by the parties. 12 (b) Submission To Arbitration. The party submitting any matter to arbitration shall do so in accordance with the Rules. Notice to the other party shall state the question or questions to be submitted for decision or award by arbitration. Notwithstanding any provision in this Section 24, Executive shall be entitled to seek specific performance of the Executive's right to be paid during the pendency of any dispute or controversy arising under this Agreement. In order to prevent irreparable harm, the arbitrator may grant temporary or permanent injunctive or other equitable relief for the protection of property rights. (c) Arbitration Procedures. The arbitrator shall set the date, time and place for each hearing, and shall give the parties advance written notice in accordance with the Rules. Any party may be represented by counsel or other authorized representative at any hearing. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S) 1 et. seq. (or its successor). The arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the State of Texas to the claims asserted to the extent that the arbitrator determines that federal law is not controlling. (d) Compliance With Award. (i) Any award of an arbitrator shall be final and binding upon the parties to such arbitration, and each party shall immediately make such changes in its conduct or provide such monetary payment or other relief as such award requires. The parties agree that the award of the arbitrator shall be final and binding and shall be subject only to the judicial review permitted by the Federal Arbitration Act. (ii) The parties hereto agree that the arbitration award may be entered with any court having jurisdiction and the award may then be enforced as between the parties, without further evidentiary proceedings, the same as if entered by the court at the conclusion of a judicial proceeding in which no appeal was taken. The Company and the Executive hereby agree that a judgment upon any award rendered by an arbitrator may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (e) Costs And Expenses. Each party shall pay any monetary amount required by the arbitrator's award, and the fees, costs and expenses for its own counsel, witnesses and exhibits, unless otherwise determined by the arbitrator in the award. The compensation and costs and expenses assessed by the arbitrator and the AAA shall be paid by the Company, unless otherwise determined by the arbitrator in the award such as, for example, if the arbitrator determines that Executive's claim was frivolous or not brought in good faith. If court proceedings to stay litigation or compel arbitration are necessary, the party who unsuccessfully opposes such proceedings shall pay all associated costs, expenses, and attorney's fees which are reasonably incurred by the other party as determined by the arbitrator. 13 25. Binding Effect: Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and to their respective heirs, executors, beneficiaries, personal representatives, successors and permitted assigns hereunder, but otherwise this Agreement shall not be for the benefit of any third parties. 26. Entire Agreement And Amendment. This Agreement contains the entire agreement of the parties with respect to Executive's employment and the other matters covered herein; moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the parties hereto concerning the subject matter hereof. This Agreement may be amended, waived or terminated only by a written instrument executed by both parties hereto. 27. Survival Of Certain Provisions. Wherever appropriate to the intention of the parties hereto, the respective rights and obligations of said parties, including, but not limited to, the rights and obligations set forth in Sections 6 through 16 and 24 hereof, shall survive any termination or expiration of this Agreement. 28. Waiver Of Breach. No waiver by either party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either party hereto to take any action by reason of any breach will not deprive such party of the right to take action at any time while such breach continues. 29. Successors And Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its affiliated entities, and its and their successors, and upon any person or entity acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the business and/or assets of Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, no such assumption shall relieve the Company of its obligations hereunder. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees or other Beneficiary. In the event of the death of Executive while any amount would still be payable hereunder if such death had not occurred, all such amounts, unless otherwise specifically provided herein, shall be paid in accordance with the terms of this Agreement to Executive's Beneficiary. "Beneficiary", for this purpose, shall mean the person or persons designated by Executive in writing to receive any benefits payable to Executive hereunder in the event of his death or, if no such person is so designated, Executive's surviving spouse if any, or, if not, then Executive's estate. No Beneficiary designation shall be effective unless it is in writing and received by the Company prior to the date of Executive's death. 14 30. Notices. Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (a) when delivered in person or sent by facsimile transmission, (b) on the first business day after it is sent by air express overnight courier service, or (c) on the third business day following deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid and addressed, to the following address, as applicable: (i) If to Company, addressed to: Imperial Sugar Company P.O. Box 9 Sugar Land, Texas 77487-0009 Attention: President (ii) If to Executive, addressed to the address set forth below his name on the execution page hereof; or to such other address as either party may have furnished to the other party in writing in accordance with this Section 30. 31. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party hereto, but together signed by both parties. 32. Executive Acknowledgment. Executive acknowledges that (a) he is knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, (b) he has read the Agreement, and (c) he understands its terms and conditions. Executive represents that he is free to enter into this Agreement including, without limitation, that he is not subject to any other contract of employment or covenant not to compete that would conflict with his duties under this Agreement. 33. Termination Of Prior Employment Agreement/Survival Of Other Agreements. After this Agreement is effective and enforceable upon execution of this Agreement by the parties hereto, that certain Employment Agreement between the Company and _______________ dated _________________ shall terminate and be superseded in all respects by this Agreement. All other agreements or arrangements between the Executive and Company in effect on the date hereof shall remain fully effective. [Signature page follows.] 15 IN WITNESS WHEREOF, Executive has hereunto set his hand and Company has caused this Agreement to be executed in its name and on its behalf by its duly authorized officer, to be effective as of the Effective Date. WITNESS: EXECUTIVE: Signature: Signature: -------------------------- ---------------------------- Name: Name: ------------------------------- --------------------------------- Date: Date: ------------------------------- --------------------------------- Address for Notices: ------------------ ----------------------------- ----------------------------- ----------------------------- ATTEST: IMPERIAL SUGAR COMPANY: By: By: --------------------------------- ----------------------------------- Title: Its: ------------------------------ ---------------------------------- Name: Name: ------------------------------- --------------------------------- Date: Date: ------------------------------- --------------------------------- 16 EX-10.A3 7 dex10a3.txt SCHEDULE OF EMPLOYMENT AGREEMENTS Exhibit 10(a)(3) SCHEDULE OF EMPLOYMENT AGREEMENTS Employee Form of Agreement - -------- ----------------- D. W. Ehrenkranz ......................................... B William F. Schwer ......................................... A W. J. Smith ............................................... B Ben A. Oxnard, Jr ......................................... B Walter C. Lehners ......................................... B Mark S. Flegenheimer ...................................... B Karen L. Mercer ........................................... B EX-10.F 8 dex10f.txt LONG-TERM INCENTIVE PLAN EXHIBIT 10(f) REORGANIZED IMPERIAL LONG-TERM INCENTIVE PLAN IMPERIAL SUGAR COMPANY LONG TERM INCENTIVE PLAN ARTICLE ONE Scope and Purpose of the Plan 1.1 Plan. This Imperial Sugar Company Long Term Incentive Plan ("Plan") was adopted by the Imperial Sugar Company (the "Company") in accordance with and subject to the terms and conditions of the Company's Second Amended and Restated Joint Plan of Reorganization (the "Plan of Reorganization") in Case Nos. 01-00140-01-00176 before the United States Bankruptcy Court for the District of Delaware to reward certain key employees, who provide services to or for the Company or its Subsidiaries. 1.2 Objectives. This Plan is designed to attract and retain key employees, the Company or any Subsidiaries which may later be created or acquired in order to encourage a sense of proprietorship and to stimulate the active interest of such persons in the development and financial success of the Company and such Subsidiaries. These objectives are to be accomplished by making Awards under this Plan. ARTICLE TWO General Definitions 2.1 General Definitions. As used herein, the terms set forth below shall have the following respective meanings: (a) "Authorized Officer" means the Chairman of the Board or the Chief Executive Officer of the Company (or any other senior officer of the Company to whom either the Chairman or the Chief Executive Officer shall delegate the authority to execute any Award Agreement). (b) "Award" means the grant of any Option, SAR, Stock Award, Cash Award or Performance Award, whether granted singly, in combination or in tandem, to an Employee (or an individual expected to become an Employee within six months of the date of the Award) pursuant to such applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. (c) "Award Agreement" means a written agreement between the Company and an Employee setting forth the terms, conditions and limitations applicable to an Award. (d) "Board" means the Board of Directors of the Company. (e) "Cash Award" means an Award denominated in cash. (f) "Change of Control" means the occurrence of one or more of the following events: (i) The occurrence of an event or series of events that would be required to be reported in a response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or any successor regulation of similar import; (ii) After the date the Board adopts this Plan, a change in ownership of the Company through a transaction or series of transactions, such that any Person (as described in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the Beneficial Owner (as described in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (iii) A change in identity of a majority of the members of the Board within any twelve month period, excluding any changes in member identity approved by a majority of the Board at the time of such change; (iv) A transfer, sale or disposition of 50% or more of the Company's assets through a transaction or series of transactions during any month period; or 2 (v) The execution or approval by the Board (or by the shareholders if shareholder approval is required by applicable law or under the terms of any relevant agreement) of any agreement, the consummation of which would result in one of the foregoing. (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (h) "Committee" means the Compensation Committee of the Board or a committee designated by the Board to administer the Plan. (i) "Common Stock" means the Common Stock of the Company. (j) "Company" means the Imperial Sugar Company, a Texas corporation. (k) "Director" means an individual serving as a member of the Board. (l) "Disability" means permanent and total disability as defined in Code section 22(e)(3). (m) "Dividend Equivalents" means, with respect to shares of Restricted Stock that are to be issued at the end of the Restriction Period (including conditional stock), an amount equal to all dividends and other distributions (or the economic equivalent thereof) that are payable to stockholders of record during the Restriction Period on a like number of shares of Common Stock. (n) "Effective Date" means August 29, 2001. (o) "Employee" means an employee of the Company or a Subsidiary (if any). (p) "Exchange Act" means the Securities and Exchange Act of 1934, as amended. (q) "Fair Market Value" of a share of Common Stock means, as of a particular date, (i) if shares of Common Stock are listed on a national securities exchange, the mean between the highest and lowest sales price per share of Common Stock reported on the consolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported or, at the discretion of the Committee, the price prevailing on the exchange at the time of exercise, (ii) if shares of Common Stock are not so listed but are quoted on the Nasdaq National Market, the mean between the highest and lowest sales price per share of Common Stock reported by the Nasdaq National Market on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported or, at the discretion of the Committee, the price prevailing on the exchange at the time of exercise, (iii) if the Common Stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations are available, as reported by the Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the National Quotation Bureau Incorporated or, at the discretion of the Committee, the price prevailing on the exchange at the time of exercise or (iv) if shares of Common Stock are not publicly traded, the most recent value determined by an independent appraiser appointed by the Company for such purpose. (r) "Incentive Option" means an Option that is intended to comply with the requirements set forth in Section 422 of the Code. (s) "Nonqualified Stock Option" means an Option that is not an Incentive Option. (t) "Option" means a right to purchase a specified number of shares of Common Stock at a specified price. (u) "Participant" means an Employee to whom an Award has been made under this Plan. (v) "Performance Award" means an Award made to an Employee pursuant to this Plan that is subject to the attainment of one or more Performance Goals. 3 (w) "Performance Goal" means a standard established by the Committee to determine in whole or in part whether a Performance Award shall be earned. (x) "Plan" means Imperial Sugar Company Long Term Incentive Plan, as amended from time to time. (y) "Restricted Stock" means any Common Stock that is restricted or subject to forfeiture provisions. (z) "Restriction Period" means a period of time beginning as of the date upon which an Award of Restricted Stock is made pursuant to this Plan and ending as of the date upon which the Common Stock subject to such Award is no longer restricted or subject to forfeiture provisions. (aa) "SAR" means a right to receive a payment, in cash or Common Stock, equal to the excess of the Fair Market Value (or other specified valuation) of a specified number of shares of Common Stock on the date the right is exercised over a specified strike price, in each case, as determined by the Committee. (bb) "Stock Award" means an award in the form of shares of Common Stock or units denominated in shares of Common Stock. (cc) "Stock Based Awards Limitations" shall have the meaning set forth in Article Seven. (dd) "Subsidiary" means (i) in the case of a corporation, any corporation of which the Company directly or indirectly owns shares representing more than 50% of the combined voting power of the shares of all classes or series of capital stock of such corporation which have the right to vote generally on matters submitted to a vote of the stockholders of such corporation and (ii) in the case of a partnership or other business entity not organized as a corporation, any such business entity of which the Company directly or indirectly owns more than 50% of the voting, capital or profits interests (whether in the form of partnership interests, membership interests or otherwise). ARTICLE THREE Eligibility 3.1 Eligibility for Awards. Individuals eligible for Awards under this Plan are (i) those key Employees who hold positions of responsibility and whose performance, in the judgment of the Committee, can have a significant effect on the success of the Company and its Subsidiaries and (ii) individuals who are expected to become such Employees within six months of the date of the Award. ARTICLE FOUR Shares of Common Stock Subject to the Plan 4.1 Maximum Number of Shares Available for Awards. Subject to the provisions of Article Fifteen, there shall be available for Awards under this Plan granted wholly or partly in Common Stock (including rights or options that may be exercised for or settled in Common Stock) an aggregate of 1,234,568 shares of Common Stock. All 1,234,568 shares of Common Stock shall be available for Incentive Options. The number of shares of Common Stock that are the subject of Awards under this Plan, if forfeited or terminated, unexercised upon expiration, are settled in cash in lieu of Common Stock or in a manner such that all or some of the shares covered by an Award are not issued to a Participant, or if exchanged for Awards that do not involve Common Stock, shall again immediately become available for Awards hereunder. The Committee may from time to time adopt and observe such procedures concerning the counting of shares against the Plan maximum as it may deem appropriate. The Board and the appropriate officers of the Company shall from time to time take whatever actions are necessary to file any required documents with governmental authorities, stock exchanges and transaction reporting systems to ensure that shares of Common Stock are available for issuance pursuant to Awards. 4 ARTICLE FIVE Administration of the Plan 5.1 The Committee. This Plan shall be administered by the Committee. The Committee shall consist of at least two Nonemployee Directors. Subject to the provisions hereof, the Committee shall have full and exclusive power and authority to administer this Plan and to take all actions that are specifically contemplated hereby or are necessary or appropriate in connection with the administration hereof. The Committee shall also have full and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as it may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan. The Committee may, in its discretion, subject only to the legal requirements or restrictions which relate to Awards, provide for the extension of the exercisability of an Award, accelerate the vesting or exercisability of an Award, eliminate or make less restrictive any restrictions contained in an Award, waive any restriction or other provision of this Plan or an Award or otherwise amend or modify an Award in any manner that is either (i) not adverse to the Participant to whom such Award was granted or (ii) consented to by such Participant. The Committee may make an Award to an individual whom it expects to become an Employee within the next six months, provided that such award shall be subject to the individual actually becoming an Employee within such time period. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to further the Plan purposes. Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned. 5.2 Liability of Committee Members. No member of the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of Section 5.3 of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute. 5.3 Delegation of Authority. The Committee may delegate to the Chief Executive Officer and to other senior officers of the Company its duties under this Plan pursuant to such conditions or limitations as the Committee may establish. ARTICLE SIX Awards 6.1 Awards Generally. The Committee shall determine the type or types of Awards to be made under this Plan and shall designate from time to time the individuals who are to be the recipients of such Awards. Each Award shall be embodied in an Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee in its sole discretion and shall be signed by the individual to whom the Award is made and by an Authorized Officer for and on behalf of the Company. Awards may consist of those reflected in Sections 6.2 through 6.6 and may be granted singly, in combination or in tandem. Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under this Plan or any other employee plan of the Company or any of its Subsidiaries, including the plan of any acquired entity. An Award may provide for the grant or issuance of additional, replacement or alternative Awards upon the occurrence of specified events, including the exercise of the original Award granted to a Participant. All or part of an Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Company and its Subsidiaries, achievement of specific business objectives, increases in specified indices, attainment of specified growth rates and other comparable measurements of performance. Upon the termination of employment by a Participant any unexercised, deferred, unvested or unpaid Awards shall be treated as set forth in the applicable Award Agreement. 5 6.2 Option. An Award may be in the form of an Option. An Option awarded pursuant to this Plan may consist of an Incentive Option or a Nonqualified Stock Option. The price at which shares of Common Stock may be purchased upon the exercise of an Option shall not be less than the Fair Market Value of the Common Stock on the date of grant; provided, however, that the initial exercise price of any Options granted to the Initial Management of the Company and its subsidiaries, pursuant to the grant allocation set forth in the Plan of Reorganization, shall not exceed the lesser of (i) $9.00 per share or (ii) the initial exercise price determined by the Committee. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Option awarded pursuant to this Plan, including the term of any Option and the date or dates upon which it becomes exercisable, shall be determined by the Committee. Capitalized terms used in this section 6.2 that are not otherwise defined herein shall have the meanings assigned to such terms in the Plan of Reorganization. 6.3 SAR. An Award may be in the form of an SAR. The terms, conditions and limitations applicable to any SAR awarded pursuant to this Plan, including the term of any SAR and the date or dates upon which it becomes exercisable, shall be determined by the Committee. 6.4 Stock Award. An Award may be in the form of a Stock Award, including the award of Restricted Stock or conditional stock units. The terms, conditions and limitations applicable to any Stock Award granted pursuant to this Plan shall be determined by the Committee. 6.5 Cash Award. An Award may be in the form of a Cash Award. The terms, conditions and limitations applicable to any Cash Award granted pursuant to this Plan shall be determined by the Committee. 6.6 Performance Award. Without limiting the type or number of Awards that may be made under the other provisions of this Plan, an Award may be in the form of a Performance Award. A Performance Award shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre- established, objective Performance Goals established by the Committee prior to the earlier to occur of (i) 90 days after the commencement of such period of service to which the Performance Goal relates and (ii) the lapse of 25% of such period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain. A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met. Such a Performance Goal may be based on one or more business criteria that apply to the individual, one or more business units of the Company, or the Company as a whole, and may include one or more of the following: increased revenue; net income; earnings before interest, taxes, depreciation and amortization; other earnings measures; economic value added; cash flow measures; stock price; market share; return on equity or capital; return on revenue measures; costs; and safety and environmental performance measures. Unless otherwise stated, such a Performance Goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria). In interpreting Plan provisions applicable to Performance Goals and Performance Awards, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and Treasury Regulation (S) 1.162-27(e)(2), and the Committee in establishing such goals and interpreting the Plan shall be guided by such provisions. Prior to the payment of any compensation based on the achievement of Performance Goals, the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Performance Awards made pursuant to this Plan shall be determined by the Committee. ARTICLE SEVEN Award Limitations The following limitations shall apply to any Award made hereunder: (1) no individual may be granted, during any one calendar year period, Awards consisting of Options or SARs that are exercisable for more than 300,000 shares of Common Stock; 6 (2) no individual may be granted, during any one calendar year period, Stock Awards covering or relating to more than 300,000 shares of Common Stock (the limitation set forth in this clause (2), together with the limitation set forth in clause (1) above and the limitation set forth in Section 8.2 of this Plan, being hereinafter collectively referred to as the "Stock Based Awards Limitations"); and (3) no individual may be granted Awards consisting of cash or in any other form permitted under this Plan (other than Awards consisting of Options or SARs or otherwise consisting of shares of Common Stock or units denominated in such shares) in respect of any one calendar year period having a value determined on the date of grant in excess of $3,000,000. ARTICLE EIGHT Payment of Awards 8.1 Payment of Awards Generally. Payment of Awards may be made in the form of cash or Common Stock, or a combination thereof, and may include such restrictions as the Committee shall determine, including, in the case of Common Stock, restrictions on transfer and forfeiture provisions. If payment of an Award is made in the form of Restricted Stock, the applicable Award Agreement relating to such shares shall specify whether they are to be issued at the beginning or end of the Restriction Period. In the event that shares of Restricted Stock are to be issued at the beginning of the Restriction Period, the certificates evidencing such shares (to the extent that such shares are so evidenced) shall contain appropriate legends and restrictions that describe the terms and conditions of the restrictions applicable thereto. In the event that shares of Restricted Stock are to be issued at the end of the Restricted Period, the right to receive such shares shall be evidenced by book entry registration or in such other manner as the Committee may determine. 8.2 Deferral. With the approval of the Committee, amounts payable in respect of Awards may be deferred and paid either in the form of installments or as a lump-sum payment. The Committee may permit selected Participants to elect to defer payments of some or all types of Awards in accordance with procedures established by the Committee. Any deferred payment of an Award, whether elected by the Participant or specified by the Award Agreement or by the Committee, may be forfeited if and to the extent that the Award Agreement so provides. 8.3 Dividends, Earnings and Interest. Rights to dividends or Dividend Equivalents may be extended to and made part of any Award consisting of shares of Common Stock or units denominated in shares of Common Stock, subject to such terms, conditions and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest and other earnings on deferred cash payments and on Dividend Equivalents for Awards consisting of shares of Common Stock or units denominated in shares of Common Stock. 8.4 Substitution of Awards. Subject to the limitations of Section 5.1 and Article Seven, at the discretion of the Committee, a Participant who has been granted an Award may be offered an election to substitute an the Award received for another Award or Awards of the same or different type. 8.5 Cash-out of Awards. At the discretion of the Committee, an Award that is an Option or SAR may be settled by a cash payment equal to the difference between the Fair Market Value per share of Common Stock on the date of exercise and the exercise price of the Award, multiplied by the number of shares with respect to which the Award is exercised. 7 ARTICLE NINE Option Exercise The price at which shares of Common Stock may be purchased under an Option shall be paid in full at the time of exercise in cash or, if elected by the optionee, the optionee may purchase such shares by means of tendering Common Stock or surrendering another Award, including Restricted Stock, valued at Fair Market Value on the date of exercise, or any combination thereof. The Committee shall determine acceptable methods for Participants to tender Common Stock or other Awards; provided that any Common Stock that is or was the subject of an Award may be so tendered only if it has been held by the Participant for six months. The Committee may provide for procedures to permit the exercise or purchase of such Awards by use of the proceeds to be received from the sale of Common Stock issuable pursuant to an Award. Unless otherwise provided in the applicable Award Agreement, in the event shares of Restricted Stock are tendered as consideration for the exercise of an Option, a number of the shares issued upon the exercise of the Option, equal to the number of shares of Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock so submitted as well as any additional restrictions that may be imposed by the Committee. The Committee may adopt additional rules and procedures regarding the exercise of Options from time to time, provided that such rules and procedures are not inconsistent with the provisions of this paragraph. ARTICLE TEN Change of Control 10.1. Change of Control. In the event of a "Change of Control" of the Company, the Committee may, in its discretion, without obtaining shareholder approval, take any one or more of the following actions, with respect to any Participant: (a) Accelerate the exercise dates of any or all SARs or Options or make some or all such SARs or Options immediately fully vested and exercisable; (b) Accelerate the restriction (lapse of forfeiture provision) period of any Restricted Stock subject to restrictions; (c) Grant SARs to holders of outstanding Options; (d) Pay cash to any or all holders of Options in exchange for the cancellation of their outstanding Options; (e) Make payment for any outstanding Performance Awards based on such amounts as the Committee may determine; (f) Grant new Awards to any Participants; or (g) Make any other adjustments or amendments to outstanding Awards and substitute new Awards for outstanding Awards. ARTICLE ELEVEN Taxes The Company shall have the right to deduct applicable taxes from any Award payment and withhold, at the time of delivery or vesting of cash or shares of Common Stock under this Plan, an appropriate amount of cash or number of shares of Common Stock or a combination thereof for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee may also permit withholding to be satisfied by the transfer to the Company of shares of Common Stock theretofore owned by the holder of the Award with respect to which withholding is 8 required. If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made. The Committee may provide for loans, on either a short term or demand basis, from the Company to a Participant to permit the payment of taxes required by law. ARTICLE TWELVE Amendment, Modification, Suspension or Termination The Board may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that (i) no amendment or alteration that would adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant and (ii) no amendment or alteration shall be effective prior to its approval by the stockholders of the Company to the extent such approval is required by applicable legal requirements. ARTICLE THIRTEEN Assignability Unless otherwise determined by the Committee and provided in the Award Agreement, no Award or any other benefit under this Plan shall be assignable or otherwise transferable, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. The Committee may prescribe and include in applicable Award Agreements other restrictions on transfer. Any attempted assignment of an Award or any other benefit under this Plan in violation of this Article Fourteen shall be null and void. ARTICLE FOURTEEN Adjustments 14.1 General. The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above. 14.2 Following Subdivision of Consolidation. In the event of any subdivision or consolidation of outstanding shares of Common Stock, declaration of a dividend payable in shares of Common Stock or other stock split, then (i) the number of shares of Common Stock reserved under this Plan, (ii) the number of shares of Common Stock covered by outstanding Awards in the form of Common Stock or units denominated in Common Stock, (iii) the exercise or other price in respect of such Awards, (iv) the appropriate Fair Market Value and other price determinations for such Awards and (v) the Stock Based Awards Limitations shall each be proportionately adjusted by the Board to reflect such transaction. In the event of any other recapitalization or capital reorganization of the Company, any consolidation or merger of the Company with another corporation or entity, the adoption by the Company of any plan of exchange affecting the Common Stock or any distribution to holders of Common Stock of securities or property (other than normal cash dividends or dividends payable in Common Stock), then (i) the number of shares of Common Stock covered by outstanding Awards in the form of Common Stock or units denominated in Common Stock, (ii) the exercise or other price in respect of such Awards, (iii) the 9 appropriate Fair Market Value and other price determinations for such Awards and (iv) the Stock Based Awards Limitations shall each be proportionately adjusted by the Board to reflect such transaction; provided that such adjustments shall only be such as are necessary to maintain the proportionate interest of the holders of the Awards and preserve, without exceeding, the value of such Awards. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board shall be authorized (x) to issue or assume Awards by means of substitution of new substitute Awards, as appropriate, for previously issued Awards or to assume previously issued Awards as part of such adjustment or (y) to cancel the Awards that are Options or SARs by giving the holder notice and opportunity to exercise for 30 days prior to such cancellation. Any substitute Awards shall not be subject to the limitations on Common Stock available for Awards under Section 4.1 or the limitations of Article Seven. ARTICLE FIFTEEN Restrictions No Common Stock or other form of payment shall be issued with respect to any Award unless the Company shall be satisfied based on the advice of its counsel that such issuance will be in compliance with applicable federal and state securities laws. Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation and any applicable federal or state securities law. The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions. ARTICLE SIXTEEN Miscellaneous Provisions 16.1 Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights thereto under this Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto, nor shall this Plan be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to an Award of cash, Common Stock or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan. 16.2 Governing Law. This Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, shall be governed by and construed in accordance with the laws of the State of Texas. 16.3 Effective Date. This Plan shall be effective, without need for further action, including shareholder approval, on the date on which the Second Amended and Restated Joint Plan of Reorganization in Case No. 01-00140 before United States Bankruptcy Court for the District of Delaware becomes effective. 10 EX-10.G 9 dex10g.txt INDEPENDENT CONSULTING AGREEMENT EXHIBIT 10(g) CONSULTING AGREEMENT THIS CONSULTING AGREEMENT ("Agreement") is made by Imperial Sugar Company ("Company") and Robert J. McLaughlin ("McLaughlin") (the "Consultant"), this 22nd day of October, 2001. RECITALS A. Company is presently engaged, among other things, in the business of manufacturing, selling, marketing, and shipping raw sugar, refined sugar, and related by-products. B. Consultant possesses considerable management knowledge and senior corporate officer expertise about the Company, its customers, and the raw and refined sugar industry. C. Company and Consultant desire to enter into an agreement whereby Consultant will be available to the Company in a senior management capacity. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Company and Consultant agree: 1. Agreement to Retain and to Render Services. The Company engages Consultant and Consultant accepts such engagement, to provide senior management consulting services to the Company during the term of this Agreement. Consultant shall render such consulting services as requested by the Board of Directors of the Company and outlined in its letter to McLaughlin of November 9, 2001 (Exhibit 1A). 2. Term. The term of this Agreement shall commence on October 22, 2001 and shall continue in full force and effect until April 30, 2002, or until such time as mutually agreed upon by Company and Consultant for the purpose of completing the tasks contemplated under this contract. 3. Consulting Fee. All fees shall be remitted to The Sutter Group however, McLaughlin shall be the only provider of management services and expertise to the Company. The fee arrangement is outline in Exhibit 1A. 4. Non-employee Status/Indemnification. For all purposes under this Agreement, Consultant shall be deemed to be an independent contractor and not an employee of the Company. Consultant agrees that he is not eligible to participate in any of the Company's employee benefit plans, programs, or policies, Consultant agrees he will not represent to any other individual or entity that he is an employee of the Company. 5. Confidentiality. Requirements are outlined in Exhibit 1A. 6. Indemnification. See Exhibit 1A. 7. Entire Agreement. This Agreement contains the entire understanding between the parties. It may not be changed orally, but only by agreement in writing signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. 8. Waiver. The failure of either party to insist in any one or more instances upon the performance of any term or condition of this Agreement shall not be construed as a waiver of future performance of any such term or condition, but the obligations of either party with respect thereto shall continue in full force and effect. 9. Severability. If any provision or part of a provision of this Agreement shall be determined to be void and unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall remain valid and enforceable. 10. Assignment. Neither the Company nor Consultant may assign this Agreement without the express written consent of the non-assigning party. 11. Binding Effect. This Agreement shall be binding upon, and inure to the, benefit of, the parties hereto and their respective successors, heirs, and permitted assigns. 12. Applicable Law. Texas law shall govern the validity, construction, interpretation, and effect of this Agreement. The language contained herein shall be deemed to be that negotiated and approved by both parties and no rule of strict construction shall be applied against either party. IN WITNESS WHEREOF, Imperial Sugar Company has caused its duly authorized officers to execute this Agreement and affix its corporate seal hereto, and Robert J. McLaughlin has hereunto set his hand and seal us of the day and year first above written. Imperial Sugar Company By: /s/ James J. Gaffney ------------------------ Its: Director ------------------------ /s/ Robert J. McLaughlin ------------------------- Robert J. McLaughlin 2 November 9, 2001 Robert J. McLaughlin The Sutter Group 700 Larkspur Landing, Ste 199 Larkspur, CA 94939 Dear Bob: This letter will outline the terms of the retention of The Sutter Group and its appointment of you to act as President and CEO (Phase I) of Imperial Sugar Company in addition to your duties as Chairman of the Board. The term of the initial phase of this engagement shall be October 22, 2001 through April 30, 2002 serving at the pleasure of the Board of Directors. Thereafter you shall resume solely the duties of Chairman of the Board (Phase II). You shall commit fifteen (15) business days per month during Phase I to corporate activity and shall receive remuneration of $75,000 per month (paid semi-monthly in arrears) for services to be outlined herein. During Phase I, in the event you devote more than fifteen (15) business days per month in performing your duties, it will be necessary for you to inform the Chairman of the Compensation Committee of the need and obtain his approval to commit the time. You will be compensated at the rate of $5,000 per day for such additional time. Compensation during Phase II shall be $8,750 per month. If a successor President and CEO is recruited and hired during Phase I, you shall receive the Phase I contracted fees through April 30, 2002. You will have a bonus opportunity of $250,000 to be paid at termination of Phase I assignment for achieving objectives to be agreed upon by you and the Board of Directors, the determination of achievement of these goals shall be within the sole discretion of the Board of Directors. The general objectives will be described in Exhibit A attached hereto and they will be finalized after the November 9, 2001 Board of Directors Meeting. You shall receive an option grant of 1% of the outstanding common stock of the company (circa 112,345 shares) vesting equally over three years. Vesting of options would fully accelerate during a change in control. You shall not be eligible for any other option grants or opportunities unless later specifically amended by the Board of Directors. In addition to generally accepted business, travel and entertainment expenses, the Company shall provide reimbursement for the following items as incurred during Phase I: a. An apartment in the Houston metropolitan area. b. Weekly return trips to your domicile in the San Francisco, CA area. c. Health club membership in Houston. d. You shall submit all requests for expense reimbursement to W.F. Schwer, Executive Vice President for review and approval or referral to the Executive Compensation Committee. If this independent contractor relationship is terminated by the Board of Directors other than for cause prior to April 30, 2002, you shall receive the contracted monthly fee for the remaining term of Phase I prorated for partial months of service. If terminated for cause, you shall be compensated only through the effective date of termination. The Sutter Group shall perform the services under the Agreement as an independent contractor. The Sutter Group shall have the right to control and use its discretion as to the manner of the performance of the services to be provided, in that the result of The Sutter Group's services and not the means by which they are accomplished is of primary importance to the Company. The Company shall not withhold FICA taxes or Federal or State income taxes from The Sutter Group's fees and shall not make any payments of employer FICA or other taxes with respect to The Sutter Group's fees. The Sutter Group shall be responsible for paying all applicable income taxes on fees paid hereunder. Neither The Sutter Group nor its staff shall participate in any of the Company's employee benefits or profit sharing programs. The Sutter Group agrees that it will not divulge to third parties, without the written consent of the Company, any information obtained from or through the Company in connection with the performance of this Agreement, unless (a) the information was known prior to obtaining same from the Company, (b) the information is, at the time of disclosure by the Company, then in the public domain, or (c) the information is obtained by The Sutter Group from a third party who did not receive same, directly or indirectly, from the Company or who received it from the Company without confidentiality restriction. The Sutter Group further agrees that it will not, without the prior written consent of the Company, disclose to any third party any information relating to the Company developed by The Sutter Group in the performance of this Agreement, except to the extent that said information falls within one of the categories described in (a), (b), or (c) above. Imperial Sugar Company does hereby indemnify The Sutter Group, TSG personnel, subcontractors and related parties (the "Indemnitee"), performing services, under this agreement from any indirect, special, incidental or consequential damages of any kind or nature whatsoever. The Company shall indemnify, hold harmless and defend the indemnitee from and against any and all claims, actions, damages, demands, judgments, settlements, costs and liabilities of any kind or nature whatsoever involving or against the indemnitee arising out of the services performed hereunder or any act or omission in the performance thereof; provided, however, that such indemnification, shall not apply to damages resulting solely from the indemnitee willful, reckless or gross negligent misconduct. The Company will wire transfer $75,000 to you immediately, consisting of $37,500 for the period October 22-31, 2001 and $37,500 for the period November 1-15, 2001. 2 Please indicate your agreement with these terms by signing in the space provided below. Sincerely, /s/ James J. Gaffney James J. Gaffney For the Compensation Committee of the Board of Directors of Imperial Sugar Company JAG:sd cc: W.F. Schwer, Esq. Agreed and Accepted: /s/ Robert J. McLaughlin Date: November 9, 2001 - ------------------------------------ ---------------------- Robert J. McLaughlin The Sutter Group 3 EX-21 10 dex21.txt SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF IMPERIAL SUGAR COMPANY Subsidiary Jurisdiction of Incorporation - ---------- ----------------------------- Holly Sugar Corporation New York Diamond Crystal Brands, Inc. Delaware Michigan Sugar Company Michigan Imperial Savannah LP Delaware Diamond Crystal Specialty Foods, Inc. Michigan Imperial Sugar Securitization, LLC Delaware Crown Express, Inc. Texas DSLT Holding Company Delaware Diamond Crystal Specialty Foods, Inc. Michigan Diamond Crystal Specialty Foods of Canada LTD Quebec Menu Magic Foods, Inc. Indiana Fort Bend Utilities Co. Inc. Texas Holly Finance Company Delaware HSC Export Virgin Islands Holly Northwest Company Nevada Holly Temps, Inc. Delaware Limstone Products Company, Inc. Delaware The Bighorn Limstone Company Montana ICUBE, Inc. Delaware Imperial Distributing, Inc. Delaware Imperial Holly Corporation Texas Imperial Sweetener Distributors, Inc. Texas Ragus Holdings, Inc. Delaware Savannah Foods & Industries Inc. Delaware Biomass Corporation Delaware Diamond Crystal Brands, Inc. Delaware Dixie Crystal Foodservice, Inc. Delaware Food Carrier, Inc. Georgia Great Lakes Sugar Company Ohio Michigan Sugar Company (Canada Limited) Ontario Phoenix Packaging Corporation Delaware Refined Sugar Trading Institute Delaware Savannah Foods Industrial Inc. Delaware Savannah International Company Delaware Savannah Packaging Company Delaware Savannah Total Invert Delaware Savannah Investment Company Delaware Savannah Molasses & Specialties Company Delaware Imperial Savannah LP Delaware Savannah Sugar Refining Corporation Georgia Wholesome Sweeteners LLC Florida Wholesome Sweeteners Group LTD Florida -----END PRIVACY-ENHANCED MESSAGE-----